Alexander Johnson of Mixt Solutions Explains the Amazon Ecosystem
Learn more about Mixt Solutions and Alexander Johnson
You Use It, But You Don't Understand It...
A group of three bankers shuffled into my small 150 square foot office. It’s always a routine of getting more chairs from the warehouse when we have visitors. The office isn’t really big enough to have a conference table in, we already have three desks positioned facing the wall, so we sit like it’s circle time from kindergarten (in office chairs at least).
They are back for the second time this month to discuss the terms of the commercial construction project we are building, a 12,000 square foot warehouse. As we wrap up the meeting, I ask the bankers if they want to see the ‘operation’ in the warehouse, which occupies the other 3,850 square feet or so. I give the candid walk around the space as always while dodging pallets double stacked with product. I point out the staff and what they are doing in prep for our products to go out to Amazon. One of the bankers who was present at the first meet chimes in to say, “I never really thought about where all the products I buy on Amazon actually come from!”
Our company takes the simple process for granted, as we have been doing it for over 5 years. In 2020, our company will ship over 300,000 orders, for which almost every one will start in our little facility west of downtown Columbus, OH. Most of our business is done in consulting with brands on optimizing their Amazon strategy, but make no mistake, we are a logistics company.
The statement from the banker got me thinking about how much I knew about Amazon’s inner workings, and how little most people probably knew. It’s like my car – I know it gets me to work, but I couldn’t really explain to you how. When I talk to potential clients, I am often shocked how much I have to go way back to the start to explain what we do. Even clients who shop on Amazon often don’t always comprehend the nuts and bolts of the operation.
In short, every product on Amazon comes from one of two places: an Amazon Vendor or an Amazon Seller.
Amazon Vendors
Amazon Vendors are companies that have been asked specifically by Amazon to sell their products on the platform. This is the equivalent of Walmart calling and saying that they want to carry your product, just with more baggage. Products that are sold through are typically household name products like Dove Soap, Ritz Crackers, or 12 Packs of Coca Cola. They are the obvious products that will often, due to their sheer size, pop up quickly in the search results. There are also Amazon vendor reps who almost undoubtably make a commission off brands that they manage who call on growing companies to attempt to lure them to the platform. Once a brand signs up for Amazon Vendor, Amazon will begin to send them purchase orders for certain products that the brand will need to prepare and ship to Amazon under strict rules and guidance. Any complications or issues with shipping will be noted and potentially charged back to the Vendor. Amazon will then physically receive the inventory to one of their several million square foot facilities, check the products in, create the ‘listing’ for the Vendor on Amazon.com, and finally make the products available for purchase under the title “Shipped and Sold by Amazon.”
Once Amazon has some data as to where sales are coming from, they like to spread your inventory out across the country. This is how they can hit a one or two day delivery on any Prime product – not because they use an ultra fast shipping service, but because the product was already in your back yard. Sixty days or so after the initial purchase order was sent to the vendor, Amazon will pay the vendor less any chargebacks and marketing they employed, the balance of their invoice. Products that are shipped and sold by Amazon, while they may appear to be a huge number of the percent of products on Amazon, actually make up a very small amount of the listings on Amazon. You just tend to see them often because Amazon intelligently tries to ‘pick up’ these high-volume products so that they can control how they are sold and make more margin. Amazon Vendor is notorious for nickel and diming vendors until they feel like they are hardly making anything – but they need the sales revenue and volume that Amazon has provided.
Amazon Sellers
The second way that products are sold on Amazon is through a Seller – someone like us. We have been an Amazon seller for five years now, and while we are growing towards $10 million in revenue, we are still considered a rather small one. Sellers range in size from a few hundred transactions a week to likely a billion dollars a year. There are Seller accounts so big they do 300,000 transactions in a day – far more than some of your household brands, yet you would never know their names.
The process of a Seller is similar in many ways to a Vendor but differs in one key way: Amazon Sellers never sell their product to Amazon just through it. The seller owns the inventory for the duration of the transaction until you check out and it’s on the way to your doorstep.
A product from a Seller could be anything and start anywhere in the world. The boom of Alibaba and Chinese sourcing has aided small Amazon sellers mightily by allowing lower costs for consumer goods. Actual Chinese sellers, sellers residing in China and using the platform, also take up a fair amount of market share on consumer goods like tablet cases, phone cases, clothes, and home goods. If they were made in China, there might be a Chinese seller trying to knock it off.
But American manufacturing isn’t dead – it’s thriving in the grocery space. Amazon is making an effort to dive into the grocery space and Sellers haven’t missed this boat. Although they can’t capitalize on the Amazon Fresh platform that isn’t stopping Sellers from finding the niches that simply aren’t met at their local stores like keto and vegan options. Amazon is all but replacing specialty supplement stores and grocery with Sellers picking up that slack.
Whether made in China or Stateside, a seller’s manufactured product likely comes to their physical location as a finished good. Let’s use the example of a product we sell – A Metabolism Boosting Coffee.
The coffee is made in a coffee roaster local to us, bagged, sealed and sent to us ready for sale – or at least mostly. Do you ever notice an extra barcode slapped on your Amazon products? That’s because every Amazon product needs an Amazon barcode so their warehouses know how to find it. If you’ve ever gotten the wrong product, this little barcode had something to do with it.
Since Amazon doesn’t create the listing on Amazon, we get to create the text, images, and details of the page. This is a little artform in and of itself that separates the products that you buy from the ones you don’t. It’s also where all of the stories come from when “amazon is selling something” insert racist/sexist/upsetting here. No, Amazon is not selling that. It’s being listed by a Seller who just slid the listing through the automated system. Afterall, Amazon has over a billion products listed, so yeah, a few slip through the automated approval cracks. Most people just don’t understand the differentiation between the two.
The Logistics of it All
After the seller has prepped and listed the product, it can be sold just like that. This would be considered a product that is “out of Prime” and will be shipped from the seller’s hub. When shipped by the Seller, the customer will typically not get a two-day guarantee of arrival, but instead a range determined by the seller. I’ve bought products that were literally shipping from China that took 2 weeks or more to get to me. Typically, a seller will always set their ‘lead’ time out as far as possible – afterall they don’t want to miss the delivery date. There is no reward for early delivery, but there is a definite penalty for being late. But shipping the product straight from a seller’s hub is time consuming and usually costly, so most sellers opt to get their products into Prime.
In order to become Prime eligible, a seller must ship their product to Amazon’s warehouses a process known as “Fulfillment by Amazon.” The seller will still label their product and package them up in a specific manner Amazon prescribes. The seller then will receive instructions and labels to ship their products to an Amazon warehouse. These products will then be scanned and checked in by hand and become available for sale.
Amazon is working hard to make all their facilities robotic, which will make the rest of the products life pretty amazing. Robots that look like oversized Roomba’s scurry around a caged area with what amounts to a big plastic racking system on top. When an order is placed in Amazon, the robots all talk and align the robot which has that product. The product then dances back and forth between automation and manual input until it is loaded into a semi for distribution. These trucks go to a UPS or USPS sorting hub (FedEx quit amazon last year) allowing the product to reach its destination in as short a time as possible. The seller is then paid 7 days after the expected delivery date (so that Amazon doesn’t get scammed).
Be it a Vendor using Amazon as just another outlet to sell product or a small Seller trying to feed their family, Amazon’s ecosystem is the most streamlined selling machine ever created. Their infrastructure, simple yet beautiful, allows for an unprecedented transaction volume. What’s possible to be found on Amazon is only bound by demand. Anywhere there is demand I can assure you there is a Seller waiting in the wings. And if there doesn’t seem to be, call us. We could always use good product ideas!
