Mastering Amazon Warehousing and Distribution: A Comprehensive Guide for Sellers

Unraveling AWD: Key Features and Benefits for Amazon Seller Central

10 min read

·

Aug 20, 2024

Amazon Warehousing and Distribution (AWD) significantly advances Seller Central supply chain management solutions.

Launched in 2022, AWD is Amazon’s answer to the growing complexities and challenges sellers face in managing their inventory across multiple sales channels.

This service is designed to revolutionize how businesses handle their upstream inventory, offering a seamless integration with Amazon’s vast logistics network.

What is Amazon Warehousing and Distribution?

AWD is a low-cost bulk inventory storage and distribution solution engineered explicitly for long-term inventory storage and efficient distribution to Amazon fulfillment centers and other non-Amazon channels.

Its primary purpose is to address critical supply chain challenges that sellers face, particularly in areas of storage capacity, cost management, and inventory replenishment.

Key aspects of AWD’s purpose include:

1. Solving storage dilemmas: AWD solves the common problem of insufficient storage capacity, allowing sellers to store large quantities of inventory without needing their own warehousing facilities.
2. Cost optimization: By offering competitive storage rates, AWD aims to reduce the overall operational costs associated with inventory management.
3. Streamlining logistics: The service simplifies moving inventory from upstream facilities to Amazon fulfillment centers, making inventory management more efficient and less time-consuming.
4. Enhancing inventory visibility: AWD gives sellers a centralized view of their inventory across multiple channels, improving overall supply chain transparency.
5. Supporting multi-channel selling: The service is designed to support sellers who operate across various sales platforms, not just on Amazon.

Part of the Supply Chain by Amazon

AWD is a crucial component of the broader “Supply Chain by Amazon” initiative. This comprehensive suite of services brings Amazon’s advanced capabilities to the entire seller supply chain, offering an end-to-end solution that gets products from manufacturers to customers worldwide.

Within the Supply Chain of the Amazon ecosystem, AWD works in conjunction with:

1. Amazon Global Logistics (AGL): Handles international shipping and customs clearance.
2. Partnered Carrier Program (PCP): Provides domestic transportation solutions.
3. Fulfillment by Amazon (FBA): Manages order fulfillment for Amazon store sales.
4. Multi-Channel Fulfillment (MCF): Handles order fulfillment for non-Amazon sales channels.
5. Buy with Prime: Extends Prime benefits to sellers’ own websites.

This integration allows sellers to leverage Amazon’s logistics expertise across their entire supply chain, from sourcing to last-mile delivery.

Key features and benefits

AWD offers a range of features and benefits designed to address the most pressing needs of e-commerce sellers:

1. Low-cost bulk storage: AWD provides cost-effective storage solutions, with rates particularly competitive during peak seasons compared to FBA storage fees.
2. Auto-replenishment: The service automatically replenishes FBA inventory, ensuring products remain in stock and available for fast delivery.
3. Multi-channel distribution: AWD supports inventory distribution not just to Amazon fulfillment centers, but also to other sales channels, including wholesalers and brick-and-mortar stores.
4. Improved inventory management: Sellers can view and manage their global inventory through Seller Central, providing a unified inventory management experience.
5. Increased sales potential: By keeping products in stock and Prime-eligible, AWD can help drive an average 15% increase in unit sales.
6. Cost savings: Using AWD can lead to significant cost reductions, including savings on FBA storage fees and eliminating certain FBA-related charges like inbound placement fees.
7. Streamlined operations: AWD simplifies the entire inventory management process, from receipt to distribution, reducing the complexity of supply chain operations.
8. Enhanced visibility: The service provides real-time inventory tracking at every milestone, improving overall supply chain transparency.
9. Flexibility: AWD allows sellers to store inventory for as long as needed, providing flexibility in managing seasonal fluctuations and long-tail products.
10. Integration with Amazon’s logistics network: By leveraging Amazon’s advanced logistics capabilities, AWD ensures faster and more reliable movement of products from manufacturers to customers.

