Shop on Amazon.com and you will find a lot of items sold by lots of different sellers. For many of those sellers, Amazon isn’t just handling acting as a store front; it is also handling the logistics of order fulfillment. Now suppose that Amazon has a particular product which both it and several third parties are selling out its warehouses. How should Amazon physically manage the inventory? Should it keep the inventory it is selling physically separate from that offered by third-party sellers? In many instances, Amazon chooses to do just the opposite, allowing for “stickerless, commingled inventory.” Here is an Amazon video explaining just what that means.
And here is how the Wall Street Journal explains the benefits of the program (Do You Know What’s Going in Your Amazon Shopping Cart?, May 11).
The system has enabled Amazon to make better use of its warehouse space and keep a wide variety of items in stock around the country. The idea is to give Amazon flexibility to ship certain products based on their proximity to customers, speeding delivery times. For third-party sellers, it saves them the trouble of having to label individual items sent to the Amazon warehouse.
At face value, this program is eminently sensible. It benefits Amazon by allowing them to minimize shipping costs regardless of who put which inventory in its system. Assuming that Amazon passes on shipping costs to its retailer partners, they also benefit from lower cost as well as a simpler process. It also means that a small retailer doesn’t need to sweat the details of which of Amazon’s many facilities to send its goods.
So what can go wrong? According to the article, the process creates opportunities for unauthorized sellers to move gray market, counterfeit, or expired goods.
German knife maker Wüsthof recently told its authorized distributors that come June 30, they can no longer store its products in Amazon’s warehouses, because the manufacturer doesn’t want the merchandise commingled with items from unauthorized third-party sellers, said Todd Myers, vice president of sales at Wüsthof-Trident of America Inc.
Authorized Wüsthof distributors may still sell through Amazon, they just can’t use its fulfillment service, meaning they have to ship purchases themselves to customers. Wüsthof itself stopped selling its knives directly to Amazon around two years ago, according to Mr. Myers. Companies that have collectively invested billions of dollars in their brands are encountering a number of unforeseen pitfalls as business moves online. …
Last year, Johnson & Johnson temporarily halted sales of many of its consumer products to Amazon, because it felt the retailer wasn’t doing enough to stop third-party sales of damaged or expired J&J personal-care products and over-the counter drugs.
If the system simply treats inventory as inventory, it is easy to see how these problems could crop up. Unless there is a clear way to tell good product from bad product (and a way to enforce fulfillment center employees to check), bad product could easily get mixed in with good. Even if the goods are legitimate, sales from unauthorized sources might have implications for warranties and such.
What I find interesting about this is how it fits in with managing the customer experience. Firms often wring their proverbial hands about how customers experience dealing with their brand. The possibility that a bad interaction with an independent sales rep or field service technician might damage the equity the firm has worked to build often keeps firms from outsourcing these activities. Outsourcing fulfillment to Amazon, however, would seem to be something different. Amazon has its own brand equity to worry about. It pitches “Fulfilled by Amazon” or “Prime Eligible” on its site as a point of pride. A brand that lets Amazon ships its orders then should have some confidence that Amazon would treat its customers right. Products would be picked accurately, shipped on time and so on. But pooling inventory potentially undercuts that. Amazon may be aces at getting stuff out the door, but that does a brand little good if the customer gets a piece of junk instead of a genuine product.