Who is Really Winning in the New Fulfillment Game?

Seeing the success of Fulfillment By Amazon (FBA), many marketplaces and e-commerce platforms are racing to build their own fulfillment networks. No doubt, it’s great to have free and fast shipping in all channels, but at what cost? Do these marketplaces have their sellers’ best interests at heart?

When third-party sellers began selling online, the first questions were, “Should I sell on Amazon.com or eBay?” Over time, they started selling on both channels and many more. In fact, growing an online business today requires one to sell on multiple marketplaces. Numerous studies show that merchants using two or more sales channels, on average, do better with their bottom lines. However, it gets complicated. Each platform now has its own fulfillment service offering, and prioritizes the sale of items fulfilled through it.

Amazon: Building Moats in FBA

Commanding 47 percent of all U.S. e-commerce sales, Amazon was able to negotiate unbeatable shipping rates with major carriers and offer incredibly low fulfillment fees to sellers. FBA gives sellers a distinct advantage within the Amazon ecosystem. FBA sellers are more likely to win the buy box and are outright forgiven for any shipping-related customer complaints. Amazon uses FBA to deliver excellent shopping experiences for its customers as well as power its famous growth flywheel by prioritizing its FBA services for its marketplace customers. The fees for fulfilling non-Amazon orders are much higher. In fact, Walmart has banned FBA from its platform due to Amazon’s aggressive branding on boxes.

Shopify Fulfillment Network: Tailored for Non-Marketplaces

Shopify’s network integrates seamlessly with its offerings. Still in its early access stage, Shopify is touting one-day and two-day shipping at 99.5 percent accuracy by leveraging a network comprised primarily of third-party partner warehouses. Smaller Shopify merchants that fulfill orders by themselves may find it as a step up, but it’s too early to say. Fulfilling orders through Shopify may not boost a seller’s buy box chances on Amazon. It’s also possible that pricing would be skewed to incentivize fulfillment of Shopify orders.

eBay Managed Delivery: Giving an Edge to eBay Listings

eBay also announced its fulfillment program in July, called Managed Delivery. The objective of the program is to take the fulfillment burden off of eBay sellers and increase delivery speeds for end customers. The program will be available to U.S. sellers in 2020. It will be able to provide sellers access to discounted shipping rates and faster shipping than eBay's current options.

At the launch, then eBay CEO Devin Wenig affirmed, “We don’t want to win a fast shipping game — that’s not the point. You’re not going to hear one-hour delivery, five-minute delivery.” Participating eBay sellers will get higher visibility on the marketplace, but the service will not be very helpful in winning in a multichannel environment.

So Should Merchants Sign Up for All of Them?

Not really. Now that almost every major marketplace in the U.S. is punishing sellers that are not using their preferred network, it seems ideal to sign up for all of them. But it comes at the cost of redundant inventory. Imagine a merchant that wants to offer fast shipping to customers in California, and that merchant sells it products on three different marketplaces. It will then need to store its inventory in California, but at three separate warehouses for each marketplace. After accounting for safety stock, that’s a lot of excess capital tied up unnecessarily.

Not only that, but it also brings complexity to the brand's fulfillment processes, such as juggling multiple contracts, billing audits, and keeping track of ever-changing rates and terms. Furthermore, holding more inventory exposes merchants to a higher risk of losses from shifts in customer demand or during a recession.

The True Future of Fulfillment is Different

The platforms and marketplaces are doing what’s best for them. They're building their own fulfillment services to drive revenues for themselves and lock sellers to their platform. Such services add unnecessary costs and don't lead to a seamless customer experience across channels.

The true future of fulfillment is customer-centric. It means delivering goods the way customers prefer; it's not limited to the options dictated by the seller or the fulfillment provider. Think beyond what’s available today, like picking up orders beyond own stores or same-day delivery from local stores but without costing an arm and a leg. In this paradigm, any constituent of the supply chain can be utilized to service customers.

The future of fulfillment must also be efficient. All parts of the supply chain must work together to serve the customer profitably and responsibly. Instead of walls and hurdles preventing growth and advancement, true next-generation fulfillment solutions will facilitate collaboration between all members of the value chain — from manufacturers to retailers and everyone in between, including competitors. Unless we reimagine and redesign our captive fulfillment models, both customer centricity and merchant profitability will continue to suffer.

Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer network where merchants collaborate to increase their sales and margins by offering profitable one-day and two-day free shipping to customers nationwide without spending a penny more.