Amazon has long downplayed its delivery ambitions, claiming its own shipping and delivery services are only intended to “supplement” existing partners such as UPS and FedEx, saying it just wanted to address capacity shortfalls. Until now, that is.

Amazon has long downplayed its delivery ambitions, claiming its own shipping and delivery services are only intended to “supplement” existing partners such as UPS and FedEx, saying it just wanted to address capacity shortfalls. Until now, that is.

In its 2018 10K filing, Amazon for the first time listed “transportation and logistics services” as a competitive sector in the boilerplate “risk factors” section, along with the existing list of categories including “physical, ecommerce, and omnichannel retail, ecommerce services, digital content and electronic devices, web and infrastructure computing services.”

Amazon clearly needs to get a handle on the growth of its shipping spend, which hit $27.7 billion in 2018, up 31% from $21.1 billion in 2017 and up a whopping 72% from $16.2 billion in 2016. For 2018, fulfillment represented 14.6% of Amazon’s net sales. Analysts see the company’s many and growing logistics initiatives as a way to offset some of that cost.

Offer 1-day and 2-day shipping at ground rates or less.

Recent Blog Posts

As your ecommerce business grows, the operations behind it become more complex. One of the most significant is warehousing and order fulfillment, which must scale alongside sales and customer growth to remain profitable.

While in-house order fulfillment may be cost-effective initially, those expenses can skyrocket as you need more warehousing space, on-demand workers, and closer relationships with 3PL shipping providers. Scaling means either taking on a primary role as a warehouse manager or finding an alternative solution to managing your fulfillment.

For most growing ecommerce businesses, handling order fulfillment is a large and time-consuming role that they didn’t sign up for. Instead, many merchants are outsourcing this task to reliable third-party logistics (3PL) providers.

In this article, we’ll discuss the benefits of working with an order fulfillment partner and quick steps on how to outsource your logistics.

5 Signs it’s time to switch to an outsourced 3PL company

If you face logistics and shipping issues, reexamine how you ship. As you analyze your operations, keep the following five indicators in mind to determine if you should outsource order fulfillment.

1) Your logistics are hindering your growth

Today’s consumers place significant demands on logistics. For many small ecommerce businesses, that means scaling at the pace of your fulfillment. If you’re canceling orders because you can’t keep up with the logistics, or your sales are limited by your order fulfillment capacities, it’s time to invest in an outsourced 3PL company.

Similarly, if your organization’s internal warehouse and logistics management is bottlenecking and you’re slowing the growth of your ecommerce company to invest in internal fulfillment services, consider whether a 3PL is a better and ultimately cheaper solution.

2) Items are getting lost

As order volume rises, so do the chances of mistakes, especially if you’re unable to expand your warehousing capacity quickly enough. Orders get missed or lost, items get delivered late, and tasks fall through the cracks.

A 3PL company typically uses some form of distributed order management software to monitor inventory and shipments, which greatly reduces the occurrence of order errors.

Beyond that, packages have a higher tendency of getting lost or stolen when shipped in big cities, so hiring a 3PL provider with insurance will avoid the expenses associated with missing items and help your customer service team offer better resolutions.

3) You’re relying on manual order tracking

Many ecommerce stores start out processing orders manually: You place an incoming order into a spreadsheet, pack it, and manually update shipping. From there, you write down the actual cost of packaging, postage, and other details.

This process is slow, requires significant human effort, and introduces human error. It also fails to provide the metrics and insights obtained with automation. A 3PL company will have the shipping software in place to track orders and automatically collate costs, expenses, and revenue to better project profitability.

4) Deliveries are late

More than 90% of Americans expect a shipment to arrive within two to three days. However, if your warehousing and shipping network is overburdened, you’ll likely be unable to keep up with projected shipping deadlines.

If your shipments are increasingly falling behind, that’s a good indication you lack the infrastructure to keep up with current demand. A 3PL, on the other hand, will have that infrastructure in place for accurate tracking and delivery projection timelines so customers won’t be disappointed due to poor order fulfillment.

5) Order fulfillment costs are too high

Handling order fulfillment in-house means negotiating your own contracts and potentially missing out on savings that come from large bulk orders. When you work with a 3PL that can leverage economies of scale, they often can negotiate more favorable pricing on packaging, storage, as well as shipping.

In addition to better rates, working with a 3PL may help eliminate other overhead expenses, such as the need to hire, train, and manage warehouse staff, as well as rent your own prep and storage locations.

Finally, if you ship from a single location—as is common with many in-house order fulfillment setups—you may be spending on expensive shipping for orders far away from your warehouse. Working with a fulfillment partner that has locations on both the West and East Coasts, for example, can help shorten the distance items need to travel and allow for more ground shipping while meeting shipping speed service level agreements.

How to shift from in-house warehouses to an outsourced 3PL

Partnering with a 3PL provider can remove the burden of warehousing overhead and infrastructure, freeing your organization to focus on sales, production, and growth.

While there are numerous benefits, including potential cost savings, reduced carbon footprint, and faster, more reliable shipping, keep in mind that outsourcing order fulfillment is a complex process.

Below are our suggestions for making the switch.

1) Pick a reliable 3PL company

Knowledge is power, and researching the best 3PL company for your unique brand is half the battle in making a smart, strategic switch.

There are dozens of 3PL providers on the market, but finding a good fit for your ecommerce business requires effort. Choose a 3PL partner that matches your business growth, technology needs, and distribution needs.

Ask yourself:

• Does the 3PL provider have geolocations that match your customer base?
• Can you scale with this 3PL provider, or will you quickly outgrow them? 
• Are they small enough to be a partner? 
• Do they offer customization or services like packing slips, marketing material, etc.? 
• Do they support all of your channels?
• Do they have a history of operation and a stable client base? 
• Does their software integrate with yours?
• Does the 3PL provider meet all of your needs (fulfillment, reverse logistics, kitting, subscription boxes, etc.)? 
• Do they have security in place? What about certifications like FDA or DEA? Do you need HAZMAT? 
• What’s their customer service like?

Order fulfillment is a critical component of your success, so take your time choosing the right 3PL for your business.

2) Do a test run

Generally, it’s smart to try out the 3PL with a small amount of inventory or a few products. This gives you the chance to get to know the 3PL provider before committing all of your inventory to their care. For this test run, it’s helpful to choose a fast-moving product that you know will sell quickly. (You may also want to order a few products yourself to see how they arrive.)

