How Does Fulfillment By Amazon Compare With a 3PL?

Fulfillment by Amazon (FBA), the company’s foray into logistics, stirred up mixed feelings among 3PL providers in the US.

Some worried it would eat into their business, others were indifferent, the rest saw the competition as an impetus to increase efficiency.

Amazon’s investment (primarily in the US) in distribution centres and supply chain management gives FBA the capacity to cause concern among 3PLs.

But what does this all mean to suppliers?

The Fulfillment by Amazon Basics

FBA allows any business registered as a seller on Amazon to hold inventory in its distribution centers until customers place an order. Amazon then picks, packs and delivers the item to the customer when an order comes in. FBA to that extent functions as a 3PL, but with an added customer service layer for handling customer queries.

Its Multi-Channel Fulfillment option makes it theoretically possible to use FBA without ever actually selling via Amazon marketplaces. Sellers can take orders through Amazon, their own eCommerce websites, or through eCommerce platforms.

FBA vs. 3PL

FBA offers efficiencies similar to that of 3PLs (warehousing/shipping, picking, packing) but there are differences a supplier should note to determine if FBA is right for them. These include:

• Product category restrictions that exclude particular sectors, such as beer brewing. There will be more choices among 3PLs, especially those that specialise in particular sectors.
• Specific packaging and labeling requirements that may not suit an oversized or unusually shaped product.
• Extra charges for handling orders in Multi-channel Fulfillment, holding inventory more than six months, printing barcode labels, removing dead inventory and processing returns. FBA also charges a percentage on sales made through its marketplaces.
• Storage price changes will decrease the gross profit on slow-moving products.

You might not be able to use FBA when you want. For example, Amazon announced that it would not be taking new-to-FBA users in the lead-up to Christmas, thus preserving capacity for existing users with products ready to ship for the shopping season.

Companies that have used FBA have reported a significant decrease in cost of good sold. But its value to suppliers, compared to 3PLs, depends on their business model. It might be perfect for you if you have products that sell quickly and you are making Amazon part of an omnichannel sales approach. But, if you need more flexibility and control, you may be better off with a 3PL.