Fulfillment by Amazon (FBA): A Deep Dive into Amazon’s Global Shipping Network

You Sell It, We Ship It!

That is the tagline and the foundation of the Fulfillment by Amazon program. Amazon has been strategically expanding its fulfillment footprint by building fulfillment centers (FCs) around the country in populated regions, bringing products closer to customers with the goal of drastically reducing fulfillment costs.

The foundation for the program lies on a simple principle:-

Less ground between product and customers = lower transportation cost

Amazon has built the most sophisticated logistics network in the world – and this is before it hinted at drone delivery through its innovative delivery service Prime Air. Selling an incredibly diverse array of products in more than 20 categories and 10 markets worldwide, Amazon has fundamentally changed the way people shop online, setting new expectations for delivery speed and pricing.

The high growth rate is due to two innovative ideas:-

• Welcoming third-party sellers
• Implementing long-term free shipping programs

Through its FBA program, Amazon handles third-party sellers’ back-end operations, including storage, fulfillment, and customer service. Third-party sellers simply ship their inventory to Amazon, which then manages the entire back-end fulfillment of an item once purchased.

How Does the FBA Program Work?

1. Sellers send products to Amazon. You send your products – new or used – to Amazon’s FCs.
2. Amazon stores the products. Amazon intakes, catalogs and stores your products safely in its network of FCs.
3. Customers order the products. Customers order your products on Amazon.com or other sales channels registered with Amazon’s FBA program.
4. Amazon fulfills the product order. Amazon fulfills the order on your behalf, picking, packaging and shipping it to its final destination.
5. Customer Service. Amazon’s excellent customer service team takes responsibility for all customer service related issues – including inquiries, refunds, returns and more.

The Flip Side

The only catch is it is more likely that you are not a large retailer with the budget and task force to handle global fulfillment, logistics and customer service duties. However, the price and the return on investment holds in good standing for many retailers, and the numbers prove it. According to Amazon, 73% of FBA sellers reported that their Unit sales increased on Amazon.com more than 20% since joining FBA.

Pricing Model

What sets it Apart?

• Products in the Amazon FBA program have access to Amazon Prime members and are eligible for free Super Saver Shipping
• Products have a higher probability of winning the almighty Buy Box
• Exclusive access to last-minute holiday shoppers
• Amazon helps take care of retailer's customers by handling shipping, issues, returns and gift wrapping
• Lower-cost fulfillment to international customers
• FBA can fulfill orders from other sales channels via its multi-channel fulfillment feature such as eBay, Newegg etc.

Multi-Channel Fulfillment by FBA

Success Story (Video)

Given this huge success story of Amazon, would its competitors - eBay, Best Buy, Google etc. be able to even remotely match up to this scale of success ever in the future? Please post your thoughts and comments.

Sources:

http://services.amazon.com/fulfillment-by-amazon/benefits.htm
http://www.supplychain247.com/article/a_deep_dive_into_amazons_global_shipping_fulfillment_network
http://www.amazon.com/gp/help/customer/display.html?nodeId=200229160
http://venturebeat.com/2014/01/08/fulfillment-by-amazon-what-amazon-doesnt-tell-third-party-sellers/
http://ssc.channeladvisor.com/howto/inventory/other-inventory-settings/multi-channel-fulfillment-fulfillment-amazon-fba