Amazon’s Invite-Only Program to Solve Warehouse Congestion
Sellers on Amazon currently have a few different options when selling their products. Amazon offers a service called Seller Fulfilled Prime, this allows sellers to ship prime-eligible products directly from their own warehouse. However, many sellers cannot afford to provide two-day shipping directly from their warehouse, because of this not many sellers have joined. Another option is called Fulfillment by Amazon, sellers send their products to be stored in Amazon’s warehouse and Amazon’s logistics systems handles the sale of the product. The third option is the seller-only option, merchants sell products from their own warehouse without any benefits of Amazon Prime; these sellers typically receive fewer buyers because their products are not prime eligible. Because of the issues with Seller Fulfilled Prime and the seller-only option, many sellers decide to use Fulfillment by Amazon. This means that Amazon is storing many different sellers’ products within their own warehouses, these products are also congesting their logistics systems. In order to relieve some of this congestion, Amazon is testing an invitation-only program called FBA Onsite.
FBA Onsite is a program that will allow sellers to have more efficient storage and shipping options, and it will allow them to use Amazon’s software and logistics systems in their own warehouses. This is program is supposed to alleviate some of the headaches that merchants on Amazon are having in their order fulfillment processes. It would also allow Amazon to free space in their own fulfillment centers and give that task back to its third party sellers. Currently, Amazon has invited fifty of its top sellers to participate in this program.
Amazon is sending representatives to help third-party sellers model their processes to be more like Amazon’s. A large majority of the program involves reconfiguring the layout of third-party warehouse floor plans in order to make them more efficient in the order fulfillment process. As a way to repay Amazon for their services, part of the new floor plan will included a fenced area where Amazon will be able to store some of their own inventory. In addition, participating merchants will be installing Amazon’s warehouse management program, this will greatly reduce the time required to upload products to Amazon’s database. This program also gives sellers a big break on shipping costs, with FBA Onsite they will be able to ship directly from their own warehouses instead of having to ship to an Amazon warehouse as an intermediary before the product is shipped to customer. Amazon will be helping them to lower the two-day shipping rates by allowing sellers to use Amazon’s shipping accounts. One seller claims that this will discount shipping costs by up to eighty-five percent.
This article demonstrates the need for constant process analysis. Through this analysis, Amazon is able to make the most efficient order fulfillment systems possible and continue to update them to give Amazon customers the best user experience. Amazon’s processes are so tuned that they are able to use them as an asset and sell them to merchants on their website.
Fulfillment by Amazon is a great move on all parties’ parts. Amazon reaps the benefits of the sale by not having to do anything but make sure that the partner company is following through with the 2-day shipping and delivering the quality customers are expecting, while making a percentage off the sale and freeing up warehouse space. The third supplier gains the benefit of using Amazon’s name in order to increase sales, albeit at the detriment of having to abide by their 2-day shipping policy. The customer still gets to buy all their normal goods all from one place and can continue to expect the expedited shipping they are used to. Overall, a great move on Amazon’s part.
http://www.businessinsider.com/amazon-expands-its-delivery-service-2018-1
I think this is a risky move on Amazon’s part that it is trusting a third party to follow its 2-day delivery rule. At the end of the day, it would ruin Amazon’s name in the industry if customers experience delays in the delivery of their orders due to the partner company’s inefficiency. However, I do agree that this move will significantly reduce Amazon’s delivery costs while expanding its delivery areas at the same time. It would be interesting to find out more about the contract that Amazon signs with these third parties and the penalties it might initiate on partner companies in case of not following the 2-delivery rule to make more sense of the situation.
I do agree that this move does carry some risk, but I don’t believe it will be detrimental to their reputation overall. In inviting only 50 of their top sellers, they are including only the strongest and most efficient companies, companies that are already developed enough that they will have the ability to comply with Amazon’s 2-day shipping. Furthermore, because Amazon has grown to be such a powerful company, I believe partners who do not have as effective processes will either put time and resources into increasing their efficiency to continue their relationship with Amazon, or simply be dropped by Amazon from this program. As someone posted last week about Amazon’s new partnership with Nike, they have become such a powerhouse in the online retail industry that companies will certainly go the extra mile to continue doing business with them. I do also think that with Amazon’s extensive logistics software, they will always be aware as to how the companies they choose to involve in this program are faring, and can work with them if need be to ensure the greatest efficiency possible.
I agree with Maryam that this is a risky move by Amazon. I along with many other customers are attracted to Amazon for their ensured speed of delivery. If third parties drop the ball and are not able to maintain this high standard level, customers could lose confidence in the online retail firm. That being said, if these new operations run smoothly, it could really expand Amazon’s business and reach. Why these developments may be risky, I am not too worried about them; I still feel that Amazon is “taking over the world.”
I like that Amazon has chosen to delegate the work back to third-party vendors, but with an elite/exclusive system by limiting it to the tp performers. To me it seems like a very logical adjustment after analyzing Amazon’s process. It relieves stress on both sides of Amazon employees and third-parties, while expediting the process and thus efficiency. I agree that this situation proves why process analysis is ongoing and can always be improved. I believe that with delegation such as the kind in this situation, other unforeseen problems can arise. If I were consulting with Amazon throughout this process I would encourage them to keep a close eye on the process and its changes after this new structure, and not to hesitate to make more changes if problems do arise.
I think this article is a great example of how Amazon uses process analysis to stay successful in an increasingly competitive marketplace. Amazon is known for online retail and fast delivery times. Obviously, these fulfilled promises have made Amazon popular with consumers, as Amazon is now a leading company in the world. However, Amazon could not have had as much success if they did not utilize independent sellers. Currently, independent sellers make up about 44% of Amazon’s total sales (https://www.theguardian.com/technology/2015/jun/23/amazon-marketplace-third-party-seller-faustian-pact). So just as these smaller sellers benefit from Amazon’s reputation, Amazon is benefitting from these sellers bringing in more consumers. Therefore, Amazon needs to focus on process improvement for the independent sellers just has it has for itself over the years. Since Amazon has so much experience with speedy deliveries, it will be cheaper and more efficient for Amazon to help its independent sellers figure out how to improve their own processes and do the same, rather than forcing the independent sellers to figure it out on their own.
Amazon already has a very sophisticated logistics software that integrates many customers and sellers in a database. Amazon has clearly done very well with its customer involvement while building its process structures. With the new invitation-only FBA Onsite program, Amazon not only gets it end users (buyers) involved in the process management (which it has done in the past with Amazon Prime) but is also getting its suppliers in on the business model. This will help Amazon in two ways: 1.) reduce traffic in its own warehouse by getting suppliers to sell onsite and 2.) increase revenues by providing a service to its suppliers who will become more efficient. This is a great way to reward its loyal and profitable suppliers. The unique thing about this program is how FBO onsite members will get a restructuring of the physical layout of their warehouse which will enable Amazon to store its own inventory in the offshoots and make shipping and transportation more efficient by widening its scale of warehouse space across the globe. This is Amazon’s play to expand its brick-and-mortar operation.