Amazon (sub)Prime?

By Izabella Kaminska
Mar 20 2019
<https://ftalphaville.ft.com/2019/03/20/1553085361000/Amazon–sub-Prime-/>

The following is the first in a two-part post about Amazon’s dependence on an obscure process known as commingling, which has become essential to underpinning its instant fulfilment services, especially its Prime offering.

If you work in finance, the concept of commingling and its cost benefits will be instantly recognizable. But so will its risks.

And it’s these sorts of risks that are now creeping into the entire Amazon system due to the online retailer’s open-ended fulfillment structure, which allows any third party to supply inventory into commingled stock.

Not only is commingling becoming a means by which a huge number of sub-par or counterfeited goods are entering the Amazon network, it’s arguably the reason why Amazon is being forced to take increasingly extreme steps to take control of its suppliers.

As it does so, it turns itself back into a conventional vertically-integrated retailer like Tesco or Walmart, losing much of the scaling, and cost advantages, associated with its “Fulfilled by Amazon” model (FBA). This also forces an ever greater “unapproved” seller network to deal in the increasingly cut-throat dynamics of its wider marketplace offering. 

The consequences of all this, as we will explain, are glaring.

Unless you make your money from selling stuff on Amazon, chances are you won’t have heard of an FNSKU. The acronym stands for Fulfilment Network Stock Keeping Unit and represents a location identifier for products sitting in Amazon warehouses. This, to all intents and purposes, equates to an Amazon barcode. 

If you’re a seller on Amazon’s marketplace who has chosen to be fulfilled by Amazon’s warehouse system (a scenario which sees Amazon dispatching the seller’s products on their behalf from its warehouses) you will always need an FNSKU.

Apart from the times you don’t.

At such times all you need is a manufacturer code. And it’s these instances, sellers tell FT Alphaville, that are introducing a counterfeiting vulnerability into the Amazon system.

Not using an FNSKU is appealing for sellers. It means products sourced from manufacturers do not have to be relabelled, ensuring they can be sent into Amazon’s network directly, saving time and money. Sellers who have chosen to be fulfilled by Amazon otherwise add an additional logistical layer into their operations if they have to relabel the goods independently. 

Using manufacture bar codes also means products are more likely to qualify for Amazon Prime classification, pushing them higher up the search rankings.

Sellers tell FT Alphaville that, as it stands, the Amazon system seems to structurally incentivise the use of manufacturer codes over FNSKUs as a result. Indeed, Amazon itself promotes the fact that the process speeds up delivery in its own literature:

If multiple sellers have inventory with the same manufacturer barcode, Amazon may fulfil orders using products with that barcode when those products are closest to the customer.

This happens regardless of which seller actually receives a customer’s order. We use this process to facilitate faster delivery.

COMMINGLING

But there is an important downside. Not using FNSKUs turns sellers’ products into cold, hard commodities which are treated as fungible with equivalent products sent into the system. This happens because of a process called commingling.

How does commingling work and why is it important to the Amazon Prime model?

If you have ever wondered how it is possible for Amazon Prime to guarantee 24, or 48, hour delivery for a hugely diverse range of products, the answer is commingling.

In its simplest and idealised form, commingling allows sellers to share inventory to the mutual benefit of all, especially with respect to speed of dispatch.

The larger the geographic area, the more effective commingling becomes. In the US, for example, a seller who supplies an Amazon warehouse in Florida can — thanks to commingling — fullfil a customer living in Minnesota as easily as customers in their home state.

To explain, consider that the time it might ordinarily take to deliver to a Minnesotan from Florida is bound by the physical limitations of travel. In other words, there’s no way a parcel can arrive more quickly than via a plane. That’s its effective speed of light limit.

However, if the buyer’s parcel can be dispatched from an equivalent commingled stock just around the corner, this theoretical speed of light limit can be broken.

<SNIP>

<If you label your commingle units by printing labels from your inventory page, and ship them with labels where you said to commingle, Amazon will likely delay your items being received and provide a warning to you about shipping items with labels when you said you want to commingle your inventory.>

<There are some inherent risks involved with using the stickerless commingled inventory option.  The main risk is the loss of control of the item that the end customer receives.  In addition to this there is the risk that there are counterfeit products that were sent in by other sellers, or sellers that are trying to pass off items as new that should be listed as used.  The problems arise when one of these counterfeit items or less than new items are sent to a customer that orders from you.>

<august 12, 2017
I ordered the top-rated eclipse glasses on Amazon a few months ago and they were counterfeit. If you put them on during daytime you can see indirect sunlight and even my kitchen light. They were shipped from China despite having “Made in the USA” markings and all the proper ISO certification fine print. I haven’t received any communication from Amazon, so people who haven’t heard from them should not assume their glasses are safe (contrary to Amazon’s statement). I contacted Amazon support and they were quick to initiate a refund. For some reason Amazon rejected my review warning that items from third party sellers may be counterfeit and explaining how to tell.
Here are a couple photos of the counterfeits>