Route a few orders to the 3PL warehouse and monitor their performance to decide if they’re a good fit for your ecommerce business.

For example, do orders arrive on time? Are customers happy with how orders arrive? How is their tracking system? Is inventory management complicated or easy to use? Do they employ order routing?

Make the most of this hands-on trial run so you know what you’re getting into and feel confident you’ve chosen the right 3PL partner.

3) Send in your inventory

Arrange distribution with your 3PL company. You may have existing warehoused inventory you want to ship directly to the 3PL. Other times, you’ll want to keep that inventory and simply route all new deliveries from your suppliers or manufacturers directly to the 3PL warehouse.

The option you choose will depend on total inventory, its movement speed, and how much inventory you want to send to the 3PL.

Tip: Don’t send in aged or deadstock. If you don’t foresee the items selling in the future, it will just cost you more to send into your order fulfillment center and you’ll end up having to pay long-term storage fees.

4) Decide how to split inventory

A recommended best practice is to keep some inventory on hand. This is important whether you handle returns yourself or outsource to a 3PL.

Maintaining a small amount of inventory allows you to take care of emergencies and provides a safety net in case problems arise with distribution. Often, an 80/20 split (with 80% of inventory at the 3PL) is a safe bet, but it’s important to do the math yourself to decide if you need to split inventory and how much.

You might want to retain more inventory in certain situations. For example, if you have stock that’s large and slow moving, you may decide to keep it in house. This will alleviate most of the pressure from your own warehousing without incurring extra storage costs with slow-moving products.

Leverage a distributed order management system when splitting inventory between your own internal warehouses and 3PL warehouses. This tool will help ensure accurate counts across different inventory locations and strategic order routing depending on availability, location, sales channel, and more.

5) Monitor and refine

Your 3PL must be able to adapt to your growing ecommerce business. Partnering with a 3PL company is a long-term commitment, which means keeping an eye on data, communicating with your 3PL provider, and growing together.

In turn, your partner has to adjust to your expansion, add capabilities to meet your growing needs, and offer the data you require to track stock and order performance.

Get the best of both worlds: Join an order fulfillment services network that seamlessly extends your operations

What if you already have invested significant time and energy into your own operations, and don’t want to give up on that entirely when moving to an outsourced partner? Most 3PLs aren’t optimized to work alongside merchant-owned order fulfillment, but Cahoot has re-written the rules with a flexible fulfillment network and shipping software.

Cahoot enables merchants with in-house ecommerce order fulfillment to strategically add Cahoot locations across the country as they expand while retaining their existing operations.

Deploy inventory in Cahoot locations along with your own facility, and then let the intelligent, automated Cahoot shipping software rate shop for labels and choose the best facility to fulfill each order as it comes in. If the order comes in near your facility, you’ll fulfill it. If it’s near a Cahoot location that you’re using, they’ll fulfill it. You get the benefits nationwide USA order fulfillment centers while still making the most of the investment you’ve put into your existing facility.

Of course, if this article has convinced you that it’s time to move on from managing your own order fulfillment entirely, Cahoot will happily work with you to take all of your inventory and power your online channels with low cost and fast delivery.

Want to learn more? Contact Cahoot to access affordable, flexible order fulfillment for merchants of all sizes.

About the Author

This is a guest post from Rachel Go. Rachel is a content marketer and strategist at Flxpoint, an enterprise ecommerce operations platform. Flxpoint enables merchants and brands to unify and automate every aspect of your ecommerce operations, and scale without manual processes or custom development slowing you down.

Offer 1-day and 2-day shipping at ground rates or less.

Recent Blog Posts

Amazon’s third-party seller marketplace has grown from its humble beginnings in 2000 to account for nearly three million sellers and more than half of Amazon’s retail sales. One of the biggest enablers of that tremendous growth was Amazon’s launch of Fulfillment by Amazon, or FBA, which today dominates the logistics landscape for third-party sellers. The tide is turning, though, with more and more sellers turning to FBM.

Source: Jungle Scout’s 2021 State of the Amazon Seller

In 2021, 43% of Amazon sellers used at least some FBM – a huge jump from only 34% the previous year. This shift asks two questions: first, why are sellers shifting to FBM, and second, is FBM right for you? 

In this post, we’ll explore the relative advantages of FBA vs FBM, why more sellers are shifting to FBM, and how you can make the choice that’s right for your business.

What’s the difference between Amazon FBA and FBM?

First, a few definitions. Fulfillment by Amazon, or FBA, is a service by Amazon for 3rd party sellers that handles inventory storage, picking & packing, and shipping. It’s a full solution that qualifies products for the coveted Prime badge and covers customer support on the back-end. 

In contrast, Fulfillment by Merchant, or FBM, is the description for 3rd party sellers that don’t use FBA for fulfillment. With FBM, the seller (or a third-party logistics company that the seller hires) handles storage, picking & packing, and shipping for products sold on Amazon.

What are the relative advantages of FBA vs FBM?

Fulfillment strategy is an underappreciated aspect of eCommerce, and both FBA and FBM bring their own advantages and disadvantages that can make or break a seller. So – what are the biggest differences between the two approaches?

Prime badge eligibility

First up: the all-important Prime badge. Simply turning on a Prime badge for a product can boost sales by 50%, so if you can get it, you should.

FBA makes it simple – if your product is in FBA, it gets the badge.

FBM is more complicated – it depends on if your fulfillment approach qualifies for Seller Fulfilled Prime (SFP). SFP sets rigorous targets for how quickly merchants deliver items to customers, as of course fast & free shipping is the central value proposition of the Prime subscription. As of late 2021, Amazon isn’t accepting new applications to the SFP program, so new FBM sellers can’t access the Prime badge.

Inventory limits

Due to the sheer number of sellers using FBA, Amazon can’t keep up with demand for the program. They’ve responded with ever-escalating rules for what inventory sellers can place in their warehouses, which often leave sellers unable to place all the product they’d like in FBA.

FBM, on the other hand, is only limited by how much warehouse space a seller can rent or purchase on their own, or by how much space they can get from a 3PL. 3PL space is essentially limitless from the perspective of an individual Amazon seller, so you’ll never ‘run out’ of space for FBM.

As we’ll cover later, many sellers don’t even have a choice when it comes to FBA vs FBM. They simply need FBM because they can’t use FBA as much as they’d like to.

