In e-commerce, the fast and secure delivery of orders bears utmost importance for both sellers and buyers. Individuals and companies that choose Amazon marketplace to sell their products have two options available to fulfill customers’ orders which are typically known as Amazon order fulfillment models. They can either go for the FBA model, (i.e. fulfillment by Amazon) or the FBM model, (i.e. fulfillment by merchant). Under FBA model, the inventory is stored at Amazon warehouses from where it is packed, shipped and delivered to the customers by Amazon employees. The FBA merchant just needs to dispatch inventory to Amazon warehouse and Amazon takes care for the rest. Under FBM model, on the other hand, Amazon just receives the orders from customers and the merchant himself performs all fulfillment activities from his own warehouse which typically may be a portion of his house or a rented building.
A proper understanding of how FBA and FBM fulfillment models work is crucial for those planning to sell on Amazon because it would help them decide which one is the most convenient and cost effective model to support their selling needs.
In article “Amazon FBA vs FBM“, we will discuss both the models, their advantages and disadvantages and some key points of difference between them.
Definitions and meanings
Fulfillment by Amazon (FBA)
Fulfillment by Amazon (or Amazon FBA) is an order processing model by which Amazon itself undertakes all the order fulfillment activities like picking, packing, shipping and delivering the ordered items at customer’s shipping address. Let’s briefly see how Amazon FBA works.
After creating an FBA account on Amazon platform, the merchant has to develop informative product listing within his seller account, manufacture or buy products from wholesalers and then ship them to the Amazon warehouse located in the target market like Amazon UK or USA etc. When the order for a product appears, employees from Amazon fulfilment center pick the product from warehouse, pack it and send to the customer’s shipping address. Amazon also provides customer service and takes responsibility for any returns and exchanges etc. FBA merchants are, however, responsible to make sure the dispatchment of fresh inventory to the Amazon warehouse before the existing stock is sold out. Any negligence in this respect may result in severe consequences such as loss of customers and decline in product ranking in Amazon’s organic search results.
Amazon FBA method offers many advantages to merchants. For example, FBA products are eligible for two-day prime shipping as well as other prime benefits. Since customers see FBA products as associated with Amazon, these products look more appealing, and hence, are more likely to be ordered by the buyers. Prime users comprise a large portion of overall Amazon customer community and they are more likely to purchase products that have a prime label compared to others.
Another benefit of FBA is that the merchant does not have to worry about the space for storing large amount of merchandise inventory. Amazon stores the products at its fulfillment centers and uses its vast logistics network to ship the orders in a timely manner. Instead of focusing on this tedious process of storage and shipping, the merchant can concentrate more on some other vital areas of his business like marketing and product improvement.
A drawback or disadvantage of FBA order processing is that the merchant have to pay additional fee to Amazon such as inventory storage charges and fee for handling and fulfilling each order. Also, FBA merchants have to bear the cost for dispatching inventory to the Amazon fulfillment center which may often be located across the border. Another drawback is that merchants have limited access to their inventory as it is stored in Amazon fulfillment centers. They also need to label their products properly so that they don’t get mixed up with other similar products at the fulfillment center.
The fulfillment by merchant (or Amazon FBM) is another order fulfillment model available for sellers working with Amazon. Under FBM method, the merchant himself assumes the responsibility for storing, packing and shipping the products to the customers. He first opens an FBM account with Amazon and then creates listings for the products he intents to sell on the platform. Instead of transporting to Amazon warehouse or fulfillment center, the merchant stores the products either in his own warehouse or at a storage space allowed by a third-party. Upon seeing an order in dashboard, the merchant packs the product and ships the same to his customer’s shipping address either through his own logistic facilities or using a reliable courier service. Consequently, he assumes responsibility to deal with late deliveries, and any missing, spoiled, perished or otherwise damaged items etc. Other after sale areas like returns and refunds are also handled by the merchant himself or his hired employees.
The benefit of selling under Amazon FBM model is that the merchant have more control over the inventory and he can handle issues related to incorrect shipping and product quality without delays. Merchants are also more in control of the packaging process. In addition, they can avoid warehouse charges and order processing fee that they otherwise need to pay to Amazon as part of FBA selling.
There are also drawbacks or disadvantages linked with FBM model. For example, FBM sellers are on weaker side when compared with FBA sellers because the customers are more likely to opt for FBA products. Although FBM merchants save on many costs that are otherwise associated with FBA model, they still have to pay selling fee to Amazon for each unit sold through its platform. In addition FBM model has its own overhead costs like warehouse rent, staff salaries and order processing costs etc. FBM sellers also have to deal with everything on their own including inventory storage, product packaging, shipping, inventory management, and so on. Due to these hassles, the order processing may become much more difficult for an FBM merchant when dealing with high volumes in high-demand times.
Difference between amazon FBA and FBM
The eight key points of difference between Amazon FBA and FBM are presented below to enable you to decide which method is the right one for your situation.
