How Does Amazon Fulfillment Work?

Amazon has built one of the most advanced fulfillment networks in the world, offering ecommerce businesses the ability to scale efficiently. But how does Amazon fulfillment work for those getting started? Whether a seller opts for Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM), each option comes with its own advantages and challenges. We explain everything you need to know in this article.

FBA vs. FBM – Key Differences

Amazon provides two main fulfillment methods: FBA and FBM. Learn more about each one below. 

Fulfillment by Amazon (FBA)

FBA allows sellers to store products in Amazon’s fulfillment centers, where Amazon handles storage, packing, shipping, and customer service.

Pros of FBA:

• Prime Eligibility: Products stored in Amazon fulfillment centers automatically qualify for Prime, leading to increased visibility and higher conversion rates. Prime members often prefer products with the Prime badge due to the assurance of fast and reliable delivery.
• Faster Shipping: Amazon's extensive logistics network ensures rapid order fulfillment, often delivering products within two days or less.
• Customer Service and Returns Management: Amazon handles all aspects of customer service, including returns, refunds, and inquiries, reducing the operational burden on sellers.
• Scalability: FBA allows businesses to grow without needing to invest in their own warehousing and logistics infrastructure.
• Multi-Channel Fulfillment: Sellers using FBA can also fulfill orders from other sales channels, such as Shopify or eBay, using Amazon’s logistics.

Cons of FBA:

• Higher Storage and Fulfillment Fees: Sellers must pay for storage space, and costs increase during peak seasons. Long-term storage fees can also be significant if inventory remains unsold for extended periods.
• Less Control Over Inventory: Amazon dictates warehouse organization and packaging, limiting seller customization and branding opportunities.
• Product Restrictions: Some product categories may not be eligible for FBA due to size, weight, or regulatory constraints.
• FBA Prep: Amazon's FBA prep requirements dictate how you pack and ship inventory to its warehouses and fulfillment centers. 

Fulfillment by Merchant (FBM)

FBM requires sellers to store, pack, and ship orders directly to customers or use a third-party logistics provider.

Pros of FBM:

• Greater Control Over Branding and Packaging: Sellers can customize packaging, inserts, and branding materials to enhance customer experience.
• Lower Storage Fees: Avoids Amazon's storage costs, making it a cost-effective option for sellers with efficient inventory management systems.
• Flexibility in Inventory Management: Sellers have full control over stock levels and fulfillment processes, reducing the risk of stockouts or excessive long-term storage fees.
• Ability to Maintain Profit Margins: Since sellers aren’t subject to FBA fees, they can potentially price their products more competitively or retain a higher margin.

Cons of FBM:

• No Prime Eligibility (Unless Using Seller Fulfilled Prime): Non-Prime products may receive lower visibility and conversion rates.
• Responsibility for Shipping and Customer Service: Sellers must handle fulfillment logistics, customer inquiries, and returns, requiring additional resources and time.
• Logistics Complexity: Managing fulfillment in multiple regions can become challenging without a strong logistics infrastructure.

How Inventory Gets Stored and Shipped – Fulfillment Process Breakdown

For FBA sellers:

1. Inventory Preparation: Sellers prepare and label products according to Amazon’s guidelines before sending them to Amazon’s fulfillment centers.
2. Shipment to Amazon: Sellers ship their products to designated Amazon warehouses, where Amazon receives, scans, and stores inventory.
3. Order Processing: When a customer places an order, Amazon’s system automatically picks, packs, and ships the product using its network of distribution centers.
4. Customer Service Management: Amazon manages order tracking, customer inquiries, returns, and refunds, ensuring a seamless customer experience.

For FBM sellers:

1. Warehouse and Inventory Management: Sellers store inventory in their own warehouses or work with third-party logistics (3PL) providers.
2. Order Processing: Upon receiving an order, sellers pick and pack products according to their fulfillment process.
3. Shipping Coordination: Sellers arrange for carriers (such as FedEx, UPS, or USPS) to deliver products to customers.
4. Customer Service & Returns Management: Sellers handle all customer inquiries, returns, and refunds directly.

Amazon’s Fee Structure – Cost Considerations

Amazon fulfillment costs vary depending on factors like product size, weight, and storage duration.

FBA Fees

• Fulfillment Fees: These cover picking, packing, shipping, and customer service. The fees are determined by product dimensions and weight.
• Storage Fees: Monthly charges apply for storing products in Amazon’s warehouses. Fees increase during peak shopping seasons, such as Q4.
• Long-Term Storage Fees: Products stored for over 365 days may incur additional charges to encourage faster inventory turnover.
• Removal & Disposal Fees: If a seller wishes to remove unsold inventory from Amazon warehouses, additional fees apply.
• Referral Fees: Amazon charges a percentage of the product’s selling price, varying by category.

FBM Costs

• Warehouse Costs: Sellers pay for their own storage, which can be cheaper than Amazon’s fees if managed efficiently.
• Shipping and Handling Fees: Costs depend on carrier rates, shipping speed, and destination.
• Customer Service Expenses: Since sellers must handle customer support, returns, and refunds, additional staffing may be required.

Prime Eligibility – How It Impacts Conversions

Products that qualify for Amazon Prime often experience higher conversion rates due to faster shipping and trusted fulfillment. Prime members actively seek Prime-eligible products, making it a crucial factor for sales performance.

How to get Prime eligibility:

1. Use FBA: Products stored in Amazon’s fulfillment centers automatically qualify for Prime benefits.
2. Enroll in Seller Fulfilled Prime (SFP): To qualify for SFP, sellers must adhere to strict performance metrics, including fast shipping speeds and high on-time delivery rates.
3. Improve Fulfillment Operations: Ensuring a smooth fulfillment process with reliable shipping partners can help sellers gain Prime eligibility through SFP.

While Prime eligibility can boost sales, sellers must weigh the associated fees and logistics challenges to determine the best fulfillment strategy.

How Does Amazon Fulfillment Work at Shipfusion?

Optimizing Amazon fulfillment requires expertise in inventory management, shipping efficiency, and cost control. While FBA and FBM each have their advantages, businesses need a fulfillment partner that can handle complex logistics with precision.

Shipfusion provides ecommerce businesses with comprehensive fulfillment solutions, including:

• Inventory Storage: Strategically located warehouses allow for faster delivery and reduced shipping costs.
• Order Processing: Automated systems ensure accurate and timely order fulfillment, reducing the risk of delays.
• Real-Time Tracking & Reporting: Advanced analytics help businesses monitor inventory levels and optimize their fulfillment strategies.
• Amazon Integration: Shipfusion seamlessly integrates with Amazon’s marketplace, making it easier for sellers to manage inventory across multiple sales channels.

Take advantage of these benefits and more and inquire about partnership today.