Four Ways to Increase Your Amazon Supply Chain Efficiency

When we think of Amazon, what characteristics do we tend to think of first? One might ponder their effectiveness, abilities, or even sheer size and power. However, one attribute that ceaselessly places Amazon above their competition is their ability to be innovative.


Whether it be using traditional 3PL models to reduce delivery times or investing in new technology like drones to increase warehouse automation, Amazon is constantly seeking to innovate.


Want to increase your Amazon supply chain efficiency? Strive to be innovative. Innovation is about seeing challenges as opportunities and finding creative solutions to those challenges.


Although always easier said than done, here are some tips to get you headed in the right direction.



1. Preparing your specifications for production


The first step is deciding what and how much you want to sell. If you’re planning on selling more than 40 items per month it will make sense to sell as a professional seller.

If selling less than 40 items per month you may be content with becoming an individual seller. Once you’ve finished deciding how many items you plan to sell, the next step is choosing which categories you plan to sell from.

In addition to some categories only being available to professional sellers, some categories place restrictions on the condition of the items (New, Refurbished, Used, etc).


You can view the different categories and condition restrictions here. It is important to understand the nuances of your selling category as some categories incur greater referral fees. We will talk more about this in our third tip.


2. Understanding lead times and shipping times


Anyone who has been selling on Amazon for over a year knows that Amazon is continuously updating their systems and processes. Sometimes this includes changes to expected lead times and shipping windows. In order to minimize costs on chargebacks it is important to stay on top of these changes.


Having said that, the default lead time for selling on Amazon is 1-2 days. For some people, however, it may make sense to extend or shorten (to same day shipping) this lead period. This decision often has a direct correlation to which category you sell from, another reason why understanding your product specifications is so important.


For example, in the electronics category you will be going up against many large sellers who hold inventory when price elasticity is high, in which adding a lead time would make your product less attractive.


On the other hand if you are selling in say the clothing category, competition is a lot less fierce and extending your lead time may not have too large of an impact on efficiency.



3. Breaking down your costs


A large portion of your costs selling on Amazon will come from FBA. More often than not FBA means quicker shipping rates as well as handling customer service and returns. In addition, Amazon has put an immense amount of effort into their branding and using FBA automatically ties your online store to their brand, making you more reputable. In addition, the time you save shipping through Amazon often outweighs the cost of using FBA.


However, depending on your budget and the volume of your product, it may make sense to ship your items yourself. You can check up on Amazon’s seller shipping rates here.


If FBA is something that makes sense for you, it’s important to understand how the costs are broken down.


FBA costs consist of referral fees, variable closing per item fees, and order fulfillment fees.


Referral fees: This is essentially a percentage of your total item price that Amazon takes based on their CPA model. Depending on which category you are selling from these percentages will vary.


Here is how the referral percentage fees are broken down:

• Amazon Kindle – 15%
  

• Automotive Parts and Accessories – 12%
  
  
• Tires and Wheels – 10%
  
  
• Baby Products (not including Baby Apparel) – 15%
  
  
• Books – 15%
  
  
• Camera and Photo – 8%
  
  
• Consumer Electronics – 8%
  
  
• Electronics Accessories – 15% for items under $100 (item price + gift wrap charge); 8% for over $100; minimum referral fee of $1.00
  
  
• Entertainment Collectibles – 20% for items under $100 (item price + gift wrap charge); 10% for items $100-$1000; 6% for items greater than $1000; minimum referral fee of $1.00
  
  
• Home & Garden Products (including Pet Supplies and other items) – 15%
  
  
• Industrial & Scientific Products (including Food Service and Janitorial & Sanitation) – 12%
  
  
• Kindle Accessories – 25%
  
  
• Music – 15%
  
  
• Office Products – 15%
  
  
• Personal Computers – 6%
  
  
• Shoes, Handbags and Sunglasses – 15%
  
  
• Software & Computer Games – 15%
  
  
• Sporting Goods – 15%
  
  
• Sports Collectibles – 20% for items under $100 (item price + gift wrap charge); 10% for items $100-$1000; 6% for items greater than $1000; minimum referral fee of $1.00
  
  
• Tools & Home Improvement Items – 12%
  
  
• Toys – 15%
  
  
• Unlocked Cell Phones – 8%
  
  
• Videos & DVDs – 15%
  
  
• Video Games – 15%
  
  
• Video Game consoles – 8%
  
  
• Watches – 15%
  
  
• Any other products – 15%
  

Source: FBAMaster.com



Variable closing per item fees: If you are an individual seller, this refers to the $.99 per item closing fees on top of the closing fees dependent of category. If you choose to become a professional seller (monthly subscription of $39.99) you won’t have to pay the $.99 per item fee.


Closing fees for media categories can be seen below:

• Books – $1.35
  
  
• Music – $1.35
  
  
• Software & Computer Games – $1.35 for domestic standard and expedited shipping; N/A for international
  
  
• Videos & DVDs – $1.35
  
  
• Video Games – $1.35 for domestic standard and expedited shipping; N/A for international
  
  
• Video Game consoles – $1.35 for domestic standard and expedited shipping; N/A for international
  

Order fulfillment fee: This consists of picking and packing

your orders, shipping and handling, customer service, and product returns. The costs depend on the weight of your items, as well as if you choose to hold inventory at an Amazon warehouse. An in-depth breakdown of these costs can be found here.



4. Demand management and cost cutting approaches


Looking at our Amazon supply chain, there are simply some costs we won’t be able to do much about. This includes the professional selling subscription, closing fees on individual sellers and the various costs incurred through using FBA.


Although it may seem beneficial to cut costs through eliminating FBA, this could come back to haunt you in the long run.


Using FBA has a very high upside and minimal downside. Not only will using FBA limit your business operations, but also give you access to Amazon prime which encompasses quicker shipping as well as increased customer purchase orders.


If you still aren’t sure if FBA is right for you, you can check out Amazon’s Revenue Calculator to calculate your revenue using FBA.


Having an in-depth understanding of your product category along with the specifics of your product (size, weight, etc.) is essential. This will help you to adjust aspects of your product like lead times, time held in inventory, shipping expenses, and more.


To optimize your supply chain, you need to start by understanding your current challenges. From there, you need to grasp the general dynamics of producing your product. Once you’ve got a strong indication of what improvements you can make from a manufacturing or logistical standpoint, it’s time to make those adjustments.


Last but not least, selling on Amazon can be stressful. With this insight we’ve shared, your Amazon store will now have the competitive advantage it needs to be successful.

 

general but useful information. Thanks for your post