Fulfillment fees

FBA and FBM each have their own unique cost advantages – neither is better 100% of the time.

FBA excels with small, fast-moving SKUs. They offer the best prices in the industry for fulfilling small and standard size SKUs, so if that’s what you’re selling, you’ll generally want to use FBA as much as possible. 

That comes with a huge caveat, though – FBA has punishing long-term and holiday storage fee increases. If you have a new SKU that will have a low fulfillment fee with FBA, but you’re unsure of how well it will move, it’s often best to start that SKU in FBM so that you don’t open yourself to the risk of big FBA fees.

It’s also worth noting that FBA is increasing its fees in 2022, and in particular it’s raising storage fees and adding a new, shorter time limit before long-term storage kicks in.

As you can see in the example above, FBA’s fulfillment price advantage collapses for large and oversized items. While the small cables and standard headphones shave significant costs off of DIY shipping, FBA’s fulfillment fee for the oversized dog bed is nearly double that of DIY shipping.

Control of the customer experience

If you use FBA, then Amazon controls your customer experience – full stop. Your item will ship in Amazon boxes, with Amazon branding, and issues will be handled (or not) by Amazon’s customer service. 

In contrast, with FBM, you’ll own much of the post-purchase experience. That means that you have the opportunity to use the unboxing experience to cross and upsell, for instance, and you’ll also handle issues with fulfillment.

So, FBA makes fulfillment easy, but it also represents a missed opportunity to upgrade the customer experience. With FBM, you can turn your post-purchase process into a value add for the customer, build loyalty, and increase your profit-boosting repeat rate. Additionally, successful resolution of customer issues can actually increase customer loyalty, so with a great customer service team, you can turn challenges into opportunities. With FBA, you give up all of those great opportunities for growth.

Maximizing your time

As a seller, you want to focus on selling, not logistics. FBA handles fulfillment for you, so less of you and your team’s time will have to go into operations. This difference between FBA and FBM is especially apparent if you’re fulfilling orders yourself, in which case you could be buried by a surge in orders.

On the other hand, FBM with a trusted third party logistics (3PL) provider can be just as easy, if not easier than FBA. Just like FBA, a great 3PL will take fulfillment off of your hands and leave the majority of your time free to focus on growth.

Enabling multi channel growth

What if you want to grow outside of Amazon? More and more sellers are pursuing a multi-channel sales and fulfillment strategy that diversifies their portfolio and gives them more avenues for growth. 

Amazon FBA can be used to fulfill orders for select eCommerce shopping carts like Shopify, and when it does so it’s called Amazon Multi Channel Fulfillment (MCF). Amazon MCF uses the exact same infrastructure as FBA, but it comes with all of the drawbacks of FBA and few of the benefits. 

As you can see in the below table, MCF is significantly more expensive than FBA. It will deliver your products fairly quickly, but it doesn’t guarantee the same SLAs as FBA. On top of that, your orders for non-Amazon products will ship in Amazon boxes. Not ideal!

On the other hand, FBM with a great third party logistics (3PL) provider will unlock multi-channel growth for you. The best 3PLs integrate seamlessly with all major marketplaces and shopping carts, so getting your operations set up with a new channel can be as simple as a few clicks.

Why are more Amazon sellers shifting to FBM?

Remember our data point from the start of the blog – in 2021, 43% of sellers used at least some FBM, up from 34% in 2020. Why?

The first and most obvious driver is that Amazon FBA’s inventory limits are forcing sellers to adopt a mixed fulfillment strategy. After all, only 9% of sellers are fully FBM – so most that use FBM also have some FBA. If you can’t place all the inventory that you’d like in FBA, though, you have no choice but to find an FBA alternative.

Even if you can place all of your inventory in FBA, FBM is vital to protect your Amazon business. Given how tightly Amazon sets inventory limits, your best sellers are likely susceptible to stockouts if a promo or your peak season results in unanticipated growth. FBA sellers are often beset by weeks or even months-long receiving delays, so even if you’ve done everything right, your product can still go out of stock because Amazon didn’t get it on their shelves quickly enough. 

As you likely know, stockouts are incredibly punishing for FBA sellers because they trigger a negative cycle that hurts sales rank, which hurts sell through rate, IPI score, and then inventory limits. It can be difficult to recover, because you’re then even more susceptible to another stockout, which further hurts the product’s results. That’s why many sellers are mixing in FBM to their Amazon fulfillment strategy – it serves as backup for FBA to make sure stockouts never occur.

Last but not least, multi channel selling is a huge growth opportunity, and FBA isn’t a competitive fulfillment option for other channels. So savvy sellers are adopting FBM to build resiliency in their Amazon business and also open up new sources of revenue.

How to choose FBA vs FBM for your business

When considering whether FBA, FBM, or a mix of the two is right for your business, ask yourself a few questions:

• Do you need the Prime badge to succeed?
• What size are your products?
• Do you have plans to sell on channels other than Amazon?
• Are you comfortable with letting Amazon dictate the customer experience?
• How accurately can you predict demand?

You only need FBA if you’re selling small products only on Amazon, you’re comfortable letting Amazon control your customer experience, and you can predict demand fairly comfortably. FBA will take care of fulfillment for you and qualify you for Prime, enabling you to focus your efforts on growing on the channel.

For anything else, you’re going to want FBM. Large products are more cost effective to ship via FBM, so there’s a strong case that you should immediately find an efficient 3PL for them. Likewise, if you have multi channel growth ambitions, you’re going to need to fulfill yourself or a fulfillment partner other than Amazon, so the sooner you can consolidate operations under one roof, the better it is for your efficiency. If you want to use the post-purchase experience to improve your customer loyalty and repeat rate, you’ll need FBM as well.

Then of course, so many sellers use a mix of FBA and FBM because they fall somewhere in the middle. They have some small & light products for which they want to adopt a “set it and forget it” approach on Amazon – so they put all of those into FBA. They then realize how many growth opportunities they fundamentally can’t pursue by just using FBA, so they adopt a partial FBM strategy to cover those other avenues. The truth is, you’ll probably fall somewhere in the middle as well. If so, your 3PL should be able to do FBA forwarding in addition to its excellent eCommerce operations – that way, you’ll only need the 3PL plus FBA to cover your fulfillment needs.

