If you’ve heard of direct fulfillment, you might have wondered what it means. Isn’t direct fulfillment just — fulfillment? To some extent, that is the case. But, as with many aspects of eCommerce fulfillment, Amazon has redefined the term for its ecosystem.
Here’s everything you need to know to understand direct fulfillment.
What does direct fulfillment mean?
Direct fulfillment means shipping an order directly to the consumer. If your eCommerce company makes D2C (direct to consumer) sales and ships orders to your customers, that’s direct fulfillment. However, if you sell wholesale to other online retailers, you will ship them bulk orders of your products. Those retailers will then store your products and ship out orders to consumers. This is known as indirect distribution.
What is Amazon Direct Fulfillment?
Amazon Direct Fulfillment is an alternative fulfillment option for Amazon vendors. Vendors are different from Amazon sellers. The program used to be called Amazon Dropship Central.
On this blog, we often write about Amazon sellers. A seller is an independent eCommerce merchant that lists items for sale in the Amazon marketplace. An Amazon vendor does not list their items on the marketplace. Instead, a vendor is a company that wholesales products to Amazon. Their items are listed as “Sold by Amazon,” and Amazon markets the products to consumers.
In the ordinary course of eCommerce, a vendor ships a wholesale order to Amazon. Amazon warehouses the inventory, picks and packs orders, and handles eCommerce shipping. When inventory runs low, Amazon issues a purchase order, and the vendor ships more stock.
Amazon Direct Fulfillment provides a backstop to Amazon fulfillment operations. Instead of marking items as out of stock, a vendor that participates in the program can ship products directly to consumers when Amazon runs out.
The Amazon program is similar to drop shipping because the retailer (Amazon) markets products to consumers and, when someone places an order, the manufacturer ships the item. However, it’s not exactly the same because Amazon retains a measure of control over the order. Amazon pays shipping costs, as well as handling customer service and returns.
Who can sign up for Amazon Direct Fulfillment?
Amazon Direct Fulfillment is open to vendors with a U.S. warehouse and the capacity to ship single items to individual customers. You can qualify for this Amazon program if you ship from your own warehouse or use 3PL services for order fulfillment.
How to set up Vendor Central Direct Fulfillment
You can set up Amazon Direct Fulfillment in your Vendor Central account. Go to EDI > Direct Fulfillment and follow the prompts to enter information and choose your fulfillment settings. EDI is Electronic Data Interchange. This is the system that Amazon uses to direct deposit payments. It’s also the transfer point for inventory data in the Direct Fulfillment program.
If you process Direct Fulfillment orders through more than one warehouse, be sure and set up each warehouse location. At the end of setup, run a test to make sure the EDI connection works and that data and messages and pushed both from and to Amazon.
The EDI feed will transmit your inventory levels to Amazon so your products stay in stock. You’ll have options to set safety stock quantities for each warehouse.
Direct Fulfillment vs. drop shipping
The terms direct fulfillment and drop shipping can be used interchangeably. Both refer to a process where the manufacturer ships directly to the consumer. In the case of Amazon Direct Fulfillment, the vendor acts as a drop shipper for Amazon.
With Direct Fulfillment, Amazon lists products that it hasn’t purchased and doesn’t have in stock. When an order comes in, Amazon sends the order to the manufacturer, which ships to the consumer. Amazon pays for the item once it’s ordered. That is, essentially, dropshipping.
In a regular drop shipping eCommerce business, the seller will pay a higher wholesale price in exchange for the manufacturer taking care of warehousing and shipping. In addition, dropshipping reduces the seller’s risk because they only pay for products that consumers have already ordered. Dropshipping reduces upfront costs and eliminates dead stock.
The Amazon Direct Fulfillment model is slightly different because it’s a stopgap measure to keep products in stock online during lead time before wholesale orders arrive at the warehouse. Amazon doesn’t pay a premium for orders that you dropship, and it does continue to write purchase orders for those items.
3 reasons to sign up for Amazon Direct Fulfillment
If you’re able to send direct orders to consumers without significant fulfillment costs, Amazon Direct Fulfillment is an excellent program. Here are three reasons Amazon vendors might want to enroll.
Continue making sales during inventory lead time
As eCommerce sales grew during the pandemic, Amazon was short on warehouse space. The eCommerce giant stopped shipping nonessential FBA items for a time because it couldn’t handle the increased volume of orders. In a time of volatile demand, Direct Fulfillment is a good way for vendors to keep an important revenue stream flowing during periods where Amazon’s logistics operations can’t keep up.
Keep search rankings from falling due to stockouts
If the items you supply to Amazon fall out of stock, they can also fall out of the search rankings. When the products are back in Amazon’s warehouses, it may take time for them to regain their status. This could put a dent in your wholesale sales. Direct Fulfillment keeps your products on top.
Maintain customer satisfaction and brand loyalty
Another hazard of stockouts is losing customers altogether. If consumers can’t find the products you sell to Amazon in stock, they may turn to your competitors. You run the risk that they will never come back, even once your items are back in stock.
Fulfillment alternatives for eCommerce vendors
Whether you sell direct to consumers, wholesale to other retailers, or a mix of both, it’s essential to optimize your logistics operations. That could mean shipping orders from your company warehouse or working with a third-party logistics company.
Red Stag Fulfillment provides a wide range of fulfillment services, including Amazon Seller Prime Fulfillment, LTL shipping, kitting, and inventory planning. We process direct fulfillment from our clients to their customers with accuracy and on-time rates that put us at the top of the logistics industry.