Ask most Amazon vendors what direct fulfillment is, and you get a version of the same answer: FBM for 1P, a fallback for when FBA isn't working. That description is accurate, and it misses the point. It explains how an order gets fulfilled, not why a brand would choose the model.
On an episode of MerchantSpring Marketplace Masters, Jason Linscheid, founder of Vendorist and a former Amazon senior vendor manager who ran joint business planning, pricing and profitability from the buyer's side of the table, argued that direct fulfillment (DF) is really a channel-strategy decision that touches profitability, working capital and how you negotiate with Amazon. This is the strategic view; the warehouse mechanics are a separate discipline (covered in our operational companion piece with Chris Khoo).
Linscheid's reframe is to stop asking how the order ships and start asking what business problem you are solving. Brands reach for DF to do very different jobs: expand a catalogue, support a product launch, improve profitability, or handle heavy, bulky and multi-box items that Amazon's network mishandles. Same program, many objectives. As he put it, this is less a fulfillment conversation than a conversation about what role Amazon should play in your business, with DF as the lens.
So he works backwards. Instead of asking whether in-network, DF, 3P or a hybrid is “right,” start with the role you want Amazon to play, then pick the fulfillment model that supports it. And do it at the ASIN level, not the account level, because account-level strategy hides too much nuance. In-network (standard 1P) is usually best when demand is predictable, replenishment is stable, and Amazon can stock and ship the product efficiently. DF is usually best when demand is less predictable, lead times are longer, you are activating long-tail assortment or launching a product, or the item is genuinely hard for Amazon to ship well.
One vendor he works with sells a product that arrives as three cartons; Amazon's network handles multi-box poorly, driving damage, returns and incomplete orders, so DF keeps the vendor in control. And 3P through Seller Central is its own channel, not just a different shipper; best when the brand needs maximum control such as setting the sell price. Most sophisticated brands end up hybrid: some ASINs in-network only, some dropship only, many both.
Underneath the framework is a single question Linscheid keeps returning to: what is this ASIN's job? What role does the item play in the catalogue? A tier-one bestseller and a long-tail SKU that has never sold warrant completely different fulfillment conversations. Start from the strategic objective and the answer usually clarifies itself. This is broader than fulfillment, too; the same ASIN-job lens should drive advertising, promotions and content strategy. If every SKU has a defined job, the tactics stop being guesswork.
This matters more now because of how Amazon has been reshaping 1P. Across North America and Europe, it has been pruning Vendor Central, terminating smaller accounts and concentrating on enterprise brands (ChannelEngine). Amazon is more disciplined about where it puts inventory and working capital, and it is shrinking the number of brands each vendor manager handles. It still wants to sell every SKU on the planet, but increasingly only wants to stock the ones that are economically attractive.
That gap is exactly where DF earns its keep. As Linscheid says, just because Amazon doesn't want to stock a product doesn't mean it doesn't want to sell it. Products that can't justify an in-network inventory position, economically, operationally or strategically, can stay available through DF.
Used well, DF lets a vendor increase assortment and inventory coverage, grow sales and even improve Amazon's margins, all of which make the vendor account more attractive and less likely to be deprioritised or pushed to 3P. The meta-skill, he argues, is learning to see the business through Amazon's eyes: understand the system from both sides of the table and Amazon's decisions stop being mysterious.
If DF saves Amazon working capital, why not dropship everything? Because Amazon gives up the thing it guards most: control over the customer experience. The company built its reputation compressing last-mile delivery from the one-to-two-week norm of early e-commerce down to same-day and even multi-hour. Handing the pick, pack and ship to a vendor puts that experience partly outside its control, which is precisely why it is careful about where DF is used.
The program is invite-only; vendors can't self-enrol through Vendor Central. The performance bar to be invited isn't especially high, but Amazon does back-end work first, creating a new vendor code and putting contracts in place. And it is engineered to be invisible to the shopper.
