In the past few years, many companies were forced to diversify their fulfillment options due to inventory issues and supply chain problems. Having a seller central account and using third-party (3P) logistics offered brands more control and diversity, including the option of dropshipping Amazon-sold products.
But what about brands who utilize Vendor Central? Are these companies able to utilize dropshipping on Amazon? If not, what new approaches can these companies utilize to stay nimble in the competitive and unpredictable Amazon marketplace?
In this blog post, we’ll discuss the ins and outs of utilizing dropship when selling through Vendor Central and how it might benefit existing logistics structures.
Typically, a brand operating in Vendor Central manufactures their product, then sells it to Amazon Retail who then sells the product on Amazon as the first-party (1P) vendor. Amazon sells their product through FBA for them. The benefit to the brand is large purchase orders (PO) of their products and more predictable cash flow, and the benefit to Amazon is the profit they make in the sale and distribution of said products.
By its nature, Vendor Central is not set up for dropshipping, and that could be problematic for some brands. Which begs the question, is it possible to set up a system for dropshipping Amazon orders through a Vendor Central account?
According to Amazon’s dropshipping policies, anyone can utilize dropshipping as a fulfillment option as long as it is clear to the customer who the seller is and there is an agreement in place to follow the proper packaging requirements.
As discussed in our Amazon Dropshipping blog post promoting our webinar on the same topic, dropship has historically been seen as less ideal than FBA for Amazon sellers. Amazon’s own website takes this stance as well, extolling the virtues of FBA’s speedy shipping times and built-in customer service over the less-proven method of dropshipping.
This stance might be more self-serving than it first appears. As mentioned in How to Switch from Amazon Vendor Central to Seller Central, Amazon does not accept wholesale price increases mid-year. This means if the cost of materials, production, or shipping suddenly rises, it’s the manufacturer eating the cost, not Amazon.
The same blog post acknowledges dropshipping can be used by Vendor Central brands, but there may be a hidden cost: “If a brand is operating on the vendor model and wants to tap into these supplementary fulfillment solutions, they would need to create a Seller Central account and manage these solutions through it. This practice protects vendors from FBA turbulence, but it can put them at odds with Amazon Retail.” Essentially, you’d be competing against Amazon to sell the same products.
The costs of selling on Amazon have led many sellers to seek alternative fulfillment options to gain an advantage in this competitive and ever-changing marketplace.
As we explain in Amazon Dropshipping 101: How to Dropship on Amazon, dropship differs from FBA in two ways: who pays who and when, and who provides fulfillment services. When operating in the Vendor Central model using FBA, inventory must be sent to an Amazon fulfillment center before customers can make a purchase. If using dropship, then products do not need to be sent to FBA. Instead, the manufacturers double as fulfillment centers.
This is where dropshipping can make a big difference. The further a product must travel prior to purchase and the longer it sits on a warehouse shelf, the smaller the profit margin. By eliminating the need for storage and delivering straight to the consumer, dropshipping Amazon orders can save on both shipping costs and storage fees, both of which have gone up significantly in the past few years.
Vendor Central companies will have to create a Seller Central account to be able to dropship orders placed on Amazon. While this may not seem ideal, here are a few reasons why its worth considering:
As discussed in 3 Reasons You Need a Dynamic Fulfillment Network, the unprecedented impact of the 2020 pandemic on supply chains and inventory levels hit Amazon hard, and many businesses sought to shore up their existing logistics by utilizing 3P fulfillment and dropship options. By doing so, this creates both an alternative and a backup, allowing brands to continue to sell products when FBA inventory is low or out of stock.
As we already mentioned, Amazon does not give much wiggle room to renegotiate wholesale prices mid-year, which can be problematic when gas prices and shipping costs are rising by the day. If you are looking to minimize fees and maximize profit margins, adding a dropshipping option to your existing logistics structure can help. Utilizing a proven 3P distributor can instantly give a brand access to better shipping rates based on that distributor’s proven track record.
There are a handful of metrics that are very important for an account to remain active and not get suspended. Diversifying fulfillment options can provide a buffer to keep these metrics healthy. Companies who have aggregated several sellers under one account can take the hit of a single delayed shipment without significant impact, a risk smaller companies may not be able to take.
While it might entail a bit of extra effort to set up, we believe VC brands could and potentially should have a drophsip option. Dropshipping allows brands fill orders outside of the FBA model, which provides numerous benefits and opportunities for growth. An Amazon agency can help you navigate these decisions and put new processes in place, and Kaspien offers a dropship program designed to work alongside an FBA model.
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