Amazon MCF vs. 3PL fulfillment: Which is best for your business?
There's a new kid on the block in the logistics space: Amazon multi-channel fulfillment (MCF).
MCF is part of steady creep towards Amazon offering ecommerce fulfillment services not just to Amazon sellers, but to online brands at large.
This puts Amazon in direct competition with third-party logistics (3PL) providers - and they aren't the only ones.
Thanks to the onset of the COVID-19 pandemic and the accelerated growth of ecommerce, retailers with extensive self-fulfillment operations have pivoted to offering these services to external brands.
Walmart is taking advantage of its extensive supply chain with its Walmart Fulfillment Services (WFS) offering, while brands including American Eagle and Ashley Furniture have taken the step of acquiring 3PLs to better support their fulfillment needs.
So, which ecommerce fulfillment model is best: A traditional ecommerce fulfillment provider or Amazon?
In this post, we're going to explore the pros and cons of both 3PLs and Amazon multi-channel fulfillment to uncover which option is best suited to your ecommerce business.
What is Amazon MCF?
Amazon multi-channel fulfillment (MCF), is a fulfillment service offered to merchants who are selling products both on the Amazon platform and via other online sales channels. For example, if your brand is selling through Amazon as well as your own website, MCF cuts down on logistics management by allowing you to use one service to fulfill orders.
The fulfillment process for Amazon multi-channel fulfillment is quite straightforward. Brands are responsible for sending merchandise to Amazon for storage. When MCF orders come in, they are forwarded to the Amazon fulfillment center where your products are being stored. Orders are then picked, packed, and shipped according to Amazon's regular fulfillment workflow.
Amazon MCF vs. Amazon FBA: What's the difference?
MCF is often confused with its better-known counterpart, Fulfilled By Amazon (FBA). Amazon multi-channel fulfillment is a subsidiary service of the wider Amazon FBA program. While MCF and Amazon FBA offers many of the same fulfillment services, such as storage, picking/packing, and shipping, only Amazon's multi-channel fulfillment program enables merchants to fulfill online orders placed in other channels.
Amazon multi-channel fulfillment: Pros and cons
Advantages of using Amazon multi-channel fulfillment
Easy to understand pricing
A transparent fee structure means that it's easy for merchants to see how much Amazon's multi-channel fulfillment and inventory storage services are going to cost them. Merchants that use MCF only pay for fulfillment and storage costs and no sign-up fees are required.
MCF fulfillment fees are calculated according to the shipping speed required and the DIM weight of the package. Multi-item orders also receive a significant discount to encourage brands to push for higher AOVs. Storage fees are based on how many cubic feet of space is required at an Amazon fulfillment center, with a higher rate charged during peak season (October-December). You can find a full pricing list on Seller Central.
Because Amazon's storage and fulfillment fees are consistent, merchants can calculate costs with accuracy and are less likely to have any nasty surprises in the form of hidden fees.
The service is evolving in favor of non-Amazon sellers
Since MCF was launched in 2018, Amazon has been steadily enhancing the service with features that make it more appealing to brands that don't sell predominantly on the Amazon marketplace. This includes:
- Native integrations with major ecommerce platforms e.g. Shopify, BigCommerce, and Woocommerce.
- Testing out 'brand neutral' packaging for customer orders in place of Amazon-branded packaging.
- Enabling sellers to block Amazon Logistics as a shipping method to overcome marketplace rules that don't allow Amazon tracking to be used.
- Growing international shipping capabilities (currently only media products are eligible for international shipping).
In sum, an ecommerce business doesn't have to be a mostly Amazon-based seller to benefit from using MCF. Changes such as moving away from Amazon-branded boxes (a serious sticking point for many brands) have made Amazon's multi-channel fulfillment service a much more viable option than it was in the past.
Fast shipping and fulfillment
Amazon set the standard for two-day shipping, so it's not surprising that MCF ensures that ecommerce merchants are well-positioned to meet customer expectations for fast shipping. Amazon's vast economy of scale ensures that an order ships in a timely manner and avoids customer satisfaction issues. This reliability remains Amazon's biggest competitive advantage, as more affordable outsourcing alternatives such as dropshippers struggle to offer expedited shipping services.
