Hybrid Selling Models: FBA, FBM & 3PL Optimization
When it comes to governing your Amazon seller account, the task is so much more than just a matter of selling items, putting the products up, and expecting to receive sales revenue. On the contrary, the most important behind-the-scenes actions that must be taken are integrations that need to be made to ensure that optimal merchandising strategies are executed that take full advantage of the business’s fulfillment. Of course, this is where hybrid business/merchandising strategies come into play, and are the most important. Â
Using the FBA (Fulfillment by Amazon) model exclusively has its drawbacks too. You may experience a peak seasonal sellout (of your stock), and may incur high storage fees and long lead times. Conversely, FBM (Fulfillment by Merchant) gives the seller more control, but takes more time, since it requires more infrastructure. Using a 3PL (Third Party Logistics) is more flexible but has its own challenges to coordinate.
The more you can mix and match these fulfillment strategies, the more optimal your balance of cost, speed, and resiliency will be. I’ve seen sellers segment their inventory to handle it with FBA, FBM, and 3PL, and the result was a 20% reduction, and faster time to deliver.
This is a guide and will act as a guide to inform you about each of the merchandising strategies to move to optimal fulfillment in hybrid selling, and will tell the story of real sellers.
What Other Hybrid Business Strategies Exist?
In the Amazon hybrid selling business model (described above), the successful seller is able to use the Amazon multi-merchandising strategies – FBA, FBM, and 3PL – to her business advantage.
FBA (Fulfillment by Amazon) is a service by Amazon where the seller gives their products to Amazon, and Amazon houses, packs, and ships the sellers’ products. Amazon also takes care of the customer service and the return processing of merchandise, which is a service that makes it easier to fulfill the business needs of high-volume sellers.
FBM (fulfillment by merchant): Sellers keep their own inventory and manage their own shipment of the products. This works best with oversized items, low volume SKUs, and products that need a special way of handling.
3PL (third-party logistics): External logistics providers store inventory, pack inventory, and ship inventory (typically for multiple channels). This lies in the middle of the spectrum for FBA and FBM, as 3PL gives you flexibility without having to manage your own warehouse.
Having a hybrid system enables sellers to:
Reduce single fulfillment system dependence
Decrease storage and shipment costs
Enhance speed of delivery and eligibility for Buy Box
Efficiently scale up for seasonal demand
Fulfillment Models Explained
1. Fulfillment by Amazon (FBA)
FBA is the most popular fulfillment model. Amazon stores your inventory in their fulfillment centers and manages the shipping, customer service, and returns.
Pros:
Increases conversion rate with Prime
Logistics management with no involvement
Keeps returns handling automated
Cons:
Storage fees accumulate, especially with slow movers
Your control over packaging and branding is restricted
Possible restrictions with stock placement
Example: An FBA consumer electronics seller for fast-moving gadgets experienced the holiday season and used Amazon to deliver thousands of units in a timely manner. However, their storage fees due to slow-moving SKUs made them switch to FBM.
2. Fulfillment by Merchant (FBM)
FBM allows sellers to customize their fulfillment process by managing their own inventory and shipping from the warehouse/small fulfillment center of their choice.
Pros:
Less expensive for large or heavy items
Control over the branding and the presentation of the box
Able to use and manage multiple sales channels
Cons:
Must have operational resources to manage fulfillment
May have slower shipping times, which can affect satisfaction levels
Must manage returns and customer support
Example: A seller of furniture used FBM to manage large items that FBA could not easily store. The seller was able to partner with local carriers to meet and keep delivery promises while avoiding FBA storage fees.
3. Third-Party Logistics (3PL)
3PL providers offer fulfillment of storage and shipping and combine with multiple sales channels.
Pros:
Offers flexible solutions for storage and shipping
Enables/sustains operations for multiple sales channels
Has the potential to lower costs of fulfilling specific SKUs
Cons:
Higher demand for management of 3rd party vendors
Less consolidation with Amazon than FBA
May not be as committed to the customer in quality of service as other providers
Example: A brand of dietary supplements utilized a 3PL service to manage fulfillment of subscription orders while FBA managed sales on Amazon to not overstrain their operations.
Optimizing Hybrid Selling Models
1. Strategic Product Segmentation
It is illogical to apply identical fulfillment strategies to every product. Consider the following to segment your inventory:
Sales velocity
Product size and weight
Seasonal demand
Shipping complexity
Suggestion: Use FBA for fast-moving, smaller-sized products; FBM for larger, yet lower-volume SKU products; and 3PL for orders made across multiple sales channels.
