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Strategically Use the Online Giant; Don’t Let It Use You

Remember when I warned enterprises against trusting Amazon to handle your retail store fulfillment?

That was just last fall. In a world of perpetual disruption, things happen fast in logistics. Some enterprises took Amazon up on its offer to replenish brick-and-mortar stores – the Walmarts, Targets, etc.

Several quickly regretted that decision and have retreated from that mistake. And Tompkins Ventures has connected these enterprises with solid 3PLs that have helped these businesses’ bottom lines. One, in fact, rapidly doubled sales.

The lesson is not that retail and eCommerce sellers should avoid Amazon entirely. Few can get by without accessing Amazon’s dominance and sophisticated logistics. The key is to use Amazon strategically.

Why Retail Store Fulfillment by Amazon Is a Bad Idea

I can give you two reasons to avoid letting Amazon handle your store fulfillment:

  1. It’s not cost-effective.
  2. You lose control – control of your inventory, control of your supply chain.

Frankly, Amazon can cost you a lot of money. Their storage fees continue to increase. If you have a lot of inventory in Amazon, you can get killed.

Without control of your inventory, you cannot pick modes, shippers and timing of replenishment. Amazon handles that. What it saves you in supply chain costs is more than eaten by Amazon’s share of the pie.

And that doesn’t even consider the fact that if Amazon handles everything, you have a single-source supply chain. In today’s world of perpetual disruption, single-source supply chains are death

FBA Can Do Everything – But It Shouldn’t

Face it, Amazon can do a lot. The online behemoth can take charge of your sourcing by dealing directly with your product suppliers. Their teams can oversee your entire supply chain. Amazon personnel can manage interactions with your customers, warehouses and stores.

But letting Amazon handle everything is, by definition, a single-source supply chain. And if the pandemic and the last few years have taught us anything, it’s that relying on single-source supply chains is risky. True supply chain resilience demands flexibility.

You need multiple sources in various locations and diverse transportation options. You need the ability to switch carriers if one faces issues. You need multiple ways to reach your customer base.

And as I wrote last fall, what if Amazon’s honchos decide they don’t need your involvement anymore? Beyond eliminating your supply chain operations, Amazon could easily replace your storefront. With their vast capital and extensive warehousing and logistics capabilities, this is entirely feasible.

Remember, the eCommerce giant has moved into brick and mortar with Whole Foods, Amazon Go and Amazon Fresh stores. That storefront presence gives them additional leverage if Amazon decides to target your vertical.

In fact, you could find yourself out of business.

This Third-Party Logistics Option Helped Double Toy Sales

One toymaking company I’m familiar with wasn’t at risk of going out of business. However, with Amazon store fulfillment, costs were high and sales were low.

We connected them with a better-fit 3PL. This 3PL helped the toymaker more efficiently pick modes, shippers and timing for store replenishment. The toymaker used the savings to lower prices and increase advertising.

Sales doubled. And the company had better control of its product.

Crucially, the toy company did not end its relationship with Amazon. Unless you are the Walmarts, Costcos or Targets of the world, no online business can ignore Amazon.

Managed Transportation Services Can Help You Strategize

The key, as I mentioned above, is to use Amazon strategically.

Beyond supplying retail stores, Amazon spans the nation with eCommerce fulfillment centers. Marc Wulfraat’s firm MWPVL International does the best job following Amazon’s global footprint. His latest report says that Amazon operates more than 2,500 facilities worldwide.

Amazon offers a great customer experience, and online retailers covet the Prime badge. FBA works wonders for many online stores.

And for certain product types like smaller items, Amazon is quite cost-effective. You lose control of your items, but if you meter how much you give Amazon, you’re OK.

However, some third-party logistics operations have the edge in other aspects.

A shoebox can be a good rule of thumb. If your product is smaller than a shoebox, optimize shipping costs via fulfillment by Amazon. If it’s bigger than a shoebox, grab cost savings by using a 3PL for order fulfillment.

You can’t just outsource logistics via a 3PL. You can’t just outsource logistics via Amazon.

True customer satisfaction comes from using both. Limit the inventory margin hit from Amazon but keep access to their broader market.

Of course, you must choose a 3PL that can manage inventory, handle pick, pack and ship as efficiently as Amazon. You need FBA service levels even when not using FBA.

And since FBA will handle some orders, your 3PL also must be able to send the right amount of product at the right time to the right Amazon location.

That’s challenging but possible.

All of this, of course, could change quickly. If your enterprise lacks the logistics team to keep tabs on everything, examine managed transportation offerings.

My colleague Mike Royster calls it a Guardian/4PL model. When things change, this model can adjust your logistics operations to not only keep up but stay ahead.

Keep an Eye on Those KPIs

Of course, changing logistics operations can be fraught with risk. If your service levels decline, your customers have plenty of options. And if your operations have reached Prime status, you don’t want to lose the coveted Prime badge.

But retailers who have strategically combined Amazon with a non-Amazon 3Pl have had great results. They’ve seen the potential for 30+% total landed cost savings. Real-time inventory visibility reaches 100% with inventory accuracy at 99.9% And their service level metrics also top 99%.

It’s simply too risky to rely on Amazon for everything. It’s also likely fatal to ignore Amazon.

Your supply chain leaders must find the right balance. They must leverage Amazon’s powerful logistics network while maintaining control and flexibility with a third-party logistics partner. That’s the path toward maximum resilience, cost savings and customer satisfaction.

Yes, Amazon dominates eCommerce. But a strategic multi-provider approach delivers the inventory visibility, accuracy and service levels that today’s customers demand across all sales channels.

And avoiding the pitfalls of single-sourcing logistics to Amazon or any one provider can protect your operations from disruptions. That’s the path toward competitive advantage and profitable growth.

So use Amazon strategically. Don’t make the online behemoth your be all and end all. Or it could end you.