On a recent episode of the eCommerce Braintrust Podcast, host and head of retail marketplace services at Acadia Julie Spear Spoke with Retail Account Manager Julien Pereira on the topic, “Is Amazon Direct Fulfillment a Good Fit For My Brand?”
Prior to joining Acadia, Julien spent several years at Amazon as a vendor and program manager, supporting thousands of vendors on their operational performance, and he had a specialty in the area of direct fulfillment.
Their conversation centered around Julien’s frameworks for evaluating when direct fulfillment is a good fit for a brand that's selling on first-party vendor on Amazon. You can read the highlights of their conversation below.
Julie Spear:
We're going to spend the bulk of today really digging into direct fulfillment. But for those who aren't familiar with the types of fulfillment available to first-party vendors on Amazon, can you give us a quick overview of the options and how direct fulfillment fits in as part of the larger picture of vendor operations?
Julien Pereira:
There are different supply chain strategies inside of Amazon, vendor central, direct import vendor flex, and of course the traditional per-order fulfillment. When we talk about direct fulfillment, the main difference to what is the traditional way to fulfill Amazon. Where you rely on Amazon to place a purchase order for you to prepare and then send the order to the fulfillment centers is as a DF vendor, and I like to say the acronym DF is that this step will be removed. So you will be managing your own inventory and you will receive orders directly from customers. After that, you will ensure that you pick and pack these orders individually before an Amazon carrier comes to collect the orders from your warehouse and deliver them to the end customer.
Julie Spear:
If I'm a brand that's been selling into Amazon through traditional POS, what are key indicators that I should be looking at to understand if direct fulfillment or DF might be a good fit for my business?
Julien Pereira:
So first of all, I couldn't agree more that there are plenty of options for different businesses and I think it's up to each client to see them and to see which will best fit their business. Regarding Direct Fulfillment, when evaluating if your business is a good fit, the first question I will ask is if you have the capability to process individual orders and if you have the internal resources in your warehouse to do so. If this is a yes, I think you are a step closer to being ready to be a direct fulfillment vendor. But then there are other points, and the first one will be to understand that DF is very customer-centric oriented. Since you will be managing the preparation of the orders on behalf of Amazon, it's important to be operational healthy so you don't impact the customer experience, which ultimately can deteriorate the satisfaction of the delivery. Also, something to consider is also the type of products you have in your catalog. Usually, bulky products can be a good fit for the program as they will relieve a lot of space in Amazon fulfillment centers. So categories such as furniture, home improvement, lawn and garden, and also kitchen can be an amazing fit.
Julie Spear:
You said the initial indicators around direct fulfillment are to ensure that you have the logistical capabilities and that it's a product category fit as well. What's the process for getting set up on direct fulfillment if you're already selling through traditional purchase orders?
Julien Pereira:
The process of launching DF is pretty simple compared to other supply chain strategies. You can do it in vendor central as a self service under warehouse settings and provide your warehouse information in opening hours or you can also raise a case selecting the option direct fulfillment after you completed this step. The Amazon system will launch and enable it with a given carrier of their choice, and from that moment on all the different apps that are linked to direct fulfillment will be live. There are also other important setups that are important to align with Amazon. The first one is daily time, which is the time of preparation that you will get for the orders you receive and also the daily warehouse capacity, which is the maximum volume your warehouse can handle on a daily basis.
Julie Spear:
What are some of the metrics that brands should use to assess the health and effectiveness of the program to ensure that they're going the right direction for fulfillment?
Julien Pereira:
If setting up is easy, I think monitoring the account is more challenging. And there are a couple of metrics that are critical for the success of the program. First one that I would like to mention is the cancellation rate. So this metric measures the number of orders that you cancel. The main reason for this weapon is because a client is not regularly monitoring their inventory, they are receiving orders that are actually out of stock. Is the customer right because he's purchasing the product and at the end he will not receive it? And maintaining a low cancellation rate below 1.5% is crucial to avoid potential suspension of your DF account.
Ship date is another important KPI and the target for this one is 98%. Once again, these are really, really challenging metrics and this all comes from what I mentioned earlier, that DF is very customer oriented. This metric indicates whether items were shipped within the expected ship date that Amazon has provided. Here it's primarily the responsibility of the client to ensure timely shipment as missing this metric can affect the final delivery date.
Julie Spear:
On the other side of things, outside of operational inefficiency or being in a tough product category, are there things that you'd consider to be an immediate “no-go” for using direct fulfillment as a brand?
Julien Pereira:
If you don't have these logistic capabilities to pick and pack individually the products, that's definitely a no-go. But the most important thing is that you are able to commit to the timelines that Amazon is providing in terms of products, I think I already mentioned, but it's important to avoid products that have a really low price because Amazon can potentially suppress these products. And usually this suppression is an automated process. So that is not really something that we can push back. So I will keep an eye on that.
You can learn more about Direct Fulfillment and Acadia’s other Amazon services by visiting our Amazon Full Channel Management page.