Paul Sonneveld
Hi, everyone, and welcome to Marketplace Masters. I'm Paul Sonneveld, and today we're going to continue our conversation on direct fulfillment and go deep in one of the most understood aspects of the Amazon vendor world, direct fulfillment and specifically the operational angle there. You know, as many of you will know, most vendors still treat direct fulfillment as, you know, FBM for 1P or as a bit of a backup inventory. Or, we'll get onto that, a magic chargeback eraser. The operational reality is much more demanding than any of those framings. And frankly, more interesting, right? 24-hr PO acknowledgements, SLAs, inventory feeds that can suspend a warehouse, dictated carriers, cash flow profile that catches good teams off guard. So it's going to be a super interesting conversation.
Now, to help me wrestle with all of this is Chris Khoo, you see him on screen here. He is the founder of KhooCommerce, and most of you will know him. He spent more time inside Amazon vendor operations than just about anyone I know. And we're going to spend less time today on whether you should actually do DF. For that, I refer you back to a podcast I did a couple of weeks ago with Jason. We talk about the broader strategy. But today, we're going to talk actually a lot more on what does it actually take to run direct fulfillment well. All right, Chris, without further ado, welcome to the show. It's absolutely great to have you back on.
Christopher Khoo
Thanks, Paul. Good to chat with you, and I'm keen to get into it.
Paul Sonneveld
Yeah, so let's jump right into it. Now, as I said in my introduction, you know, most vendors still describe direct fulfillment as FBM for 1P or backup inventory. If you had to give it like the right one-line definition, right, for 2026, how would you describe it? What would you do or how would you say?
Christopher Khoo
I think conceptually, as like an opening starter, fulfilled by merchant, but for vendor central is not a bad way of viewing it conceptually. I think it's kind of captures the essence of what you're trying to achieve with direct fulfillment in the sense that you're shipping it direct to consumer rather than going through an Amazon warehouse. You kind of have FBA and FBM, and then you've got 1P vendor and 1P direct fulfillment. Conceptually, they're very similar models. They are slightly nuanced, different from each other.
I think if I were to give it a one-word label, I would probably refer to it as dual fulfillment other than direct. That's the phrase that Amazon uses internally about it. They say dual fulfillment, D-U-A-L, in the sense that you've got those multiple streams to the customer. which we'll get into, I'm sure, in a moment. But it's really about adding redundancy to the operation, kind of bridging any of those out-of-stock gaps and making sure that you always own and you're always able to own that buy box and always able to kind of provide that instant access for the customer when they want it.
Paul Sonneveld
Thank you. We'll get more into the exec model and the operational aspect, but I want to just table maybe a misconception or maybe a truth. And I really want to just test that because when I talk about direct fulfillment, certainly, as I was doing my research, like this dominant pitch around chargeback reduction tends to come up, right? A lot of articles out there quoting savings of maybe three to five percent, when migrating to DF, you know, obviously, in the hope that you don't have to do all that sort of Amazon operational supply chain compliance and the like. But what's your experience of that? I mean, how real is that number? And is that a strong enough argument for DF on its own?
Christopher Khoo
I think if you went to a pure 1P and then PO-based ordering model, and you kind of said to them, hey, let's transition the entire thing over to DF. and you're going to have no more chargebacks. I think that would surface other business costs that probably wouldn't justify the entire switch from one model to the other. Is it complimentary? Is it good? Do you have reduced issues overall? I think yes. Does it make sense for certain brands to get into? Definitely yes. I wouldn't see it purely as a loophole purely for chargeback evasion. I think that's more of a, not evasion, that's the wrong word, but trying to avoid it. I think it's more, that's more of like an upside of the whole platform that if you do it well and you do it smoothly, you can avoid some of those charges. But I think that's not for me the big sell.
