The benefits of using FBA to fulfill your orders are obvious. However, putting all your eggs in this basket can limit growth because it requires large amounts of capital. This blog post describes how some sellers have solved the cash flow problems caused by FBA. You’ll find out how to offer more products on more channels and listings – without tying up any capital – by using a fulfillment method not called drop shipping in tandem with FBA.
As you already know, FBA requires you to invest in inventory before it’s sold, not after. So unless you’ve got an infinite supply of cash, there’s only so much you can buy and list for sale at a time.
You’re also limited by how fast your inventory turns over. Until it does your money is just sitting there.
Not only that, the money used to buy inventory before it’s sold has actually been invested at a negative rate of return. You see, unless you’re 100% sure everything will be sold – and sold quickly – you don’t know what kind of return you’ll get – if you get one.
The longer it takes to sell, the more money you lose. While your money’s tied up you can’t invest in more products, buy better systems, or hire more talent.
What’s worse is you probably valued your inventory at cost, not at the retail sales or gross margin dollars it might have generated – so its true value is understated. Now, add in expenses such as insurance, finances, and taxes. Your total cost of that unsold inventory can actually be 25-30% more than its original cost per unit.
Why not buy your inventory after it’s been sold? I don’t mean drop shipping – with tiny margins and fierce competition. I’m talking about Cross-docking. It’s a Just in Time fulfillment method used by some of the world’s top online sellers to methodically test the velocity and profitability of new products and suppliers.
This is Cross-docking in a nutshell: Sales orders are collected from all channels at the end of the day, then a bulk purchase order is sent to your suppliers. They fill the purchase order and ship it back to you where it’s received and shipped to your customers the same day – no storage.
The benefits of Cross-docking are many:
- Bulk buying gets you better prices. Volume Purchase Agreements (VPA’s) offer purchasing predictability through pre-determined discounting over a fixed period of time. As quantities increase, the discounts progressively rise.
- Beta test large SKU supplier catalogs before taking an inventory position
- Increase your exposure by offering more products on more channels and listings
- List products on Walmart and eBay as well as on ecommerce storefronts like Shopify and Magento (you can’t do this relying exclusively on FBA)
- On Amazon list the same item on as many ASINs/listings as you want, in different quantities of the same item – 2-pack, 6-pack, 12-pack – without creating multiple SKUs
You see, Cross-docking doesn’t compete with FBA – it complements it. Once you find out what sells and what doesn’t sell, you’re in the best position to decide what to buy – and what not to buy – for FBA.
However, adding a new fulfillment method like Cross-docking isn’t easy. Available inventory must be adjusted across all your channels and listings as your suppliers’ inventory levels change. Plus, Cross-docking has a unique cost structure and each distributor in your supply chain has its own process for receiving orders. If your current system can’t handle these complexities, your margins and free time will disappear. From an operations standpoint, here’s what you need to make it happen:
- ASIN Matching – you need to be able to quickly match large numbers of supplier SKUs to the right ASINs
- Inventory Management – be able to retrieve supplier data feeds and adjust your available inventory across all channels and listings as their inventory levels change
- Sales Order Automation – be able to collect large numbers of sales orders from all channels at the end of each day
- Purchase Order Automation – be able to select the lowest cost supplier and create and issue purchase orders to them in required file format after orders are received
- Repricing – be able to factor in the unique cost of each fulfillment method (FBA, Cross-docking, etc.) and reprice listings accordingly to protect margins
- A warehouse where your product can be received and shipped the same day or overnight
Using Cross-docking can break you out of the FBA box and take your business to the next level – selling more products, finding the products that will sell, expanding into new niches, making more money, and making that money work for you. It positions you for greater success.
As for those operations requirements – we can help you with that. Some of the world’s top online sellers depend on our platform to streamline the entire Cross-docking process – from sales channel listing to supplier inventory.
Your success using this fulfillment method to test the viability of new products and suppliers hinges on your ability to quickly match large numbers of supplier SKUs to the right ASINs. Click here to download a case study on this essential first step.