Let’s talk about key issues surrounding Order Management and Fulfillment:
- What options do you have to get your Amazon orders fulfilled?
- What fulfillment options best fit your ability to grow as an online seller?
- What are the inherent tradeoffs related to these options?
- How should you prepare your business to handle customer returns?
In this chapter, we will discuss the different options available to sellers to fulfill their Amazon orders. We will also talk the logistics of handling Amazon customer returns.
Let’s start by reviewing the major types of order fulfillment available to the typical Amazon seller:
One of the most common options, Amazon sellers choose to fulfill individual orders one at time themselves. Very small sellers will likely fulfill orders at home, packing individual orders on their kitchen table one order at a time, printing off shipping labels from their home printer, taking the orders to the post office, UPS, FedEx or DHL on a daily basis, and then confirming their shipment on Amazon (with a shipping confirmation number from the shipping carrier) – and this confirmation is important, as Amazon only pays sellers once the shipping confirmation has been shared with Amazon! So make sure you confirm each order you fulfill yourself! These sellers are likely buying packing materials in bulk, and storing it in their warehouse, basement or garage. For a small seller with few SKUs and few daily orders, this sort of fulfillment process is likely manageable. Using the Seller Central interface found through the drop-down menu of “Orders”, then “Manage Orders”, sellers are able to see the orders that they have to self-fulfill.
But what happens when a seller’s business grows quickly, and they have 50 orders, or 100 orders a day to fulfill? Can they handle all of the orders? Is the seller able to ensure that it is getting the best shipping rates, for getting the best shipping rates to different customer addresses may require price-shopping each package to each address. The seller will need to buy shipping optimization services like Shipstation, Ordoro or Shipwire. Before long, the seller will need to hire someone full-time just to handle orders. And if the seller’s business grows to 300 orders a day, it probably need more than 1 full-time person just to handle order fulfillment. And then if the seller experiences a big spike in orders during the holiday shipping season, it may simply not be able to keep up with getting orders out the door in time for Amazon’s requirements, even with the hired hands the seller has supporting order fulfillment.
Next, the orders grow to the point that it’s harder to keep the necessary product inventory at home in the garage. Now it’s time to rent out a small warehouse to store the product. That introduces overhead costs: rent, additional utilities, insurance, equipment, and possibly more staff to oversee warehouse space and activities. As the seller’s company gets even bigger, the seller requires more and more warehouse space. And it won’t be long before they need to buy order fulfillment/ERP software to manage all of these self-fulfilled orders (software like Skubana, Sellercloud, Brightpearl, or SolidCommerce).
As orders keep growing, the total number of returns will likely grow too, and at some point, someone will need to be designated to handle all customer returns issues – communications, possibly return shipping label creation, physical product receipt and inspection/grading for resale.
Before long, the seller is likely to get weighed down on operational issues related to order fulfillment, where its primary focus should be on developing new sourcing opportunities and optimizing product selection for customers.
Fulfillment by Amazon (FBA)
One powerful alternative to self-fulfilling Amazon orders is the use Fulfillment by Amazon. Amazon sellers have the unusual opportunity to tap into reasonably priced, world-class fulfillment services by using Amazon’s Fulfillment by Amazon (FBA) services. Through this service, Amazon sellers ship product in bulk to Amazon’s fulfillment centers (called fulfillment centers rather than warehouses, as Amazon wants you to sell the products, rather than store them indefinitely like some warehouses…). There, the sellers’ orders are individually fulfilled by Amazon very quickly, and show up on Amazon.com as being eligible for Prime Shipping and Super Saver Shipping – two mechanisms that are very effective at improving customer conversion and hence sales on Amazon. Furthermore, if sellers put their products into FBA, order confirmation, and parts of the customer returns processes are handled by Amazon, thereby streamlining/standardizing the overall experience for Amazon customers and sellers.
Because Amazon’s fulfillment capacity is far greater than any third-party seller on Amazon, Amazon is in a much better position to handle big fluctuations in order fulfillment needs of any Amazon seller. And when a seller factors in all of the overhead costs they might experience by running their own warehouse, the total cost for fulfilling an order using FBA is often cheaper or in-line with anything a seller can get, due to Amazon’s industry-leading shipping rates with the major carriers and Amazon’s overall scale in operating huge warehouse facilities. While sellers are still responsible for “FBA prep” of inventory for Amazon’s fulfillment centers (if product stickering or bagging is required, Amazon offers those add-on services, should the seller not want to handle those at its own facility), the demands on time for these processes are far less than individual order fulfillment.
Please note some special requirements that apply to FBA products. All products being shipped to FBA requires a unique label, whether a UPC or custom product-specific barcode that Amazon will provide. Not all products can be shipped to FBA, as Amazon has restrictions on certain types of liquids, hazmat products, as well as special packaging requirements for products in such categories as Apparel, Grocery, and Health & Beauty.