I think it's more to do with in-stock availability for the customer so that they can continually buy your product. And trying to, particularly in the peak periods, you're able to just smooth out that whole curve. And if you're being held up by, let's say, inbound placement times or unable to get appointments, or they're all replacing purchase orders, but you know it doesn't quite match what the demand will probably be for that period. That, for me, is the real sell of why a brand should move on to DF. Specifically within that, there's then other categories like, let's say, a bulky product, or a chemical product or a multi-part product. They're also really suitable for the DF program. And then there are some which are less suitable.
Paul Sonneveld
Yeah, you've actually started answering where I wanted to go next, which was around who is direct fulfillment for? You already started mentioning some use cases there, but I'd love to just, I guess, pause and go a little bit deeper. Describe to us what are the characteristics that would make a great DF operation? And maybe by contrast, let's talk about the type of vendors for whom we really shouldn't be considering this. I mean, what would you put in both camps?
Christopher Khoo
Yeah, I would suggest all vendors should consider it. The kind of factors that I would look at to weigh it up would be how bulky your products are. So if you imagine selling a washing machine, like a large domestic appliance or medium domestic appliance, like a microwave or something like that, those kinds of things are really, really well suited for DF because they're bulky. They're going to take a few days to arrive. Customers expect they take a few days to arrive. You could have prime, of course, but that they're less tight on those kind of things. The expectations are slightly different. Also, those bulkier products tend to carry a higher price tag. So you're shipping, let's say, three, four, five hundred dollars worth of products on a pallet, maybe more. Maybe you're selling a TV or a sofa set. It could be hundreds, could be thousands. A big pool table or an outdoor garden furniture set or something like this. Really, really perfect for DF.
Related to that would be the multi-part products as well. Amazon fulfillment centers in my experience, don't tend to handle them too well. I'm not talking about bundles where you just kind of take the two products, and you sell it together as one. I mean more when you sell, let's say you sell a bed frame and it comes in two boxes or three boxes where you've got the frame is one bit, and then you've got the mattress is another bit and you've got something else coming as a third like the desk that goes underneath also And they're going to arrive in three separate shipments or, you know, if you inbound all those goods into Amazon, the chance of them getting fragmented and broken up is quite high. But if you just directly fulfill them, then you can get much more control over that.
And the final piece of like a good recommendation, would be for when you're trying to, like I mentioned earlier, those, those very seasonal products. So we've just had a heat wave here in the UK. Air conditioning units right now are absolutely sold out, no matter where you look. But you would want someone to be able to directly fulfill from the warehouse directly to the consumer and cut out the marketplace, in this case, Amazon. If you're able to do that, then that will be great. So if you've got very seasonal products or things that really spike in demand, it might be that it just kind of hovers along in the background and then suddenly you get a big dump and you're able to go and ship them out, and I'll pause there. Maybe I can go on to the not so suitables in a moment if you like.
Paul Sonneveld
Yeah, just a minor follow-up on the seasonal products you know like air conditioning, a good example, would you there's still some underlying baseline demand for those products right, even if there wasn't a heat spike. Would you recommend fulfilling those through two different channels, sort of do some baseline demand through the traditional Amazon warehousing and then sort of those peaks and those real seasonal uplifts through direct fulfillment. Is that how you have that in your mind, or does the scenario work a bit different in practice?
Christopher Khoo
Yeah, exactly that. So you would have your regular purchase order cycle coming along. Maybe they're doing ten units a week, whatever it is. They're just going into the warehouse. Amazon's going to be fine, stocking and holding a certain amount of that unit for you. But if you get a sudden rush on demand, you don't want to have to wait for them to place the purchase order. You ship it to them. The week will have gone by the time it gets inbounded on their site, maybe more. And suddenly your demand has gone back down again. Whereas if you continue to own that customer, and you can say, oh yeah, you can buy it. It's just going to come straight from us. And you can fulfill that, which is a consideration. Who shouldn't do it is if you can't do the fulfilling side.
