- What is Amazon Fulfillment?
- Comparison of 3PL and Amazon Fulfillment
- When to Choose 3PL and When to Choose Amazon Fulfillment
- How do the costs of FBA compare to 3PL services?
- What Does the Consumer Have to Say About 3PLs vs FBA?
- Summary
Updated: October 1st, 2024
Third-Party Logistics (3PL) providers perform a number of services that can help e-commerce businesses streamline their logistics and fulfillment operations. According to a report by Grand View Research, the global 3PL market size is expected to reach USD 1.4 trillion by 2025, growing at a CAGR of 10.3% during the forecast period. (1)
The main benefits of using a 3PL provider include:
- Scalability and flexibility: 3PL providers can scale up or down to meet your changing business needs. According to a survey by Supply Chain Digest, 71% of respondents reported that their 3PL provider was able to adapt to changes in their business needs. (2)
- Cost savings: 3PL providers can help you reduce costs by optimizing your supply chain and reducing waste. According to a report by McKinsey, companies that outsource logistics can reduce their costs by up to 20%. (3)
- Expertise and technology: 3PL providers have the expertise and technology to manage your logistics and fulfillment needs. According to a report by Deloitte, 3PL providers are increasingly using technology to improve their operations, such as using data analytics to optimize routes and reduce fuel consumption. (4)
- Increased efficiency and accuracy: 3PL providers can help you improve your order fulfillment and shipping times, and reduce errors. According to a report by KPMG, companies that outsource logistics can reduce their order fulfillment times by up to 30%. (5)
Who are we? Speed Commerce is an end-to-end provider of outsourced customer experience solutions, including TikTok fulfillment for retailers (on Shopify and Bigcommerce & more) as well as manufacturers. We grow our clients’ businesses by providing winning customer experience strategies such as 24/7/365 eCommerce customer service, order fulfillment, and warehousing – get a free quote from a fulfillment expert. Read our annual top-ranked 3PLs in the US list.
What is Amazon Fulfillment?
Amazon Fulfillment is a service offered by Amazon that allows you to store your products in Amazon’s warehouses and have them shipped directly to customers. According to Amazon’s own statistics, Amazon Fulfillment has helped sellers increase their sales by up to 30%. (6)
The benefits of using Amazon Fulfillment include:
- Convenience and ease of use: Amazon Fulfillment is easy to set up and use, and you can manage your inventory and orders through Amazon’s dashboard. According to a report by Feedvisor, 75% of Amazon sellers use Amazon Fulfillment to manage their inventory and orders. (7)
- Access to Amazon’s vast customer base: By selling through Amazon, you can tap into Amazon’s massive customer base and increase your visibility. According to Amazon’s own statistics, Amazon has over 300 million active customers worldwide. (8)
- Integration with Amazon’s technology and services: Amazon Fulfillment integrates seamlessly with Amazon’s technology and services, making it easy to manage your inventory and orders. According to a report by eMarketer, 60% of Amazon sellers use Amazon’s Fulfillment by Amazon (FBA) service to manage their inventory and orders. (9)
- Increased visibility and credibility: Selling through Amazon can increase your visibility and credibility with customers. According to a report by Trustpilot, 75% of consumers trust online reviews, and 60% of consumers trust online ratings. (10)
Comparison of 3PL and Amazon Fulfillment
When deciding between 3PL and Amazon Fulfillment, there are the differences to keep in mind:
- Control and customization: With 3PL, you have more control and customization options, but may pay more for these services. With Amazon Fulfillment, you have less control and customization options, but may pay less for these services. According to a report by Supply Chain Digest, 71% of respondents reported that their 3PL provider offered customized solutions. (2)
- Cost and pricing: 3PL providers typically charge by the hour or by the pound, while Amazon Fulfillment charges a flat fee per unit. According to a report by McKinsey, companies that outsource logistics can reduce their costs by up to 20%. (3)
- Scalability and flexibility: 3PL providers can scale up or down to meet your changing business needs, while Amazon Fulfillment may have limitations on the number of units you can store and ship. According to a report by Deloitte, 3PL providers are increasingly using technology to improve their operations, such as using data analytics to optimize routes and reduce fuel consumption. (4)