Cahoot: Your Best FBM Solution

Cahoot’s FBM fulfillment services will fuel your profitable growth on Amazon and unlock opportunity on all other eCommerce channels at the same time. Unlike most other 3PLs, we’ve built our network to the highest standard, so we enable affordable Seller Fulfilled Prime for many of our FBM clients.

On top of that. our innovative peer-to-peer fulfillment network offers low-cost, fast fulfillment by design. We’re changing the industry by empowering merchants with excess warehouse space and resources to provide high-quality order fulfillment to other merchants. Unlike other 3PLs, we empower merchants to help other merchants, and our community levels the playing field with Amazon. Thanks to our unique model, our pricing is typically lower than what you’ll find from other 3PLs, but we can beat them on fulfillment speed and reliability.

If you’d like to find out how Cahoot can help your business, please get in touch with us. We can’t wait for you to join our community and boost your profitable growth.

Offer 1-day and 2-day shipping at ground rates or less.

Recent Blog Posts

Amazon FBA sellers have unfortunately got used to steadily declining inventory limits due to Amazon’s inability to keep up with demand. Read on to learn more about changes to FBA inventory this holiday season, what you should do to maximize your limits, and how you can de-risk your holiday season with Amazon FBM.

What are the new limits?

Amazon FBA sellers were already hit with 20-65% drops in their inventory storage limits in April 2021 when Amazon changed from ASIN-level quantity limits to storage-type quantity limits – and they’re now sweating even lower limits as the holidays approach.

Amazon doesn’t publicize exactly how they calculate sellers’ limits, but sellers have been dismayed in recent weeks to see their restock numbers drop. FBA seller groups are lighting up with merchants whose holidays are all of a sudden in jeopardy – this comment on Telegram is emblematic of the challenge, “Hi, any advice on how to deal with Amazon decreasing restock limits to a third of what it was?”. The responses are befuddled: “Your IPI seems good”. What’s a seller to do?

On top of that, Amazon suddenly changed their Christmas receiving deadline from December 11th to December 2nd. The comments on the announcement, made October 8th, reveal a common theme.

Frustrated sellers plead with Amazon to increase restock limits, but help isn’t coming. Amazon FBA’s history is instructive: over and over, they’ve made it harder to get inventory into FBA, not easier. This holiday receiving deadline is just one more seller-unfriendly change in a long history of negative changes.

How can merchants maximize their Amazon FBA IPI score?

If a seller is determined to only use Amazon FBA, then they need to maximize their IPI score to increase their inventory limits. The FBA Inventory Performance Index (as it’s known formally) measures how efficiently and productively Amazon sellers are managing their inventory. Our Amazon IPI deep dive tells you everything you need to know, but we’ve also included the critical information here.

IPI score is based on four factors:

1. Excess inventory
2. Sell-through rates
3. Stranded inventory
4. In-stock inventory

To be fair, reducing excess inventory isn’t the challenge on most sellers’ minds these days. Still, keep an eye on whether particular SKUs aren’t selling well and thus have months worth of product backed up in Amazon’s warehouses. Those are good candidates for removal or disposal orders, which immediately improve IPI score. When it comes to FBA inventory, the 80/20 rule is a bit different from normal: if just 20% of your SKUs are slow movers, they can still torpedo your overall score. You can’t get away with 80% effectiveness – you need 100%.

Next, look to maximize your sell-through rates to improve your IPI score and thus your inventory limits. It’s simple: sell-through rate is equal to the Total Sales of each ASIN divided by the Average Inventory Level of each ASIN for the last 90 days. Of course, every seller wants to improve their sell-through rate; this means lots of sales! The challenge, though, is that an improvement in sell-through rate means faster and faster replenishment orders. Sellers need to be ready to send replenishments as often as three or more times a week if they want to maximize sell-through rate.

Stranded inventory hurts IPI score and is bad for business. Occasionally inventory in FBA gets inadvertently listed as FBM and thus gets stranded. Sometimes it’s a situation where the listing itself has been closed. It is also possible that pricing triggers an alert, and Amazon shuts down the listing to prevent it from selling outside of the minimum or maximum selling price set by the merchant. Keep a close eye on your seller tools and fix any issues with stranded inventory ASAP.

Finally, avoid FBA stockouts at all costs. This is an immense challenge in Q4, as sellers who have been increasing their sell-through rates become more and more vulnerable to a surge in demand (say, from the holidays). The surge can easily knock a SKU out of stock, which triggers a death spiral of lost search rank, lower IPI score, and lower inventory limits. There’s only one reliable way to avoid stockouts – duplicate Amazon FBM listings. With a duplicate FBM listing powered by the merchant or an FBA alternative, sellers can rest easy knowing that if there’s a run on their Amazon FBA stock, they can turn on their FBM listing and keep selling without risking their business.

How to use Amazon FBM to grow this holiday season

Amazon FBM isn’t just a good tool to grow on Amazon – it’s also the key that will unlock multichannel ecommerce sales. As we explained in the last section, Amazon FBM is a seller’s best way to avoid FBA stockouts and protect their Amazon business. On top of that, though, an excellent FBM approach will enable sellers to profitably grow on other marketplaces and on their own site. A recent Shopify study found that sellers on 3+ ecommerce channels boost their revenue by 200% – but Amazon Multi-channel Fulfillment (MCF) isn’t the answer to shipping for other channels.

First and foremost, fulfilling Amazon orders yourself or with an FBA alternative protects your holiday sales. The challenge for sellers trying to do it themselves is that unless they already have 4+ warehouses strategically placed around the United States, they either have to sacrifice fast shipping or free shipping. Offering 2-day shipping to the entire US from just one location puts the majority of customers in Zones 4 and up, which racks up incredible express rates – likely completely erasing margin. On the other hand, delivery times of 5-7 business days will lose customers left and right in the checkout stage, if they even get there. That’s why most sellers turn to an eCommerce order fulfillment platform to power their FBM.

The right eCommerce fulfillment provider won’t just ship your Amazon orders. The best have built easy integrations with all major marketplaces and shopping carts, so with next to no additional effort, sellers have a single operations solution to all of their sales channels. An effective multi-channel fulfillment and sales strategy will include a partner that powers affordable fast & free shipping. Customers expect fast & free shipping online, full stop. Sellers that meet that need see more impressions, higher conversion, and higher retention, so those that offer it on major marketplaces as well as their own site stand to gain the most.

Offer 1-day and 2-day shipping at ground rates or less.