We have seen many of a seller grow its business to a large daily order volume, all managed without a large warehouse of its own, using instead FBA. These leaves the seller with much more time to focus on what is core to the seller – finding selection and securing inventory and lower prices for customers.
To create FBA shipments to send to Amazon’s Fulfillment Centers, you will need to go to Seller Central INVENTORY MANAGE FBA INVENTORY,
Here you can create shipments to send into Amazon’s FBA facilities. Type into Seller Central’s HELP bar “Shipment Creation Workflow” for some decent videos on how to create the actual shipments. You can also these videos through Amazon.com, by typing in “Selling on Amazon”, then on the next screen, type “Shipment Creation Workflow”.
Across the US, more and more warehouse facilities are offering various logistics services to Amazon sellers, including storage, FBA prep, individual order fulfillment, and returns management. If a seller does not want to have any warehouse facility of its own, all of its inventory can be routed directly to the 3PL location, where the 3PL essentially becomes the fully outsourced warehouse facility and staff for the seller. While costs differ widely across 3PL’s, many of them are waking up to the importance of FBA on ecommerce today, and getting competitive on pricing and performance.
Any seller using a 3PL is still responsible for making sure that the 3PL meets Amazon’s requirements for shipping times, and order confirmations. Depending on the capacity of the 3PL, it may well be able to handle rapid order growth by the seller – but the seller should confirm that the 3PL has the ability to scale with the seller.
In our additional resources section for this chapter, we provide the names of a few 3PL companies we know that are providing Amazon-specific 3PL services to help Amazon sellers.
Some sellers choose to use the drop-ship model where they never actually take ownership of product from the supplier, instead turning over orders to the supplier to fulfill to the end customer. This model can work well if the drop-shipper accurately tracks its available inventory (so the seller doesn’t sell inventory that is no longer available), ships out orders consistently on time, and consistently confirms on Amazon that the orders have shipped. Unfortunately, we have seen far too many sellers build a network of drop-shipped catalog selection, only to get their Amazon accounts suspended or closed because the drop-shippers aren’t able to meet Amazon’s shipping deadlines. It’s a dangerous path to use a drop-shipper that doesn’t have a good industry reputation for shipping out orders on time.
If Amazon sellers are looking to use drop-shippers as a means of increasing selection drastically online, they must consider the fact that most drop-shippers are happy to do business with lots of sellers. With few barriers to doing business with a drop-shipper, hundreds of sellers could quickly become the seller’s competitors, likely leading to price wars and a general lowering of prices and compression on margins for all drop-shipped selection.
If an Amazon seller enables the FBA Export feature on its account, some of the FBA items may be made eligible to be shipped by Amazon to international customers. And if the seller decides to enable self-fulfillment of international orders, the seller will have to make sure that its international orders are properly labelled with export documentation to facilitate customs clearance. Companies like DHL, UPS and Borderfree can help with the shipping and documentation of individual orders.
Marketing Materials in Orders sent to Amazon Customers
Amazon does not allow sellers to advertise electronically to any Amazon customers, even if the ad was meant to drive customers back to the seller’s Amazon store.
HOWEVER, sellers are allowed to include paper-based marketing materials, like catalogs or pamphlets, in their orders to Amazon customers.
If a seller is using self-fulfillment or 3PL, it is likely much easier for such catalogs or pamphlets to be included in the boxes going out to customers.
If an Amazon seller wanted to include catalogs or pamphlets in an FBA order, that material would have to be physically contained to the product already by the seller – Amazon would not pick and pack such materials into an FBA shipment.
This might likely require a catalog being placed inside each product box that gets sent to Amazon.
We’ve heard varying answers from Amazon on whether a seller is allowed to send paper catalogs to customers AFTER the sale, but we would encourage any seller that wishes to test the limits of Amazon’s marketing rules to do the following first:
- In the “Amazon Services Business Solutions Agreement” in Seller Central, there is a section on “Use of Amazon Transaction Information” – read it very carefully to see the broad scope of Amazon’s regulations against marketing to Amazon customers. Of course, Amazon reserves the right to change the wording of this agreement, or the interpretation of this agreement – so be careful.
- Contact Seller Support, explain EXACTLY what you want to do, and get IN WRITING confirmation that you are allowed to do what you are planning to do. If you get Amazon’s “ok” to proceed, don’t change the marketing plan AT ALL, without first talking again with Seller Support.
One interesting approach we’ve seen sellers use is including a warranty card in all orders, both sold on and off Amazon – Then if the customer chooses to fill out the warranty card and send it back to the seller, now the seller has acquired customer contact information outside of what Amazon has posted in Seller Central related to the initial order.
