Must-See for New EC Managers: What is Fulfillment by Amazon? Basics of Logistics Optimization Deciphered from 3PL Perspective

In scale-up of EC business, wall of "logistics" cannot be avoided. Especially for new EC managers, understanding of powerful logistics service "Fulfillment by Amazon (FBA)" provided by Amazon is a mandatory subject to balance sales maximization and operational efficiency. In this article, not just functional introduction, we structurally explain from 3PL (Third Party Logistics) perspective how FBA optimizes your supply chain and minimizes opportunity loss.

1. Definition and Structure of Fulfillment by Amazon (FBA)

Fulfillment by Amazon (hereinafter FBA) is a service where external sellers can use advanced logistics network provided by Amazon as their own inventory management and delivery resources. Specifically, Amazon collectively acts for product storage, order processing, picking, packing, delivery, and even customer service and return response.

What new managers should understand first is that FBA is not just "warehouse agency" but has aspect as marketing tool directly linked to improvement of CVR (Conversion Rate) by granting Amazon Prime mark.

2. 3 Core Values of FBA Seen from 3PL Perspective

When dissecting FBA from professional logistics perspective (3PL perspective), the following 3 values emerge.

• Ensuring Scalability: Flexible response is possible for sudden increase in orders (spike) such as during sales without securing personnel in-house.
• Standardization of Delivery Quality: You can provide Amazon's highest level delivery speed and packing quality as your brand service.
• Reduction of Opportunity Cost: With 24/7/365 operation system, night orders are processed immediately, preventing cancellation due to delivery delay.

3. Variabilization of Logistics Costs and Asset-Light Management

From financial perspective, the biggest merit of FBA is "Complete Variabilization of Logistics Costs". When owing own warehouse, fixed costs such as rent and labor costs occur, but FBA incurs costs "only for shipped amount", so asset-light management tailored to business phase becomes possible.

4. MECE Checklist to Confirm Before Introduction

When considering introduction, please evaluate the following items from MECE (Mutually Exclusive and Collectively Exhaustive) perspective.

1. Product Size and Storage Efficiency: Large products tend to have soaring storage fees.
2. Turnover Rate (DOH): Inventory turnover management is essential because long-term inventory is subject to storage fee penalty.
3. Presence/Absence of Multi-channel Use: There is also room to consider utilizing "Multi-Channel Service" that can ship orders from Rakuten Market and own site from FBA.