Updated August 2021
With the unexpected onset of COVID-19, many brands and manufacturers faced a production standstill ranging from weeks to months, jeopardizing and even killing their businesses. The coronavirus restricted supply chains, exposed structural fragility, and revealed a severe lack of emergency resources. In short, many companies just weren’t prepared. Even now, many states are not yet back to business-as-usual.
Supply Chains are Still Struggling
Since March 2020, Amazon FBA has restricted inbound shipments based on product category, repeatedly increased inventory performance index (IPI) thresholds, reduced inventory quantity limits, and implemented storage utilization quotas that further restricted inventory space at FBA centers. In Amazon’s 2021 Q2 earnings call, CFO Brian Olsavsky said about FBA, “We’ve been playing catch-up pretty much since the pandemic started.”
The impact on supply chains and fulfillment has been one of the most pervasive, lasting, and damaging effects inflicted on businesses. To safeguard against this moving forward, brands and sellers alike have been exploring new fulfillment options.
The Solution? Diversified Fulfillment.
At Kaspien, we’ve spent the last 13 years working with brands of every level, size, location, and structure as a third-party retailer. During that time, we’ve created a robust fulfillment network. From a small processing area in the back of our corporate office to now utilizing 11 fulfillment centers across the United States, we’ve built an efficient and resilient fulfillment network that has protected our partners’ businesses.
In addition to expanding our fulfillment network, we’ve also expanded our Fulfillment by Merchant (FBM) capabilities to supplement FBA. Two key ways we’ve achieved this through dropship integrations with brands’ warehouses and partnering with third-party logistics (3PLs). We’ve also heavily invested in and developed a machine learning, artificially intelligent predictive model to forecast and predict future sales. This model predicts future 365-day unit velocity, accounting for seasonality and competition at the SKU-level.
As a result of these efforts, our partners enjoy three major benefits.
3 Major Benefits from Diversified Fulfillment
1) It Mitigates Geographic Risks
If we’ve learned anything over the past few years, it’s that the world is unpredictable. Our partners are in every corner of the country, and as such, there are many different environmental and situational obstacles that can impact product fulfillment.
Whether it’s wildfires, hurricanes, or a pandemic, any business is subject to interruption when catastrophes arise. The West Coast Port Strikes of 2015 was one of those situations for us; we didn’t see it coming, and the sudden inability to process imported goods through west coast ports certainly impacted our normal business functions, and many of our partners faced similar issues. Lead times lengthened and we faced out of stocks.
The port strikes showed us that we needed fulfillment centers on the east coast in order to protect our and our partners’ businesses. Now that we have fulfillment and processing centers around the country, including both coasts, we can minimize the impact of geographically constrained events.
2) Lead Times and Freight Costs Improve
Many manufacturers are facing tighter margins these days, as well as an added sense of urgency to have shipments turned around to Amazon quickly. By diversifying and growing our fulfillment network, we’ve seen a favorable upswing in lead time and freight cost.
According to Kaspien’s Strategic Warehouse Director, Jeff Bernatz, “In 2020, we’ve seen a ~20% decrease in overall turnaround time at our warehouses, directly tied to the increase in available locations and available staff to handle the workload.”
We work with many manufacturers who do not have the capacity or expertise to complete product preparation in compliance with Amazon’s fulfillment center requirements. For them, shipping to one of our processing facilities is essential, and that could translate to longer lead times and higher shipping costs. But, because we have a large fulfillment network, there’s always a processing facility close by, no matter where our partners are shipping from in the US. As a result, our partners pay a lower freight cost and shorter lead times since they’re shipping shorter distances.
For brands seeking to partner with retailers and/or logistics providers, always ask about their fulfillment network. A larger network will position you to get better margins and run a more efficient sales channel.
3) You Can Handle Higher Volumes and Scale
A large fulfillment channel always enables us and our partners to scale faster, pushing more products at a higher rate. “Since expanding to 7+ warehouses, total unit volume through our warehouses has increased ~15% vs the same time YTD period in 2019,” said Bernatz.
More locations and a higher staffing capacity have allowed us to process more orders in less time. With this added capacity, we have room to expand into previously infeasible programs, such as direct to consumer fulfillment, distribution, etc. It also eliminates the backlog we can sometimes see during peak sales seasons, such as Q4 and summer.
The Benefits will Outlast COVID-19
For many companies, this pandemic has highlighted the extraordinary value of a diversified fulfillment channel. However, all the aforementioned benefits of a large fulfillment network will continue even after the pandemic ends. Though the coronavirus may have prompted you to explore new fulfillment options, it’s worth continuing that research so you can position your brand to weather future storms and continuing growing.
Sell on Amazon with Kaspien
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