Merchant Fulfilled Network: an alternative to FBA
Since its launch in 2006, Amazon Prime has literally changed the landscape for both customers and third-party Vendors on the Amazon Marketplace. Its broad success is undeniably linked to the growing expectations of customers for perfect service and faster delivery times.
One of the key challenges today for third-party vendors (also called Sellers) is to be able to address these 150 million Prime customers worldwide. Only Vendors get the Prime badge automatically.
The historical program for Sellers to make their products eligible for the Prime product selection is called FBA (Fulfillment by Amazon). A second option MFN (Merchant Fulfilled Network) is also available.
In this article we detail each program available for Amazon Sellers.
Fulfillment by Amazon (FBA): pros and cons
The advantages of the FBA program are numerous. Firstly because Amazon takes care of the logistics, such as express delivery within 24 hours, as well as customer service and returns; but also the Prime badge allows you to activate key marketing levers by increasing the chances of winning the buy box, or by carrying out promotional offers such as flash sales.
So on paper everything is perfect, but the Fulfillment by Amazon program has its limitations and is not necessarily the ideal model for all Sellers or products.
For starter, some products are ineligible for the program, such as hazardous products (‘hazmat’) or some oversized products (e.g. washing machines, skis…).
Furthermore, the high cost of long-term storage makes the program irrelevant for some types of products, such as bulky or seasonal items with low turnovers, as well as goods with many variations like clothing.
Merchant Fulfilled Network (MFN): the best of both worlds?
To overcome the limitations of the FBA program, Amazon has been offering the MFN (Merchant Fulfilled Network) program since 2015. This option allows eligible Sellers to obtain the Prime label while shipping their orders directly from their warehouses.
This increases the opportunities for Sellers to manage inventory, expand sales channels, and offer ineligible or low-value items with FBA while enjoying the benefits of the Amazon Prime Badge.
According to a study conducted by Amazon*, 85% of Sellers who used it, saw an increase in their orders and sales volume.
Rigorous logistics performance criteria
On paper, the Merchant Fulfilled Network has it all, but it is not that easy… Amazon is very particular about its customer service, and the MFN program is extremely demanding in order to ensure the same quality level as Amazon. So what are the prerequisites for selling through this program?
First of all, the MFN program (Merchant Fulfilled Network) requires a warehouse with an address in the country where the products are sold.
Then, the Seller agrees to comply with other specific criteria:
– Use a carrier approved by Amazon
– Be able to carry out “Express” deliveries (24/48h)
– Comply with high performance standards (logistics and cancellation)
All these guidelines are meant to achieve a timely shipment rate of more than 99% and a pre-shipment cancellation rate of less than 1%. By comparison, these logistics performance indicators are only at 96% and 2.5% respectively for the classic “Selling On Amazon” program.
Finally, you can become a MFN (Merchant Fulfilled Network) only after a probationary period that can last up to 90 days. During this period, Amazon verifies that the Seller is able to meet the performance criteria regarding shipping and cancellation rates.
An advantageous program, but not within everyone’s reach
The Merchant Fulfilled Network program has many advantages and offers great opportunities for Sellers. The main advantages are the amortisation of its logistics infrastructure, inventory management and centralization of a single stock and, of course, the Prime badge.
Nevertheless, this program is also far from being a good fit for all Sellers, since it’s necessary to master the complete range of its logistics:
– By having its own warehouses
– By accepting the approved carrier’s rate card,
– By complying with Amazon’s performance criteria
– By satisfying a firm returns policy
MFN is geared more towards advanced e-merchants with a robust logistics infrastructure that are able to keep pace with the increasing sales volumes to come, an outcome of joining the Prime product label family.
With monthly audits and frequent monitoring by Amazon, compliance with these rules can be difficult and the Prime badge can be easily withdrawn. Remember that the goal here is to achieve performance thresholds similar to Amazon’s, such as same-day shipping for orders placed before 1:00pm.
While this program is not for everyone, it also does not appear to be suitable for all products. The question arises whether only high value-added products are relevant for this program. The carrier’s price list is an important element to consider; shipping costs will, logically, be absorbed in the product price. It is therefore advisable to pay attention to the choice of products, at the risk of downgrading your assortment profitability.
To conclude, as is often the case with Amazon, it is paramount to take everything in consideration before making any decision. The Merchant Fulfilled Network is undeniably a growth accelerator and a good alternative to the Fulfilled by Amazon program, but it requires perfect logistics management for it to work.
If you want to learn more about the MFN program, check the Amazon website.
Sources: Amazon survey of 139 SFP vendors in the United Kingdom (percentage rounded to the nearest whole number), Q2 2018.