Amazon.com Inc. (NASDAQ:AMZN) founder Jeff Bezos is a master at building better mousetraps. But no mousetrap has been more enduring and holds such long-term promise as Fulfillment by Amazon (FBA). Approaching its 15th year, FBA has revolutionized commerce by allowing merchants to sell, store, pick, pack and ship customer orders through Amazon’s fulfillment network for a predictable fee, no matter the destination.
It’s easy for merchants to consider FBA their set-it-and-forget it fulfillment partner. However, Matt Walsh, founder of TrophySmack, a 3-year-old Brea, California-based manufacturer of trophies for reality and fantasy sports events, said merchants take risks by putting all their eggs in the FBA basket. Below are FreightWaves’ seven questions for Walsh:
FW: What are the unique features of your business and end market that make robust fulfillment execution so critical?
MW: There are a few aspects of our market and product line that put an extreme emphasis on our fulfillment capabilities. Our market is hyperseasonal and many of our orders are day-definite. Combine that with thousands of possible product combinations as well as personalized engraving, and we have a tall order for execution as a startup. My more than decade-long career in the supply chain and logistics industry is put to the test every day.
FW: You have said if your company solely relied on Amazon for fulfillment support, you would be “toast.” What did you mean by that?
MW: It can be extremely challenging to work through problems with Amazon when inevitable problems arise. And problems will arise. When things are running well, Amazon is a tremendous sales channel that generates fast and low-cost revenue. But sales can come to a screeching halt for reasons that can be unclear, or even in error, with many times no direction on corrective action. Whether it’s FBA inbound delays, lost products, erroneous account shutdown or dealing with fraud, resolutions are not in our direct control on Amazon.
FW: As we talk, we are approaching what is expected to be the wildest peak season in history. FBA customers are hurting now. What makes one think they won’t be hurting even more six weeks from now?
MW: We have to take it one day at a time and work with what we have. This reinforces how important it is to have a robust supply chain and fulfillment program that’s independent of Amazon. Our FBA storage limits are punitively small due to our seasonality and nonessential nature of our business. During our peak season, we will sell 100-plus units a day on Amazon. However, our FBA storage limit is currently less than 200 units, and our replenishment lead times are over four weeks. A recent inbound FBA shipment took Amazon LTL 20 days to transport one pallet 14 miles. I’m accustomed to picking up the phone and calling a terminal, which is not an option with Amazon LTL. It can be an infuriating process.
Bottom line is that it’s lost sales for us, lost sales for Amazon and lost convenience for the consumer. We are guaranteed to be out of FBA stock within the first 48 hours of the upcoming season with no chance of replenishing in time for the seasonal window.
FW: You have a hybrid strategy of using FBA and a Fulfillment by Merchant (FBM) program from a warehouse operated by Performance Team, your alternate fulfillment partner. How do you calibrate when it is appropriate to use FBA and when to use FBM?
MW: We are stocking the maximum cubic capacity of our top-selling SKUs with FBA. Our FBM listings, which are a catch-all after that, are fulfilled by Performance Team. Performance Team is our primary fulfillment partner, while Amazon FBA we view as an additional sales channel.
We’ve produced many custom, industry-specific trophies and awards. These include trophies for transportation and logistics companies. When a carrier wants to celebrate the performance of a terminal manager, or a broker wants to recognize a top sales performance, they don’t want to wait an extended period of time for deliveries. This is the transportation business, where timing is everything. We would not be able to execute these niche custom trophy transactions utilizing Amazon alone.
MW: Are there businesses that, for whatever reasons, cannot employ the dual fulfillment strategy that TrophySmack utilizes? Do they risk permanent co-dependency on Amazon?
FW: There are low barriers to entry to run an entire e-commerce business solely on Amazon. And there are extremely successful sellers that do that. With these low barriers to entry comes the risk of permanent co-dependency, as you described. If Amazon shuts down a seller’s account, even if it’s in error, revenue can drop to zero dollars for days, weeks or even months at a time while working through case management and escalations.
We once had our account shut down in error, and funds held at Amazon for over 90 days, for orders that were already fulfilled. We couldn’t even access our own inventory that was stuck in Amazon’s fulfillment centers. It was a helpless feeling to deal with a process flow that seemed too big for its own good. If we didn’t have our own fulfillment and sales channels to offset and mitigate the problems, we would have gone out of business.
MW: Is it possible that 2020, because of COVID-19, is an outlier for e-fulfillment issues? If and when we return to a close-to-normal environment, will these pressures abate? Or will we see constant flare-ups due to Amazon’s incredible growth?
FW: There is no doubt that this year has added multiple layers of challenges selling on Amazon. Significantly decreased FBA storage limits, delays in replenishment times and delays in FBA transit time to the customer are unique to this year. Challenges associated with Amazon will remain after this year. We have to factor this in as a cost of doing business on Amazon.
MW: Has placing your products on other platforms like Shopify complicated your fulfillment life?
FW: We view Amazon as an additional sales channel; with our brand, store on Shopify and own fulfillment capabilities being our core business. While managing our own fulfillment is more complicated than selling solely via Amazon FBA, I believe it’s a prerequisite for building a brand and growing long-term value.