But if you can own that and do that, then it's definitely a lever to be able to have. And it comes back to that concept of that dual fulfillment, that it's not necessarily about making DF your primary sales vehicle. It might be. It probably won't be. It might be hovering along at ten percent, fifteen percent. But at certain times, it will flex, and it will suddenly absorb, oh, this week DF just took off, and we did another hundred thousand dollars that we would have basically lost because Amazon didn't have it in stock, and we've got it. And to the earlier question, actually about the FBM comparison, it's not really the right thing to do to have the same ASIN on vendor and seller at exactly the same time. So it kind of provides those FBM mechanics to the vendor side of the businesses without needing to muddy the water with dipping into seller on the same product too much. So I think that's kind of what it really gives in those scenarios.
Paul Sonneveld
Yeah. And I guess I'm just, as you were talking, I'm speculating here and wondering if you because on the direct fulfillment, it still says sold and shipped by Amazon, at least last time I checked. Whereas, FBM obviously gets you into sold by seller x fulfilled by seller x, probably no prime eligibility and all of that. So there must be a material conversion difference between uh direct fulfillment and fbm. I mean I'm just sort of deducing that I don't have any data to sort of show that but i'm wondering if that's you've seen anything that would support that
Christopher Khoo
Yeah, I think it carries the same pedigree benefits that you own as a vendor where it says sold fulfilled by Amazon. The reality is it still might take more than one day to get there if it's coming from you. And you're not held completely to the same SLA that you would be if you were doing seller fulfilled prime, for example, because Amazon's providing the label, they're providing the carrier, they're doing the pickup. They own that process still. And yes, it's still under the vendor model. So Amazon still owns that product.
It's kind of interesting when you, I had one the other day, this is going to, it's kind of point my life's come to now. I had bought something off Amazon. I think it was a table, and I could see it had the label on it. And I looked, I said to my wife, I said, that is a direct fulfillment label. Like that's a, that's come from their direct fulfillment channel. And, I'm really great. So just have a parties and chat about stuff. But it's kind of interesting to kind of speculate. And it was, again, it was a multi-part set. I got the table in one, and I got the chairs in another. And they'd clearly come through separate streams, but they'd been picked up and processed that way. But again, it was still just sold and shipped by Amazon from the vendor side on that front end.
Paul Sonneveld
So, just going back to the second part of my original question, which was, what are the use cases where you'd go, hmm, just not sure if direct fulfillment is the right answer here. I mean, are there clear categories, product formats where, I mean, there's always a logic, right? But where the logic is just not very strong for direct fulfillment. Are there any categories that you think of top of mind?
Christopher Khoo
Yeah. If you take what I painted earlier as the ideal candidate, maybe like a kitchen domestic appliance, home domestic appliance kind of brand, outdoor brand. They're perfect, but the not so suitable for direct fulfillment is kind of the opposite of that. You're thinking small, lightweight products, your accessories, notebooks, pens, cups, maybe even sports like footballs and things like that it might be conceptually useful to have as a channel open, but I wouldn't say that it's going to be the thing that really levels up the vendor business. I would say, operationally speaking, there's probably other places you put your efforts.
What I would add is that probably the bigger disqualifier, rather than necessarily the category vertical itself, is more to do with the internal ability to fulfill the direct consumer orders. If I turned up at your warehouse today and said, hey, I've got a regular Amazon purchase order. You've got to ship it by five days' time, and it's going to be five pallets or a full truckload or so many cartons. People are familiar with that. The warehouse can get working on it. They've got forty hours to process or a bit more. There's a bit of time. It goes into vendor lead time, but most people are familiar with it.
Often, the kind of businesses that are vendor central businesses are used to that wholesale dynamic. Purchase order cycle, shipment confirmations, ASN, credit terms, like they're used to that flow of we're sending goods out, and it's palletised shipments. Direct fulfillment, it's kind of funny because it sits under the same financial model to do with cashflow and, credit terms and payment. But operationally speaking, you really need to be much more like how you would be handling e-commerce orders. So, you know, drop ship kind of processing. And you need to have the internal capability to do that and do that effectively. Otherwise, you're just going to get killed on the metrics for how the performance is tracked on DF.
