For e-commerce sellers, getting your order shipped on time and within budget is of paramount importance. Both Amazon FBA (Fulfilled by Amazon) and 3PL (Third-Party Logistics) providers help to simplify this process by outsourcing order fulfillment. This means that sellers only need to deal with the production and branding of products – storing and shipping are organized by the service provider.
However, despite both FBA and 3PL offering essentially the same service, there are some key differences with the way that both operate. FBA, on the one hand, allows you to ship your products directly through Amazon for distribution. On the other hand, choosing a 3PL service means that you move fulfillment to an operating partner.
Considering these differences, there are inherent advantages and disadvantages with both FBA and 3PL – these largely depend on what the sellers’ circumstances are.
Before we begin assessing FBA vs 3PL, it’s worth noting an alternative to both. This is Amazon’s ‘Fulfillment by Merchant’ (FBM): a way for e-commerce companies to sell through Amazon but handle fulfillment themselves. This is applicable to sellers who meet certain criteria, so if this interests you, it’s worth checking whether you meet these requirements.
What is FBA and how is it used?
FBA, or Fulfillment by Amazon, is an outsourcing service that allows sellers to hand over storing, picking, packing, shipping, and delivering duties to Amazon. Products are sent to an Amazon fulfillment center, where Amazon distributes the products to customers.
By gaining access to Amazon’s sprawling logistics network, many businesses find it is much easier to boost growth, without having to navigate tricky importing obstacles.
For a full rundown on what FBA means in shipping and how it works in practice, read our comprehensive guide.
What are the advantages of using Amazon FBA?
There are multiple advantages to using Amazon FBA vs using 3PL, which could make choosing your provider an easy choice. These advantages depend on the type of seller you are, and what kind of services you will be requiring.
Some advantages of using Amazon FBA include:
- Payment transparency – Amazon is up-front about how much it costs you to use their fulfillment services and there will not be any hidden fees.
- Gaining access to one of the world’s largest marketplaces, meaning products can potentially reach high levels of visibility.
- Having the potential to cash in on some of Amazon’s biggest sales opportunities, such as Black Friday and Prime days.
- After-sale processes, like customer services and returns, are directly handled by Amazon, meaning product managers don’t have to account for this.
- Shipping is generally lower in cost than alternatives, as Amazon usually has discounted shipping costs from the main carriers.
- Products are typically shipped faster than alternative shipping methods.
What are the disadvantages of using Amazon FBA?
Despite the many advantages to choosing the Amazon FBA route, it’s worth noting that there are some disadvantages.
Some potential disadvantages of using Amazon FBA include:
- More returns are likely, as Amazon takes direct charge of handling returns – this means that customers don’t need the approval of the seller to return items. In turn, this may lead to higher costs from damaged products or lost inventory.
- Referral fees can be anywhere from 6% to 20% of the original sale price, while fulfillment fees range from $2 to $5 per unit. These costs mean that bad inventory management can drain profits.
- No opportunity for branding.
- Little interaction with your customer base, as this is all handled by Amazon. While there are upsides to this (less complaints to deal with), building rapport with customers can lead to increased repeat purchases.
- Loss of control with key elements of your business operation, including packaging, stocking and shipping.
- High levels of competition in popular categories, not only with other Amazon sellers, but potentially from Amazon itself. This is because Amazon Basics is a product range based on other sellers’ products.
If these disadvantages are something that raises concerns for you, let’s take a look at a common FBA alternative, 3PL, and explore its uses, advantages and disadvantages.
What is 3PL and how is it used?
A 3PL provider stands for ‘Third-Party Logistics’ provider, and aids e-commerce sellers by managing their supply chain. 3PL providers can help sellers with shipping compliance, customer service and order fulfillment, among other things.
Similarly to Amazon’s FBA service, where sellers send their products to an Amazon fulfillment center, 3PL sellers send their product inventory to a vendor’s warehouse. Then, stock is shipped directly to customers once they place an order, via the designated shipping carrier.
What are the advantages of using 3PL?
Using 3PL providers can hold some big advantages when it comes to organizing your logistics and shipping operation. Some of these benefits include:
- 3PLs will keep up-to-date records of your stock levels, making it easy to manage inventory performance and replenish stock in cases of product shortages and returns.
- Numerous payment options are available for customers, reducing abandonment rate.
- There are plenty of delivery options for customers, boosting customer satisfaction and retention rate.
- 3PLs have in-built insurance plans, meaning that you have protection against unforeseen mishaps. This is especially useful if you are dealing with high-value goods like jewelry or designer clothing.
- Trialing a product’s performance overseas is relatively hassle-free with a 3PL, as small product batches can be tested with reduced administrative and financial burden.
- E-commerce companies can generally expect lower shipping costs when using a 3PL service. Providers are usually partners with many different shipping companies, with profitable deals for the seller.