Disadvantages of using Amazon multi-channel fulfillment
High fulfillment costs
MCF offers multi-channel brands a lot of convenience - but they pay a high price for it. Because they prioritize fast inventory turnover, brands whose inventory sits in Amazon's fulfillment centers for long periods can face a crippling storage fee.
Amazon fulfillment services offer the best value to brands with a high order volume and strong profit margins. This means that MCF isn’t always cost-effective for startup brands with a low sales volume.
Brands don't have control over where their inventory is stored
Amazon has a vast fulfillment network, but inventory stored within Amazon fulfillment centers isn't under the control of the brand. Your ecommerce business doesn't get to decide where your inventory is stored and can only use a single storage point. While this may work for brands with a regional customer base, a lack of multi-node fulfillment capabilities means less flexibility for nationwide brands, especially those undergoing rapid growth.
Amazon has access to your sales data
There's been some suggestion that Amazon is expanding its third-party fulfillment capabilities for more nefarious purposes. Amazon has access to sales data on what products are performing well - insights that former employees claim are being used to create competing private label products. Amazon holds a unique position as an online seller and third-party fulfillment provider, and you need to consider whether this is a conflict of interest.
Multi-channel fulfillment (MCF) won't fulfill certain products
MCF comes with a lengthy list of restricted products that aren't allowed to be stored within Amazon's warehouses, including but not limited to cosmetics, jewelry, subscriptions, and food & beverage - even if they aren't being sold on Amazon's marketplace. Compliance may involve complex requirements for packaging and labeling, which can make the order fulfillment process difficult. Brands may also accrue an additional storage fee or fulfillment fee for selling restricted items.
It's also important to consider that Amazon may decide to change its policies or add new restrictions at any time, which can cause a lot of problems for multi-channel sellers.
Loss of fulfillment marketing opportunities
Although Amazon is currently testing the use of ‘brand neutral' packaging over Amazon's packaging for its multi-channel fulfillment service, there are no signs that Amazon will start allowing merchants to supply custom-branded packaging any time soon.
This means that brands using MCF lose valuable opportunities to foster brand recognition and enhance the customer experience. Amazon also doesn't allow brands to include thank-you notes or discount coupons within packages, making it much harder to prime customers for another purchase.
Questions to ask when considering Amazon multi-channel fulfillment
- Is my inventory turnover high enough to avoid expensive storage fees?
- Do I want the ability to brand my delivery experience?
- What percentage of your sales come from Amazon versus other sales channels?
- Is it necessary for my business to have a custom-tailored fulfillment strategy?
What is an ecommerce 3PL?
Third-party logistics (3PL) provider is an external partner who assists brands with their ecommerce fulfillment needs. A 3PL partner is responsible for managing the fulfillment process across multiple sales channels on behalf of the business. This includes receiving and storing inventory, processing orders, picking/packing, shipping, handling reverse logistics, and other value-added services as required by the brand. A 3PL is responsible for providing infrastructure in the form of warehousing and distribution facilities, labor, and technology to fulfill orders quickly and cost-effectively.
Partnering with a 3PL: Pros and cons
The advantages of partnering with a 3PL
Advanced inventory management
With a 3PL partner, your inventory doesn't disappear into a vast warehouse with minimal visibility. A good provider will supply brands with real-time SKU counts and allow them to distribute their inventory across multiple fulfillment centers to shorten delivery timeframes.
Ryder provides a further level of inventory control with its proprietary ecommerce platform. Thanks to seamless two-way integrations with all major ecommerce platforms, inventory levels are synced automatically for the most up-to-date information. Merchants can filter, pause, edit, or cancel all outstanding customer orders from a single interface - a wealth of information for smarter, data-driven decision-making.
Rate shopping capabilities
One of the biggest benefits of working with a 3PL is the ability to 'rate shop' between parcel carriers to find the perfect rate, something which isn't possible using MCF.
While MCF customers can opt out of Amazon Logistics, this comes at a hefty 5% surcharge. 3PLs maintain partnerships with a wide range of domestic and regional carriers, making it easy to find competitive rates.
Ryder uses its own SmartRate Selection tool to compare carrier rates in real-time and create the optimum shipping strategy for brands based on their order history. This enables merchants to have the ultimate level of control over their shipping spend and find the optimum balance between cost and meeting customer expectations for fast delivery.