The listing still says it ships from Amazon, and any labelling the customer sees points to an Amazon return centre, not your warehouse (Amazon SP-API vendor direct fulfillment docs). Amazon governs it through performance over time. The customer-facing delivery estimate is a dynamic calculation that folds in your pick-pack-ship time plus the carrier's last-mile estimate, so shrinking your handling time directly improves the experience you can offer, and how competitive your offer looks.
Here is the lever most vendors leave on the table. A move to DF means a new vendor code and a new contract, which is an opening to revisit terms. Linscheid's honest first answer is “it depends,” and the first thing he checks is whether the contracts on your in-network and DF vendor codes actually differ; usually they don't, but some vendors carry different quick-pay discounts or accrual structures per code.
The bigger effect is on cash timing, and it hinges on your freight arrangement. Vendors on WePay or collect freight, where Amazon arranges and pays the inbound freight, see virtually no change, because Amazon's invoice due-date clock starts at the same point either way. But vendors on TheyPay or prepaid freight get paid sooner on DF orders, because the due-date calculation starts when the invoice is created rather than when goods are physically delivered to an Amazon fulfillment center.
A theypay vendor with a one-week in-network lead time can see cash collection accelerate by roughly that week on DF orders. Set against that, DF means you hold inventory longer and your inventory risk shifts, so forecasting assumptions matter more. The economics have to be modelled ASIN by ASIN, side by side. Linscheid's blunt aside is worth repeating: if you don't know your ASIN-level profitability, make that your priority (MerchantSpring keeps a retail and Amazon vendor acronym glossary if terms like WePay and AVN need decoding).
The popular pitch is that DF wipes out chargebacks and supply-chain fees, worth a couple of hundred basis points of margin. Linscheid pushes back hard. It is true that DF orders don't carry the same chargeback risk, mainly because Amazon never sees the physical shipment, but that is not a reason to adopt DF. Chargebacks are a signal, a symptom of operational issues, and the better move is to fix the root cause than to change the fulfillment model to hide it. DF is not a shortcut around operational discipline; on-time pick, pack and ship still drives the customer experience Amazon cares about.
The related trap is using DF to dodge costs. Amazon pays the shipping on DF orders, which looks like a saving, but Linscheid audited a brand that had shifted a large chunk of revenue to DF the year before to save roughly 6% in freight allowance. Well-intentioned, but their DF lead time ran three to five days plus carrier delivery, so shoppers went from seeing one-day delivery to one-week.
Sales fell accordingly. The same logic explains the search and buy-box worry: Amazon isn't penalising DF as such; it is rewarding outcomes. A slower, less reliable or costlier-to-ship offer is simply less attractive to promote. As he sums it up, if it makes sense for the customer, that is usually what Amazon leans toward.
The angle vendors most often miss is using DF inside the annual vendor negotiation. Too many teams negotiate percentages when they should be negotiating solutions. Linscheid describes a tight-margin brand where Amazon opened AVN by asking for a large increase in freight and damage allowances, on the order of ten points combined.
Rather than accept it, they asked why, and found that a handful of products were driving most of Amazon's freight and damage costs. Instead of swallowing a higher accrual across the entire catalogue, they moved just those difficult ASINs to DF, preserving the selection without disrupting margins on everything else.
The same play works for unprofitable items, for catalogue expansion, and for long-tail availability Amazon won't fund in-network. Come to the table with a clear read on what Amazon is asking for, the data to support your position, clarity on the trade-offs you'll accept, and DF as an outside-the-box lever.
Because the decision lives at the ASIN level, it is never all-or-nothing; you can fine-tune terms product by product. For more on how high-performing vendors put this into practice, MerchantSpring's guide on what high-performing vendors know about Amazon direct fulfillment is a strong companion to this piece.
Every point in this article comes back to one thing: modelling the economics ASIN by ASIN, in-network versus direct fulfillment. MerchantSpring flows direct fulfillment purchase orders into its Vendor Profitability reporting, so you can see each ASIN's true contribution across both models and negotiate from data instead of guesswork. See it on your own vendor accounts with a walkthrough of your data.