Everyone who wants to sell on Amazon has an important decision to make. Either use Fulfillment by Merchant (FBM) and fulfill orders yourself, or join the Fulfillment by Amazon (FBA) program. This article will discuss how to use FBM Amazon or the FBA program for an efficient supply chain.
1. What is Amazon FBM Supply Chain?
Amazon has one of the most efficient supply chain operations in the world. Merchants and vendors have the option of fulfilling customer orders themselves through the FBM Amazon program. Alternatively, merchants can also utilize Amazon’s supply chain through the FBA program, where Amazon Associates warehouse, package, and ship orders to customers.
2. How Does the Amazon Supply Chain Work?
The Amazon supply chain uses several processes that streamline the operations process and increase efficiency. These warehousing and fulfillment processes help Amazon scale its business to complete millions of orders for customers worldwide.
According to Backlinko, nearly 200 million people worldwide are Amazon Prime members. One of the benefits of Amazon Prime is two-day delivery, which means Amazon and Prime merchants much fulfill orders quickly. Amazon merchants can learn from fulfillment processes to improve their business processes or join the FBA program to utilize Amazon’s existing infrastructure.
With that in mind, let’s break down the different aspects of the Fulfillment by Amazon distribution strategy so that you decide between FBA vs FBM.
A significant part of Amazon’s supply chain occurs at one of several warehouses. It’s at Amazon warehouses where FBA Amazon merchants store products before sale. Whenever a customer buys an item from an FBA seller or Amazon directly, Amazon prepares the orders for fulfillment at its warehouses.
The FBA Amazon warehousing process is pervasive and includes about 175 fulfillment centers worldwide, a group of employees (that Amazon refers to as Associates), and robots that sort and receive items for delivery.
In the United States and in the other countries that Amazon operates, the fulfillment centers are close. Amazon can send items to different warehouses or ship from a close location by placing warehouses near each other.
When a seller is a member of the seller-Prime program, they must use Amazon’s resources and other parcel companies like USPS and UPS to ship their products quickly.
When you’re managing hundreds of fulfillment centers to deliver to millions of customers, you must utilize technology that helps you complete everything. Each warehouse uses robots to aid throughout the delivery process to customers and throughout supply chain channels.
Automation is another technological advancement that helps streamline orders and ensure products customers don’t pay much for shipping get to their customers. It reduces costs while ensuring that Prime members know exactly how much product to send to fulfillment centers.
Amazon uses a variety of manufacturing methods to create its products. Amazon makes the AmazonBasics product line, which includes several low-cost consumer products. Consumers can purchase luggage, phone cases, mattresses, and an assortment of consumer products that feature the AmazonBasics name.
Additionally, Amazon uses the manufacturing capabilities of its vendors, who are usually top-rated sellers. Instead of selling items directly to customers through the marketplace, Amazon now buys products from manufacturers and distributors through the vendor program. It’s an example of another manufacturing method Amazon uses to keep prices low while delivering quality products to consumers.
Any efficient supply chain wouldn’t matter if a company’s product pricing strategy weren’t correct. Thus, Amazon considers its pricing strategy often for those in the FBA program that uses its supply chain.
Amazon sets shipping priorities that keep fulfillment centers adequately stocked to meet the demand of busy periods to ensure that all customers can receive their orders. These priorities guarantee that the right amount of stock is on-hand to meet fluctuations in demand without having too much inventory in stock.
The FBA program charges premiums for warehouse space by collecting monthly fees if sellers don’t sell enough items over a month. Every cubic foot that an Amazon FBA seller uses comes at a cost. Therefore, sellers much consider how much inventory they want to keep at fulfillment centers, which must be well-organized and uncluttered for Amazon Associates and robots to work efficiently.
3. FBA vs FBM
Now that you know how Amazon’s supply chain works let’s discuss the two methods of fulfilling orders as an Amazon merchant. There’s the FBA program and the FBM program available to sellers who must ship orders to customers. Amazon also provides fulfillment services for eCommerce sites that sell outside of Amazon.com, which is an added benefit for sellers who would not fulfill their orders.