Amazon Warehousing and Distribution represents a significant step forward in Amazon’s efforts to provide comprehensive supply chain solutions. It addresses key pain points for sellers, offers substantial cost savings, and enhances overall operational efficiency, making it a valuable tool for businesses looking to optimize their e-commerce operations.

Amazon Warehousing and Distribution Program Comparison with Traditional 3PL Solutions

Amazon Warehousing and Distribution (AWD) offers a compelling alternative to traditional third-party logistics (3PL) providers. Let’s explore how AWD compares to traditional 3PL solutions and why it might be a game-changer for many sellers.

Advantages of AWD

• Transparent pricing: AWD offers a simple, volume-based pricing structure without hidden fees or long-term contracts.
• Consistent rates: Unlike many 3PLs that increase during peak seasons, AWD maintains consistent pricing year-round.
• Economies of scale: Leveraging Amazon’s vast network often results in lower overall costs than traditional 3PLs.
• Flexible storage: AWD can easily accommodate fluctuations in inventory levels without penalties.
• Global reach: Access to Amazon’s worldwide logistics network allows for easier international expansion.
• Multi-channel support: AWD facilitates inventory management across various sales channels, a feature not always available with traditional 3PLs.
• Advanced inventory management: AWD’s systems provide real-time visibility and predictive analytics.
• Auto-replenishment: Automated inventory replenishment to FBA reduces the risk of stockouts.
• Integration with seller tools: Seamless connection with Seller Central for streamlined operations.
• Fast processing: Inventory typically becomes visible in AWD within 2–4 days of arrival.
• Rapid distribution: Quick movement of goods to FBA centers (usually 10–14 days) ensures products are available for fast shipping.
• Established network: Amazon’s extensive logistics network often outperforms traditional 3PLs in terms of speed and reliability.
• One-stop solution: AWD combines storage, distribution, and fulfillment in a single service.
• Reduced complexity: Sellers deal with one provider instead of multiple 3PLs for different services.
• Standardized processes: Amazon’s established procedures can simplify inventory management.
• Prime eligibility: AWD ensures products remain Prime-eligible, potentially boosting sales.
• Consistent delivery: Amazon’s reputation for reliable shipping can improve customer satisfaction.
• Multi-channel fulfillment: Ability to offer fast shipping across various sales channels.
• Advanced analytics: Access to Amazon’s data analytics can provide valuable insights for inventory optimization.
• Demand forecasting: Better prediction of inventory needs based on Amazon’s vast data resources.
• Performance metrics: Detailed reporting on storage, distribution, and fulfillment performance.
• No long-term commitments: Pay-as-you-go model allows for more flexibility compared to traditional 3PL contracts.
• Easy entry and exit: Simpler process to start using the service or discontinue if needed.
• Customizable services: Ability to choose which supply chain components to leverage through Amazon.

Amazon Warehousing and Distribution (AWD) Challenges and Considerations

While Amazon Warehousing and Distribution (AWD) offers numerous benefits, it’s crucial for sellers to be aware of potential challenges and carefully consider various factors before fully committing to the service.

Understanding these aspects will help sellers make informed decisions and develop strategies to maximize the benefits of AWD while mitigating risks.

A. Potential pitfalls

1. Over-reliance on Amazon’s ecosystem:

• Risk: Becoming too dependent on Amazon’s services may limit flexibility and control over your supply chain.
• Consideration: Maintain relationships with alternative logistics providers and consider a hybrid approach to preserve some independence.

2. Inventory forecasting challenges:

• Risk: Inaccurate forecasting can lead to overstocking or stockouts, especially with AWD’s auto-replenishment feature.
• Consideration: Regularly review and adjust forecasting models, considering factors like seasonality, promotions, and market trends.

3. Cost management complexities:

• Risk: While AWD can offer cost savings, mismanagement of inventory levels or frequent movements between AWD and FBA can increase costs.
• Consideration: Implement robust inventory management strategies and carefully monitor all associated costs.

4. Limited customization options:

• Risk: AWD’s standardized processes may not accommodate all unique product or business requirements.
• Consideration: Evaluate whether your products or business model require specialized handling that AWD might not provide.

