Season 1, Episode 119

Questions you need to ask before using Supply Chain by Amazon

Amazon has recently introduced a service called “Supply Chain by Amazon.” The program is Amazon’s expansion into the logistics sector, aiming to provide more comprehensive warehousing and multi-channel fulfillment options to sellers.

In this episode, Chris & Leah address key concerns surrounding this initiative, such as the potential impact on Amazon sellers and the practicality of using Amazon for logistics.

Show Notes

Transcript

[00:00:00] Chris: Hi everybody. This is Chris McCabe. Welcome back to another wonderful episode of Seller Performance Solutions. I’m here once again with Leah McHugh of ecommerceChris, how are you Leah?

[00:00:11] Leah: Good. Thanks. How are you, Chris?

[00:00:12] Chris: I’m wonderful. Just like this episode. It’s wonderful. We’re here talking about what’s all the rage right now. The…

[00:00:22] Leah: Supply chain by Amazon?

[00:00:23] Chris: Let’s just start over. Yeah. Let’s just start over.

No countdown. Let’s just recording. Just go. Okay. Hey everybody, welcome back to another wonderful episode of Seller Performance Solutions. I’m Chris McCabe of ecommerceChris, here with Leah McHugh, also of ecommerceChris. Sorry for stuttering on your name.

[00:00:48] Leah: It’s been nine years and you’ve forgotten my name.

[00:00:51] Chris: I forgot your last name. Interesting way to begin. Let’s talk about what’s all the rage right now in the Amazon selling space around freight forwarding, right? And logistics. And they’re calling it, you know more about this than me.

[00:01:05] Leah: Oh, Amazon supply chain by Amazon. Yeah.

[00:01:07] Chris: Supply chain by Amazon. That’s what I wanted to say. Yes. I guess we could start with the fact that there’s a lot of interest about this among sellers asking us about it. Service providers are talking about it. We’ve even fielded a few calls from media, from reporters about it. So clearly, this is a big topic right now.

And of course we see a lot of LinkedIn posts about it. Anytime there’s a hot topic. So breaking this down essentially into, you know, defining it easy, easy bites of information. Is this just Amazon making another move into logistics and offering something that’ll be quicker, easier, better than what other people independently offer? How would you summarize it if you had two sentences?

[00:01:50] Leah: Essentially, Amazon is extending their fulfillment offering to more in depth warehousing and multi channel fulfillment for sellers if they opt in to supply chain by Amazon, which they were previously doing multi channel fulfillment. It was an offering that they had, I guess, this is just expanding on that offering. I think it’s been big in the media because I believe Dharmesh announced it at Accelerate as their like big move. And I think there’s multiple reasons behind it. I’m sure the FTC suit specifically citing prime as an anti-competitive program was part of the decision. But I also think part of the decision was because they opened too many warehouses during COVID, and they’ve been trying to figure out how to make that profitable ever since.

[00:02:44] Chris: Right. They’ve clearly had this in the works for a while. Anticipating the lawsuit or not withstanding the lawsuit because they’re trying to make bigger plays in logistics, and just be one stop shopping for everyone. And in a conversation I had with the reporter the other day, I brought up the all eggs in one basket problem when it comes to selling on Amazon and having all of your inventory with Amazon.

[00:03:05] Leah: Yeah, there’s multiple concerns. And just for clarity, I used to manage supply chain for companies before I started working with Chris. So I’ve worked with a lot of third party logistic companies. I’ve moved operations between logistic companies. My concerns with Amazon 3PL, the biggest one really is that Amazon has never treated sellers like customers.

And if you’re using a third party warehouse to fulfill all of your orders who are controlling all of your inventory, you definitely need two-way communication. Like when I was managing logistics, I was speaking to our account manager at least once a day. Previously, Amazon didn’t even offer an account manager for multi-channel fulfillment. I’m not even sure if the new program offers an account manager. So that’s my first concern, is that you don’t have that communication method or that relationship where you are the customer. Amazon has never viewed sellers as their customers, which also leads into, is there any sort of agreement that Amazon will actually abide by in terms of KPIs?

So if they make mistakes, whose paying for those mistakes? If they ship late, which consistently with their third party logistics we would see them not maintain their own KPIs for off Amazon orders, like Amazon orders would ship almost immediately if it was for a third party channel. It would just ship whenever FBA felt like sending it out.

So that’s another question of will they actually maintain their own KPIs if it’s an off Amazon sale? Because they haven’t previously. And then my last one, which is the one that you touched on was putting it all in one basket. Amazon does explicitly state that they’ll continue to fulfill third party orders if your Amazon account is suspended, but we have seen and practiced that not be the case.

Not only do they stop fulfilling third party orders, they also sometimes will hold all of your inventory hostage. So then you’re looking at not just your Amazon inventory being held hostage, but all channels inventory now being held by Amazon until you resolve a suspension with them.

