When Amazon instituted significant changes to its Seller Fulfilled Prime (SFP) program, the ecommerce leader did more than adjust its rules for third-party sellers. It created a policy shift that is resonating throughout the entire ecommerce industry.
Free 1- and 2-calendar day shipping nationwide will soon become the new normal thanks to Amazon’s new SFP requirements. For years, other major players in the industry, such as Walmart and eBay, have followed Amazon’s lead to remain competitive. Online retailers should expect the same response to the new SFP mandates. Third-party sellers who wish to retain their indispensable Prime badge and grow sales through other online marketplaces will have to adapt to this new climate – and quickly.
In a post titled “Recent changes to Seller Fulfilled Prime FAQ,” Amazon detailed the new Amazon SFP requirements. Here is a closer look at what you need to know to keep your business compliant and profitable.
What are Amazon’s New SFP Requirements?
Amazon has discontinued its regional SFP program, which allowed third-party sellers to designate specific regions it would guarantee product delivery within 1-to-2 business days. Under the new rules, SFP sellers have to ensure that orders for standard-size products (up to 18”x 14” x 8”) get to customers within 1 or 2 calendar days nationwide. They are also required to fulfill orders at least one weekend day each week.
Sellers find it both challenging and expensive to meet the new expectations with their existing warehouse locations and shipping software. Amazon is imposing Prime badge suspensions for sellers whose delivery speed metrics aren’t meeting the new requirements, so the stakes are high.
How Amazon’s SFP Rules Impact Third-Party Sellers and Ecommerce
Third-party sellers have been asked to make a choice: Either comply with Amazon’s new policies or get pushed out of the SFP program. Giving up a Prime badge means that your products will show up in search results after those of your competitors who are SFP participants – essentially taking your products out of the eye line of 126 million Amazon Prime members.
More than that, though, Amazon’s fast and free delivery requirements will soon be the policies all other ecommerce platforms adopt. Walmart, Best Buy, eBay, and Shopify already have programs that prioritize visibility for listings that offer free shipping with fast turnaround. Sellers see the impact in higher conversion rates, which shows how important this kind of visibility is in the current ecommerce landscape.
Opting out is not a viable solution for any seller looking to maintain market share and grow long-term through online marketplaces. Finding ways to adapt to the new environment and make the changes work economically is the only path forward.
New SFP Fulfillment Options to Consider
Now is the time to review and research your shipping, inventory, and order fulfillment options. One popular strategy is to maximize your same-day fulfillment by extending your same-day shipping cutoff time and replacing traditional shipping software with next-gen ecommerce shipping software. Both of these changes will improve your delivery speed metrics, but they won’t go far enough.
Of course, ground shipping is still the most economical way to get orders to customers. However, to do this within the required 1- or 2- business day requirement, your merchandise has to be warehoused in close proximity to customers. A good goal is to have between 5 and 8 fulfillment centers throughout the country from which you can fulfill and ship orders. Here are some options to consider.
Switch to Fulfilled by Amazon (FBA)
FBA is a program that allows third-party sellers to hand off inventory to Amazon for order fulfillment. It’s a good option if you want to retain your Prime badge and you plan only to sell on Amazon. While Amazon takes on a lot of the heavy lifting (24/7 customer service, automatic performance metrics, almost unlimited scalability), there are a lot of rules, restrictions, hidden fees, and limitations.
Amazon charges up to twice as much for fulfilling orders on other channels, so it’s not a good option if you want to grow sales on other marketplaces or your own website. In fact, Amazon FBA is banned from Walmart Marketplace. Amazon also limits new ASINs to 200 units which can impede growth. SKUs that don’t sell quickly enough to meet Amazon’s Inventory Performance Index (IPI) may not qualify for replenishment and may incur expensive long-term storage fees. If you have a multichannel sales strategy, consider using an Amazon FBA alternative.
Build or Lease Additional Warehouses
This is a simple, though slow, and costly solution to getting your products close to your customers. Building or leasing new warehouses can be a good idea if you sell a large number of items on a schedule that’s predictable and reliable. This route does tie up capital and cash flow, plus property availability is scarce these days. Additionally, it takes a long time to reach peak efficiency and inventory management can be an issue when tracking across multiple locations.
Contract with Third-party Logistics Companies (3PLs)
You can outsource your fulfillment to 3PLs that specialize in ecommerce fulfillment. To meet Amazon’s requirements, you’ll have to work with several such companies and find a way to integrate software that allows you to manage distributed fulfillment. Pricing and fulfillment services vary widely, so it’s a good idea to use a 3PL Request for Proposal (RFP) Template to get an apples-to-apples comparison. Most 3PLs don’t have that capability, so you’ll need to invest in technology to track your inventory, ensure orders get to the right fulfillment centers, set cut-off times, etc. There are 3PL alternatives that can handle complex order routing and are usually less expensive than traditional 3PLs.
Join a Peer-to-Peer (P2P) Fulfillment Network
One of the fastest-growing options for Amazon SFP compliance is the peer-to-peer fulfillment network. This option brings hundreds of ecommerce merchants together to house inventory and fulfill orders for each other. Members are vetted, experienced, and often sell regularly on Amazon, giving them a unique perspective on what’s expected for Amazon SFP order fulfillment.
This option is very flexible, affordable, and a good choice if you have inventory that sells fast and only needs to be housed in the short term. Not only can you leverage the network to ship your own products, but as a member, you could also generate additional revenue by fulfilling orders for other merchants – sort of like starting a 3PL business. This can offset shipping costs you may have incurred from the SFP changes or could become a new stream of income altogether.
The bottom line is that free nationwide 1-day delivery is quickly becoming the standard that all ecommerce retailers must strive for. Investigating solutions to get your business up to speed now will ensure you stay competitive and save you time and money in the long run.
About the author:
Manish Chowdhary
Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer order fulfillment 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 than the economical ground shipping.