So you really need to check it with your warehouse if they're able to and willing and wanting to do that, whether that's your internal warehouse or your third party you work with, to stress test it. If you've already got quite a successful e-commerce operation running and working smoothly, then you can basically just sell it to them as saying, hey, I know we do. I don't know, eBay, Shopify. We do our TikTok shop. This is basically like another one of those, as far as the concept is to them. The process is slightly different, but conceptually it's going to need to be fulfilled direct to consumer.So from my kind of landing that plane the main thing i would disqualify someone on is if their warehouse and team just don't want to do those direct to consumer shipments or you know could you handle a sudden peak of you need to ship five hundred air conditioners tomorrow they probably would because it'd be good money but you know like would you be happy with that as a constant drip all the time.
Paul Sonneveld
Yeah. It's quite a, it's quite a different game, right? Doing, being, doing the B2B fulfillment or, you know, picking things a pallet at a time and putting it on a truck versus individual orders, you know, much smaller pick slots, trying to get them out the door. I mean, which is a nice segment. Sorry, go ahead.
Christopher Khoo
Sorry. I didn't mean to speak over you, but that kind of also feeds into your question to do with the suitability or not so suitable product, because the higher value product lends itself to soaking up more of that additional handling cost and picking cost. If it costs you five pounds to pick and pull an order and get out the door in labour cost, you wouldn't be wanting to do it with a product that you're only retail times and for anything under fifty pounds for probably would just wouldn't work money-wise.
So that's where those, okay, I'm selling a microwave for a hundred dollars. I'm doing the dishwasher for three hundred or five hundred. Then you're happy to pay the handling and the physical handling time on it. So that's where the picture of what the perfect DF item kind of starts to emerge as this larger higher value and even like take like a tv for example you might be able to be more confident it's not going to arrive broken or damaged and you've just got a single shipment that's getting fulfilled rather than going from you to amazon to somewhere inside amazon then back out to the consumer. It just it kind of reduces some of those potential loss points along the way.
Paul Sonneveld
Yeah, a hundred percent. So that's a good way to think about the operational angle here. Maybe to start off here, maybe we can start with, take us through, you know, take us into the warehouse of one of your clients and paint a picture for us. I mean, a day in the life of a well-run DF operation. Let's say it's Tuesday morning or it's Wednesday morning. It's lunchtime, I think, already for you. But what does it look like in terms of a well-run operation?
Christopher Khoo
Yeah. So DF has a few differences to those that are maybe familiar with the vendor central purchase order cycle. Those will be landing maybe every Monday morning, Wednesday morning. And it's kind of on a cyclical basis. You just get your big spike, process them, and you push them through. DF orders are happening all the time, that when someone clicks buy, and it's a DF order, and you've won it through DF, it's landing on your side. And you've got a few key checkpoints that you need to hit to make sure that one, it's coherent to the customer, two, you're hitting your metrics with Amazon, and three, you're not getting gummed up internally with all the stuff you've got to fulfill.
So the first thing I'd recommend is, you want to have a nice, clean integration and synchronisation with your internal ERP system and between Amazon. So you've got the orders coming in, they're landing on your side. We're doing a stock check. We're checking, is it the correct product? Do we have it available? Do we not? And you need to be sending that message back to Amazon. Really, I mean, the SLA is probably within twenty-four hours, but ideally you want to do it as soon as possible, really. And then you want that to have some sort of automation which funnels it to your warehouse. So they get, you could imagine them getting a picking instruction. Here's how many boxes it's going to be. Here's how many labels you need. We can have some system that goes off and gets the labels from Amazon, wrap all that up information together and then pass it across to the warehouse.