As long as the seller is also providing warranty cards in orders sold outside of Amazon, then the seller is able to communicate with customers using this warranty-sourced information.
Keep in mind that Sellers get suspended and terminated for marketing incorrectly to Amazon customers inappropriately.
Customer Returns of FBA orders
While the process of getting orders out the door may be challenging, handling returns can get even trickier even with a well-defined process.
As there is a comprehensive set of documents in Seller Central that talks about all of the steps required for handling returns, we will focus only on major points.
We feature separate videos for the return process for FBA orders vs. non-FBA orders.
Return Of FBA Orders
The key consideration for returned orders is whether or not an order was fulfilled by FBA vs. some other fulfillment avenue. If the seller is using FBA to fulfill its orders, Amazon will apply its own return policies to these orders:
30 Days To Return Orders
Amazon customers will have 30 days after an FBA product is shipped to file a return
Free Return Shipping
If a customer indicates that there is any kind of defect in the product (even if there really isn’t), the customer can get free return shipping to Amazon’s fulfillment centers (and depending on the category of the product, that return shipping cost gets passed onto the FBA seller).
Amazon Discretion On Returns
As outlined in the agreement each seller must agree to when initially signing up for FBA, Amazon gives itself a lot of discretion on whether to classify a returned product as returned in the condition it was sold – hence, we regularly see frustrated FBA sellers complaining that they are getting back used, damaged product that was sold new. Basically, Amazon unilaterally can make concessions to customers on product clearly damaged, worn or used by customers, even though Amazon’s own return policy to customers does require products to be returned new in original packaging with all product documentation intact.
Little Inspection On Returned Items
Amazon doesn’t inspect returned FBA product carefully to see that a product “switcheroo” was performed by the customer. We have even heard of situations where customers return empty boxes and get their refunds.
Returns, Not Replacements
If a customer isn’t happy with an FBA order, the only course of action for the customer is to return the product – partial concessions are rarely made on FBA orders, and instead the product is refunded (with shipping possibly refunded, depending on how customer classifies product).
So it is not possible on an FBA order for the seller to “fix” the product it is defective – instead, the customer has to return the product for a refund, and then buy another product (which might be purchased from another seller, or not re-purchased at all with the customer keeping his/her refund).
While these return policy conditions may appear very liberal, Amazon’s philosophy is that it wants to keep Amazon customer happy, and happy Amazon customers will keep coming back to Amazon.
So even if there is some customer fraud in the returns process, Amazon views that as a cost of doing business – and a cost that it expects FBA sellers to absorb as part of the cost of using FBA.
So yes, an FBA seller may find that FBA orders have a higher return rate than non-FBA orders, and yes, FBA orders may have a higher rate of customer fraud, but FBA products usually sell faster than non-FBA orders too.
Customer Returns of non-FBA orders
Return of Non-FBA Orders
If the order is not fulfilled by Amazon, then the seller has much more control over the return policy that it applies.
First, the return policy is expected to be clearly documented on the seller’s Amazon homepage, so customers can see what the seller’s return policy is BEFORE the customer places the order.
The seller has a lot more discretion here:
The seller may occasionally want to provide partial compensation to buyers for order issues aside from or in addition to refunding basic order costs (such as compensation for scuffs or missing parts)
Return shipping, RMA’s
When a buyer receives a defective item, for example, the seller may or may not choose to cover the cost of return shipping in order to retrieve the item. In fact, the seller may require the buyer to ask for a Return Merchandise Authorization (or RMA) number before sending the return back to the seller.
If a buyer is disappointed in not receiving the color of item they expected but they are willing to keep the item, a seller may choose to make a monetary concession to the buyer.
Concessions Debited by Amazon
When a concession is issued, the full amount of the concession will be debited from the seller’s account by Amazon.
Concessions = Happy Customers
Some sellers like to issue concessions to keep customers happy, as concessions do not contribute to the refund percentage in your seller performance metrics. If one or more products in an order are fully refunded, then the order is counted as a refunded order and is included in the seller’s Refund Rate
Refunds Through “Manage Orders”
To refund an order, the seller can issue refunds in full or in part via the “Manage Orders” tool under the “Orders” tab in Seller Central.
Experienced Seller Suggestion
No matter what type of order is being refunded, it is our experience that packaging is often missing or damaged on returned items. As a result, we encourage sellers to keep all extra boxes/packaging to fix up returned products for possible resale.
Likewise, if a seller has extra “parts” from damaged, un-resellable products, those parts can be used to fix any damaged products that get returned, so we again encourage sellers to keep a few extra “bits and bobs” of damaged products, rather than throwing away product that can’t be resold.