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Fulfillment plays a crucial role in the success of Amazon sellers. It is no secret that fulfillment is fraught with challenges like inventory management, shipping complexities, and customer service issues, because of which many brands tend to outsource their fulfillment to navigate these obstacles. And the two popular outsourcing choices among Amazon sellers are FBA (Fulfilment by Amazon) and 3PL (third-party logistics).
The decision to outsource fulfillment is pivotal because fulfillment directly impacts the consumer experience, offering benefits such as faster deliveries, seamless returns, free shipping, and real-time order tracking, which are key drivers of customer satisfaction and loyalty in the fiercely competitive world of e-commerce.
Are you confused about what to choose between 3PL and Amazon FBA to grow your business to the next level? Who wins in the FBA vs 3PL showdown? Don’t fret – we are breaking down everything you need to make an informed decision in this blog.
What is Fulfillment by Amazon?
FBA, or Fulfillment by Amazon, is a paid third-party seller service the marketplace offers. In FBA, Amazon handles storing, order picking, warehouse packing, shipping, delivering, returns management, and customer service. Sellers can leverage Amazon’s sprawling logistics network and boost their growth without worrying about fulfillment obstacles.
What is Third-party Logistics (3PL)?
A third-party logistics service or 3PL service, is an outsourced service provider that handles multiple aspects of a company’s supply chain, including inventory management and storage, order fulfillment services, shipping and return logistics, etc. Additionally, 3PLs can take care of Amazon’s Fulfilled by Merchant products for sellers.
3PL vs. FBA – Where 3PL trumps FBA
There are multiple situations where using a 3PL service is more advantageous than picking Amazon FBA. Here are some of them:
Storage and fulfillment services for all kinds of products
Amazon does not allow the storage or fulfillment of hazardous materials, such as batteries, chemicals, and flammable liquids. However, many 3PLs specialize in handling these product classes. Also, Amazon has size and weight restrictions for the products that it can fulfill. Whereas 3PLs can handle oversized, heavier items like furniture, appliances, and machinery.
Economical option
3PL can be more cost-effective than Fulfillment by Amazon (FBA) for some sellers due to reduced storage fees, lower shipping costs, and more flexibility in choosing services. FBA often entails multiple fees, and there’s a surge in the fees during peak seasons.
Also, whenever the products sent to the Amazon fulfillment centers do not meet the FBA packaging requirements, the company levies fines in the form of fees. Furthermore, sellers must pay a referral fee for every product sold through FBA, which can ultimately hurt their bottom line.
Value-added services
Many 3PLs offer numerous value-added services, such as bundling, kitting, repackaging, packing inserts, specialty packaging, in-person inventory counts, etc which is a key 3PL advantage. Amazon FBA does not provide such value-added services.
Offers 4PL benefits
Many large 3PLs partner with other 3PLs or join a large 4PL fulfillment network and help improve a brand’s serviceable area and inventory distribution, another significant advantage that brands can use. At the same time, the FBA fulfillment network is only limited to Amazon-owned fulfillment centers.
Personalized experience
3PLs provide a more personalized experience to the sellers. For key accounts, 3PLs usually assign a dedicated account manager to address your specified issues and concerns. Additionally, some 3PLs also offer many bespoke services like supplier management, inventory cycle counting, specialized packaging, and other services to sellers.
Whereas Amazon has everything standardized, there’s no personalized experience for sellers opting for the FBA services. Also, there are many instances of subpar support from Amazon whenever businesses reach out for help in FBA services. For example, multiple Amazon sellers have complained about their accounts getting deactivated without prior notice or right reasons. Also, sellers have, time and again, complained about unclear surcharges being added to their accounts,
Multichannel selling
Most 3PL services enable sellers to sell on multiple marketplaces simultaneously. Amazon also has a multichannel service, which is still limited to a few channels and geographies. If you are at that point in your business where you are looking to expand to more channels and geographies, choosing a 3PL with a diverse geographical footprint is a good option. Also, in addition to online marketplaces, 3PLs help you sell efficiently in physical retail, DTC, e-commerce stores, etc.
Greater control over inventory
While using the services of a 3PL, you can store as much or as little inventory as you need, and you will be charged accordingly. However, if you are using FBA, Amazon will penalize you for storing excessive inventory in their warehouses and charge long-term storage fees (aged inventory surcharge) if the inventory lies in their fulfillment center for 181 days or longer.
Amazon FBA vs 3PL providers – Where FBA trumps 3PL
Here are some of the reasons why using FBA is more advantageous than picking a 3PL:
Prime badge
If you are using the Amazon FBA services, by default, every product you sell through it is eligible for Prime. Amazon Prime offers free expedited shipping, and according to a study, 79.8% of Amazon customers shop on the platform for the free and fast shipping Amazon offers. On the other hand, only a handful of Seller Fulfilled Prime sellers on the Amazon platform fulfill products as fast and efficiently as FBA.