Recent Blog Posts

What are national fulfillment services?

In theory, any fulfillment provider can offer national fulfillment services – after all, carriers like FedEx and UPS will happily ship parcels across the whole country (and charge a boatload for it). Fulfilling nationally from one or two locations, though, is costly and slow. So you’re left with smaller margins and disgruntled customers waiting too long for packages.

A truly nationwide fulfillment solution has warehouses strategically placed across the entire United States, and it will distribute a merchant’s inventory across those multiple locations. With this strategy, there’s inventory close to all customers, so no matter where the order comes from, it ships quickly and cheaply. In this article, we’ll cover when growing eCommerce merchants should switch to a nationwide network and provide advice on how to choose the right provider.

When should a merchant upgrade to a national fulfillment solution?

Retailers that start out on Amazon usually have a ready-made option for national fulfillment in Fulfillment By Amazon (FBA). Amazon has famously built its fulfillment network to massive proportions, and they have the most eCommerce fulfillment locations across the United States. For all other orders, though, they’re likely shipping out of either their own small warehouse, a small single 3PL, or even their garage. Small, single operations like these don’t have the scale to match larger networks for efficiency. You might be surprised, though, by how easy it is to gain value from a nationwide network – and how soon you can do it.

At just a few hundred orders per month, a merchant reaches the point at which he or she has enough scale to distribute inventory to multiple locations across the country. The benefits of national fulfillment will far outweigh the small increase in inventory needed to supply multiple locations. 

The one caveat to this guidance is that if a merchant has very high SKU diversity, they’ll benefit most from outsourcing their high volume SKUs only. Low volume, “long tail” SKUs benefit much less from distributed fulfillment.

So – what are those benefits of national fulfillment?

Benefits of using national fulfillment services

National fulfillment services are vital for ecommerce merchants that want to boost revenue growth and protect margins. Here are the 3 benefits of using national fulfillment services.

1. Nationwide fulfillment boosts revenue growth

“Fast and free” shipping badges are one of the single most effective growth tools in the eCommerce industry. Amazon calculated that adding a Prime badge to a product improves results by 50%, and Walmart similarly found that their TwoDay badge drives a 40% lift. Every major marketplace and shopping cart now has their own version of the Prime badge, and each finds a big revenue boost from using the badge.

If you’re shipping out of one or two locations, you of course can qualify for fast and free shipping badges simply by paying express carrier rates – but what’s the point of revenue growth if your shipping costs more than the product itself? Nationwide fulfillment networks unlock profitable revenue growth through fast shipping by placing inventory across the country. Every order will be fulfilled by a near-by location, so the cheap shipping options still deliver within 1 or 2 days. You’ll be able to turn on those badges across all channels and reap the rewards of better search rankings and higher conversion.

2. Minimize shipping costs

Merchants shipping from just one or two locations will often see half or more of their orders shipping to Zone 5 and up. Compared to shipping out of a single location, national fulfillment distributes inventory more efficiently across the country – so orders are shipped from a starting point much closer to their destination.

Placing inventory in 3-5 locations all but eliminates the need to ship above Zone 4, cutting a merchant’s average zone profile by multiple zones. Every one of those shipping dollars saved goes straight to the bottom line – and typically, saving a few zones on every order means saving a few dollars. What would you do with $2 more profit on every order?

3. Reduce supply chain risk

Capacity is strained at every point of the supply chain, from international shipping to last mile delivery. Capacity isn’t crunched equally across the country, though, which means that a nationwide network can significantly reduce the risk that all of your inventory will be stuck in the same massive delay – like the massive shipping back-up in Southern California

For example, if there’s a warehouse strike in the Southeast, you will still have inventory placed in 3-4 other regions. With one or two small warehouses that might not be an option – meaning your entire inventory could be stuck for weeks.

The snap freeze in Texas in early 2021 trapped inventory for weeks – and many merchants had to stop selling because they had no way to fulfill orders. If they had a nationwide network, they would have kept on selling even as one part of the country shut down.

Cahoot national fulfillment services

Cahoot’s nationwide network of over twenty warehouses provides affordable national eCommerce order fulfillment for eCommerce merchants. Merchants with just 1 or 2 locations need to ship express to cover 99% of Americans with 1- and 2-day shipping, so fulfillment is surprisingly expensive with two-coast providers. On the other hand, Cahoot will strategically distribute inventory to a truly national footprint so that merchants can ship to 99% of the country in 1- and 2-days, but always pay low ground rates.

Unlike other providers, Cahoot has the flexibility to upgrade a merchant’s existing fulfillment approach. If you’re fulfilling out of one or two warehouses, we can add a few fulfillment locations of our own to seamlessly extend your network into a nationwide footprint. With this approach, you can continue to get value out of your existing assets while enjoying the benefits of a nationwide network.

Getting started with Cahoot is surprisingly easy – with pre-built integrations for major eCommerce channels like Amazon, Walmart,  Shopify, and BigCommerce, you can boost growth with fast shipping badges in under two weeks. 

Contact Cahoot today to learn more about how our nationwide fulfillment network can be the key that unlocks profitable eCommerce growth.

Offer 1-day and 2-day shipping at ground rates or less.

Listen to podcast here.

Podcast: ProShip ParcelCast Episode 23: What is a Peer-to-Peer Order Fulfillment Network?

Cahoot AI founder Manish Chowdhary discusses the need for distributed order fulfillment and the benefits of a peer-to-peer order fulfillment services network on a podcast. The network is a platform where eommerce brands and retailers collaborate to speed up order fulfillment and distribute inventory closer to the customer. The objective is to reduce shipping costs and improve customer experience with better and faster shipping. Distributed order fulfillment is the process of making free and fast shipping feasible and affordable for the retailer by placing inventory closer to the customer so that items can be shipped using affordable and inexpensive ground services rather than long-distance air that can be two to four times more expensive. An ecommerce brand or a retailer just needs four to five strategically located warehouses throughout the US to achieve two-day nationwide delivery guaranteed and nine warehouses to achieve one-day delivery like Amazon. Retailers have the option to build their own warehouses, lease them, sign up with multiple third party logistics (3PL) companies, or join an order fulfillment services network like Cahoot.