Now for the type of operation that we've described, some people will do single picks where they'll just say, yep, go out and get one. Most of the time what we see, we work with a number of brands actually across the US that do this, is they will batch them up. They'll say, take everything from the last three hours or something like that. Maybe it's a hundred orders that have come in or sometimes, you know, two hundred, three hundred orders have come in that timeframe. People, when they're busy, they could be getting several every minute. And then they're going to take them all, batch them up. You might group them by the product code. So you can do a combined pick. And then you're going to send them out and say, I need you to get fifteen of this product and twelve of this product. And here's all the labels. And then it becomes really quick just to batch print the labels, batch do the pick, label them all up and get them freight-ready out in the warehouse.
But like we said earlier, it's both a strategic question for the kind of management layer of the business to decide, is this something we do? Is it profitable? Are we the right product? And then it's on the operational to decide to say, do we have the ability to execute this internally? Can our operations teams be reliable enough to handle something within a three, six hour window? What happens if we're late? When is our carrier turning up? All these kind of factors you've got to build into it. Maybe you have a carrot pickup time of, let's say, two p.m. You need to make sure that all that morning's batch are picked and pulled really ahead of time as much as you can. One p.m., maybe we do a final sweep just to kind of put the next set in and then away we go. But in terms of those factors that make it well-oiled, like integrations and connectivity, automation, and then like culture and conversations internally.
Paul Sonneveld
I'll get back to the integration point in a sec. But before we do that, I want to ask about Amazon's expectations. In fact, Robert has asked a great question here, which is one of the ones I had as well, which is, does Amazon expect you to ship 24/7 or at least every single day? I mean, what is Amazon's expectation of how quickly you can ship orders and what coverage during the course of the week?
Christopher Khoo
The short answer is no, you don't have to ship 24/7. Most of the operations that we work with don't do any activity on the weekends. Some do some on Saturdays. You can put your hours that your warehouse is operational, and it usually also excludes public holidays. So, for example, in the US, we just had, well, we will have coming up, forgive me, July the third is going to be a kind of day off operationally speaking, which means that if a customer places the order, let's say Thursday evening, the Friday is off, the Saturday is off, the Sunday is off. It's going to be coming with an expected ship date of the Monday. And that's actually quite important for the way that you manage and process those orders.
They don't necessarily come in on the next business day as the required ship date. It could be even slightly further out. The majority of orders come in, ship date is either going to be today or the next business day. But no, it's not a twenty-four-seven requirement. You do have to adhere. And again, it comes back to that point I mentioned earlier. You'll have a specified carrier cutoff time per carrier. You'll say, I know that UPS comes at two p.m., I know FedEx comes at four, and everything before that time on that day with that carrier needs to be ready to go and dispatched. After that, any orders that come after that are gonna fall into the next bucket for the next working day. Oh, sorry, Paul, I don't know if I can hear you. I don't know if it's just me.
Paul Sonneveld
It's everyone. It's the mute button. So it'd be good to understand a little bit more, like how does Amazon evaluate whether you as a vendor are doing a good job? Like you may have said, look, we pushed really hard. We got a hundred orders out before the UPS truck showed up, right? We may be very satisfied. We may feel like that's a really big day's work, but how does Amazon evaluate that performance? Would they give us a great score for that? Or would we be below par? I mean, how does Amazon think about that?
Christopher Khoo
Yeah, so much like on the vendor central side with the retail purchase orders, they have their own metrics for tracking on the direct fulfillment side as well. There are a number of key metrics they track. The most critical one really is your on-time shipping compliance. So, how accurate your dispatch date was compared to when they wanted it shipped by. And it follows a similar metric of your trailing average over a period of weeks before then, and then it gets charged below that. It gets a little bit more, should we say high stakes on the direct fulfillment side? In the sense that it's a bit more like how Seller Fulfilled Prime works, that if you continually fall defective of those metrics, it's not just that you're getting a dollar charge back, but not one dollar, but a kind of monetary value charge back associated with it.
