What is FBA?
FBA means Fulfillment by Amazon. This is a very strategic program that allows tens of thousands of merchants worldwide to utilize one of the most developed fulfillment networks in the world. Businesses can benefit from FBA by storing all of their products and inventory into Amazon’s numerous fulfillment centers. Once an item is bought, Amazon will pick, pack, ship, provide customer service, and handle returns for the purchased product. These favorable perks have drawn over 2 million sellers worldwide breaking a record of 2 billion items sold on Amazon in 2014. These numbers have been increasing ever since.
What is SFP and why was it created?
Amazon has hinted to the public that they currently have about 80 million Prime members, about 1 in every 3 adults in the United States. As the numbers show, Amazon Prime has become a thriving platform for marketing, selling, and distributing goods. As a result, the demand for products has greatly risen and it has become increasingly difficult for Amazon to fulfill all the orders by themselves.
Thus, Seller Fulfilled Prime (SFP) was created in 2015. Amazon decided to extend their Prime privileges to qualified merchants with Professional Selling accounts to display the Amazon Prime badge. In other words, SFP authorizes merchants to fulfill their own orders (pick, pack, ship, provide customer service, and handle returns) through the Amazon network, as long as they are able to keep up with Amazon’s strict shipping standards and high performance levels.
What are the Requirements for Seller Fulfilled Prime?
Amazon’s Criteria for Seller Fulfilled Prime:
- Account Type: Sellers must have a Professional Selling Account, and this account must be active and in good standing.
- Prime Shipping: Sellers must be enrolled in Premium Shipping (Same-Day Delivery, Two-Day Shipping, or both).
- Carrier Pickup Time: At least one of the approved Buy Shipping Service carriers (UPS, USPS, and FedEx) must pick up at the merchant’s location at or after 4:00 p.m. local time.
- Performance Metrics (for the training 30 days):
- Sellers must have fulfilled at least 30 Premium Shipping Orders over the last 30 days.
- A Valid Tracking ID provided for at least 94% of Premium Shipping Orders.
- An On-Time Delivery Rate of at least 96% for Premium Shipping Orders.
- A Cancellation/Return Rate of less than 1% on Premium Shipping Orders.
Amazon will rescind a merchant enrolled in the SFP Program if the merchant is unable to meet these requirements at any time. They must then be re-approved by Amazon to be re-listed to display the Prime badge on their products. This process may take anywhere from weeks to months to complete which could be detrimental to the possible profits and survival of the company.
Who is FBA or SFP for? Is SFP for Everyone?
Typically, products that thrive using FBA convey these common traits:
- Fast-moving products
- Products with predictable demand
- Products with high demand during peak periods like the final quarter of the year
- Products eligible to be sold across Europe (items without country-specific plugs)
Typically, products that thrive using SFP convey these common traits:
- Slower-moving products
- Products with unpredictable demand
- Fragile, seasonal or high value products
- Fast-fashion and personalized products
- Heavy and/or bulky products
Establishing and maintaining your SFP certification is not easy. Only the best sellers can qualify, and each one must pass a tough trial period fulfilling Prime orders —before they can display the Prime logo.
Furthermore, a significant problem is that most sellers only operate from one location. They are unable to ship to the majority of the population in the United States with respect to Amazon Premium Shipping requirements (Same-Day Delivery, Two-Day Shipping, or both). In many cases, merchants are forced to ride with FBA even though their products are well suited for SFP. It is simply easier for many companies to pay big FBA fees than to expand and create fulfillment warehouses across the United States to meet the requirements for SFP.
Comparing FBA vs. SFP
Fulfillment by Amazon versus Seller Fulfilled Prime Chart
When considering which option to choose for your product(s) is optimal, it is very important to consider and evaluate the different advantages and disadvantages from FBA and SFP. This chart indicates that Seller Fulfilled Prime seems to be a better option for the majority of merchants. However, the disadvantages of SFP indicate high barriers for entry.
Hence, third party logistics companies have learned to use SFP’s disadvantages to their advantage –which would also be beneficial for the seller.
What is Third Party Logistics (3PL)?
As businesses have improved over the years and with the creation of Amazon Prime, people have realized that the fulfillment of orders is probably one of the most crucial part of the business process. Consumers are usually most concerned about the quality in service of the delivery and execution of the product that they are purchasing. This is exactly what a Third Party Logistics (3PL) company does!
Relying on a 3PL enables a seller to not tire their resources on strict regulations, but allows them to utilize their full resources into maximizing their own profits, reducing their wait times, and improving their customer service.
A data chart created by Morgan Stanley Research, a leading expert in the field of investment research, indicates that not only are there about 80 million subscribers using Amazon Prime, Amazon Prime users “spend 4.6X more money on Amazon annually than non-Prime members, on average.” Also, Amazon predicts that merchants joining SFP will see a 30-40 percent boost in their sales.
Why Shouldn’t I Use My Own Seller Fulfilled Prime?
Joining SFP indicates that you will see a huge increase in your sales. Therefore, you will tire your resources in your fulfillment department if you do not rely on a 3PL. Is not the goal of your company to grow and expand? Will you have the resources that parallel the expansion of the fulfillment department? Do not let fulfillment become a limiting factor stopping your business from thriving.