[00:05:26] Chris: Not only that, but people try to do this method of I’ll take a huge loan with Amazon and maybe that’ll protect me from a suspension.

[00:05:34] Leah: Right. It doesn’t. None of this is going to protect you from a suspension.

[00:05:36] Chris: Reading the agreement language, you’re responsible for repaying that loan, whether you’re suspended or not. The hidden idea that Amazon will have an incentive to protect you more, talk to you more. I mean, did that really play out with lending? I don’t think so.

[00:05:50] Leah: No, it never did. Another thing that I’ve also seen other people in the space mention is you’re giving Amazon a whole lot of sales data of your off-Amazon sales. If they’re now fulfilling all of your orders, and do you really want Amazon to have all of that data on your products and off Amazon sales?

[00:06:11] Chris: A lot of trust there and let’s get back to the communication. I think that’s in some ways the most interesting piece. Not the most interesting to you, somebody who’s an expert in logistics, whose been through it in all shapes and sizes. But the communication of not having an account manager. Knowing how communication with my former teams, seller performance already is.

[00:06:33] Leah: Right

[00:06:33] Chris: copy and paste

[00:06:35] Leah: Yeah

[00:06:35] Chris: It looks like it’s auto generated and even when, for example, you talk to support, or account health and you get that auto generated looking sounding message after you hang up.

[00:06:46] Leah: Yeah, or just not getting a response for days at a time. If you’re doing any sort of volume on these channels, a lot of these issues can’t wait for days to be resolved.

You’re looking at like huge costs and huge issues if it takes days for somebody to get back to you.

[00:07:03] Chris: And think about their KPIs. Like you said, a lot of these teams that you deal with in other contexts.

[00:07:08] Leah: They never maintain their own KPIs.

[00:07:10] Chris: The reason they follow up with you with that message, because the message itself says nothing.

[00:07:14] Leah: Right. It’s just gibberish.

[00:07:16] Chris: It just says, I’m confirming we talked. I’m confirming it’s still under review. We’ll get back to you when we’re done. Essentially for all different teams and all different types of messages, they boil down to those three components. Why would you expect that this would be any different? But as you know from managing logistics for multiple companies, and startups, and online sales and so forth, some answers you need now, not two days from now, right?

[00:07:40] Leah: Well, especially if there’s an error. If they’re making a mistake and you’re looking at thousands of pending orders where they are potentially going to make that same mistake thousands of times, you really can’t just wait for them to decide to get back to you. And again, If you’re using a third party warehouse, they have contractual metrics that they need to meet, and if they don’t meet them, they pay that cost. You don’t pay that cost. And I just historically have not really seen that happen so much with Amazon. And I would just be very hesitant to use this service. For the day to day stuff, but also because at any point they could just hold all of your inventory hostage.

[00:08:26] Chris: At least just ask a lot of questions. Get some information. What is the reply time? Who are you going to be dealing with? Who are they accountable to? Because what you’re saying is a really big deal. How much auditing of errors and mistakes really happens at Amazon across the board? All of these themes that we hear of and deal with; doesn’t seem like it’s significant or valuable if it is happening.

[00:08:48] Leah: You also lack control.

[00:08:50] Chris: You’re making a huge investment here, right? It’s not just a leap of faith.

[00:08:53] Leah: Well, you already can see with FBA, you lack control. They can move your inventory between distribution centers. They can move your inventory to different warehouses whenever they feel like it. So, during those times, that inventory is unavailable. And also… You don’t have any control of when or why they do this. So one, are you paying every time they decide to move this inventory? And two, what if they decide to move the inventory at a peak sales season, and then it takes them a month to check in the inventory? Which we see with FBA all the time.

Your inventory is just stranded due to no fault of your own.

[00:09:33] Chris: For those of you just hearing my voice and not seeing the video, I’m nodding, which is really good radio slash audio.

[00:09:40] Leah: Yep.

[00:09:41] Chris: The risks are real. It’s a new program. In theory Amazon can bring something to the logistics table that other parties cannot. So we understand that there’s some upside here. But it’s unproven if they can do this in a functional, efficient, reliable way; Where the risk is shared between you and Amazon, right? Isn’t that fair to say?

[00:10:03] Leah: If I was going to use a third party warehouse, I would use a third party warehouse. There are tons of them now that specialize in ecommerce.

When I was setting these up, they were still specializing in infomercials. So, third party warehouses have come a long way. I also historically have found that third party warehouses for off-Amazon fulfillment were significantly cheaper than what Amazon charged for off-Amazon fulfillment.

So, as much as Amazon tells you that they are the cheapest, it’s definitely worth shopping around because I looked at their rates and they are not affordable. Even, like if you ship to Hawaii or Puerto Rico it’s a 100 percent markup on the fees. Definitely shop around, definitely speak to other third party logistic companies, and also really consider your needs. If you are going to need hands-on, and if you’re selling to big box stores or you’re drop shipping to big box stores, marketplaces, or you’re selling to retailers, even the smaller ones, chances are you’re going to need a lot more interaction with the people that are managing your fulfillment than Amazon is going to provide you with.