- Supply chain disruptions typically affect 3PLs less than if you were to go it alone – 3PLs have relationships with many different shipping carriers, meaning your risk is diversified and reduced.
- Overhead costs are reduced, as you don’t need to fork out money for a lease on storage space, warehouse staff and lifting equipment, among other essential items.
What are the disadvantages of using 3PL?
Going down the 3PL route isn’t for everyone – there are certain downsides to using 3PL providers that are worth bearing in mind when deciding between FBA vs 3PL. Some of these disadvantages include:
- When it gets to the shipping stage, communication can be more difficult with a 3PL compared with an FBA service. With 3PL, you have to get in touch with the individual shipping carrier in question, whereas with FBA, Amazon is the only party you need to be in contact with.
- 3PLs won’t keep track of your orders once they have left the vendor’s warehouse. Instead, you need to monitor each one on the individual shipping carrier’s website. This can be time-consuming.
- Different terms may be used by different shipping carriers once your products have been sent for shipping, causing a potential for confusion and miscommunication.
- The after-sale process can be complex with a 3PL, as, unlike FBA, each aspect of the reverse logistics needs to be arranged with a third party. If this arrangement is not efficient, this can lead to delays in returns processing and slower warehouse operations.
- Upfront costs are a given with 3PLs, and usually they are not cheap. And, if you already have in-house supply chain operations, these costs can be amplified further. E-commerce companies who choose to work with a 3PL provider should do so from a sound financial footing.
FBA vs 3PL: how to choose?
Now you’ve taken a look at both the advantages and disadvantages of FBA and 3PL, it’s time to consider your own position in relation to the choice you face. Ask yourself some of the following questions when taking the time to decide:
- Does the service know our market?
- Does the service cater for all our sales channels?
- What profits can we expect to make with a reduction in overhead costs? Will it outweigh the service fees?
- Does our order volume justify the monthly expenditure?
- What shipping discounts can we expect to receive?
- What customizations can the provider offer? Will it make the service more profitable?
These are just some of the considerations to take into account when choosing between a FBA and a 3PL service. Whichever you choose, there’s little doubting how useful an outsourcing fulfillment service can be.
With packing, inventory management, shipping and delivery taken care of, these outsourcing services allow you and your company the freedom to focus on developing production, branding and marketing for your goods.
Once you weigh up your needs versus the outlay required to profit from these services, you’ll be able to decide whether an FBA or a 3PL service will suit you best.
Frequently asked questions
Can my 3PL do my labeling for me?
Many 3PL services will offer labeling and compliance as part of their package. In fact, most 3PLs will buy and print labels for your goods. This means it is another aspect of selling that the supplier does not have to worry about.
How can I improve my FBA inventory limits?
One of the main ways to improve your inventory limits is to improve the Inventory Performance Index (IPI) Score of your products. This is a score that measures how well sellers are managing their inventory. Sellers with high IPI scores generally have higher storage limits. The IPI score can be found in the inventory dashboard on your Amazon account.
Which product types are the most challenging to prepare for FBA?
By and large, the product types that are the most challenging to prepare for FBA are packages that are delicate, irregularly sized, or time-limited. Examples of the latter include perishable goods that have an expiration date. It’s important to think about all the different issues that Amazon workers have to deal with at a Fulfillment Center, and make life as easy for them as possible.
How Do I Calculate My FBA Fulfillment Fees?
There are numerous ways to calculate your FBA Fulfillment fees. You’ll most likely want to use an automated calculator to work out what it’s going to cost. One of them is Amazon’s FBA Fee Calculator. To use this, you have to first find the product you want to sell on Amazon, enter the weight estimates and the product dimensions. Then, you have to input the item price, typical shipping costs, storage fees, and cost. After that, click calculate and it will sum up all the relevant numbers.
What are the main criteria for selecting a 3PL provider?
There are many factors you should consider when selecting a 3PL provider. Among these considerations are whether the provider aligns with your values, whether they have a reliable track record, and what their area of expertise is. You may also want to think about how easy it is to use their service, especially in terms of what metrics you’d like to track. It’s crucial that you can access their IT services with minimal fuss, in order to get what you need from the relationship.
Now that you have weighed the options and determined whether FBA or 3PL fulfilment is your best option, you’ll want to get your goods to the right fulfilment centre.
At Zee, our team has over 10,000 hours experience within the e-commerce sphere, helping our customers with customs compliance, international freight and more. When it comes to getting your goods where they need to go, we are the experts you need.
When choosing between 3PL providers, we can help set you up with 3PL partners across the globe. We have done the research to find the best partners for your needs, so that you don’t have to.
We also know that FBA setup can be a pain. Our services help navigate those tricky obstacles to ensure that your shipments and products are ready to go at any time.