Transition to Amazon FBA: What established businesses should know
Ecommerce isn’t going away, and many established businesses are thinking about making the jump to Amazon. The exodus to Amazon has been a growing trend for years and COVID-19 has only accelerated the shift. Let’s face it: Amazon has become American’s de-facto retailer. Traditional, established businesses are seeing sales decline and inventory pile up in warehouses, so the jump makes sense, right?
If that sounds like you, this is the first of an article in a series to guide you through the transition.
Are you ready for Amazon? Nail down your assumptions.
The transition to Amazon FBA can be a complicated, frustrating process without appropriate planning. Sorting out some basic assumptions before you get started will save time and money in the long run.
Is customer service a primary selling point for your company?
When you use Amazon FBA they require you to adhere their policies, and do some of the work on your behalf. This means you will lose some flexibility around customer service situations like customer complaints, returns, and refunds. If this sounds undesirable, a pivot to Amazon FBA may not be for you.
Is your supply chain Amazon-ready? Very small things may surprise you.
Strict requirements apply to inventory shipped to Amazon, and these manifest in two forms: shipping requirements and “prep” requirements. Small misunderstandings can really sink your ship.
Shipping Requirements for FBA
Many established businesses are shocked by the rigidity of Amazon’s shipping and routing requirements because they differ so much from more established supply chains. Businesses which operate their own warehouse(s) may need to spend time updating processes, re-training staff, or updating technology used in the warehouse.
If your normal shipments to wholesalers, distributors, or retailers are primarily focused on efficiently shipping the correct items, some adjustments may be in order. Here are a few of the gotchas to watch out for:
- Carton counts and contents must be precise and accurate. Amazon allows for only small, infrequent deviations. Your warehouse must be able to accurately track and record which carton is which, including exact packing contents. Small deviations can create all sorts of problems.
- Each carton or pallet you send to FBA must bare a unique set of labels Amazon will provide you. They use these labels to identify your shipment and expected contents, so if these labels are switched, missing, or damaged you’re in for trouble. Make sure your warehouse is able to do this correctly.
- Your warehouse must be able to cover exterior labels on pallets and cartons, especially those with barcodes on them. This can present problems for warehouses which strongly rely on their own labels for picking, packing, and routing shipments.
- Amazon has strict limitations on the size, shape, and weight of cartons and pallets you send them. You may need to revise your outbound shipping processes and materials used in order to comply. If you’re unable to do that, Amazon may apply extra surcharges, refuse delivery, or create other unwelcome surprises when your shipments arrive.
You should carefully read Amazon’s full shipping & routing requirements about shipping small parcels and freight before you move forward, and make sure your warehouse operators can comply.
Inventory Prep Requirements for Amazon FBA
Amazon also has rigid requirements about the packaging and labeling of individual stock units, often referred to as “inventory prep” or just “prep”. Common sense honestly don’t apply here. What may be fine to send directly to current customers, retailers, or wholesale partners may create issues with Amazon.
Before you even get started with Amazon, it may be worthwhile investigating the inventory prep requirements which apply to your products.
Once you understand the requirements, there are basically three strategies to comply with them:
- Use your own warehouse to prepare the products.
- Adds extra variations to your processes, which can be hard to scale.
- You may need to hire an expert to figure out the best strategy.
- Outsource to a “prep center” to receive, prepare your products, and then ship to FBA on your behalf.
- Requires research and careful planning, because you’re essentially negotiating a business partnership.
- The scale, quality, and reliability are often better than the other two options.
- Have Amazon perform the necessary inventory prep after shipments arrive.
- Your shipments must still comply with Amazon’s shipping and routing requirements.
- Amazon is focused on increasing their own efficiency and reducing their risk, not protecting your products or brand name.
Each of these strategies have advantages and disadvantages, and it’s important to understand what they are before making the transition to Amazon.
Do you understand Amazon’s policies, and how they enforce them?
When something goes wrong at Amazon fixing the situation isn’t a simple phone call or email. Rest assured, Amazon will nearly always assume you are at fault about anything that happens. Meanwhile, your Amazon sales channel can be disrupted until the issue is resolved to their satisfaction.
Take for example, you followed every requirement and regulation, but some of your inventory arrived with a slightly dented corner. Amazon may fault you for sending “Used” goods, and it will be your burden to resolve it.
It’s worth taking a thorough read through Amazon’s policies, or better having your lawyer or legal team do so.
Are your expected time frames reasonable?
Before diving in, perform an honest assessment of your expected time frames. You may need to re-evaluate your expected time frames around several aspects of your supply chain and sales model. Failure to do this can lead to all sorts of cash flow issues and capacity problems.
For a random example, Amazon sometimes uses “drop lots”. A drop lot is where Amazon uses a different parking lot, sometimes miles away from their warehouse, to receive freight shipments. The trucks “drop” their trailer in the lot, where it may sit for days or weeks before Amazon begins the intake process. Aside from asking the obvious question about whether your goods can sit in a parking lot that long, you must consider how that delay can effect your other time frames.
There is a rhythm to Amazon, like any other channel, and it pays to learn their tempo before making too many plans, especially if your margins are already slim or cash flow is turbulent.
What are your plans about returns and stranded inventory?
FBA likely goes into less detail with your returns than your existing warehouse(s). The results can lead to more shrinkage than you may be expecting. Meanwhile, Amazon provides limited visibility into product dispositions and reasons.
A significant amount of fraud and mistakes can take place regarding returns to FBA warehouses, often in excess of what you’re used to dealing with. Behind this are two primary driving factors:
- Their mission statement is “customer obsession“. They expect you to get on board with that… and no, you are not the customer they’re talking about. Their incentive to protect your assets are not aligned with your own.
- The permissive return policy FBA requires is often abused by consumers, leading to potentially higher amounts of fraud than you may normally encounter. Left unchecked, this can also result in brand trust and authenticity problems.
The three most common approaches to Amazon returns are as follows:
- Disposal / liquidation, where Amazon “disposes” of unsellable or damaged inventory on your behalf. Amazon tends to push this option as the best one, but once again, their incentives may not be aligned with yours. Failure to understand what this really means can lead to brand image problems and waste of otherwise valuable inventory.
- Removal, where Amazon ships your unsellable or damaged inventory to a US warehouse for you. Your warehouse (or a 3rd party) can then take appropriate actions with the goods.
- Refund without return, where Amazon refunds the consumer and lets them keep the product. This is usually for products of low value, where return shipping isn’t worth the added expense.
Each approach has some basic advantages and disadvantages, which we’ll discuss in a later article.
Are you ready for the transition to Amazon FBA?
Honestly ask yourself “Do I have the facts about all these situations, or am I just assuming?”
If you need some help, please let us know. We can shed some light on struggles you may face and how to solve them. Please, don’t ask us for pricing until we can hammer out all these details, because otherwise you’re setting yourself up for failure. We can help assess the right solutions for your business, and honestly, Amazon FBA might not be the best route for you. Updates to your existing sales processes, especially your current web store may be a better answer.