FBA: Fulfilled by Amazon

What was the biggest challenge in onboarding so many vendors, through this program, at Amazon?

Firstly, the people have to do the job themselves. They have to generate their labels and create their shipment. To really have a platform where people could manage everything by themselves, without having to interact with people, at Amazon – the system, yes, but not the people – that was one of the challenges. It was pretty well-designed, from the beginning, which meant there was not much to do.

The challenge, which remains today, is the accuracy of the people, to do the right job of sending products, which have labels – you have to label your product, when you send it to Amazon – and doing it correctly. Put the label on, but also put the correct label on. If you order from a 1P vendor or any supplier, there is usually a high level of accuracy of what you are going to receive. The barcodes match the product, usually, because they are manufactured by them more frequently. In the case of FBA, unfortunately, there is a greater likelihood of mismatching or there are some products missing. Not intentionally, but just because people are not used to it or it is an additional step for them. Therefore, this one of the big challenges which we’ve seen from the beginning and it is still the case now, as the number of vendors in FBA is still growing. We cannot say, we’ve now been dealing with these vendors for 10 years. Some of them, yes, this is the case. But every day, every week, there are more vendors that come in, and they all have their learning curve. So there is still a high level of inaccuracy from the FBA vendors, which is still a challenge for the fulfilment center.

Do you think there are any other real operational limitations, which will prevent Amazon from scaling FBA, apart from the challenge about mis-sorting or misplacing?

No. The only other challenge is the capacity. The idea of FBA was to utilize some of the empty capacity in both space and throughput, to optimize our own logistics, particularly off-peak. When that was very small, there was always enough capacity for that, because it was small. As it grew, obviously, the capacity now has to be well-managed and accounted for. Therefore, one of the remaining challenges for Amazon is scaling the network, to make sure there is enough space for those FBA vendors. What is important is, there is no limitation with an FBA vendor. When you subscribe, you say, of course, what kind of business you are going to do. But there is no commitment or limitation, necessarily so Amazon sometimes has to put some limitation, over time, as the FBA grew. The ones that were really shifting some considerable volume, above and beyond what Amazon had expected, there had to be some discussion.

So the one remaining challenge to scale, is to make sure that they always have the capacity for the FBA vendors. You pay for the inventory you have in the warehouse, and you have seen the inventory policy and the rates, which can change by time. If you leave the inventory too long, the rate increases, quite significantly, because Amazon has to manage that. Amazon can adjust stock, indefinitely, basically. That, I believe, is one of the remaining challenges, but it doesn’t prevent Amazon from growing this business; it just requires a little bit more attention on how to scale it properly. When we started, we were doing that on the back of our 1P plan. We thought, okay, it’s going to be a few percent on top; that’s fine. Now you can’t just do that. If you don’t plan for the growth of FBA, you won’t have the space, because FBA is quite large.

How would you approach that from a network perspective then? As you said, you can change the pricing of the inventory in the warehouse, to move it quicker, but would you look at adding different fulfilment centers or warehouse, specifically for non-Amazon customer, to increase the capacity?

That’s exactly the different way that Amazon has approached it. Now there is proper planning for FBA inventory, which is done by the FBA team. What they do, basically, is they work half with larger FBA vendors, who have a significant amount with us, where we can have a real vending process, where we ask them what they are planning for and what their forecast is. Then, they are also working, statistically, with onboarding and seeing what size of vendors there are and what they expect onboard. They are doing the planning. FBA, like any product line in the company, has its own planning, where it comes back to the fulfilment operation at Amazon, to tell them and booking some space, in advance, based on their need. The planning of the expansion of the network now, is done including those numbers.