For those unfamiliar (you should be familiar if you are FBA!), Amazon’s justification is:
When you carry low inventory relative to unit sales, it inhibits our ability to distribute products across our network, degrading delivery speed, and increasing shipping costs.
Funny (hypocritical) that when it comes out of our wallet for merchant-fufillment, Amazon won’t let us consider those same increased shipping costs from having to ship across more zones:
Shipping to all states in the contiguous US (excludes Hawaii, Alaska, US protectorates) for the same shipping fee is required.
I think their point is less about having to ship across zones and having to shuffle inventory back and forth between fulfillment centers.
In either case, yes, its a crock. We are punished for too much inventory, too little inventory, sending inventory to the warehouses they tell us too but not the ones where they secretly wanted us to… They reduce our inventory space, demand we send more, charge us low inventory fees when we don’t, charge us overstock fees when we do…
I feel your frustration but as an example I was going over some inventory reports Friday and noticed we had two units of inventory for one FNSKU, both located in Florida. The last purchase was today going to Montana. There definitely would have been logistically closer inventory had we had 10-20 of these units.
I understand your point as our primary warehouse is located in California or Georgia, but that being said, there is a cost associated with distributing that inventory from one coast to the other. Amazon simply stopped subsidizing it for their bottom line, but that does not mean the logistics costs did/do not exist.
Just like we discovered with unit limits and labeling requirements, FBA is not going to be used much longer by those who only have a few units to sell each month, as manufacturers, vendors, and importers are going to use it at scale and never see such fees.
You will not find it cheaper doing nationwide FBM with rare exception in parts of the Midwest.
To me, it was more about them making our point for us.
It costs money to move things. And it costs money to move things further (and faster, to make-up for the distance sometimes).
That’s why Amazon has the charge.
The hypocrisy is knowing all that, but then telling us all 48 states must be treated the same for standard shipping.
Perhaps the question should be if Amazon customers can or should be price segregated by geography. Amazon is simply saying if you sell in North America, it will be for one price and your distribution costs for FBM are your problem. This is not a conversation that has to take place on larger scale business decisions as volume negates the point with carriers or simply opening another distribution center.
We have a warehouse in GA, it does not have as much inventory due to size, and costs more to ship from CA to the East coast customers when it runs out, but that is our problem for letting the inventory in GA get low, not the customers, and not Amazons. In this case, Amazon is passing that cost to you/me for the same issue.
It’s an annoying and sometimes frustrating game to play, but we will play it until a system comes along that lets me ship nationwide for $5-6 in 2-3 days.
It is hard to even justify FBM even here in the Midwest. For a majority of my items, the FBA cost per unit is less than 50% of what it would cost if I shipped the product myself. That’s only the shipping part, not including storage. And to add in seasonal and part-time help associated with FBM would put me out of my misery
When Amazon launched FBA with the help of some real logistics experts, those experts and Amazon made an improper assumption.
They assumed that the sellers who used FBA would know how to manage their inventory and would manage their inventory. The fees were set on that basis. And the pick and pack fees were modeled based on their being adequate to meet Amazon’s profit goals.
As Amazon and those experts discovered, many or most Amazon sellers were unable to manage their inventories or unwilling to. Much of what was shipped to FBA was well in excess of what was needed to fulfill all of the orders for all time. Many of the sellers looked for the EOQ and ordered it whether there was enough demand or not. They had no other location to store their inventory.
Over time Amazon added more fees and raised fees regularly in an attempt to get the sellers to manage their inventory.
The shipping differential as @Uncle_Leroy describes it acted in opposition to the use of fees to incentivize good inventory management, and more new fees were needed.
It may not be hypocrisy that stimulated the low inventory fees, it was more likely to be the differences between the profits which the fees were modeled to generate, and the real issues associated with seller behavior which is heavy affected by ignorance of what the business issues are and practices which are not consistent with a symbiotic business relationship.
Herding cats is easier than dealing with Amazon sellers.
For standard shipping, specifically.
With expedited or higher, you are allowed to charge differently.
your distribution costs for FBM are your problem
And ultimately the customer’s problem, as the closer-zoned customers subsidize the further-zoned customers, in a system where each cannot be charged what they cost.
Thank you VTR (and everyone else).
This was purely academic. We’ve never been in the Low Inventory fee tier outside of some discontinued products, and we got back to embracing Vendor Central after ignoring it for half a decade.
I thought it was a hypocrisy in spirit, but apparently I am wrong.
On top of that, the biggest expense is the last mile delivery, so we all should stop buying online and go visit our local merchants. Sadly, Walmart monopolized that space, and I don’t feel like getting stabbed, just to get cat treats and Tylenol with autism, on Thursday afternoon.
Thanks for being part of the SAS family and making a thought provoking post about FBM/FBA shipping.
I wouldn’t say hypocrisy more than bullying. FBA only recently started doing the split shipment FBA thing, meaning they paid to distribute the same inventory for decades prior with the same fulfillment fee structure. Now they are giving sellers the shaft to be more profitable, because its not like they lowered the fees because sellers are paying more for distribution costs.
I would add Amazon biggest failure is/was the lack of barriers to entry. Too many grey market trash sellers, counterfeiters, and sellers who used FBA as a store and pray kind of system cost the competent inventory managers a lot of money.
From a purely utilitarian view, unless you sell a physically large item via FBA, the storage fees will always be less than the low inventory fees.
I have a worst-case scenario as I sell a very seasonal utterly non-Christmas-y product that is useful in summer. So, I have to keep pumping product into Amazon even as sales rapidly decline in fall, as the low inventory fee only looks backwards, not at any sort of current trend-line.
What I ship in October to avoid the low inventory fee will sit and gather dust until the next spring, but even the higher Christmas storage fees PLUS the early spring storage fees are far, far less than the hit I would take from selling with a low inventory fee in fall.
I do manage inventory well, and as we are the manufacturer, we can tune it down to the carton level on inbound shipments, even with Amazon’s highly variable handling times on inbound goods.