[00:11:11] Chris: Words to live by. Any other pointers you want to throw out there while we’re on this topic? I’m sure we’ll revisit this topic as people start doing it and experiencing it. Seeing the upside, the downsides. I mean, this is kind of a crazy time of year to be talking about logistics stuff that might be implemented soon.

[00:11:31] Leah: And another question that I haven’t seen answered is Amazon FBA increases their fees every Q4. Is Amazon Freight going to increase their fees every Q4? Because that’s also something that I’ve never experienced with a third party distribution company. Right.

[00:11:46] Chris: They’re afraid of losing your business. That’s why they don’t want to increase fees once a year. But does Amazon think you’ll give them a pass because you’re in bed with them on everything else you do?

[00:11:58] Leah: So again, worth shopping around and getting other rates, not just taking Amazon’s word for it, that they’re super affordable.

[00:12:05] Chris: And the reporters we talked to, were they saying that they think Amazon’s offering will be cheaper and that’s why they think they’re promoting it so much right now?

[00:12:14] Leah: I’ve seen people discussing, you’re taking advantage of Amazon shipping rates, and yeah they do have great shipping rates, but you also have to take into consideration their pick and pack fee. And they charge that fee per unit on top of shipping, which most third party companies do. When I was looking at different warehouses for my clients.

It’s not just looking at one rate and you make your decision based on that. You’re having to make fairly in depth spreadsheets to figure out, this is the type of fulfillment we’re going to be doing. This is the cost for this. This is the type of shipping we’re going to be doing. This is the cost for that. And actually breaking it down and working out which is the best option for you financially. It’s not just, well the shipping is cheaper, so they’re going to be cheaper. The pick and pack rate is a huge cost center and is worth reviewing. Sometimes you’re even better off going somewhere with a more expensive shipping rate, but a better pick and pack fee.

[00:13:11] Chris: Right. So as you can tell by listening to Leah, who knows everything about this more or less, the devil’s in the details, pay attention to this stuff. I suppose the devil’s advocate view would be, well, the experience with FBA hasn’t been universally horrible. Some people have had good experiences with FBA where shipments aren’t lost as often as they think, or the fee increases aren’t as much as they expected. Things like that. They still do FBA. It’s not just because they’re held hostage. Some people are having a good experience with FBA. Is there a chance that they’ll have a similarly good experience with this, where not every nightmare scenario will play out?

[00:13:47] Leah: Yeah, I’m not saying it’s definitely going to be bad, but I will say that I have historically seen Amazon not treat their third party fulfillment the same way they treat FBA orders.

[00:14:00] Chris: Right. Another key point to keep an eye on. So I guess we’ll see how many people join the program, and what their feedback is.

How many months do you think it would take to figure out whether this is as promised, or succeeding, or not so great, or failing, or what?

[00:14:18] Leah: Again there are so many different types of fulfillment. It really depends on your requirement, and it also depends on how long it takes for there to be a problem. You really aren’t going to know until there is some kind of a problem. Whether that’s, you’re suspended and now they won’t fulfill any of your other channels orders, or whether that’s, they’ve made a mistake and you’re now struggling to fix it across all channels.

There isn’t a specific timeline. It depends on what kind of fulfillment you’re doing and what kind of issues come up.

[00:14:48] Chris: So don’t blindly trust. Dig into the details. Some of it is wait and see, but some of it you can evaluate in advance and compare and contrast with other 3PLs, right?

[00:15:00] Leah: Yeah, I would also consider if there’s a product recall. If you’re getting it out of your 3PL, I imagine that would be a lot easier than getting it out of Amazon because getting recalls out of FBA is also a headache for sellers, and that’s with their actual FBA program. So who knows what it’ll be like with all of your inventory in there.

[00:15:20] Chris: Good note to end on, good point.

[00:15:22] Leah: Nice high note.

[00:15:23] Chris: Nice high note. Well, we like to caution people and to tell them to scrutinize and thoroughly evaluate these things before diving headlong into it. You know, look at the quality of the communication you’re getting. Of course, Amazon is hot and heavy in the beginning when they’re selling you on something.

Once you’ve committed to it and embraced it, are they still communicating with you as in as detailed a fashion or as feverishly as they did when they were in the sales period? Historically, no, hopefully yes, but share your experience with us and we’ll probably talk about this on a future episode as well.

I’m sure we will. Thank you again, Leah, for your wonderful logistics expertise.

[00:16:03] Leah: You’re welcome.

[00:16:03] Chris: I’ll talk to you next time. Take care.

[00:16:07] Leah: All right.

Hosts & Guests

Leah McHugh

Chris McCabe

 

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