But how exactly do the FBA and FBM programs work, and which one is right for your eCommerce business? Let’s discuss the differences, similarities, pros, and cons of both options.
How does Amazon FBA work?
In the previous section, you got an inside look at the fulfillment process of an FBA Amazon seller. Amazon considers the FBA program to be the gold standard of warehousing and fulfillment. The strategy is well-thought-out so that customers can receive their orders on time and so that Amazon can quickly handle any number of orders from hundreds of warehouses around the nation.
As an FBA seller, the process works like this:
- Amazon FBA sellers ship items to their local fulfillment center.
- A customer places the order for the seller’s product, which puts the fulfillment center on standby.
- Robots locate the correct item, match a barcode with the product and place it on a conveyor belt.
- The items travel through the distribution center, arriving at a sorting location, where the Associate matches the barcode with the correct order.
- An associate boxes the items, adding the appropriate labels and bar codes to identify the order.
- Associates tape and weigh the boxes for shipping, which arrive at the customer’s doorsteps only days (or sometimes hours) later.
Because Amazon handles the fulfillment and shipping process for the merchant, there are some monthly costs and ongoing fees. Sometimes there are also referral, or commission fees, that sellers must pay. All of these costs are in addition to the cost of Amazon PPC advertising.
How does FBM work?
What is FBM on Amazon? Although the outcome is the same for seller-fulfilled orders, the process is different. When sellers decide to sell products FBM, they have complete responsibility for maintaining inventory, packaging orders, shipping products, and customer service.
The most significant reasons for shipping FBM are typically cost and control. FBM sellers have more control over where they store inventory, when they ship, and how much they pay to fulfill orders. With these things in mind, let’s discuss the pros and cons of both fulfillment options for Amazon sellers.
4. Pros of Amazon Fulfillment FBA
Why go with Amazon fulfillment instead of merchant fulfilled Amazon sales? Here are several reasons why some business owners decide to go with specific Amazon seller shipping options over the others.
One of the best benefits of selling through the FBA Amazon is because your brand’s items are automatically enrolled in the Prime shipping program. Customers pay a subscription fee to receive free 2-day shipping at no additional cost. Because buyers like the benefit of free shipping that arrives quickly, Prime members usually look for these items before considering other alternatives.
Joining the Prime program provides sellers access to over 100 million Prime subscribers in the United States alone. Amazon sells all items through the FBA program receives a Prime badge, which customers identify arrives within 2-days with standard shipping.
Ability to Win the Buy Box
There are also some SEO perks to joining the FBA program. One of the most significant reasons Amazon sellers pay fulfillment fees to Amazon is that it can influence their ability to win the Buy Box.
Amazon sellers refer to the “Add to Cart” and “Buy Now” buttons on product listings as the Buy Box. Although you may think that clicking these buttons comes directly from the manufacturer, any seller can make a sale from the Buy Box at any time. It depends on which seller has enough inventory at the moment.
Other factors that influence the Buy Box include shipping rates, competitive pricing, and order delivery reliability, among other factors.
While FBM sellers may control the Buy Box at any moment, it’s typically FBA sellers that win this feature most often. Thus, if you want to make more sales of various merchants’ products, you’ll have the most excellent chance of generating sales by joining the FBA program.
Time to Spend on Your Business
Another primary consideration for Amazon sellers is focusing on their business rather than warehousing, packaging, and shipping items.
By joining the FBA program, Amazon handles the inventory management processes, negotiates with carriers, purchases shipping materials, and fulfilling orders. Plus, they deal directly with customers who might have questions or concerns with their demands.
These are often considerations that Amazon sellers don’t want to think about. The Amazon FBA program helps sellers spend more time on their business expenses and less time fulfilling orders and receiving customer support requests.
