Which Is Better For Order Fulfillment: Amazon or 3PL?July 28, 2021
Order fulfillment is a task that can be outsourced in many ways. Two of the most popular options Ecommerce businesses use are FBA (Fulfilled by Amazon) and 3PL (Third Party Logistics). Both options are conceptually similar, you hand your inventory to a third party, who then stores and ships it.
While the basic idea is much the same, FBA and 3PL services differ in many ways, so it’s vital to understand the advantages and drawbacks so you can choose the best option for your Ecommerce business.
To start, we’ll discuss what a 3PL is and why you’d want to use one.
What Is A 3PL, and How Can It Help?
Third-party logistics is the outsourcing of logistics tasks like inventory management, warehousing, and fulfillment. Companies that offer this type of service are known as 3PL providers.
A 3PL can help you by providing the shipping services and technology to keep your stock at optimal levels and deliver your orders on time.
Here are some of the advantages of working with a 3PL.
Advantages of Working With a 3PL
- Knowledge and Expertise
When you work with 3PL, you gain access to an experienced team of fulfillment experts. This is especially important because the fulfillment journey can be challenging at any step whether it’s warehousing or delivery. 3PLs have encountered and solved many fulfillment issues in the past, so they’ll be able to solve most roadblocks.
- Customized Services
A lot of 3PLs are great at offering services like specialty packaging, in-person inventory counts, packing inserts, and more. In addition, the majority of 3PLs can handle B2B and B2C fulfillment, supporting many different sales channels.
- Reduced Storage & Shipping Rates
Another advantage of outsourcing to a 3PL is the ability to choose between different shipping carriers and negotiate the best price. Usually, 3PLs will acquire lower rates than you could find on your own, based on their relationships with carriers and the volume they’re shipping.
- Faster distribution and processing
The majority of 3PL partners will be able to distribute your sold inventory to the buyer faster than you could on your own.
- Fulfillment and Warehousing Centers
Established 3PLs have an adequate amount of warehouse space for inventory storage. They also have technology integrated into their warehouse space that helps to manage inventory.
On top of this, 3PLs often have multiple warehouses available to distribute inventories to, which could help to cut down on delivery time and fees depending on your shipping zone.
- Dedicated Account Manager
Many 3PLs have dedicated account managers to help you manage sales growth and quickly resolve issues, should they arise.
Disadvantages of Working with a 3PL
- Businesses with Small Order Volumes
3PLs are not the best option if you’re just starting out and can’t gauge what your order volume will be. If you’re not getting many orders each month, you might not benefit from having inventory in storage with a 3PL until you can maintain a steady number of orders each month.
- Upfront Fees
If you want to start with a 3PL, there are initial fees. In many cases, you will need to pay the following, either per SKU or per month depending on your 3PL:
- Setup – Depending on your 3PL, this one-time fee is going to include warehouse tours, software integration, and training
- Receiving – Many 3PLs charge per shipment their warehouse receives. It could be an hourly rate for unloading, performing cycle counts, and inputting products into an inventory management system.
- Fulfillment – This covers picking and packaging, labels, package inserts, package customization, and order processing. Costs will vary depending on how many of the above steps are necessary for your business.
What is Fulfilled by Amazon (FBA) and How Can It Help?
Fulfilled by Amazon is a service where Amazon takes responsibility for the warehousing of your inventory at their fulfillment centers and the delivery of orders to your customers.
Amazon is the top platform for Ecommerce business, but there is a cost to using it. This is because using FBA means giving up part of your ability to manage your sales process.
Advantages of Amazon FBA
Amazon FBA has its fair share of benefits including:
- Customer Support Service
One benefit of FBA is that they handle all customer support, complaints, and return logistics.
- Access to Amazon Prime Customers
An advantage of using FBA is their direct access to over 100 million Amazon Prime subscribers. Amazon has many services designed to help improve your sales like Prime shipping, which has become a deciding factor when customers choose which items to purchase on Amazon.
- Transparent Fees and Easy Integration
Amazon provides a transparent fee structure, so you can simply calculate costs to get an estimate of your profits. Plus, Amazon offers multi-channel fulfillment, which means you can fulfill orders in multiple sales channels using your inventory stored in Amazon fulfillment centers.
Disadvantages of Amazon FBA
Although there are many benefits to using Amazon FBA, there are a couple of disadvantages:
- Less Brand Recognition
When you’re using FBA, Amazon won’t always ship your products in the packaging you’d like. Usually, they’ll pull your product from warehouses close to your customer using Amazon-branded boxes. This means customers may think they’re purchasing from Amazon and not your company.
- Higher Sales Costs
You’ll earn less per sale than you would on your own because of Amazon’s fees. As a seller, you’ll be charged monthly and costs will rise during the holiday season.
- Amazon is a Direct Competitor
When you use FBA, Amazon might be your competitor. Amazon doesn’t just fulfill orders, but they also sell, ship, and market their own products, which could be a conflict of interest with your Ecommerce business.
- Less Direct Communication
You will have less direct access to Amazon than a 3PL. You can visit a couple of forums to get answers and guidance, but Amazon only has one hotline account and doesn’t have dedicated account managers to help you make decisions. It can be difficult to get in touch with a real person if issues pop up as many of their systems are built on cloud-based technology.
Which Is The Best Choice?
Whether or not FBA or a 3PL is the best choice depends on your business needs. Amazon is a good choice if you need to sell a large number of products with a quick turnaround. However, using a 3PL is better if you want to improve and maintain your brand recognition, decrease storage costs over time and not have to change your internal processes to be Amazon compliant.
If a 3PL sounds like a good fit, consider using a provider like Fulfillment Works. They can help fulfill orders, keep your inventory stocked at optimal levels, and provide call center service to solve fulfillment issues.