Better fulfillment network
Amazon operates over 1,137 distribution centers in the U.S. This number is a testament to Amazon’s vast fulfillment network that only very few 3PLs can recreate. Furthermore, Amazon’s fulfillment network helps in faster deliveries and improved product distribution.
All-encompassing service
Amazon FBA offers an all-encompassing service that takes care of every step of the order fulfillment process – from storage to returns management to customer service. By outsourcing the fulfillment process to FBA, businesses can focus on other important aspects like the organization's growth and spend more time enhancing their products.
Consumer preference
Let’s accept that Amazon has a reputation, and customers tend to lean more towards FBA for its brand value, faster delivery, and reliability of the fulfillment process. That is why Amazon FBA has an edge over any other 3PL service provider when it comes to consumer preference.
Amazon Seller Central capabilities
Amazon sellers get access to Amazon Seller Central, a powerful platform for sellers to view and manage every aspect of their marketplace selling. For FBA sellers, ASC offers real-time visibility into the inventory, orders management, returns, inbound shipments, pricing management, etc.
Whereas most small and mid-sized 3PL services still rely on spreadsheets and manual processes, limiting the visibility and collaboration for sellers. Furthermore, only a few 3PLs have order fulfillment software that matches the prowess of the ASC.
Factors to consider when deciding between 3PL and FBA
Here’s a list of factors that brands must consider when deciding between a 3PL and Fulfillment by Amazon to outsource their fulfillment:
Product characteristics
Ensure you have a clear understanding of your product characteristics and the kind of accommodation it needs. For example, you could be a seller dealing with products that require specialized handling or packaging, such as hazardous materials or temperature-sensitive products, and you might need a fulfillment service that better caters to your product class.
Another important aspect to consider before zeroing in on your fulfillment service is the size and weight of your product. Remember, FBA has restrictions on the size and weight of products that can be shipped.
Order volumes and inventory velocity
When evaluating the options based on order volumes and inventory velocity, consider the nature of your business's order dynamics. For example, the fulfillment service options for high and consistent order volumes with fast inventory turnover and low order volumes or slow inventory velocity differ. Therefore, It's essential first to understand the nature of your order volume and then outsource according to it.
Seasonality in selling activity
Seasonality in selling activity can significantly impact the fulfillment choice of sellers. Some business has fluctuating demand throughout the year, where you need a fulfillment service provider that offers more flexibility in adjusting storage and shipping solutions, which helps reduce costs during off-peak periods.
Fulfillment cost and effect on revenue
Define what cost ratio your business is comfortable with. Get quotes from multiple 3PLs and match those to FBA to arrive at the right fulfillment setup for your business. Remember that FBA's costs can vary depending on your product type, order volume, and storage time.
Company stage
The stage at which your company is also an important factor to consider when you decide to outsource fulfillment. The fulfillment options that work for early-stage businesses might not cut it for large businesses. Choose fulfillment services that are easy to set up and manage and, at the same time, ensure they are flexible and customizable as your business grows.
Level of competition
If you are selling in a competitive market, you might need a fulfillment service that offers faster shipping and more convenient return policies to stay ahead of the competition.
Choosing a hybrid approach
Taking the hybrid route, combining Fulfillment by Amazon (FBA) and third-party logistics (3PL) services for fulfillment, is another strategic approach that sellers can follow. This involves distributing your products or inventory between these two fulfillment solutions to achieve maximum cost efficiency and fulfillment performance. This approach effectively addresses several critical aspects of e-commerce operations. Here are some of them:
Cost efficiency
By employing a hybrid model, businesses can carefully allocate their products between FBA and 3PL based on demand, seasonality, and storage fees. FBA is an excellent choice for fast-moving products that benefit from Amazon's extensive customer base. Similarly, 3PL services can be utilized for products with lower turnover or specific storage requirements, potentially reducing overall storage and fulfillment costs.
Fulfillment performance
FBA is a good option for products requiring quick delivery since it comes with a Prime badge offering expedited shipping. However, not all products may benefit from FBA's advantages, and some may require specialized handling, which 3PL providers can offer. Businesses can optimize fulfillment performance for various product categories by strategically splitting inventory.
Storage restrictions
FBA imposes storage limits and charges additional fees for products that exceed these limits. This is a major concern for businesses with fluctuating inventory levels or those with a mix of fast and slow-moving products. Employing a hybrid model allows companies to mitigate these restrictions and avoid costly long-term storage fees by storing excess inventory with 3PL providers when necessary.
Inventory distribution
Products can be strategically placed with FBA for optimal distribution within Amazon's network. At the same time, 3PL facilities can serve as a buffer or primary fulfillment center for other sales channels like your own website or other ecommerce platforms. This improves shipping times, reduces shipping costs, and enhances customer satisfaction.
Conclusion
The choice between Amazon FBA and 3PL is not a one-size-fits-all solution. Both Amazon FBA and 3PL have their strengths and weaknesses. FBA offers the advantage of Amazon Prime eligibility, unparalleled fulfillment network, and consumer trust. On the other hand, 3PL services provide greater flexibility, personalized support, and the ability to handle a broader range of products and services.
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