- Integration and technology: 3PL providers may have their own technology and systems, while Amazon Fulfillment integrates seamlessly with Amazon’s technology and services. According to a report by eMarketer, 60% of Amazon sellers use Amazon’s Fulfillment by Amazon (FBA) service to manage their inventory and orders. (9)
When to Choose 3PL and When to Choose Amazon Fulfillment
When deciding between 3PL and Amazon Fulfillment, keep these in mind:
- Business size and scale: If you’re a small to medium-sized business with complex products or high-volume sales, 3PL may be a better option. If you’re a large business with high-volume sales and a strong presence on Amazon, Amazon Fulfillment may be a better option. According to a report by Grand View Research, the global 3PL market size is expected to reach USD 1.4 trillion by 2025, growing at a CAGR of 10.3% during the forecast period. (1)
- Product type and complexity: If you have complex products or require specialized storage and handling, 3PL may be a better option. If you have simple products and require a high-volume shipping solution, Amazon Fulfillment may be a better option. According to a report by Supply Chain Digest, 71% of respondents reported that their 3PL provider offered customized solutions. (2)
- Customer base and target market: If you have a strong presence on Amazon and target market is Amazon customers, Amazon Fulfillment may be a better option. If you have a diverse customer base and target market, 3PL may be a better option. According to a report by eMarketer, 60% of Amazon sellers use Amazon’s Fulfillment by Amazon (FBA) service to manage their inventory and orders. (9)
How do the costs of FBA compare to 3PL services?
When comparing the costs of Fulfillment by Amazon and Third-Party Logistics (3PL) services, several factors ought to be considered, including storage fees, shipping costs, and additional service fees.
FBA Costs:
- Storage Fees: Amazon charges storage fees based on the volume of inventory stored in its fulfillment centers. These fees increase significantly during peak seasons (October to December).
- Fulfillment Fees: Amazon charges per unit fulfillment fees, which cover picking, packing, and shipping. These fees vary based on the product’s size and weight.
- Referral Fees: A percentage of each sale, typically ranging from 8% to 15%, depending on the product category.
- Additional Fees: These can include long-term storage fees for items that remain in Amazon’s warehouses for more than a year, as well as fees for returns processing.
3PL Costs:
- Storage Fees: 3PL providers typically charge for storage based on the actual space used, often measured in pallet positions or cubic feet. These fees can be more flexible and lower than Amazon’s, especially during off-peak seasons.
- Fulfillment Fees: 3PLs charge for picking, packing, and shipping, often providing more competitive rates than FBA. These fees can be tailored to the specific needs of the business, potentially offering cost savings.
- Additional Services: Many 3PLs offer value-added services such as kitting, custom packaging, and returns processing, which can be customized to the business’s requirements and are often more cost-effective than FBA’s standardized services.
Overall Cost Comparison:
- FBA might be more cost-effective for businesses with smaller, high-turnover products that benefit from Amazon Prime eligibility and the associated boost in sales.
- 3PL tends to be more cost-effective for businesses with larger, bulkier items, products with low seasonality, or those requiring specialized services not offered by FBA like custom services and other add-on services. 3PLs tend to scale better as businesses grow as they can offer highly customized pricing that FBA may not be able to offer.
How does the fulfillment speed and delivery time compare between FBA and 3PL?
If cost is your top factor then the speed and delivery time of order fulfillment are your next-in-line factor in ensuring customer satisfaction and can significantly impact your business’s reputation and sales.
Fulfillment by Amazon:
- Prime Shipping: One of the major advantages of FBA is the access to Amazon Prime, which offers customers two-day shipping and, in some cases, same-day or next-day delivery. This fast shipping is a significant selling point and can lead to higher conversion rates and customer satisfaction.
- Extensive Network: Amazon’s extensive network of fulfillment centers allows for rapid processing and shipping of orders. When a customer places an order, Amazon can quickly pick, pack, and ship the item from the nearest fulfillment center, ensuring fast delivery times.
Third-Party Logistics (3PL):
- Customizable Speed: 3PL providers offer varying levels of service based on the needs of the business. Many 3PLs can provide expedited shipping options similar to Amazon’s, though this can depend on the provider’s network and capabilities.