---

Justin Kramer:

Welcome to the 23rd episode of ParcelCast, what is a peer-to-peer order fulfillment services network. I’m your host, Justin Kramer, co-founder of ProShip. And with me is my special guest, Manish Chowdhary, founder of Cahoot AI, a distributed shipping software and peer-to-peer order fulfillment services network. Manish, could you take a second to introduce yourself and your company?

Manish Chowdhary:

Absolutely, Justin. Thank you for having me. First of all, my name is Manish Chowdhary, I’m the founder and CEO of Cahoot. Cahoot is the world’s first peer-to-peer order fulfillment services network. In simple words, it’s a collaboration platform where brands and retailers collaborate to speed up fulfillment and distribute inventory closer to the customer so that we reduce the shipping cost and also improve the customer experience with regards to better and faster shipping for the end consumer.

Justin Kramer:

You know what, let’s take that further. Let’s go ahead and talk about the need for distributed order fulfillment. We hear about it a lot. Can you explain to us what it is, and what our retailers’ options are nowadays?

Manish Chowdhary:

That’s a great question, Justin. Distributed order fulfillment is nothing but a methodology on making the free and fast shipping feasible and affordable for the retailer. When the consumers order stuff online, especially on sites like Amazon, they are conditioned now to expect free two-day delivery. In fact, Amazon has raised the bar on making it free one day delivery with Prime. Almost one-third of all Amazon Prime items get delivered in one business day, which is astounding. And for Amazon, business day is Monday through Sunday, so it’s not even business day anymore. And that’s the expectation that the consumers have with every ecommerce brand, every retailer. And for the brand or the retailer to make that affordably happen is bring the inventory closer to where the consumer is located so that item can be shipped using affordable, inexpensive ground service. As opposed to the long distance air, which is in on average two to four times more expensive than the economy ground shipping. So distributed order fulfillment is basically placing your inventory smartly closer to your customer so you can achieve one-day, two-day delivery without breaking the bank.

Justin Kramer:

Awesome, awesome. What kind of tools, technologies, and SLAs should we expect from something like this if I’m a mid-size retailer looking to get into something like this?

Manish Chowdhary:

You essentially have three options. One, you can go and build additional warehouses, and these are warehouses that need to exist at strategic locations. Meaning, having a warehouse in Wisconsin, for example, is not going to be very effective because that’s not where the large population lives. Of course, tri-state area, New York, New Jersey, closer to the port, that’s where a lot of the inventory from overseas come in. But also it’s a very densely populated region. And so is Southern California like Los Angeles, Long Beach, Orange County. And then of course the upper Midwest like Chicago and so on. In order to achieve two-day nationwide delivery guaranteed, a brand or a retailer needs four to five strategic warehouses throughout the nation. And if you wish to achieve one-day delivery like Amazon, you need nine warehouses strategically located in the US. And I mean strategic.

If you had a warehouse that is not in a strategic location, you’ll need many more. And so you have options. Your options are you’re going to go build these warehouses, which is very capital intensive, and you don’t know what the market is going to look like. And then also it’s getting the permits, getting all of this takes a very long time. Second option is to lease it. Again, same problem, you’ll need to enter into long-term leases because warehouse spaces in such short supply, which also is a pretty large commitment and investment. The third option is you have to go and sign up with multiple 3PLs. Because two-thirds of the 3PL, or third party logistics companies, the companies that professionally provide order fulfillment services to brands of retailers in the US are mom and pop, two-thirds. The remaining one-third are the largest of the world.

Those are the people that become the landlord to Amazon and Macy’s and others, which are largely out of reach for most mid-sized sellers. So now you need to go and negotiate and acquire these multiple 3PL with different agreements, different contracts, and then you need the technology to glue it all together because there is no [inaudible 00:05:05] to choke, so as to speak, if there’s a problem. And so all of this creates a huge burden, a huge investment for the brand or the retailer to achieve. Or the fourth option, which is really a more newer and emerging option, is to join a contract with an order fulfillment services network such as Cahoot. And there are a few others that has nationwide footprint, that has multi dozen warehouses that can achieve that delivery target, that SLA seamlessly. So that’s another option.

Justin Kramer:

You talk a lot about Amazon. Is Amazon Prime a distributed order fulfillment services network? Is that something that people are looking at at the… Or should I say, is that something that is the high end of what we’re talking about?

Manish Chowdhary:

Amazon FBA, which powers the Amazon Prime program, fulfillment by Amazon, is by far the largest distributed order fulfillment services network in the world. Not only the US. They have over 120 warehouses, not to count the sortation facilities and other cross stock facilities in the US. Amazon invested more during the pandemic in building out their fulfillment services network than they had invested in the previous 18 years. So the amount of money and resources that Amazon poured in 2020 and 2021, and also part of 2022, dwarfs the investment… Almost, they increased their footprint three times, and that’s why we heard some headlines about Amazon over building and they needed to rent out. Those were some headlines. And then trying to optimize their cost, laying off workers, closing down facilities. Amazon, like many of the other brands and retailers had overbuilt. But Amazon is by far the largest distributed order fulfillment services network in the world.

Justin Kramer:

If I’m a growing retailer and I’m looking to get into something, how is all this power that Amazon has, how does that impact me?

Manish Chowdhary:

Absolutely. Suffice to say that nearly every brand, every retailer should have an Amazon strategy. It’s hard to ignore Amazon is a sales channel when 60% of all e-commerce searches begin on Amazon, not on Google. Even whether you like Amazon or you don’t like Amazon, the reality is millions and millions of consumers go to Amazon every single day. And if they can’t find your products there, then that’s a problem, because you may be missing out on a big opportunity. A big, large segment of your target audience and population. Amazon does many things really, really well. And Amazon being the largest order fulfillment services network, but also Amazon Prime is the largest loyalty program in the world. By a long shot, you’ve got over 130 million, I don’t even have the real numbers as of now, but over 100 million subscribers that pay $120 a year to Amazon, and they get a whole host of benefits.

And the biggest benefit of it all is the free one-day, two-day delivery with no minimum. So you could literally order paperclips on Amazon, have it delivered the next day, and not pay anything for delivery because you’ve already paid into the membership program. So that is what consumers love. And while Amazon FBA is great at many things, and I can cover this if you like, I can elaborate on it. It’s not the be all and end all. It is good for many times, however, it has its own set of challenges that the retailers and ecommerce brands must be aware of.

Justin Kramer:

Let’s go ahead and ask one last question. Let’s talk about Buy With Prime. Can you tell me what the larger impact is of this program on e-commerce as a whole?

