One of the most critical considerations an Amazon seller must make is which logistics channel to use to distribute their goods.
The choice sellers must make is between FBA (Fulfilment by Amazon) and FBM (Fulfilment by Merchant). FBA sellers send their products to Amazon warehouses across the world, where Amazon controls the orders, ships them, and handles returns and other customer support services.
On the other hand, FBM, sellers manage their own inventory, orders and carry out the shipping process on their own. However, they usually outsource the logistics to a third party.
Both the fulfilment channels have their pros and cons:
The key benefits of FBA
· Exclusive Amazon Prime shipping which has a higher conversion rate
· More time to focus on core competencies rather than shipping
· Buy Box preference is given to FBA users which boosts sales
· Sellers save on relative warehouse costs and have an enormous amount of storage
· Access to larger markets as a result of unrestricted location (although compliances and tax barriers to still apply)
The key limitations of FBA
· Sellers have less control over inventory as orders and distribution are managed by Amazon
· Some 3P logistics partners have lower cost structure vs FBA when shipping higher volumes
· Sellers need to follow strict guidelines laid out by Amazon for preparation of products and your inventory can be at risk of becoming stranded or returned by Amazon
The key benefits of FBM
· Amazon cannot reject inventory nor will it become stranded in seller central
· Option of seller fulfilled prime
· Feasible method for big, heavy, less-selling products
The key limitations of FBM
· Additional responsibility of distribution by adopting FBM
· Additional overhead and logistic costs and costs of hiring third party distributors
· Competitive disadvantage from FBA in terms of Buy Box and prime eligibility
The decision between FBA and FBM is based on a number of variables, the most essential of which is "What a seller genuinely wants." This means that sellers must decide how much control they want over inventory, how much sales volume they want to produce, how much time they are willing to dedicate to distribution, and how much money they are ready to spend on distribution fees. There are, nevertheless, some considerations that sellers should make for each distribution channel.
Sellers could use FBA if:
· Your majority of sales come from Amazon
· You have less experience in logistics or want to focus on core competencies
· You don’t possess or don’t want to spend on warehouse costs
· Your products are light, easy to distribute and have a high profit margin
Sellers could use FBM if:
· You have a well-established distribution channel and warehouse space or are experienced enough to distribute your products on your own
· You like to have control over inventory and supply chain
· You sell heavy and complex products
· You want to increase margins on products that would have a higher FBA fee versus your own logistics partner
The decision of FBA vs FBM appears straightforward, but there are many things to consider including your current supply chain setup before making a decision.