5. Potential for commingled inventory:

• Risk: If opting for commingled inventory in FBA, counterfeit products can be mixed with genuine items.
• Consideration: Choose the “sticker-free, label-free” option if concerned about commingling, although this may increase costs.

6. Changes in Amazon’s policies:

• Risk: Amazon may modify AWD terms, pricing, or features, potentially impacting your business model.
• Consideration: Stay informed about Amazon’s policy updates and maintain flexibility in your logistics strategy.

7. Data privacy and competitive concerns:

• Risk: Sharing detailed inventory and sales data with Amazon could potentially be used to Amazon’s advantage.
• Consideration: Understand Amazon’s data usage policies and consider the trade-offs between data sharing and service benefits.

8. Integration challenges:

• Risk: Difficulties in integrating AWD with existing systems or other sales channels could lead to operational inefficiencies.
• Consideration: Invest in proper integration and training to ensure smooth platform operations.

9. Inventory aging and long-term storage:

• Risk: While AWD offers long-term storage, keeping slow-moving inventory can accumulate costs over time.
• Consideration: Regularly review inventory performance and implement strategies to manage slow-moving stock.

10. Geographical limitations:

• Risk: AWD’s effectiveness might vary depending on your target markets and product types.
• Consideration: Evaluate AWD’s network coverage in relation to your key markets and consider supplementary solutions if needed.

B. Balancing inventory across channels

1. Multi-channel inventory allocation:

• Challenge: Determining optimal inventory levels for each sales channel while using a centralized AWD inventory pool.
• Strategy: Implement advanced inventory management software that can dynamically allocate stock based on real-time demand across channels.

2. Maintaining consistent stock levels:

• Challenge: Ensuring adequate stock levels across all channels without overstocking.
• Strategy: Utilize AWD’s auto-replenishment feature in combination with channel-specific reorder points to maintain optimal inventory levels.

3. Handling channel-specific promotions:

• Challenge: Managing inventory for promotions on specific channels without disrupting stock levels for other channels.
• Strategy: Create separate inventory allocations for promotional events and adjust AWD replenishment thresholds accordingly.

4. Seasonal demand variations:

• Challenge: Adapting to different seasonal patterns across various sales channels.
• Strategy: Develop channel-specific forecasting models and use AWD’s flexible storage to manage seasonal inventory efficiently.

5. Product lifecycle management:

• Challenge: Managing inventory for products at different stages of their lifecycle across multiple channels.
• Strategy: Implement a product lifecycle management system integrated with AWD to optimize inventory levels based on each product’s performance across channels.

6. Returns and refurbishment:

• Challenge: Handling returns from multiple channels and reintegrating refurbished items into inventory.
• Strategy: Establish a centralized returns process through AWD and develop clear protocols for restocking refurbished items across channels.

7. Cross-channel fulfillment:

• Challenge: Deciding when to fulfill orders for one channel using inventory allocated for another.
• Strategy: Set up rules in your inventory management system for cross-channel fulfillment, considering factors like shipping speeds and costs.

8. Inventory visibility:

• Challenge: Maintaining real-time visibility of inventory across all channels and AWD.
• Strategy: Invest in an integrated inventory management system that provides a unified view of stock levels across AWD, FBA, and other sales channels.

9. Buffer stock management:

• Challenge: Determining appropriate safety stock levels for each channel while minimizing overall inventory costs.
• Strategy: Use AWD’s storage capacity to maintain centralized buffer stock, adjusting levels based on aggregated demand across all channels.

10. New product introductions:

• Challenge: Allocating inventory for new product launches across multiple channels.
• Strategy: Utilize AWD for initial stock holding and implement a phased rollout strategy across channels based on performance data.

While AWD offers powerful tools for inventory management and distribution, sellers must approach it with a clear understanding of potential challenges. By carefully considering these pitfalls and implementing strategies to balance inventory across channels, sellers can leverage AWD to its full potential.

The key lies in maintaining flexibility, continuously monitoring performance, and being prepared to adjust strategies as needed. With the right approach, AWD can be valuable in creating a robust, multi-channel e-commerce operation.

