Amazon FBA challenges highlight broader vulnerability in e-commerce ecosystem
As sellers try to react quickly to ever-changing circumstances due to coronavirus, logistics and channel strategies may change forever.
“This is definitely a pivotal moment,” said former teacher turned entrepreneur Lisa Abel last week. Her business, selling the series of specialized classroom materials she developed, is in its second year. Abel sells exclusively on Amazon and relies on its Fulfillment by Amazon (FBA) program for all order processing and shipments.
Amazon’s decision to stop accepting inventory shipments for non-essential items to its warehouses for a four-week period has left sellers like Abel scrambling. Further, once unimaginable supply chain disruptions have rendered existing, best-practice processes anything but reliable.
‘Expect the unexpected’
“We see various things. So expect the unexpected,” said Frank Koshenash, president of Wunderman Commerce North America. “We’ve seen an essential FBA seller get disrupted because the factory is disrupted rather than Amazon. We’ve seen some [purchase orders from Amazon] come through when we would have expected otherwise. It’s hard to predict.”
Non-essential items may take a month or more to ship. “Amazon is showing our products will ship in late April or early May,” said Bryant Garvin, CMO of Groove Life, a Nashville, TN-based maker of silicon rings and watchbands. Groove Life sells via FBA on Amazon, directly on its own site and through small local businesses around the country.
Potentially crippling for sellers
“I became highly concerned about quarantining at my manufacturer and decided to restock on all of my SKUs — thousands of dollars in inventory,” said Abel. “Now I’m ready to ship but have nowhere to ship to. This could be crippling on a business.”
Abel has seen demand for her products shoot up as more parents are looking for home school materials while schools are closed. Suddenly, she had no way to restock her inventory just as sales are rising. Abel’s situation highlights just how widespread the supply-chain challenges have become for merchants, regardless of where their products are manufactured.
Chinese manufacturers, which supply most Amazon FBA sellers, were closed for seven to eight weeks starting in mid-January due to the coronavirus outbreak. Abel was insulated from those supply chain issues because all of her materials are made in the U.S. But, we are now seeing disruption across the U.S. supply chain, with slow or closed manufacturing plants and unprecedented strain on last-mile delivery logistics and resources.
Forced to rethink logistics
Abel says her constant networking with other Amazon sellers since she launched her business is paying off in this moment. She’s coordinating with her manufacturer to ship the new inventory to a company in Indiana that produces automotive goods and fulfills their Amazon orders directly. They have agreed to fulfill her Amazon orders for the time being.
“We’re recommending clients diversify fulfillment,” said Kochenash. “If they have MFN in-house or can spin it up they should consider doing so.” Companies need to consider the time and cost of setting up their own fulfillment versus waiting for Amazon’s fulfillment capabilities to normalize. “For most, the MFN option will end up being non-Prime, but that’s still better than some of the promised delivery dates that are out there,” said Kochenash.
“We are talking internally about switching to FBM [Fulfillment by Merchant],” said Garvin, as FBA fulfillment can now take weeks not days. Groove Life is fortunate that it already has its own fulfillment capabilities, plenty of inventory on-hand and can ship orders direct to customers in a couple of days. Groove Life is also fortunate that its products are small, which means the FBA storage fees it pays to Amazon are relatively minimal. Manufacturers with larger items and higher storage fees need to factor those costs into their calculations.
Renewed focus on process, channel diversification
“This is a prime example of why you have to have a channel that you own,” said Garvin. “You can control the customer relationship and aren’t at the whim of another company.”
Abel already had diversification on her 2020 roadmap, but says this experience prioritizes those efforts. While these weeks have been trying, and more challenges lie ahead, Abel is looking at the positives.
“I suddenly have to create a new business model and processes in 48-hours. Your business model is your process, so it’s really asking small businesses to redefine themselves,” said Abel. “I will know how to do FBA and FBM [fulfillment by merchant]. Those pivots will benefit us in the long-term though.”