Manish Chowdhary:

That’s an excellent question, Justin. Buy With Prime launched in April of this year, this is something that has been a long time coming. As you and others listening may be familiar with, Amazon does everything at very large scale. They perfect a service first for themselves, and then they look to monetize that across the entire business ecosystem. And that’s exactly what Buy With Prime is. Buy With Prime is Amazon’s initiative to become even larger third party logistics company where Amazon will extend its Prime membership to other channels other than Amazon. Let’s say you have a website that is hosted on Shopify or on Magenta, or any website, you could install a Buy With Prime logo, a button, and you can send that inventory to Amazon FBA, and the consumer can now check out using the familiar Amazon account and get that product in one or two days.

Buy With Prime essentially extends all of the Prime benefits to websites other than Amazon. And we already seeing many, many sites that have adopted and embraced this because Amazon makes it so easy for the brands and retailers to fulfill their orders. And if brands and retailers that are heavy into FBA that sell a lot on Amazon for them, it’s a no-brainer. And so what the term or the phrase that I like to use here is, gradually and then suddenly. Up until now, consumers have been expecting the Prime benefits or one-day two-day delivery only on Amazon. But now let’s take an example. If you are a shoe retailer, and there are two of them, Acme Inc and ABC Inc. Acme Inc starts providing Buy With Prime on their website, and ABC Inc does not. Now as a consumer, I’m more likely to go check out from here, if all things being equal. So this is going to lead to this massive adoption and even acceleration of delivery expectation among consumers, because they now expect that same Prime-like experience on every channel they shop on.

Justin Kramer:

Interesting, interesting. Okay, let’s go ahead and switch topics here. Let’s talk about this new fulfillment economy and the workshare model. To the average logistics persons, companies like Gap, American Eagle, Quiet Logistics, Airterra, they were offering something very similar to what it sounds like the Cahoot network is offering. Can you talk to us a little bit about the similarities and the differences?

Manish Chowdhary:

Yeah, this is a new development that’s happening in the e-commerce and retail logistics space. Cahoot was of course the pioneer in peer-to-peer collaboration. And essentially, Cahoot acts as a neutral third party where there are plenty of merchants. There are about three million online merchants in the US compared to about 20,000 3PL companies. So these are third party logistics companies that will provide fulfillment as a service. By sheer comparison, and the analogy I’d like to make is Airbnb versus Hilton. There are many more homes with spare bedroom and a spare wing than there are hotel rooms in the US. Rather than building more warehouses where rooms are going empty, or the space is going empty in these millions of warehouses. Cahoot is aiming to bring these surplus capacity into the market so as to reduce the cost and improve utilization. This goes hand in hand with trying to make the most or more of what resources we already have, as opposed to trying to spend more capital expense, which essentially increases the cost one way or the other for the brand or the retailer.

What Cahoot has done is created a network of very highly qualified, highly vetted brands and retailers that do a spectacular job of order fulfillment for themselves, but that have extra capacity, let’s say 5, 10, 50, 20, 100,000 square feet of excess capacity. For the very first time, they can join the Cahoot network and monetize that excess capacity by fulfilling orders for other brands. And Cahoot acts as the independent governing body with the technology, the software, so that it is not a distraction for them. It is simple, it’s easy, and it’s effective. And it also gives the seller, the brand, our customer, the assurance that we are holding everybody accountable. And there is harmony and there’s SLA being delivered. And so it’s very exciting to see other retailers like Gap and American Eagle finally come to embrace the model that we’ve been preaching for a long time.

And the one difference, there’s not a lot we know about these models because there’s not a lot published on them because it’s still a closed system. But one thing, suffice to say that most brands, most retailers would prefer an independent body to audit the service provider. And that’s the advantage that Cahoot provides, because Cahoot is not representing just the buyer or just the warehouse. Cahoot is the independent body that keeps everybody organized and creates a common rule and level playing field for all the participants, and provides the visibility. That’s the one thing that I personally believe that having that independent body is a very crucial, it provides trust, it provides visibility, and it provides the assurance and it provides accountability. We would very much welcome Gap and American Eagle to join Cahoot so that we can give that assurance to small and large size retailers.

Justin Kramer:

And it also sounds like if I’m a Cahoot member I can now more easily expand to those five to nine distribution points so I can have two-day or next day delivery for most of the country.

Manish Chowdhary:

Absolutely. The whole idea is, how do we create a Prime-like network and Amazon FBA-like network without the challenges that FBA faces? FBA is great at many things, but it does not… Even to this day, many, many sellers could not get their inventory into FBA on time for the holidays. They had limits placed on their account that they could only send so many units, and they rely on other networks like Cahoot to fulfill even their orders on Amazon. While Amazon is growing, they’re launching all these services, it has its own set of challenges. Amazon is not geared for all things to everyone at all time because Amazon only wants fast moving inventory. But from a retailer’s perspective, they also need to fulfill their wholesale orders, they need to fulfill orders from Walmart. Which, you cannot use FBA to fulfill, it’s against Walmart’s rules and policies that you cannot have a Amazon branded box being delivered to the Walmart customer that bought the item on the Walmart marketplace. And rightfully so.

Justin Kramer:

Let’s switch over to some other networks that sound like they’re similar. I know that the carriers, some of the airlines, and other particular merchant groups have some stuff similar to this. Can you talk about that and compare and contrast a little bit for us?

Manish Chowdhary:

Absolutely, Justin. The idea of coopetition has existed for a long time, where seemingly retailers may consider themselves to be competitors, but not necessarily. Because a retailer who has a warehouse in New York is really not competing with the retailer of a different product with a warehouse in California. It is in their interest to collaborate so that both of them win because they are not competing. And so we know of many, many very successful networks of this kind, going back to the, let’s take airline co-share. Not every airline flies to Maui, Hawaii. But if you want to get from Chicago to Maui, you might have to go from Chicago to Dallas, or Chicago to LA, and then LA to Maui, for example. For example, Delta, as part of the Sky team has many other airlines that share the code and so on.

