We explore the strategic role of DF in e-commerce, addressing Amazon's evolving inventory strategy and the shift in 1P Purchase Orders (POs). It highlights the numerous benefits of adopting DF, such as increased product selection, lower inventory costs, and enhanced...
An Introduction to Direct Fulfillment on Amazon
The Strategic Role of Direct Fulfillment in E-commerce
Franck Jones, CTO at CPGIO, brings a wealth of expertise in building flexible, data-driven fulfillment and marketing solutions for leading CPG brands. He emphasizes that Amazon, as a massive platform, comprises numerous components that collectively function together to boost brand sales. This blog explores the multifaceted domain of Amazon Direct Fulfillment (DF), highlighting its critical importance and interconnected aspects that can significantly enhance brand sales.
Why Embrace Amazon Direct Fulfillment?
Addressing the Shift in Amazon’s Inventory Strategy
Amazon's evolving inventory approach, particularly the decrease in 1P Purchase Orders (POs), signifies a pivotal moment for DF's relevance, especially for brands primarily focused on 1P sales. Adopting Direct Fulfillment allows brands to:
- Combat Amazon's reduction in 1P POs, ensuring consistent product availability.
- Expand product selection and reach a broader customer base without the need for Amazon warehouse storage.
- Swiftly test market responses to new products, pricing strategies, and iterate rapidly based on customer feedback.
- Significantly lower inventory costs by shipping directly from their warehouses or distribution centers.
- Exercise greater control over the fulfillment process, ensuring that products are packaged and shipped according to high-quality standards.
- Access valuable customer data, including purchasing patterns and preferences, for more informed decision-making.
- Maintain positive relationships with Amazon Vendor Managers through a balanced approach.
Amazon Direct Fulfillment thus enables manufacturers to sell directly to Amazon's customers, bypassing the need to store inventory in Amazon’s warehouses, and offering the flexibility to respond quickly to market demands.
Key Advantages of Direct Fulfillment
Enhancing Brand Presence and Operational Efficiency
Direct Fulfillment offers several tangible benefits to brands on Amazon:
- Trusted Brand Association: Products are displayed as “Ships and Sold by Amazon,” enhancing customer trust.
- Catalog Expansion: Increase the number of ASINs in stock by adding the entire catalog to Amazon’s platform.
- Instant Availability: Products are available for sale as soon as they are active in your warehouse and listed on the site.
- Out of Stock Protection: DF ensures a continuous offer availability, pending inventory.
- 0 Cost Efficiency: No outbound shipping costs as Amazon covers these fees.
Optimizing Direct Fulfillment Performance
Metrics to Watch and Improve Upon
In Direct Fulfillment, certain metrics are crucial for performance optimization:
- Expected Ship Date %: Measures the frequency of shipments sent on or before the Expected Ship Date (ExSD)/Required Ship Date (RSD).
- Improvement Strategies: Prioritize orders by ExSD/RSD, confirm shipments promptly, and ensure tech setups accommodate efficient ASN submission.
- Late ASN DPMO: Tracks the error rate for late Advanced Shipping Notices (ASNs).
- Reduction Techniques: Ship orders by RSD/ExSD and submit ASNs accurately to avoid increased Late ASN DPMO and low ExSD %.
- Backlog Target: Indicates the ratio of shipped packages to warehouse capacity, reflecting days needed to clear backlog.
- Management Tips: Monitor Backlog Tgt and adjust warehouse capacity to reflect actual order processing capabilities, impacting DEA %.
Direct Fulfillment Best Practices for Amazon Sellers
Keys to Maintaining High Performance
Achieving high scores in DF metrics is vital for success. Brands should focus on:
- Maintaining accurate inventory levels to prevent over/under-selling.
- Streamlining fulfillment and shipping processes for timely deliveries.
- Consistent communication with Amazon for compliance and issue resolution.
- Monitoring performance metrics like order defect rate (ODR) and late shipment rate.
- Continuously using data from KPIs to make informed operational decisions.
The Role of Direct Fulfillment Centers
Central to E-commerce Efficiency
Direct fulfillment centers, crucial for D2C companies, ensure quick and efficient order dispatch to customers. These centers are differentiated from bulk shipping operations typically used by manufacturers or wholesalers.
Amazon's Direct Fulfillment model has evolved, especially during the pandemic, to include vendors running their own direct fulfillment centers, thereby maintaining stock availability and direct shipping to customers. This approach underscores the need for a warehouse capable of individual customer shipments, either in-house or through third-party logistics (3PL) services.
Beyond Traditional Fulfillment Models
Exploring Direct Fulfillment Center Options
While large entities like Home Depot are often associated with direct fulfillment centers, businesses of all sizes have viable options. It's imperative to find a fulfillment partner that aligns with your company's needs, offering intelligent material handling and high order accuracy, thus supporting your store's success.
Direct fulfillment centers are particularly beneficial for eCommerce companies, allowing for efficient direct shipping to customers and the flexibility to include promotional items in orders.
Leveraging CPGIO's Expertise in Direct Fulfillment
Partner with CPGIO for Enhanced E-commerce Success
CPGIO offers comprehensive Direct Fulfillment Center Services, providing a complete solution for your supply chain needs. Our services are tailored to meet the unique requirements of your business, ensuring fast and reliable delivery, reduced shipping costs, and an enhanced customer experience. By partnering with CPGIO, you gain increased control over your supply chain, access to real-time data, and the ability to create a memorable customer experience with custom product packaging and kitting services.
Contact CPGIO today to explore how our Direct Fulfillment services can streamline your supply chain and propel your sales on Amazon.