- Network Flexibility: While 3PLs may not have the same number of fulfillment centers as Amazon, they often have strategically located warehouses that can ensure competitive delivery times. Businesses can choose 3PL providers with warehouses close to their customer base to reduce shipping times.
- Multichannel Fulfillment: 3PLs can manage orders from multiple sales channels (e.g., e-commerce platforms, retail stores) in one system, ensuring efficient fulfillment and potentially faster delivery times across all channels.
Overall Comparison:
- FBA: Generally offers faster shipping times due to Amazon’s extensive network and Prime benefits, making it ideal for businesses that prioritize rapid delivery and want to leverage Amazon’s logistics infrastructure.
- 3PL: Can offer competitive delivery times, especially if the 3PL provider has a robust network and the business strategically positions its inventory. Moreover, 3PLs provide more flexibility and customization in fulfillment processes, which can be advantageous for businesses with diverse needs.
What Does the Consumer Have to Say About 3PLs vs FBA?
There are few studies that analyze this question from a consumer point of view but we do have an idea in terms of the aspects of fulfillment that customers respond to.
- A study by the National Retail Federation found that 71% of consumers prefer to buy from retailers that offer free shipping, and 61% prefer to buy from retailers that offer free returns. This suggests that consumers value the convenience and flexibility offered by FBA and 3PLs.
- A study by the International Council of Shopping Centers found that 55% of consumers prefer to shop online, and 45% prefer to shop in-store. This tells us that consumers are increasingly comfortable shopping online, and that both FBA and 3PLs can help retailers meet this demand.
- A study by the market research firm, Nielsen, found that 60% of consumers prefer to buy from retailers that offer a seamless shopping experience, and 55% prefer to buy from retailers that offer a wide range of products. So consumers value convenience and variety, and that FBA and 3PLs can help retailers provide these benefits.
- A study by the e-commerce platform, Shopify, found that 75% of consumers prefer to buy from retailers that offer fast and reliable shipping, and 65% prefer to buy from retailers that offer easy returns. We can infer that consumers value speed and convenience, and that FBA and 3PLs can help retailers provide these benefits.
The truth is neither 3PLs nor FBA have a monopoly on any of these aspects – speed, seamlessness, accuracy, and convenience. Amazon fulfillment promises many of these aspects off-the-shelf, but at a cost. With a 3PL you’ll need to find the right one and work with them to ensure you can deliver quality results consistently, however once you do, you can reap the rewards of scale, customization, and cost savings.
Summary
3PL’s and Amazon Fulfillment are both viable options for e-commerce businesses. By thinking about the factors outlined above, you can determine which option is best for your business. Whether you choose 3PL or Amazon Fulfillment, the trick to growth is to find a solution that meets your business needs, depending where in the trajectory of growth your business is currently in and headed towards. If you feel satisfied with FBA, ask yourself how you’d feel if you were to outgrow it or if your cost structure suddenly change. It’s for these reasons we advise you at least explore your options and speak with a fulfillment expert to get ahead of these concerns.
References:
(1) Grand View Research, “Third-Party Logistics Market Size, Share & Trends Analysis Report by Service (Freight Forwarding, Warehousing, Value-Added Services), by End-use (Retail, Manufacturing, Healthcare), by Region, and Segment Forecasts, 2020 – 2025”
(2) Supply Chain Digest, “2019 3PL Study: Trends, Challenges, and Opportunities”
(3) McKinsey, “The Future of Logistics: How Companies Can Adapt to the New Reality”
(4) Deloitte, “The Future of Logistics: Trends, Challenges, and Opportunities”
(5) KPMG, “The Future of Logistics: How Companies Can Adapt to the New Reality”
(6) Amazon, “Amazon Fulfillment: How It Works”
(7) Feedvisor, “Amazon Fulfillment: A Guide for Sellers”
(8) Amazon, “Amazon Customer Base: A Guide for Sellers”
(9) eMarketer, “Amazon Fulfillment by Amazon (FBA): A Guide for Sellers”
(10) Trustpilot, “The Importance of Online Reviews for E-commerce Businesses”