So this is very, very common. It makes the airlines be profitable and able to service the needs of the customer. Because ultimately about getting to Maui, not about how many websites and tickets you need to buy separately. Likewise, we also know for examples in the flower delivery space, the FTD. Which is if I want to send flowers, I’m in New York and I need to send flowers to my sister-in-law in Palo Alto in California. Of course the local florist is not going to be the one delivering, but as part of the network, they can easily arrange for someone locally to deliver. And we’ve always known about the workshare model in the carrier space, which we know that USPS has long had workshare programs with UPS, FedEx. Programs like UPS Mail Innovation, FedEx Smart Post. Cahoot is simply extending the same concept to the world of order fulfillment and warehouses. Because ultimately, when there is greater utilization of resources that we have, that leads to a better experience and lower cost for all the participants involved.

Justin Kramer:

Very interesting, very interesting. Manish, can you tell our audience, what is a peer-to-peer order fulfillment services network?

Manish Chowdhary:

A peer-to-peer order fulfillment services network is a large scale nationwide network of warehouses that allows a ecommerce brand or retailer to compete at the level of Amazon Prime, which is one-day, two-day free delivery. Every brand, every retailer should be offering the service on all channels that they serve. And they can easily achieve that by joining Cahoot, because Cahoot has the number of locations and the diversity to place the inventory closer to the customer so that the items can be delivered inexpensively and fast without incurring additional cost. And on the fulfillment provider side, if you are a brand or retailer that has, owns, or operates a warehouse and has spare capacity, be it 5,000 square feet or 50,000 square feet, and you would like to monetize that excess capacity, excess space, please come check out Cahoot.ai and fill out a contact us form so you can apply to become a Cahoot fulfillment partner.

And we would love to speak with you, because we would love to add more warehouses to our network. So you benefit not just by providing faster and cheaper delivery to your customers, but also by monetizing your spare capacity so you make more out of your existing fixed investments.

Justin Kramer:

Excellent. Let’s go ahead and let’s move on to the changing base of reverse logistics. Let’s face it, over the last several years we’ve seen companies try to return everything. We’ve seen companies try to return nothing, just ask the customer to throw it away. But one way or another, we all know that reverse logistics is a huge part of the customer satisfaction story when it comes to e-commerce. Can you tell us a little bit more about it?

Manish Chowdhary:

Yes, Justin, this is of course when e-commerce was only 1% of total retail. Brands and retailers were motivating customers to shop online because it was, so-called it was a channel shift. It was giving customers more self-service option. It is akin to motivating customers in the grocery stores to do self-checkout now, you try to encourage them. And of course consumers got very, very much used to… And in order to do that, they offered free shipping on the way in, and they also offered free returns. Because it was one of those taking away the friction in online shopping that if you didn’t like something you could return it for free and no questions asked. Of course, that was intended to be simply an encouragement for the consumers to shop online, and which quickly changed into the concept of showrooming. It’s essentially consumers, especially in the apparel space, buying three items with the intention of only keeping one.

And because items are free to return, you could simply return it back. This went on for over a decade now, and sites like Amazon, or when the products are rather inexpensive, it costs more to ship them back and process that item that is returned than to let the customer keep the item. However, we are entering a new phase and we can see that with the brands like Zara and Gap and others that are cramping down and they’re saying enough is enough. There have been chronic people that constantly return items that is playing a havoc on the profitability of these companies. Essentially, the movement has already started, and some of the top brands and retailers have taken a lead that now if you want to return the item back to Zara, you’re going to have to pay a return fee, or you have to pay cover the cost of shipping. I think they’re going through a natural leveling of consumer expectations. And I don’t expect free returns to loss for most items in the next couple of years, that’s going to change quite dramatically.

Justin Kramer:

That will be very interesting, no more free returns. I know companies like Zappos, that’s exactly how they made their name in the market was you could bracket, by the size above, the size below, and get to choose what you wanted. Very interesting. Are you seeing this anywhere yet, or is this an expected 2023 trend?

Manish Chowdhary:

No, we heard from folks like Zara and others that they are already beginning to charge for returns. This is already in play now. It’s just not an idea or a thought. And of course, it takes a little bit of the top leaders to take a position and then others will follow. I expect of course, Amazon being the big bellwether, it remains to be seen what Amazon Prime is going to do because I think they constantly set the bar, so we’ll see. But also from a sustainability standpoint, Justin, this is not just about the cost. But if we encourage people to return, we are adding more carbon emissions. I think there will be brands that would take a stance that it is not just good for e-commerce, but it’s good for the planet. I do expect that the scales to be tilting in this direction not too long from now.

Justin Kramer:

Yeah. And I have to say, I think you’re right. Because you do see even Amazon in their partnership with stores like Kohl’s wanting you to just take it to that store where you’re already going to be, rather than putting it in its own, usually oversized box, sticking a label on it, and having it take up space on a truck or a trailer somewhere. All right, let’s move on to final thoughts. Question for you, is there any takeaways you want to make sure that our listeners have heard today and that they action against?

Manish Chowdhary:

My recommendation to all the listeners is that free and fast delivery, free one-day, two-day delivery is here to stay. And it’s not just on Amazon. Any channel that you’re selling on, you’ve got to embrace distributed order fulfillment. How you do it, there are four options as we covered earlier in the podcast. It is crucial in order to maintain your competitive positioning and also maintaining the consumer expectation, which is changing very rapidly. And especially with Buy With Prime program, which is going to launch, or rather, get rolled out quite aggressively in 2023. You want to get ahead of that. I would very strongly encourage to get a head start in 2023 and test this out, and make sure you have this systems and technology and your fulfillment and your providers figured out. And if you have spare capacity, why not put that to good use? Energy costs are all time high. So if you can make an extra income from your existing investments, that’s good for you, but it’s also good for the planet.

Justin Kramer:

Agreed. The one thing I took away from this, I’m going to try to narrow it down to a sentence. In the past we’ve always had buy, lease, or outsource. Right? But with a peer-to-peer network, we now have a fourth option. We can buy, we can lease, we can outsource two or 3PL, or we can collaborate with other like retailers. Is that correct?

Manish Chowdhary:

That is absolutely correct, Justin. I think we are all in this together, and that’s why our tagline, Cahoot’s tagline is Power of Many. It’s brands of retailers helping each other.

Justin Kramer:

All right. If you’d like to learn more, please visit us at proship.com or cahoot.ai. Thank you for joining us today. If you have any questions, just a reminder, you can reach ProShip at sales@proshipinc.com, or (800)-353-7774. We hope you join us for our next ParcelCast. Thank you for tuning in.

Offer 1-day and 2-day shipping at ground rates or less.

Recent Blog Posts