Better Amazon SEO Results
The A9 algorithm is Amazon’s proprietary search result technology, which helps customers locate product recommendations that suit their needs. Although there’s not much official word on how the A9 algorithm works, most sellers can agree that joining the FBA program gives you a boost in search results pages.
As a seller, impressions, clicks, and conversions are vital. Fulfillment by Merchant sellers cannot receive the same SEO benefits that Amazon FBA sellers do, which makes this a valuable program to join.
Amazon Handles Customer Service
Your business can spend a lot of time training and completing customer service inquiries from buyers, or you can hand those tasks over to Amazon. Additionally, Amazon will handle the return process, which can be a costly service for FBM sellers.
If you like having control of your customer service department, then you may decide whether it’s worth it for you to join the FBM program. However, it’ll likely reduce costs for your business by not managing customer support in-house and save time where your employees can focus on essential business tasks.
Receive Multi-Channel Fulfillment (MCF) from Amazon
Another benefit of using the FBA program rather than being an FBM Amazon seller is that Amazon will fulfill orders from other sales channels. Thus, you don’t need to be solely a marketplace seller to benefit from Amazon’s excellent fulfillment supply chain.
Amazon sellers and eCommerce sellers who operate their website or sell on other marketplaces can rely on Amazon’s fulfillment network to manage inventory, package, and ship items to customers. However, having Amazon package and ship products to non-Amazon customers does cost more than your standard FBA fees.
5. Cons of Amazon FBA
With all these benefits, it’s easy to understand why some sellers choose to use Amazon FBA fulfillment services. However, that does not mean there aren’t any cons to joining the program. Here are some cons of the Amazon FBA program, which may make you consider being a merchant fulfilled Amazon seller.
Significant Costs of the FBA Program
Amazon uses pricing tiers that have different impacts on sellers, depending on the categories they sell within. If your business sells lightweight items that move quickly, you’ll pay much less in fees than heavy objects that sell seasonally, for example.
Additionally, storage costs increase over the busy retail seasons, which often arrive between October and December. Therefore, sellers should consider whether the expenses Amazon charges make up for the benefits they’ll receive in the FBA program.
Fewer Controls of Inventory and Warehouse Space
Those who fulfill their orders can inspect their inventory as frequently as they’d like. The same isn’t the case for Amazon FBA sellers since Amazon doesn’t let sellers visit their fulfillment centers. Instead, you’ll have to trust that Amazon Associates will handle your products well and ship products without damaging them in the process.
If you want greater control over how you store products and ship orders, Amazon FBA might not be the best for you. The FBA program requires sellers to be hands-off, which some sellers prefer not to do.
Additional Packaging and Labeling Requirements
Sellers must also add labels to products and package them to a certain standard as an FBA seller. Some of these requirements add a few extra dollars worth of expenses to each order.
Additionally, breaking the rules and failing to comply with these requirements can incur fees from Amazon, which can reject inbound shipments to fulfillment centers. When they refuse shipments, sellers must retrieve their inventory and prepare each product to Amazon’s specifications, adding more time and cost to the sales process.
Some sellers even use FBA inspection and preparation service companies to ensure that packaging and labeling meet Amazon’s requirements. On top of Amazon’s existing FBA shipping, prep, and warehousing fees, using an intermediary to check your inventory can add another expense that sellers don’t want to pay or cannot afford.
6. Pros of Amazon Fulfillment by Merchant
Now that you understand the biggest pros and cons of the FBA program let’s discuss Amazon Fulfillment by Merchant. Any seller that decides not to have Amazon ship their products automatically join the FBM program.
As an FBA seller, you’re responsible for meeting Amazon’s quality and service standards by fulfilling orders, handling returns, and providing customer service. Here are some pros of being a merchant fulfilled Amazon seller.
Sellers can Join the Seller Fulfilled Prime (SFP) Program
Merchant fulfilled Amazon sellers can also enroll in the Prime program and complete orders within 2-days. Unlike with the FBA Prime program, sellers must commit to providing free 2-day shipping at no cost to Prime customers while meeting high fulfillment standards. Only those who consistently meet shipping metrics are eligible.
