Smart Warehousing Jul 1, 2022 6:31:59 PM 13 min read

3PL vs. FBA: Everything Amazon Aggregators Need to Know

Two decades ago, Amazon was barely a blip on the consumer radar. Fast-forward to the present day, however, and the global conglomerate has become a household name. Amazon is largely responsible for propelling the rise of e-commerce, which accounted for nearly $870 billion in U.S. sales in 2021. That’s a whopping 13.2% of all retail sales!

As a shopper, Amazon can help check off many boxes on your to-do list — from last-minute birthday gifts to stocking up on everyday essentials. But the company also offers a platform for e-commerce businesses, and particularly Amazon aggregators, to set up shop and sell products. And in today’s competitive business market, a primary goal for aggregators is to minimize costs while optimizing the speed and efficiency of their logistics operations.

While several options are available for outsourcing Amazon fulfillment needs, the two primary avenues utilized are FBA (Fulfilled by Amazon) and 3PL (third-party logistics provider). The basic concept of both routes is similar: a third party is responsible for housing and shipping your inventory.

Although similar on a basic level, FBA and 3PL services are distinctly different. In this article, we’ll dive into the pros and cons of each to help you decide which will help drive long-term, sustainable success for your business.

What is Third-Party Logistics (3PL)?

An outsourced third-party logistics provider (3PL) can effectively oversee and manage integral pieces of your supply chain – fulfillment services, inventory management, packing and shipping, and more. Because a 3PL offers a one-stop shop for these key operations, it maximizes efficiency and allows businesses to scale.

From introducing new product lines to seasonal fluctuations in sales, the right 3PL partner can propel your success to new heights. The only caveat: do your homework. Make sure the 3PL you’re considering offers the technology, capabilities, and resources needed to satisfy your needs. Because the reality is, your Amazon fulfillment partner is pivotal in fostering customer satisfaction and repeat business.

Before partnering with a 3PL, here are a few questions to consider:

  • Does our company’s order volume exceed the monthly cost of the 3PL?
  • Are they familiar with my market, and do they work alongside similar types of brands/companies?
  • Will outsourcing the labor of picking, packing, shipping, and return logistics be advantageous for our business?
  • Do they have innovative software and tools that can integrate with our current tech stack and enhance our capabilities?
  • Do they have a presence in key markets so we can cost-effectively provide quick shipping?

 

The Pros of Working with a 3PL

 

Expert Inventory Management

From the point of sale to a product arriving on a customer’s doorstep, it’s imperative to have the right tools to manage your inventory effectively. Think about it: missing stock or inaccuracies in available supply? You’re shouldering a financial loss and a potential hit to your reputation.

Maybe you’re willing to eat the cost of a few boxes of mysteriously vanished merchandise. But are you willing to jeopardize your business due to a poor customer experience? The occasional slip-up is expected, but when the fumbles happen more regularly, negative online reviews will pile up, and your revenue will plummet.

The right 3PL partner will have an inventory management system that can deliver a wide range of value — from performing cycle counts to decreasing inventory costs to providing real-time actionable analytics. Additionally, they will be able to accommodate your unique storage needs. Whether that be temperature-sensitive goods or the ability to manage high-volume orders, they must be equipped with the tools needed to protect product integrity as it moves through the supply chain.

Accelerated Shipping and Improved Customer Service

You should also look for a 3PL with a network of warehouses strategically located throughout the country. This will allow you to factor proximity into the equation, which is advantageous for both your bottom line and satisfying consumer demand.

With the ability to distribute inventory across warehouse locations, it’ll put your products closer to the customer. In other words, transportation time is optimized – reducing your shipping costs while appealing to the consumer's appetite for quick delivery.

In today’s on-demand culture, providing fast shipping is vital to maintaining a competitive presence in the marketplace. By leaning on a 3PL’s expertise and established distribution network, you’ll drive customer satisfaction, referrals, and repeat business – all factors that’ll help your business scale.

Seamless Return Management

Managing your supply chain from start to finish wouldn’t be complete without a 3PL that manages returns. Think of the cost-saving benefits from a time and labor perspective of having return items shipped directly to your 3PL for processing.

To enhance and streamline the customer experience, you can even opt to have your 3PL insert return shipping labels into packages during the picking and packing stage. And, depending on your preferences, products can be returned, restocked, or even disposed of.

