In the last quarter of 2019, Amazon generated a revenue of US$87.4 billion, showing a 21 percent increase from the same quarter last year. With the pandemic giving online shopping a further boost, there are now reasons to believe that the e-commerce giant will see a record holiday season this year.
However, the way this surge will be handled is a concern for many. Amazon itself recently confirmed that it is facing fulfillment center capacity limitations, mostly due to four events: COVID-related staffing issues, the persistent demand for essential products, prioritization of items slotted for Prime Day, and regulator Q4 demands. Navigating these realities will certainly be a challenge — but what exactly does this mean for vendors?
One thing is for sure: Direct Fulfillment (DF), Amazon’s drop ship program that allows vendors to ship directly from their warehouses to their customers, is going to become increasingly prevalent — especially considering that Amazon may actually begin forcing vendors to participate to alleviate its own pressure. Adopting the scheme now brings a great opportunity for vendors to secure and support their business during the peak season.
Amazon vendors should prepare to adopt Direct Fulfillment immediately. But why is this the perfect moment, and how can its benefits be maximized during the remainder of 2020?
Amazon’s Fulfillment Centers Hit Capacity Limits
The lead-time challenges, so emblematic of March and April, are still vivid in everyone’s mind. The number one e-commerce platform in the U.S. struggled to keep its delivery promises, and many items had anywhere from 7 to 15 days lead time, even on Prime-eligible products. Considering how Amazon takes pride in A to Z order fulfillment, and puts an emphasis on customer experience, this was truly unprecedented.
With the end of the pandemic nowhere in sight, not much is likely to change. Amazon’s operations will continue to be under strain throughout the peak season, as stores attempt to balance their volume and social distancing policies in an attempt to drive sales.
Walmart has already made the decision to close its stores for Thanksgiving to “rethink Black Friday,” and Target has also joined this policy. Steps like these clearly show that e-commerce is only going to grow further.
Even now, several of Amazon’s fulfillment centers are operating at capacity. This is also the first time that Prime Day will be pushed to Q4, as normally it runs in July. It’s beyond obvious that there’s no point in waiting to see how the situation plays out. Instead of a passive, reactionary approach, it’s key to adopt a sense of preparedness. Whether it’s established vendors, partners, or newcomers, having a path or ability to support the business regardless of Amazon’s capacity should be a priority.
That’s why Direct Fulfillment can now create an invaluable safety net. Without it, vendors risk experiencing disruptions and losing out on sales during the lead time it takes to get inventory back to Amazon. In fact, Amazon has already begun duplicating vendor catalogs with a DF vendor code without any notification or announcement, representing another clear push. Understanding and driving the full potential of DF will be a major success determinant in Q4.
How Can Vendors Prepare?
One of the main benefits of DF is that it doesn’t require any interaction with Amazon fulfillment centers. Vendors can easily provide real-time inventory via an electronic data interchange (EDI) feed for an entire catalog. But at the same time, DF doesn’t have to be exclusive. Vendors can continue to receive purchase orders for in-network shipments while participating in DF — a process referred to as “dual listing.”
DF also allows vendors to showcase their ability to provide service. Products enrolled in DF are considered Prime products, and — unlike the regular in-network scenario — Amazon pays all the shipping costs. DF-listed products obtain a free shipping badge for Prime members and their delivery promise is solely based on a vendor’s shipping capabilities: the team, the warehouse, and the resources.
Vendors participating in DF aren’t required to ship with the same service level agreement as an Amazon fulfillment center, meaning that the three-day rule doesn’t apply. However, the lead time will be reflected on vendors’ product detail pages, based on their true order speed. The faster the process, the more likely a sales conversion becomes. The longer the lead time, the less likely the customers will be to make a purchase.
So, while DF allows vendors to be in greater control over the availability of their inventory and their schedule, it also demands focus on streamlining one’s operations to keep processes running smoothly and best prepare for the peak.
How to Navigate the Peak Season
When it comes to DF, the golden rule is to keep a close eye on inventory. Inaccurate inventory feeds could lead to canceled orders, chargebacks (of $10 per instance), and ultimately warehouse suspensions. During the peak, vendors should look to update their inventory at least three times a day; and if the warehouse is getting behind, or if there are any issues with a particular ASIN, vendors can zero out the inventory immediately.
Moreover, vendors should aim to clear out any backlog and keep up with orders as quickly as possible. Any order sticking around for longer than it should will inherently impact the metrics. By reviewing historical data and creating projections, vendors can also align resources to specific times to better facilitate orders and pick-up. Obviously, this might require extra resources, so vendors looking to best navigate the peak might need to consider staffing up, especially during events like Prime Day, Black Friday, or Cyber Monday.
Ideally, vendors should ship orders on or before the required shipping day. There’s no penalty for shipping earlier — in fact, it can greatly benefit the lead time and give vendors a big lever to pull when it comes to the overall conversion rate. However, vendors should always remember to ship through the method Amazon provides because mismatches are also charged at $10 per instance.
At the end of the day, understanding DF means understanding how Amazon defines success. The metrics that the platform deploys are specifically designed to better communicate lead times and delivery expectations to its customers. To keep the numbers up, vendors should always look to maintain an accurate inventory, ship on time, ensure they register the advanced shipment notifications (ASN) or order confirmation, and strive to get the same day carrier stamp.
Direct Fulfillment pushes vendors into the driver’s seat — bringing both new benefits and responsibilities. When adopting the program, it’s key to have all the right processes in place and constantly work to optimize operations further. This should be done sooner rather than later. If Amazon imposes DF, vendors that already know how to make the best of it will be better equipped for all the things this year’s shopping season might bring.
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