There’s a trial period between five and ninety days for seller-fulfilled merchants that FBM sellers must meet before officially entering the SFP program. Upon completion, sellers can receive some of the same SEO benefits that FBA sellers receive, although it’s harder to meet the shipping standards that Amazon provides.
Lower Amazon Fees though Seller-Fulfillment
When it comes to Amazon FBA vs FBM, one of the main benefits of handling fulfillment yourself is the cost savings. If your business specializes in logistics, your employees can handle fulfillment yourself without paying Amazon’s high FBA fulfillment fees.
Greater Control over Inventory, Warehousing, and Fulfillment
As an FBM seller, you have greater control over how often you purchase inventory, how much you keep in your warehouse, and how you fulfill orders. Additionally, you’ll never need to worry about Amazon changing policies that can negatively impact your business when you manage the fulfillment process yourself.
7. Cons of Amazon FBM
While cost and control are two of the significant benefits of remaining an FBM seller, several potential downsides exist. Let’s cover those now so that you can decide whether the costs of joining the FBA program are worth the benefits.
No Additional SEO Benefits
A lot goes into the Amazon A9 algorithm, which decides where products rank when customers search for products. Factors such as price, availability, click-throughs, and sales velocity all impact your product search placement.
Although sellers know that joining the FBA program can boost search result placement, only Amazon knows for sure how much it matters. However, when it comes to SEO, any little boost helps, which is one reason some sellers prefer Amazon FBA vs FBM.
Whether it’s worth the high costs of the warehousing and shipping process through Amazon for an SEO boost is up to you. Some sellers see it as a must, while others view it as a costly way to guarantee a few additional sales per month.
Less Control of the Amazon Buy Box
It’s typically FBA sellers that beat our FBM sellers and win the Buy Box. Amazon sees FBA sellers as more reliable since they track inventory levels and complete the shipping process on the seller’s behalf.
Even though several Amazon seller shipping options impact whether you win the Buy Box, such as joining the seller-fulfilled Prime program, you’ll have less control over it as an FBM seller.
If you sell products where you need control of the Buy Box to be profitable, you should most likely go with the FBA instead of FBM.
Sellers Must Provide Customer Service
This is a perk of the FBA program that FBM sellers don’t receive.
If you don’t like your organization handling customer service, it makes sense not to go with the FBM program. As an FBM seller, you must answer any customer questions or concerns about their order and resolve issues as quickly as possible. Failing to do so can lead to listing deactivation, or worse, account suspension.
However, having direct contact with your customers isn’t always a bad thing. It can even lead to some product ideas or insights about your brand’s products that you may not consider. It’s another cost you must weigh while deciding between FBA vs FBM.
Sellers Must Handle Fulfillment and Returns
In addition to customer service, FBM sellers must also handle all the fulfillment services and returns for each order. It takes time to package and ship items. It’s also costly to train employees, purchase shipping supplies, and handle returns of defective orders.
If your business can handle these processes while dedicating time to core business activities, then the FBM program may work for you. If you’d instead save time on other things, it’s probably a good idea to go with the FBA program instead.
8. FBA vs FBM: What’s Best for Your Business?
Now that you know the answer to the question, “what is FBM on Amazon,” it’s safe to say that there are pros and cons to both fulfillment options.
As a seller on Amazon, you can utilize the leading marketplace’s efficient supply chain strategy that gets customers’ orders to them on time and for a reduced cost. Few businesses can match the logistic prowess of Amazon, but as an FBM seller that ships thousands and not millions of products, you might not need to.
It just depends on whether you feel that your business can handle these processes in-house or whether you’d prefer to rely on the eCommerce giant on fulfilling orders for your company. Some sellers may decide that the costs outweigh the benefits, while others prefer to have Amazon handle the fulfillment process on their behalf.