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How Fulfillment by Amazon (FBA) Works

How FBA works

Amazon’s scale is staggering. In 2018, the company’s valuation surpassed $1 trillion. At the start of 2021, the company’s valuation hovered around $1.6 trillion and Amazon employs over 1.1 million workers.

One of the most important factors in Amazon’s astounding success is its operations. Specifically, its fulfillment network, which now enables customers to receive goods within hours of placing an order on Amazon. This fulfillment network is called Fulfillment by Amazon.

What is Fulfillment by Amazon?

Fulfillment by Amazon (FBA) is a global network of warehouses owned and operated by Amazon. These warehouses are used to store products and fulfill orders made on the Amazon marketplace. FBA offloads the burden of shipping goods to end consumers from sellers on its platform. There are over 110 Amazon fulfillment centers throughout the continental United States, mostly in medium and large cities, and Amazon continues to announce new fulfillment centers regularly. In just December 2020, they announced 7 new fulfillment centers.

FBA enables sellers to offer rapid shipping, including same-day delivery in eligible cases, and it simplifies customer returns. Sellers get storage, fulfillment, and returns processing in one convenient package. Amazon sellers do not have to use FBA to sell in the Amazon ecosystem, but Amazon has certainly tried to make FBA the most appealing option for end consumers.

How Does Fulfillment by Amazon Work?

In practice, FBA looks something like this:

  1. Manufacturer ships product from factory to Amazon fulfillment center
    • The shipment may need to go through several regulatory checkpoints along the way
  2. Goods are received and logged at the FBA center
  3. Amazon’s systems update the product listing to show that inventory is in stock
  4. Shoppers order product from Amazon.com
  5. FBA center ships the product to the customer, with expedited delivery options available
  6. The FBA center will process any product returns, when/if they occur
  7. When inventory levels are low, the manufacturer ships more product to the FBA center

In many cases, brands partner with third-party sellers to retail their product on Amazon. In these cases, the third-party seller places a purchase order (PO) for a certain number of units. The manufacturer is responsible for shipping the products to the designated Amazon fulfillment center(s).

Fulfillment by Amazon Product Preparation Requirements

Amazon has strict product preparation requirements that continue to evolve, and Amazon refuses to accept shipments that fail to comply with these requirements. These include:

  1. Do not ship any boxes over 50 lbs. unless your products are considered oversized and packed one unit/box
  2. Do not ship any boxes with a side over 25″ unless your products are considered oversize and packed one ASIN/box
  3. Do not shrink wrap, strap, tape, or bind boxes together.
  4. Outer shipping cartons cannot contain a scannable manufacturer bar code (other than the bar code on the FBA box label or shipping label)
  5. For pallets, boxes cannot overhang by more than one inch. All pallets must be shrink wrapped. Pallets must be standard size (48″ x 40″) unless a single box will not physically fit on a standard-size pallet
  6. Always apply FBA labels on outer carton

Pros and Cons of Fulfillment by Amazon

Benefits of Fulfillment by Amazon

For most brands selling on Amazon, FBA is one of the best ways to grow. Here are a few benefits of FBA:

  1. FBA handles all shipping logistics once they receive your inventory
  2. Amazon has major discounts with the largest United States carriers, such as the United Postal Service (UPS), so fulfilling through FBA is often the most cost-effective option
  3. FBA centers handle product returns
  4. FBA often provides the fastest delivery option for Amazon customers
  5. Amazon’s Multi-Channel Fulfillment (MCF) service allows brands to store and fulfill inventory via FBA even for items that are sold through non-Amazon sales channels

Disadvantages of Fulfillment by Amazon

Like any service, there are drawbacks. Here are a few disadvantages of FBA:

  1. First and foremost, Amazon has repeatedly restricted storage limits for FBA since early 2020. If you don’t have enough inventory space to meet demand, you’re losing sales
  2. Storage fees and fulfillment fees add up, making accurate demand planning a necessity if you wish to optimize your bottom line
  3. Manufacturers must prepare products correctly or the FBA receiving team may reject them

Fulfillment by Amazon Product Preparation Services

Not all manufacturers have the time, personnel, or resources available to satisfy FBA product preparation requirements. If the manufacturer cannot prepare products themselves, they can send inventory to FBA product preparation facilities. These facilities are operated by third-parties who specialize in prepping products for Amazon.

Kaspien has FBA product preparation facilities across the United States. Having numerous locations means that we can reduce shipping time and costs to get inventory to these facilities and then to Amazon fulfillment centers.

Michael Janney
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