Fully customizable fulfillment services
When an ecommerce brand first launches, its first priority is getting customer orders out of the door as quickly as possible. This means that brand storytelling often takes a backseat getting orders from A to B.
But as the dust settles, brands need to start turning their attention to building brand recognition. Partnering with a 3PL who can customize the brand is a vital part of differentiating yourself as a merchant. Instead of accepting a one-size-fits-all order fulfillment process, you can ensure that every part of the post-purchase experience speaks of your brand.
From branded packaging to attractive inserts that encourage cross-channel engagement, Ryder enables businesses to create their very own fulfillment marketing strategy to add their identity to the point of delivery - rather than showcasing someone else's brand.
A dedicated support team
Paying for a 3PL isn't just about storage space or affordable shipping; it's about having an experienced team on hand who understands your brand's needs and maintains a regular point of contact with your business - something that isn't possible at an outfit the size of Amazon.
Regardless of whether you’re an emerging direct-to-consumer brand or an experienced retail distributor, Ryder's Customer Success team is designed to help brands evolve with the demands of an incredibly competitive ecommerce sector, combining decades of industry experience with best-in-class fulfillment technology to support long-term growth.
The disadvantages of partnering with a 3PL
Finding the right 3PL can take time
Entering into a partnership with a 3PL is a big decision, so you want to make sure that you've chosen the right provider. Service quality and capabilities vary hugely between different 3PLs, so doing your homework is important.
Ideally, you want to find an ecommerce fulfillment provider who has experience in your specific market, offers multi-node fulfillment capabilities, and cost-effective long-term storage fees, just to name a few.
In sum, partnering with a 3PL is not an outsourced fulfillment strategy that brands can set up overnight. It takes a lot of preparation to ensure that a partnership goes smoothly.
Complex pricing structures
The value proposition for full-service 3PLs is building fully customized fulfillment strategies for brands. However, this means that calculating costs can be difficult.
Setup, storage, SKU management, packaging materials, technology integrations, and value-added services all need to be priced up according to a business's needs, meaning it isn't possible to maintain a standard pricing list. It can take a good amount of research to understand what exactly what you're paying for.
Shipping capabilities can vary widely
While many 3PLs have the infrastructure and technological capabilities to rival Amazon fulfillment in delivery speed, this isn't the case across the board. Many smaller 3PLs don't leverage the order volumes necessary to qualify for favorable rates with major carriers, or don't have facilities in locations that are close to key transportation routes. If two-day delivery is a top priority for your brand, you'll need to do some careful research to find a 3PL who can guarantee this service.
Questions to ask before partnering with a 3PL
- Does the cost of a 3PL make sense for my order volume?
- What is the ideal location for my 3PL?
- What sales channels do I need my fulfillment partner to serve?
- What technological capabilities does a 3PL have?
Amazon MCF vs. 3PL: Which is a better option for your business?
Now we come to the ultimate question: Who makes a better fulfillment partner for your brand: Amazon MCF, or an independent ecommerce 3PL?
You should partner with Amazon multi-channel fulfillment if:
- Your order volumes are too small to make you a candidate for a 3PL partnership.
- You're a new brand that needs a convenient, short-term fulfillment solution.
- Your brand will benefit from a centralized fulfillment strategy.
- You sell products at a high turnover rate.
You should partner with a 3PL if:
- You want to shorten transit times with a multi-node fulfillment strategy.
- You want more flexibility over your shipping costs.
- You want control over the brand/unboxing experience.
- You require a multi-faceted storage solution that includes peak season and long-term storage.
Are you ready to outsource fulfillment?
Amazon is a master of supply chain management whose infrastructure has few competitors. Their decision to make these capabilities available to non-Amazon sellers marks a huge turning point for the industry as a whole.
At the same time, ecommerce fulfillment providers like Ryder are continuing to push the boundaries with the latest technology and flexible, responsive fulfillment that’s designed for a business’s unique needs, from fulfillment marketing to customized shipping strategies.If a memorable brand experience and wraparound support are key priorities for your brand, consider partnering with Ryder for your ecommerce fulfillment needs. Contact us today to find out how we can take your fulfillment strategy to the next level.
