Fulfillment by Amazon vs. Third-Party Logistics: Which Shipping Distribution Option is Right for You?

Amazon fulfillment is one of the most popular fulfillment methods in the world today. Nearly all Amazon sellers use it — 96 percent according to JungleScout’s 2020 State of the Amazon Seller report, with only 29 percent using both. However, is the dominance of Amazon making retailers ignore third-party logistics solutions that might be better?

How Do Amazon Fulfillment and Third-Party Logistics Differ?

Fulfillment by Amazon (FBA) is precisely what it sounds like: all your goods are held by Amazon in their fulfillment centers. In contrast, third-party logistics allow sellers to hold and ship their own goods or have a third party warehouse them (these methods are referred to as fulfillment by merchant, or FBM).

Fulfillment methods can impact profit margins dramatically. The State of the Seller report likewise found that FBM was associated with more sales volume and a 5 percent increase in margin. The same report found that FBM sellers are up and running on Amazon more quickly. 

Who Does Amazon Fulfillment Work For?

While many organizations lean heavily on Amazon fulfillment, there’s a specific customer profile FBA works for. FBA is generally geared toward items that are small, cheap and light, with no prohibitions on comingling. Amazon also works best for retailers who need quick turnaround time and are short on warehouse space and manpower. 

So, while Amazon has been seen as the ideal shipping distribution choice for any retailer, the truth is that it’s actually best for smaller, lightweight items. 

Who Do Third-Party Logistics Work For?

Third-party logistics, on the other hand, are for companies with almost the opposite profile—those selling big, expensive, heavy items that can’t be comingled, who have with tons of warehouse space and an abundance of manpower.

It’s worth noting that companies using the FBM strategy can also qualify as Amazon Prime sellers.

Which Shipping Distribution Solution is Best for Your Organization?

FBM offers opportunities to scale through increased control that are not possible through Amazon fulfillment. Keep in mind that you have the potential to sell out of the same stock on your own website, just as you may on Amazon. Scaling with FBA can include increased fees, as well as increased shipping costs to Amazon warehouses and fulfillment centers. 

So while FBA has some advantages, size isn’t everything. Volume is also a crucial factor in determining which is the better opportunity. It bears repeating that moving to an FBM strategy will not necessarily mean an end to Prime seller status (which could result in lost revenue).

Ultimately, it’s a question of control: How much do you want? How much are you willing to sacrifice? 

James Pell is a freelance writer specializing in logistics, cybersecurity and fintech.

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