Amazon Affiliate Marketing Program

How to Adapt to Amazon’s Latest Push for 1-Day Delivery, Part 3

How to Adapt to Amazon’s Latest Push for 1-Day Delivery, Part 3
Written by publishing team

Recent changes to Amazon.com’s Prime Fulfilled Prime Program (SFP) have sent sellers and the entire e-commerce industry into a scramble. Merchants must quickly adapt to the new standard for nationwide one-day delivery or risk losing sales on Amazon. Offers from third-party sellers that include free Prime shipping only regionally can no longer be offered; It must now be offered nationwide or not at all. To maintain their SFP eligibility, sellers must stick to a strict delivery promise of one or two calendar days on such orders – even on weekends.

For more details on my post on how the new SFP requirements will affect the e-commerce industry as a whole, see Part Two in this series.

Placing inventory in multiple warehouses near your customers is the most cost-effective way to offer one or two-day nationwide delivery. By geographically dispersing your inventory, you can use economic ground shipping to reach most of your customers in one calendar day. You’ll need about four locations to meet the February requirements and several others to meet the June 1 requirements.

Source: Cahoot Order-Peer-to-Peer Fulfillment Network

When it comes to executing e-commerce orders, one size does not fit all. In this article, I’ll explore the pros and cons of four nationwide fulfillment options.

Outsourcing all FBA services

One option is to stop SFP from working. You can alternatively outsource all of your fulfillment to Fulfilled By Amazon (FBA). FBA works best with standard, fast-moving SKUs. For long-tail SKUs, FBA may be possible if your margins support high storage fees and if your inventory turnover meets Amazon’s IPI limits.

Source: Cahoot Order-Peer-to-Peer Fulfillment Network

Before switching from Amazon SFP to FBA, you should carefully study Amazon FBA limitations, hidden fees, inventory preparation requirements, and ever-changing FBA requirements. FBA fees can be difficult to understand and difficult to reconcile, especially in the absence of in-person support. Many sellers have also found inventory tracking to be a problem.

FBA applies additional fees during peak season (October – December) and charges higher fees to fulfill non-Amazon and high volume orders. Many marketplaces such as Walmart and eBay have banned their orders coming in Amazon Prime-branded packaging. You may also experience higher returns through FBA because the customer can initiate returns without consulting with you. Amazon Customer Service is not equipped to assist your customers with product questions.

FBA also has strict storage limits. New ASINs are limited to 200 units per incoming. FBA also requires ASINs to move quickly enough to maintain a high Inventory Performance Index (IPI). Products with lower IPI may not be eligible to be supplied, and may start incurring additional fees.

FBA can be an excellent option for sellers who don’t want to deal with the hassles of self-fulfillment and don’t sell on other channels. Additionally, Amazon provides 24/7 customer service as well as taking responsibility for fulfillment performance and metrics. Besides offering nearly unlimited scalability to sellers, FBA fees are especially attractive if your items are small and light.

Build or rent your own warehouse

One way to expand your implementation capabilities is to build or rent more of your warehouse. With this option, you will have complete control over the operations. There are no additional charges in high season or stock restrictions. Construction or leasing of additional warehouses should only be considered by large and well-established merchants with fairly predictable sales. Also, it’s an effective approach for merchants with long tail SKUs, customized products, heavy batch/assembly needs, or products with special storage or handling requirements.

Expand Prime coverage by building or renting your own warehouses

Source: Cahoot Order-Peer-to-Peer Fulfillment Network

Due to the rapid growth of e-commerce driven by COVID-19, vacant warehouses are now rare. Industrial rents are at an all-time high, so renting new warehouse space will be costly. You must calculate the time required to search and find warehouses, negotiate terms, and hire and manage personnel to run the fulfillment process, along with the cash flow and capital implications of leasing or buying.

While the cost of a new warehouse is fixed in rent, utilities and wages, it will be difficult to make full use of the capacity in the early days. Until you reach high efficiency, the cost per unit will be much higher.

When considering this option, be sure to thoroughly evaluate the software and other technical solutions you may need to run a multi-program operation successfully. Find fulfillment and shipping software that supports automatic order routing and strong integration with Amazon Buy Shipping.

Interpolation for multiple external sources 3PLs

The third strategy is to outsource to third party logistics companies (3PLs). There are about 20,000 3PL companies in the United States to choose from. The vast majority of 3PLs in the United States are mother-and-pop operations. These companies usually have one to three locations.