Customization and Specialized Expertise

Leveraging a 3PL that’ll customize a solution tailored to your needs — whether that be omnichannel fulfillment, specialty packaging, or cold chain services — is the best way to ensure you’re maximizing ROI. Because let’s face it: supply chain logistics is highly complex, requiring agile solutions and specialized expertise.

By linking up with a 3PL provider with a long-standing history of success, you can lean on their experience to devise a thoughtful, effective strategy that aligns with your business goals. From order accuracy and shipping rates to unexpected hurdles (we’re looking at you, border customs), the right 3PL will help streamline operations and improve profitability.

Expertise has never been more crucial, especially given our current volatile landscape. Navigating uncertainty – like the Pandemic or supply chain disruptions caused by the war in Ukraine, for example – requires a provider that is knowledgeable, innovative, and equipped to handle potential issues at a moment’s notice.

 

The Cons of Working with a 3PL

 

Take Order Volume into Consideration

Businesses that have just opened their proverbial doors or have a small, erratic sales volume may not be the best fit for a 3PL. If you’re only receiving a few orders month over month, for instance, you’re likely not at a stage where inventory management and storage are needed. Once sales become consistent, and your needs expand, you may want to consider leveraging a 3PL.

 

What is Fulfilled by Amazon (FBA)?

FBA allows registered Amazon sellers to house inventory in their own distribution centers. Once an order is placed, Amazon will pick, pack, and deliver products – providing return logistics for customers as well.

Amazon is currently one of the top platforms for e-commerce businesses, which is why it has become such a lucrative place for Amazon aggregators. While utilizing FBA seems like a no-brainer, it comes at a cost and requires you to relinquish control of some parts of your sales process.

 

The Pros of Using Fulfilled by Amazon

 

Access to Prime Shoppers

A significant benefit of using FBA is the access it provides to the site’s 100+ million Prime members. This provides shoppers with Amazon’s Prime shipping feature, as well as some additional perks like added exposure on Prime Day.

Customer Support Capabilities

The FBA package also includes return logistics, customer support, and any complaints received (i.e., a damaged product).

Simple Fee Structure and Sales Integration

Amazon’s fee structure is pretty straightforward, allowing you to easily calculate costs and determine estimated fees and profits. The service also provides multi-channel fulfillment. That gives you the flexibility to fulfill orders placed through other channels using inventory housed at an Amazon distribution center.

 

The Cons of Using Fulfilled by Amazon

 

Quality Control Concerns

Quality control is a pivotal piece of a well-managed supply chain. Some sellers are reluctant to use the FBA service due to quality control process concerns. For instance, unless you’re selling private label products, Amazon will simply pick the product from a location closest to the customer. Sure, this method is effective for improving shipping speed. However, as you can imagine, it also greatly decreases your quality control capabilities.

No Order Customization

The FBA service ships your products in Amazon-branded boxes and doesn’t provide the option for custom packaging or inserts. This can significantly impact your ability to build brand awareness and loyalty. Why? Because from the customer’s perspective, they are buying a product from Amazon (read: not your business).

Because customer experience is so integral to a brand’s success, this is undoubtedly a huge consideration. And because Amazon sells, ships, and markets its own line of products, it can pose a threat to your business in terms of conflict of interest.

Higher Storage Expenses

Amazon’s distribution centers generally have higher storage fees compared with 3PLs. And you can expect them to rise during times of high demand, like the holidays. Additionally, you may run into roadblocks when negotiating inventory pricing due to dips and spikes, as they offer less fluidity in inventory cycles.

Limited Customer Service Access

While there is a forum-style help center located on Amazon’s site, when it comes to dedicated customer service, the bar is set incredibly low. There’s currently only one hotline shoppers can dial, with no dedicated support agents available to answer questions or make decisions that are best for your brand. With the bulk of their infrastructure built on cloud-based technology, it’s often challenging for consumers to connect with an actual person should an issue arise.

 

The Power of 3PL for Amazon Aggregators

From customization and control to dedicated expertise and insights, utilizing the right 3PL partner for your e-commerce needs can drive profitability and operational efficiency. It's no secret: how your orders and inventory are managed can mean the difference between success and failure as a business. Especially because outsourcing these processes will allow you to focus on revenue-generating activities, like branding and production.

At Smart Warehousing, we offer more than 12 million square feet of warehousing space across 38 locations. We’ve strategically placed our facilities in key markets across the country to minimize shipping costs while accommodating customer expectations of two-day shipping. Plus, having industry experts on your side can be a game-changer. So, what are you waiting for? Discover how the Smart Warehousing team can propel your business to new heights by contacting us today.