Amazon FBA is an order processing model by which Amazon itself assumes responsibility for fulfilling all customer orders that it receives for a merchant’s product. The typical activities that Amazon undertakes in this respect include picking, packing, shipping and customer support. The merchant himself has nothing to do with the order processing under FBA model. On the contrary, FBM refers to the process by which the merchant himself stores the products on his own place (in house or a rented godown) and performs the packing and shipping activities. Amazon plays no part in order processing under FBM order fulfillment model.
2. Inventory storage and control
In FBA, the inventory is stored at Amazon fulfillment centers, whereas in FBM, the merchant stores inventory at his own or rented warehouse. Hence, an FBA merchant has very little control over his product inventory while an FBM merchant enjoys a greater control over inventory.
3. Packaging customization
Under FBA, Amazon undertakes packaging which is usually standard for all the products it ships out. However, in FBM, the packing is the responsibility of the merchant, which means the merchant has an option to customize a certain packaging to make it more attractive to the customer.
4. Initial dispatchment from merchant
Under FBA, the merchant initially dispatches its product inventory to Amazon warehouse and Amazon further ships products to customers when an order form him is received. Under FBM, on the other hand, the merchant directly ships products to the customers.
5. Customer service
In FBA, customer service, exchange and returns are handled by Amazon, while the merchant is responsible for all such activities in FBM model.
6. Fees and other associated costs
FBA merchants have to pay an order handling/fulfillment fee and inventory storage charges to Amazon. FBM merchants do not have to pay these fees to Amazon, rather they incur their own overheads such as staff salary, warehouse rent and shipping costs etc.
7. Popularity among customers
Products that have prime label and are fulfilled by Amazon are more popular and customers are more likely to purchase those products because of the free two-day shipping. FBM are less popular because they are fulfilled by the merchant and usually take longer to ship. FBM merchants, therefore, may miss out on several customers that typically give preference to products labelled as prime.
8. Product size and weight
While selling through Amazon platform, product size and weight are among the most significant factors when deciding upon an order fulfillment model. If the product is heavy and large in size, the FBM may be a better choice because the Amazon usually charges additional storage, handling and shipping fees for products that are heavier and larger in dimensions than Amazon’s standard product weight and size. FBA, on the other hand, may be a better choice for lightweight and small dimension products that don’t exceed Amazon’s standard weight and size limits.
Amazon FBA vs FBM – tabular comparison
A tabular comparison of Amazon FBA and FBM is presented below:
|Stands for Fulfillment by Amazon, an order processing model by which customer orders are fulfilled/processed by Amazon fulfillment center.||Stands for Fulfillment by Merchant, an order processing model by which customer orders are fulfilled/processed by merchants themselves.|
|Inventory storage and control|
|Inventory is stored at Amazon fulfilment centers and is managed by Amazon staff.||Inventory is stored by seller at their own or rented warehouses and is managed by the seller himself.|
|Amazon is responsible for packing the product before dispatching it.||The packaging is carried out by the seller which allows merchant a customized packaging.|
|Initial dispatchment from seller|
|The initial dispatchment from merchant is made to Amazon warehouse.||The dispatchment from merchant is directly made to customers.|
|Amazon takes care of customer service, including exchange, return and refund requests.||The seller deals with customer service issues.|
|Fees and other associated costs|
|The seller pays inventory storage and order fulfillment fee to Amazon.||Overhead costs like warehouse rent, packing and shipping costs are involved.|
|Popularity among customers|
|More popular among amazon customer community because of prime eligibility||Less popular as customers mostly give preference to FBA products|
|Product size and weight|
|May be a better choice for small and lightweight products that don’t surpass Amazon’s standard weight and size limits.||May be preferred in case of large dimensions and heavy weight products that exceed specified standard weight and dimensions.|
Conclusion – Amazon FBA vs FBM
While Amazon offers both FBA and FBM order processing models, a merchant needs to be careful in deciding which model he really needs for his business. The chosen model should not only be convenient to meet all of his order processing needs in an efficient manner but also cost effective.
Amazon FBA is preferable for merchants selling high volume products. Amazon has efficient and professional order fulfillment staff and it is, therefore, better to have Amazon deal with order fulfillment when multiple orders are received on daily basis. It is also better for sellers willing to decrease the price to the lowest possible profit margin, if required due to tough competition and price war. To ensure quick delivery, FBA is more convenient for merchants who target an across the border market to sell their products.
Amazon FBM, on the other hand, is more practical for sellers with infrequent orders and low sales volume products because it is not feasible to bear Amazon fulfillment fee for such products. In addition, sellers having well established logistics network should also opt for this method. FBM is also more suitable for large and bulky products that require special packaging and care while shipping. Merchants are able to pack such products with care and ensure that no damages are incurred. Hence, the correct fulfillment technique highly depends on the sales volume, order frequency and the type of product in terms of size and weight.