Entering the global market through Amazon, FBM? FBA?

In an era where global supply chains are paramount, adopting a global perspective on logistics becomes increasingly important. Despite insights shared by various global leaders, accessing and comprehending this information in one place can be challenging. Colosseum aims to facilitate understanding of global logistics trends by sharing insights that lead various global logistics markets.

Amazon, the world’s largest global e-commerce platform, is attracting a lot of attention from domestic sellers as a potential market beyond Korea to reach global consumers. Consequently, the number of domestic sellers entering Amazon is rapidly increasing.
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Sellers on Amazon handle orders through various methods, including △ Fulfillment by Merchant (FBM) △ Fulfillment by Amazon (FBA) △ Delivery through various channels.
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To establish a logistics system, considering various factors such as the type of product, characteristics, and delivery period is crucial. In this article, we will explore the differences between FBM and FBA, as well as their respective advantages.

This article covers:
• The distinctions between Amazon FBM (Fulfillment by Merchant) and FBA (Fulfillment by Amazon).
• Key advantages and suitable use cases for FBM.
• The process and advantages of enrolling in FBA.

FBM is a method where sellers handle products directly. This means that sellers simply use Amazon as a sales channel without utilizing Amazon’s logistics services. If a seller chooses to use their own logistics or a third-party logistics provider, they handle all processes such as storage, order processing, inventory management, delivery, returns, and customer service.
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One advantage of FBM is that sellers can be relatively less affected by Amazon’s influence in operations. Amazon is known for making changes to its terms of service without considering the situation of sellers. Sellers, however, must strictly comply with Amazon’s terms. Sellers using FBA may find it challenging to adapt quickly to sudden changes in Amazon’s terms.
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For example, Amazon has removed the important Prime badge in situations of sudden increases in inventory, and it has closed seller support centers, causing inconvenience to many sellers. Consequently, some sellers who used FBA have transitioned to FBM.
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Additionally, using FBA requires an approval process, and sellers need to prove the turnover rate of their products, making it a time-consuming process for new sellers to enter Amazon.

• Create an account on Amazon Seller Center to register products.
• Construct detailed product pages that stimulate purchase desire with images (videos), descriptions, etc.
• Process the sold products either through in-house order processing or using third-party logistics services.
• For efficient use of advertising costs to compete in similar product categories, a well-thought advertising strategy is essential.

FBM requires the direct management of all logistics tasks. Sellers need to handle aspects like storing products in their own logistics centers or third-party logistics centers, responding to orders, and, in the early stages of the business, storing products at home or in the office to reduce fixed costs. Established sellers with significant sales volumes often set up logistics centers near ports or airports to save on transportation costs and time.
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Upon receiving orders, products need to be packaged and delivered within the desired shipping period. Unlike FBA, where Amazon boxes are mandatory, FBM allows sellers to manage packaging directly, providing a new customer experience through branded packaging, inserts, gifts, etc. However, smaller sellers usually use international express services such as the post office, DHL, UPS, which may make it difficult to expect significant margins due to high shipping costs.
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Moreover, sellers need to register an address for handling return requests, and when a return request is received, they must approve it, after which Amazon provides relevant information for the seller to proceed with the return.
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In summary, FBM is suitable for sellers with their own logistics centers, dealing with large or temperature-controlled products, and those aiming to provide a new customer experience through branded packaging or gifts.

FBM operates based on fees, including referral fees (sales) and monthly subscription fees. The referral fee is charged by Amazon for recommending the product, as the product is sold through Amazon, ranging from 6% to 45%, depending on the item.

Using logistics services for Amazon order processing incurs storage and agency service costs. Also, regular sales volumes need to be secured for the contract to proceed. However, when volumes are secured, transportation costs can be reduced, and administrative tasks related to import and export can be minimized.

FBA, or Fulfillment by Amazon, is a service where sellers entrust Amazon’s logistics center with their products. Amazon takes care of services such as storage, sorting, packaging, shipping, and customer service when a seller sends products to an Amazon logistics center.
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One advantage of using FBA is the utilization of Amazon’s logistics infrastructure, leading to increased customer accessibility through the Prime badge. It allows sellers to focus on core activities such as marketing and new product development by reducing the operational burden.
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FBA fees are structured around storage, order processing, and other miscellaneous fees like disposal and refunds. Fees vary based on size and weight, and there are distinctions between peak and off-peak season fees. Small standard items (4oz or less, approximately 113g) incur an additional $0.2 charge.

In the FBA process, sellers register with FBA and send products to the U.S. through sea or air freight. However, during customs clearance, a local business entity needs to be secured to register as a local buyer since Amazon cannot be registered as a local buyer in this process.
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Upon arrival in the U.S., the products are moved to an Amazon logistics center and stored. Sellers start selling the inventoried products, and when customers place orders, Amazon staff pick, pack, and deliver the products to customers. During this process, any customer service issues are handled by Amazon.
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FBA fees include charges for various services used throughout the process. These fees are categorized into storage and order processing, with rates differing based on the size of the product and the duration of storage.

• Reduction in operational burden, allowing sellers to focus on core activities.
• Increased customer accessibility through the Prime badge.
• Amazon handles customer service tasks, alleviating communication-related challenges.

• High fees, impacting profitability depending on the situation.
• Limitations on branding direction – inability to brand self-developed products can be critical in the long run.
• Lack of involvement in order processing and shipping, restricting the ability to secure loyal customers through differentiated branding.
• Limits on the amount of inventory stored in logistics centers, potentially losing potential customers if demand suddenly surges.
• Concerns about Amazon’s operational policies, along with potential issues in product management due to the nature of various products being handled in logistics centers.

Choosing between FBM and FBA is not straightforward as each has its own advantages and characteristics. If a seller has access to a local logistics center and has a well-established delivery process for accuracy and speed but wants to expand exposure, they might consider using FBA. In such cases, FBA can be used to minimize storage costs by stocking a small quantity, adjusting the volume flexibly based on sales, and actively promoting activities during peak seasons.
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Starting with FBM and transitioning to FBA to secure market penetration, then building a local logistics network to move beyond reliance on Amazon and establish a stable and fast delivery network for both online and offline markets, is a strategy that can be considered.

Reference
Amazon Seller Central
Shipbob: How Does Amazon FBM Work in 2023? Guide + Amazon FBM vs. FBA
Flowspace: Amazon FBA vs FBM: Which Is Best For Your Company?