In a nutshell: Here’s what to keep in mind as you start to investigate a third-party fulfillment provider such as Fulfillment by Amazon (FBA).
Note: This article is not an endorsement of any service, program or provider. It is provided for your information only.
Businesses that require help expanding and getting products into the hands of customers might find help from an outside source. A third-party fulfillment provider helps businesses by taking over warehousing, packing, shipping and some elements of customer service, such as returns. This outsourced assistance can level the playing field by giving smaller companies many of the same logistics capabilities as their largest competitors.
The biggest name in third-party fulfillment is actually the biggest name in all of retail: Amazon. The Fulfillment by Amazon (FBA) program leverages the company’s enormous network, size and expertise. In 2016, Fortune reported that FBA handled more than 1 billion items a year, and the number of sellers participating in the program is growing rapidly.
“What this means for entrepreneurs is that you can act like a big corporation without the headache of actually being one,” writes Thomas Smale in Entrepreneur. “You can focus on finding product opportunities while Amazon handles the rest on your behalf.”
FBA most certainly isn’t the only choice for third-party fulfillment. Other, smaller outsource providers might provide services or specialization that Amazon, because of its large scale, cannot. For example, FBA does not appear at this time to offer a subscription model (e.g., a monthly box of curated clothes or skincare samples) or customized delivery materials for clients.
Here are some tips for companies considering third-party fulfillment.
Determine if You’re Ready
Companies that have a good handle on their fulfillment processes might not need an outsourced provider such as FBA. Here are a few of the signs that it’s time to start investigating outsourcing:
- Sales are growing rapidly
- Fulfillment is becoming more difficult
- Shipping mistakes are becoming more prevalent
- International expansion is under consideration
Know the Pros and Cons
Third-party fulfillment providers allow companies to focus on their core competencies instead of packing and shipping. They can also reduce real estate costs because little to no warehouse space is required. However, some companies might be hesitant to turn over control of part of the customer experience. In addition, for some businesses, outsourcing may not provide a financial benefit. A thorough cost-and-benefit analysis is needed before making a decision.
Familiarize Yourself with your Choices
While FBA isn’t the only option, it’s a good starting place for learning more about third-party outsourcing and what it can do. Begin by browsing Amazon’s FBA website. Amazon provides a short video describing the program and lists some of the benefits, including the fact that products are eligible for Prime two-day shipping. The pricing page has information about costs, which vary depending on the weight of the item, the size of the packaging, and how many cubic feet it occupies in the warehouse. (One important thing to notice is that storage fees are noticeably higher from October through December, which is the busy holiday shopping season.)
Companies not wishing to align themselves with Amazon can research other third-party fulfillment providers on the internet. Ecommerce Platforms, a website that ranks e-commerce providers, identifies these firms as some of the biggest non-FBA fulfillment companies: Red Stag Fulfillment, James and James, ShipMonk, ShipStation, Rakuten Super Logistics and GoShippo.
Once the research is done, companies should contact the third-party provider to learn how to sign up and begin service. All of these providers should be able to walk new clients through the process, including creating a new account, arranging for shipments to be routed to the providers’ storage facilities, and integrating ordering systems.
Keep the conversation going: What has been your experience with third-party fulfillment providers?