Guest Post | How To Ensure A Smooth Operational Transition to the FBA Program
Sales tax is an important part of any eCommerce business, but we know it is not the only part. With that in mind, we want to provide you expert information on all facets of running an eCommerce business. This content is designed to provide you with tips and tools you can use to succeed, whether it be increasing sales, reducing costs or improving processes. Have a topic you want us to cover? Let us know in the comments!
To kick things off we are tapping into the expert knowledge of James Thomson. James is the President and co-founder of the PROSPER Show, a seller education organization focused on broadly sharing best practices for operating efficient, profitable online businesses. James also brings first hand Amazon knowledge as he spent over five years as business head of AmazonServices.com. On the subject of Fulfillment by Amazon, there are no better resources. Thank you James for starting us off with a bang.
While most Amazon sellers are familiar with the sales benefits of using the Fulfillment by Amazon (FBA) service, there are nonetheless key operational issues that get overlooked in the transition to order fulfillment through Amazon’s FBA program. While the shift to FBA is usually a net positive one for Amazon sellers, let’s discuss seven of the top issues that get lost up front:
1. Existing Warehouse Staff: When you shift your Amazon order fulfillment to FBA (or a 3PL facility), existing warehouse employees typically get downsized because individual Amazon orders no longer need fulfilling. To the extent that you continue to have non-Amazon orders to fulfill, keep certain Amazon products as merchant-fulfilled, and handle the preparation of in-bound FBA shipments yourself (e.g., stickering, polybagging, kitting), some of the staff will still be needed. We have seen many clients lament this changeover, but realize quickly afterwards that they are much more efficient, can scale better, and have more time to work “on their business” rather than “in their business” (where previously managing their warehouse space and employee issues was time-intensive and often emotionally draining)
2. Cash Flow: Typically multi-channel sellers find themselves treating FBA as a separate inventory location, where additional cash flow is now needed to build this secondary inventory. In situations where cash flow is very tight, the need increases for more exact sales forecasting, as well as rapid response shipments of additional FBA inventory, as sales in the FBA channel can spike unexpectedly quickly, resulting in expensive stockouts. It’s worth mentioning that once sellers see the increased sales through FBA, the stockout cost rises significantly, and becomes more than just a rounding error to overall impact to profits.
3. Product Availability Lag Times: Given that inventory in your own warehouse can be typically fulfilled immediately, whereas inventory designated for FBA will take 3-7 days to be shipped, received and made available for sale through the FBA channel, this difference in time to available sale must now be factored into all shipping calculations.
4. Return Rates: It is not unusual for sellers to see their return rates increase more than 40% through FBA versus merchant-fulfilled orders. Both the actual cost of paying Amazon return commissions on more orders, and the less obvious return product processing costs and write-down/write-off costs require careful tracking and review to ensure that each product in FBA remains viably profitable through FBA. In addition, returned FBA product that you can shipped back to you sometimes does not include all of the necessary paperwork for figuring out which order is tied to which return – and that can be a major limiting factor when trying to identify the source of a fraudulent return to a specific customer order.
5. Long-Term Storage Costs: Amazon charges you different rates for storing your unsold inventory in its fulfillment centers based on whether the product has been there for less than six months (short-term), or more than six months (long-term). When you put your products into FBA, you have the option of automatically having items removed if they are about to be charged long-term storage fees. If used properly, this movement to long-term storage should serve as a cue for evaluating whether your inventory has become stale, and needs to be liquidated. Most companies don’t have a similar process in place to evaluate regularly for stale inventory in their own warehouses.
6. Warehouse Capacity Constraints: If you move all of your Amazon inventory to FBA, it is critical to know that Amazon may prevent you during certain times of the year from easily restocking units that you’ve pulled out of FBA in order to avoid long-term storage fees. Hence, you may need to maintain at least a limited merchant-fulfilled order capability in situations where you are now holding product you had to pull out of FBA earlier.
7. Feedback Removal: While most of your customer feedback is hopefully a daily reminder of how wonderful your operations and products are, some feedback may be specific to the shipping aspects of the order – too late, not properly packaged, dirty packaging, not enough bubble wrap inside, etc. It is well worth reviewing your feedback regularly to identify which feedback might be a result of a FBA failure (rather than your own), as you can seek to have such feedback removed. Remember, too much negative feedback will hurt your likelihood of winning the buybox, so it’s critical to stay on top of removing invalid feedback like this.
With all of these potentially new issues to consider, we encourage every soon-to-be FBA seller to be ready for some of these previously unforeseen issues. Good luck in the FBA journey.
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