It might just be that they say, hey, you know, operationally, you're not cut for this. We're not going to continue to source direct fulfillment from you. So that's where it kind of has a wider-reaching implication if you fall foul of that on-time metric. There are a few others to do with like technically if you confirm something and then you as the vendor, cancel it late, there are some charges for that. That's quite analogous to the down confirmation chargeback or the not filled chargeback on the retail side. And that's more to do with your picking accuracy and your warehouse stock accuracy, which usually can be tied up and done through some of those integration processes.
Paul Sonneveld
I just want to throw another question in here before I'm keen to get to the integration. But this is a good question from Robert here, because we've spoken about carriers and showing up and time slots and making sure things are ready. But who dictates what carrier to use? Is that Amazon appointed? Do you have some choice in that? How does that work, practically speaking? And thanks for your question, Robert. Really appreciate it.
Christopher Khoo
Yeah, and hi, Robert, as well, just because we know each other. On that piece, you have either a vendor-owned carrier or an Amazon-owned carrier. So that's the acronym AOC or VOC. Nothing to do with volatile organic compounds, but just to do with whether or not the vendor owns the carrier or not. That is going to be part of your setup for kind of at the account level, who's in charge of that. Most of the time, the operations we see, Amazon owns the carrier. What that means in practice is that you send them, okay, they place an order for, I don't know, most of the time it's one unit. And then you're just going to say, okay, it's one box. And they say, great, here's the label. That's the kind of flow of how the data goes. If they say, I want two units, you're going to say it's either one box or maybe it's two boxes. And then they give you back two labels. And then it kind of goes from there.
Obviously, if they own the shipping, they're paying for it. And then that's wrapped into the terms that you've got with them. If you've got it and you pay for it, then you need to wrap that into your margin on the dispatch side as well. The same kind of logic that the we pay, they pay argument has kind of applies here in the sense that if Amazon owns the carrier, they take the liability from it from the moment that it's picked up. Whereas, if you own it and they only take liability from the time that it's kind of confirmed, delivered and received, which doesn't even really apply too much in the DF context. So most people that we work with go with the Amazon-owned option just because you kind of say, yep, just we're shipping it. Just give me the label. And it just comes back with whatever care they have applied. Almost usually always UPS.
Paul Sonneveld
Okay. What about integration? So we hinted at it before. I know there was a point where it was just EDI. I think at some point we now have API through the SP API direct fulfillment endpoints as well, versus doing things completely manually, uploads, feeds, things like that. I'm sure you've seen them all, and I'm sure you have some pretty good, some strong views on types of integrations and what you think makes most sense these days. Yeah, EDI, API or manual spreadsheets. How are you thinking about that at the moment, or more importantly, how should vendors evaluate what the right integration path is for them?
Christopher Khoo
Yeah, I mean the the fact that we've got those integrations available is really good and that Amazon has them as possibilities is definitely something i'd recommend it's a little bit chicken and egg these things and sometimes it depends culturally how people view them internally in the company. Most of the time when launching a new business model, people will say, well, we'll just do it manually and see how it scales up. And then if it makes sense, we'll invest in the integration, which is pragmatic and it's appropriate. The downside is if you don't get the integration soon enough, and then you get swamped with a bunch of orders, and then you fall foul of the compliance, you then completely ruin your status with Amazon and footholding going forwards. So there comes a sweet spot where you say, okay, now I think it makes sense for us to run this rather than just doing it manually. We should put it through an integration method.
In terms of the connectivity, the EDI SP API, I don't really see too much difference between them functionality-wise. Predominantly, we support both connections. The API is kind of still somewhat in early phases, with some of the endpoints on DF. So we tend to favour the EDI integration just because it's a bit wider reaching. And one of the key feeds that you can send actually, to Amazon is not just all the direct transaction information to do with here's an order, here's a confirmation, get me the label, send the shipment confirmation. But slightly upstream of that, you also have the inventory feed going in from you to Amazon, which really publishes to them.
