Is Your Business Set Up to be a Vendor on Amazon?

by Carina McLeod

That moment has come when you receive an invite from Amazon.com, Inc. ("Amazon") inviting you to become a vendor and sell via their Vendor Central platform. But what does this really mean for brands?

Before making the step to becoming a vendor on the Amazon marketplace, a brand must be aware of what being a vendor entails. Just because a brand has had successes selling via the Seller Central platform doesn’t mean that translates to the vendor side of the business. The requisites needed to be a vendor compared to those for a seller vary greatly and any business looking to start a relationship with Amazon on the vendor side should be aware of these.

The best way to think about a vendor relationship is like a wholesale or manufacturer relationship that you have with a retailer. Whether it is selling to a large chain store or small local store, it is a relationship where you are not selling directly to consumers. Instead, you are selling to a retailer that will have its own set of requirements when ordering stock, receiving shipments, managing payments and merchandising products.

While brands are often excited about the opportunity to become a vendor, partly because of the benefits mentioned in my previous blog post, the following should be considered:

Order Management

Amazon will typically place orders once a week or fortnightly depending on demand. The vendor has no control over the quantities Amazon is ordering and cannot ship more or less than what has been ordered. The vendor must ship exactly what is confirmed on the purchase order (PO) within the specified ship or delivery window, often 24-48 hours from receipt of order. No earlier, no later. If the exact amount is not shipped within the specified time frame be prepared to be stung with a series of fines known as "chargebacks" from Amazon. If a vendor cannot fulfill certain products, they must cancel them off the PO. Although, ideally the vendor is proactive by amending their availability in advance, so that no POs come through on out-of-stock items.

Shipping

Amazon has very strict requirements when it comes to preparing and sending shipments. These requirements are in place to make the process of receiving the goods as quick and efficient as possible. It is not just to cause vendors a headache, although it may seem like that at times. Cartons need to be correctly labelled, advanced shipment notifications must be sent and all information provided must be 100% correct. A vendor must also be clear about whether they have agreed to prepaid shipments (vendor pays shipping) or collect shipments (Amazon pays shipping) to know whether they use their own carrier or request a carrier from Amazon. If these requirements are not adhered to, expect chargebacks, missing products and delays in receiving the goods. The warehouse or third-party provider must familiarize themselves with these requirements and ensure they have the correct processes in place.

Admin

There is no denying that having a Vendor Central account can be resource-intensive, especially if the vendor is not set up for EDI (electronic data exchange). A brand will need administrative support to manage orders, shipments, invoices and general queries that may arise. Amazon has tried to make the processes as simplified as possible by having the data readily available and auto-populating forms. Once a vendor has mastered the systems, managing these processes can be a relatively quick process.

Contracts

Amazon has a number of co-op and allowance agreements that vendors need to agree to in order to become a vendor. These include damage allowance, freight allowance and base accrual (previously known as marketing co-op) which helps cover activities that drive impressions and sales to products (with the exception of Amazon Marketing Services). In addition, there are payment terms that need to be agreed upon. Brands need to be 100% clear on what they are signing up to, and do the math before making any official agreements with Amazon. Brands typically get excited that they have an opportunity to become a vendor and sign agreements, later realizing that they did not fully understand what they agreed to. In this situation, being a vendor ends up costing them more than they had thought. The vendor relationship then becomes unprofitable and it is no longer economically viable for them to continue via this platform. Brands should not be afraid to negotiate with Amazon to find a middle ground. Collaboration is key, as a long-term relationship needs to work for both parties.

After reading the above, you may think working on the vendor side of the business could be a nightmare. It is, if the brand is not set up to manage Amazon’s way of working. I have seen many private labels that made the step from being a seller and did not 100% understand what that entailed. They are then disappointed, frustrated, stung with numerous chargebacks; in extreme cases, they reverted to a seller relationship after 12 months. However, brands that are set up to manage the above can have long-term success via the vendor platform.

Originally published on March 3, 2017, updated March 25, 2019

This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.

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