To extend Prime coverage, outsource the implementation of 3PLs.

Source: Cahoot Order-Peer-to-Peer Fulfillment Network

To meet Amazon SFP delivery speed metrics, you will need to negotiate individually with the 3PLs. Pricing and fee structures vary widely. Many of them may require a minimum volume commitment. Expect completion fees to be different in Ohio versus Southern California and the New York metro area. Consider using the 3PL Request for Proposal (RFP) form to get a comparison of apples to apples.

You will also need the technology to manage inventory and intelligently route your orders to the correct fulfillment location based on shipping cost, transit time, stock availability, downtime, etc. There are limited affordable software options on the market for small and medium businesses. Some 3PLs may wish to integrate with their systems, which requires additional technical expertise and investment. Most 3PLs also require the use of shipping carriers and rates, which can erode your purchasing power and volume discounts.

Each 3PL has its own standards, processes, limitations, and service level obligations. Amazon SFP has little room for delayed shipping and delivery. Therefore, it is critical that your 3PLs have downtime that increases the chances of same-day completion and supports weekend fulfillment. See Part 1 of this series for details on how Amazon’s new SFP requirements affect fulfillment processes. When working with any external fulfillment provider, you should be required to see all your requests in real time. Meeting Amazon’s 99.5 percent on-time shipping scale is critical. Any mishap here could risk your SFP eligibility.

Another thing to check when working with 3PLs is how they can live with your existing repositories if you have them. If you can ship an order from your warehouse faster and cheaper than your 3PL, you must be the one fulfilling that order. Don’t get stuck in strict rules due to poor technology like assigning a fixed 3PL based on the sales channel, this will cost you more.

Outsourcing 3PLs that offer SFP compliant fulfillment can be the right choice if you need additional specialized services. Some 3PLs offer returns processing, wholesale/B-to-B order fulfillment, custom packaging design and marketing entries, inventory and return preparation for FBA as well as B-to-C e-commerce fulfillment, and even customer service.

Join the peer-to-peer loyalty network

A new option that is becoming increasingly popular due to its affordability and flexibility is joining the peer-to-peer (P2P) e-commerce order fulfillment network. In a P2P network, e-commerce merchants store inventory and fulfill orders for each other. Think of this option as Airbnb for fulfilling e-commerce orders. In this model, highly vetted and experienced merchants act as third parties and execute orders on behalf of the network. Since these merchants are already executing the orders themselves, most of them are well versed in SFP software and its high performance standards. The network operator coordinates all activities through a single agreement, modern software, predictable pricing structure and service level agreement.

To maintain Amazon SFP delivery speed metrics, join the peer-to-peer fulfillment network

Source: Cahoot Order-Peer-to-Peer Fulfillment Network

The network operator provides the software to fetch orders from all popular sales channels in real time, market prices, and direct them to the optimal execution location, all without any manual effort. The software also tracks inventory across all locations and provides a complete view of fulfillment performance and package delivery status. It also handles label creation, direct from carriers, and Amazon Buy shipping. Due to this high degree of automation, setup is usually quick and easy. The program’s smart order routing and automatic price shopping features maximize savings. Merchants can also use their carrier accounts and rates to maintain their existing relationships with carriers and discounts, which is especially appealing to larger merchants. Merchants are also not required to own a warehouse or provide network fulfillment services.

This option, however, is not suitable for every business. A P2P network is not designed for long-term storage. It works best for fast-moving SKUs and merchants looking to increase their geographic footprint by placing their inventory at more network-managed fulfillment locations. You have to barcode products and ship them in bulk to network warehouses. P2P is excellent for standard and high-volume products that don’t require dedicated processing or special storage. Unlike FBA, there are fewer restrictions on inventory. Fulfillment costs do not vary based on sales channels, and there are no additional fees in high season.

conclusion

Whether Amazon is leading the way through new SFP requirements or changing consumer preferences and expectations, it’s clear that one-day nationwide delivery will be the new standard in the not-too-distant future. Some would argue that we already exist and now it’s time to act and win market share. In the words of Warren Buffett, “Be greedy when others are afraid. Be afraid when others are greedy.”

Manish Chaudhary is the founder and CEO of Cahoot, a peer-to-peer order fulfillment network where merchants collaborate to increase their sales and profit margins by offering profitable free one- and two-day shipping to customers across the country without spending a penny more than economic ground shipping.

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