Here's what we have available. Here's what you can order.And that drives the customer availability front-end view. Which is, which is pretty critical because if you don't have that accurate and set up, then it's going to really impact, you know, whether or not the customer can buy it on the front end and whether or not they, you know, place the order at all. So that is probably one of the key links that is easy to overlook, but just to kind of say, here's our ERP system, here's Amazon vendor. We're going to pump information up initially, and then we're going to get the orders back, confirmation up, the shipment confirmation up and the label back down the other way around. Yeah.
Paul Sonneveld
Got a couple of options there. Yeah, certainly. I appreciate the API integration is quite new. And, you know, probably a lot of a lot of the more traditional brands are used to that EDI integration. So that might be a good place to go, certainly for DF at the moment. We're almost out of time, but I did have the question around sort of the commercials, right? Cashflow, AVNs. I mean, we could probably do a whole topic in this on our own, but maybe I'll just start with a question from Marco because he's sort of going on the same angle that I was going on. Amazon is pushing DF on certain categories, probably because they're more efficient. I mean, from Amazon's point of view, maybe Amazon doesn't really want to deal with washing machines in their warehouse, right, that may not really fit their model very well, or the you know, the flatback furniture with multiple boxes, I mean, this is probably the million-dollar question.
If we could estimate how much Amazon's saving, then we could construct an argument, right? When it comes to AVN and maybe some margin transfer as part of the negotiation side. I mean, how do you work with your clients on this? And I appreciate that your role is not there to support them in terms of annual vendor negotiations. But from an operational point of view, how do you help your clients think through some of those cash flow or margin benefits that Amazon may obtain as a result of moving things to direct fulfillment? And how should vendors think about that, at least conceptually?
Christopher Khoo
It's a really good question. It's very hard to answer. It's certainly hard to answer how much Amazon saves on their side because it's quite opaque what their internal costs are for handling goods and getting them out. I think if they're pushing something in a negotiation, and this is generally true, if they're pushing, let's say, WePay or they're pushing DF, or they're pushing direct import or something like that, like you say, the question you have to ask is why. Why do they want us to join this particular fulfillment program or why do they want us to enroll in this deal? Is it just because they make more margin on it? Are they pushing it because my vendor manager is going to get a good hit on his score sheet by achieving this outcome? Or is it because, you know, actually they see that we've got out of stock and stuff like that.
And as with all negotiations, you want to try and land at somewhere where it's a win-win for both of you. I mean, if they're just pushing it and you would still make really decent money by doing it and your product is a good candidate for it, I'd say, sure, look at it internally. It doesn't hurt to push back and say, well, you know, Amazon, if you're so keen on this, you know, what is it that it's going to change in terms of the price? Because, you know, you always have to justify in terms of we have, let's say, increased internal costs for integration. We have increased handling costs on our side. We want to agree with you that we want to ship it more efficiently to the consumer. We want to bridge the outer stock gap, but it's going to cost us more in terms of handling and internal packaging or whatever else. And that's not going to be a one-off cost, or maybe we have some downstream costs of our warehouse and packaging to take into consideration.
And I think you want to go from that basis rather than just kind of, hey, you're saving money, so then we need to adjust our cost price, which is probably true, but more phrase it in terms of is the additional cost we're going to face, but we want to say yes. And how can we wrap that into the cost on our side? But you're right. I might be getting a little bit out of my water here in the sense that I don't know if Amazon does do specific pricing across the different models and whether or not that's something they really tolerate too much of, because it's still the wholesale price that they buy it from you from, even though it's the retail price on the front end that you see come through.
Paul Sonneveld
I guess there is a little bit to play around the rebates and the co-op and all the deductions. Some of them obviously don't apply when you do the DF. So yeah, there's some scope there. Hey, I've got one last question. We're already five minutes over, but I do want to ask this one, which is we've spoken about the operational aspects of DF. And I think I've got a really good understanding of how it works, what the watchouts are, what to think about. We've spoken about internal capabilities and the like. But what I'm really interested in is for our audience, you've got the probably unique benefit of having a direct lens and view on the DF operations of a whole range of vendors across different continents. So my question to you is this, as we close out, what are the things that the best operators do when it comes to DF, right? What are they doing that's innovative or unique that you don't see everyone do? You know, those gold nuggets or things to aspire to. What are the things that come to mind?