2. Efficient Inventory Distribution
Customers appreciate streamlined delivery; to facilitate this, position your inventory across FBA centers, FBM warehouses, and 3PL facilities. This helps delivery speed, prevents stockouts, and reduces long-term storage costs.
Example: A home goods seller used to keep their best sellers FBA to continue receiving orders in one of the larger FBA facilities, located in a region with a fast moving customer demand. This resulted in lower costs due to slow moving items in a 3PL while improving delivery speed.
3. Monitoring Calculation of Expenses and Fees
It is important to keep in mind:
FBA storage and fulfillment
FBM shipping and packaging
3PL services
Suggestion: Flow of SKUs across fulfillment methods to optimize expenses for profit retention.
4. Multi Channel Integration
With the growing popularity of Shopify and eBay, FBM and 3PL offer sellers the opportunity to fulfill customer orders. This prevents disruption of services during the waiting period for inventory from FBA and ensures the customer experience is consistent across sales channels.
5. Returning Products and Customer Service
The use of a hybrid model requires examples within order fulfillment and return of items. FBA automatically manages and fulfills Amazon returns. This is different from FBM and 3PL, where the seller is required to clearly document fulfillment processes.
Suggestion: Use 3PL for your Amazon integration in order to monitor returns in real time, assuming a returns integration system is in place.
Seller Observations In The Field
Electronics Seller: Moved underperforming products from FBA to FBM to mitigate a 25% increase in storage costs.
Furniture Brand: Mixed FFV Large and FBM Small Fast movers to cut costs and increase delivery efficiency.
Subscription Based Seller: FBA served Amazon while a 3PL provided subscription orders, simplifying logistics and enhancing scalability.
The Hybrid Selling Models.
Cost Efficiency: Eliminate unnecessary storage and fulfillment costs.
Fulfillment Backup: Avoid stockouts by relying on a single fulfillment method.
Increased Speed: Strategic positioning allows for quicker delivery.
Multi-Channel Capability: FBM and 3PL extend fulfillment beyond Amazon.
Flexibility: Meet fulfillment needs for seasonal variations and altering product lines.
FAQ
01. What are hybrid selling models?
Fulfillment by Amazon (FBA) combined with Fulfillment by Merchant (FBM) and Third Party Logistics (3PL) with the aim of cost efficiency and speedier, more flexible distribution.
02. Why use a hybrid model?
Cost efficiency, mitigation of stockouts, faster fulfillment, improved delivery times, and cross-channel sales assistance.
03. What FBA products are ideal?
Rapidly selling and smaller to medium sized products that would benefit from Amazon’s Prime service.
04. When is FBM appropriate?
When an item is large or heavy and the FBA fees would be significant or for infrequently selling items.
05. What is the role of a 3PL?
3PL companies store, ship, and in some cases, manage multiple sales channels for a product, allowing a seller to retain flexibility around warehousing.
06. Can hybrid models be cost-effective?
Absolutely, through optimal allocation of SKUs.
07. How is delivery improved?
Strategic allocation of inventory to FBA and 3PL locations to ensure optimal fulfillment.
08. Is hybrid fulfillment ideal for smaller sellers?
Definitely, hybrid models aim to enhance cost efficiency and flexibility, which will benefit smaller sellers the most.
09. To what extent are returns managed?
FBA returns are automated. FBM and 3PL returns require specific workflows.
10. Can hybrid models adapt to seasonal demand?
Yes, albeit with adjustments to the inventory distribution for the different fulfillment methods.
11. Is there scalability in hybrid models?
Yes, hybrid models provide opportunities for sellers to streamline fulfillment for their growing businesses across different channels and regions.
12. How often should the hybrid model be reviewed?
Every 3 months or when there are changes in seasonality or market demand.
13. Does it impact the Buy Box eligibility?
Buy Box eligibility increases with proficient distribution of inventory to FBA and provision of quick shipping.
14. What are the steps to begin employing hybrid fulfillment?
Product differentiation, cost assessment, and inventory allocation to FBA, FBM, and 3PL with continuous monitoring.
15. What are the biggest advantages of hybrid models?
The primary advantage is a combination of lower costs, speed of fulfillment, and a more flexible fulfillment system.