Especially working in a 3PL company, we have seen many cases where companies were delisted from SFP by Amazon because they were not able to keep up with the strict guidelines. Most of our clients come from these unfortunate situations where they wanted to do their own SFP in hopes of saving on costs. As their business improved and sales started to increase, they were unable to keep up with the increasing demand while at the same time being able to keep up with the increasing need for storage space, instant refunds, and performance metric requirements.
These disadvantages is exactly what a 3PL can provide.
Benefits of using SFP through a 3PL
A key factor that is crucial in understanding how 3PL companies in SFP can be beneficial over FBA to sellers is that 3PL companies can choose their own Fulfillment, Shipping, Handling, and Storage Rates. Now why is this important?
This is greatly beneficial to most sellers because this could open much cheaper and more efficient alternatives for the seller’s needs. Furthermore, a third party logistics company can have much bigger and needed resources devoted specifically in fulfillment services that can allow the seller to save on costs and time as well.
- Avoid Split Inventory/Inventory Issues:
Previously, sellers had to select which items would be shipped to Amazon’s Centers while the remaining products were distributed through the seller’s website or other marketplaces. When dealing with FBA, sellers may have to ship their inventory to fulfillment centers all across the United States, which could also lead to high FBA fees. 3PL’s usually have much less warehouses that still have the ability to compete with Prime shipping for the majority of the United States meaning that the seller will save on shipping costs.
- Easier Return Handling:
Amazon Seller Fulfillment Prime Sellers can directly handle returns on Prime purchases mitigating risk with issues of consumer fraud within the FBA.
- Benefits Merchants with Large/Heavy/Bulky Products:
Merchants are saving on the cost of shipping to these Amazon Fulfillment Centers. 3PL’s also have the warehouses, equipments, and tools needed to handle the large/heavy/bulky products that would normally be difficult for an individual with limited resources in SFP.
- Custom Branding/Marketing:
3PL’s can help with improving the marketing and branding of the seller’s product by allowing custom boxes, packing slips, tape, etc.
Case Study: Fulex, LLC.
In this case study, Fulex, LLC., an established, third party logistics company, illustrates a real world scenario to portray some of their beneficial qualities.
3PL Company: Fulex, LLC.
Product Type: Baby Product
Size: 25” x 9” x 15”
Weight: 21 lbs. (9.53 kgs.)
Resource: 3PL using own shipping account (FedEx)
Shipping: Detroit → Pennsylvania
As shown in the table, this client saves $7.78 dollars per unit by using Fulex, LLC. Now this client sells around 2,200 units a month. This means that Fulex provides this company with about $17,116 dollars a month in savings! This is simply one of the many ways that a 3PL can offer cost savings compared to using FBA or personal SFP.
Case Study: FBA Issues Concerning Inventory
In another real world scenario, an FBA seller was looking for the most cost efficient way for shipping their items to an Amazon Fulfillment Center.
As of April 2015, Amazon has reported to have about 96 warehouses in the US alone, but the number is speculated to be even bigger now. Amazon.com gets more than 65 million visits each month making it the biggest, largest online retailer. In 2016, the number of FBA sellers worldwide grew more than 70 percent, and they delivered a breaking record of 2 billion items. In recent years, it has been getting more difficult and expensive for Amazon to shelve all of their retailer’s products and/or create more and more fulfillment centers.
Product Type: Sofa Covers
Size: 22” x 15” x 5
Weight: 13 lbs. (5.9 kgs.)
Quantity: 150 units
Surely, they thought that Amazon would tell them to ship their items to the closest distribution center (5 miles away), but she was wrong. These occurrences in many cases may force FBA fees to increase to almost 50 percent of the manufacturing cost for some products which could destroy the marginal profit for different companies.
In other words, Amazon is trying to minimize their costs by having you ship to various fulfillment centers for them. Many sellers have made complaints against FBA saying that the split shipments to different warehouses have killed their margins.
This poor level of cost and efficiency for any seller should not be acceptable and any bad situation could become detrimental for the company.
How does a 3PL solve this?
In many cases in FBA, there are many instances where a seller does not sell as much as they had hoped to sell and are left with a lot of leftover inventory. After the period of a year, Amazon requires a seller to pay a “Long Term Storage Fee” if the item has not been sold. The only way to avoid this big fee is to remove all of your inventory, and then ship it back into the fulfillment centers; all at your own cost of course.
On the other hand, 3PL companies specializing in SFP, like Fulex, LLC., has two warehouses in the US that offers Amazon Premium Shipping to 97% of the population in the U.S. and this number will increase to 99% with Tennessee next year. What Fulex does different than FBA is that there is no long term storage fees. Instead, there is a monthly minimum where the seller has to sell a certain amount each month. Although this may seem like a hard requirement to keep, it actually helps you stay away from long term storage fees and ensures space for inventory to always be available in the facilities.
3PL’s have partnered with Amazon to provide sellers with better alternatives to streamline orders with their backend operations. As an approved Seller Fulfilled Prime integrator, Fulex offers SFP sellers a fulfilling approach to achieving long-term ecommerce success.
It has been statistically proven that sellers joining SFP will exponentially increase their sales. But to manage SFP orders successfully and most importantly maintain the health of your business in the long run, a strong and unified system that handles every step of ecommerce for you is well worth your time and investment.