Christopher Khoo
Yeah, it's a good question. A few things come to mind. So we, I'll just pick, for example, like a kind of best case medium case and then shall we say complication case. Thinking of some of the businesses we work with in the states. I'll start with the worst case and kind of build up. So, the worst case was they just dipped their toes in the uh the feet with df things were trickling along literally like one order a day one order a week the warehouse was fine with it was third party warehouse. All of a sudden, we had Prime Day and then we had their product seasonally went very fashionably in stock, and they went to about three hundred or four hundred orders in two days. Like I'm talking their sales went well up, and there was suddenly a real flurry of questions with the warehousing. Hey, we didn't agree to this. What's contractually allowed? We've got all this extra manual process. I'm not sure about doing this thing. Who's going to take responsibility for it?
You can imagine the kind of conversations you get into. And to some extent, that's like a ramp-up problem rather than a sustained ongoing problem. But I think that it was conceptually the business thought, hey, we're just going to tack it on, and it was just going to tickle over. And then what it became was something quite different. It's probably a little bit analogous to, let's say someone does like a live shopping event on whatever platform you go on and you kind of think, we don't know how successful it's going to be. And then suddenly things go boom. So for that, the learning would be build for where you are at today, but have a view to scale.
And then on the other end of the spectrum, what we see for those best case operators is what I described with those strategic conversations about does df work for us as a model for them it really did they're in glassware so for them direct shipping is perfect in terms of making sure it doesn't get damaged but for them you know they were getting like three hundred orders every single day four hundred orders a day high value items and they would be doing that batch picking they would say go out here's all your labels. They actually use a tool to do a customization on the label. So you can see which product is with the picking instruction. So the operators get in, they don't even have to click a load of buttons. They just get in. They can say, okay, show me the orders. We do the automatic packing. The software drives everything. And they just go in and say, okay, print it, pick it, pack it, label it and pull it out. It's done. There's no spreadsheet download. There's no cross-comparison. It just fully clicks into their NetSuite.
We've got the item fulfillments updating in NetSuite. Everything is just flowing really smoothly. And so for them, It's not, you know, it's not a substantial part of their Amazon business in terms of it's not fifty-fifty with their vendor side, but it's eighty-twenty. And for them, you know, for the kind of scale they're doing, that's still millions of dollars every month, them, and they're managing it at the same time as doing their regular POs. So I would say integration, culture, operations, they're the kind of main things that drive a successful operation. And the one I mentioned that fell foul of it, I don't think it was anything they necessarily did completely wrong, but I think it was more of a communication piece with the warehouse directly in terms of setting expectations and thinking ahead in terms of when, if and when this really blows up, how are we going to handle it?
Paul Sonneveld
Fantastic. Chris, that is really great. Thank you so much. A phenomenal session. I think anyone who's running a vendor account really just got a serious upgrade to their operational playbook here. So I really appreciate your time. Unfortunately, that's all we have time for today. So we're going to have to say goodbye. But thank you for your generosity and for sharing your deep expertise when it comes to direct fulfillment.
Christopher Khoo
Thanks so much. Happy to be on.
Paul Sonneveld
Thank you. All right. Just a quick reminder before we wrap up. This session was recorded, and the registrants will all get the replay landing in their inbox tomorrow. So feel free to forward it to your operations team. If you want to talk to Chris or learn a little bit more, you can find him at khoocommerce.com and on LinkedIn. And we'll put some notes in the show notes as well. And if you're getting value out of Marketplace Masters, the best thing you can do for us is to hit follow or subscribe if you're on YouTube and forward this episode to a vendor friend who needs it. My name is Paul Sonneveld, and we'll be back next week with another live conversation. Until then, keep building and stay cool.