Amazon Warehousing & Distribution Fees, Costs, and Pricing Structure

Amazon Warehousing and Distribution (AWD) offers a transparent and competitive pricing structure to provide cost-effective solutions for sellers’ storage and distribution needs. Understanding this pricing structure is crucial for sellers to maximize their cost savings and optimize inventory management strategies.

AWD storage costs are based on the physical volume of inventory and are calculated per cubic foot per month. The pricing is divided into two main periods:

1. Non-holiday period (January through September):

– Base rate: $0.48 per cubic foot per month

– Integrated rate (using AGL or PCP): $0.36 per cubic foot per month (25% discount)

2. Holiday period (October through December):

– Base rate: $0.48 per cubic foot per month (remains the same as non-holiday)

– Integrated rate (using AGL or PCP): $0.36 per cubic foot per month (25% discount)

Key points about AWD storage costs:

– Consistent pricing throughout the year, including during peak holiday seasons

– Significant savings compared to FBA storage, especially during Q4

– No long-term contracts or complex pricing schemes

– Pay-as-you-go model for flexibility

B. Processing fees

AWD processing fees cover the costs associated with receiving, handling, and preparing inventory for storage or distribution. The fee structure is as follows:

– Base rate: $2.50 per box

– Integrated rate (using AGL or PCP): $2.13 per box (15% discount)

These fees are charged when:

– Inventory is initially received at AWD facilities

– Inventory is prepared for shipment to FBA or other channels

C. Transportation fees

AWD charges transportation fees for moving inventory from AWD facilities to other destinations. The fee structure is:

1. Transportation to FBA:

– Base rate: $1.00 per cubic foot

– Integrated rate (using AGL or PCP): $0.85 per cubic foot (15% discount)

2. Transportation to other distribution channels:

– Flat rate: $1.65 per cubic foot (no discount for integrated services)

These fees cover the costs of:

– Preparing inventory for shipment

– Transportation to the destination

– Any necessary documentation and tracking

D. Comparison with FBA storage costs

AWD offers significant cost savings compared to FBA storage, especially during peak seasons:

1. Non-holiday period (January through September):

– AWD: $0.48 per cubic foot per month

– FBA (standard-size): $0.78 per cubic foot per month (effective April 1, 2024)

– Savings with AWD: 38%

2. Holiday period (October through December):

– AWD: $0.48 per cubic foot per month

– FBA (standard-size): $2.40 per cubic foot per month

– Savings with AWD: 80%

Additional cost benefits of AWD:

– No FBA inbound placement service fees

– Waiver of FBA storage-utilization surcharges when using AWD auto-replenishment

– Waiver of low-inventory-level costs and storage-overage costs with AWD auto-replenishment

E. Integrated rates with AGL or PCP

Amazon offers significant discounts for sellers who use Amazon Global Logistics (AGL) or the Partnered Carrier Program (PCP) in conjunction with AWD:

1. Storage costs: 25% discount

– Standard rate: $0.48 per cubic foot per month

– Integrated rate: $0.36 per cubic foot per month

2. Processing fees: 15% discount

– Standard rate: $2.50 per box

– Integrated rate: $2.13 per box

3. Transportation to FBA: 15% discount

– Standard rate: $1.00 per cubic foot

– Integrated rate: $0.85 per cubic foot

Key considerations for AWD pricing:

1. Volume-based savings: The more you store and ship through AWD, the more you can save.

2. Seasonal strategy: AWD’s consistent pricing allows for more predictable costs during peak seasons.

3. Integration benefits: Using AGL or PCP can lead to substantial savings across storage, processing, and transportation.

4. Long-term storage efficiency: AWD is particularly cost-effective for items that require longer storage periods.

5. Multi-channel optimization: The pricing structure supports efficient inventory management across multiple sales channels.

AWD’s pricing structure offers a transparent, flexible, cost-effective inventory storage and distribution solution. By leveraging the integrated rates with AGL or PCP, sellers can achieve significant cost savings while streamlining their entire supply chain process.

The substantial savings compared to FBA storage, especially during peak seasons, make AWD an attractive option for sellers looking to optimize their inventory management and reduce operational costs.