What the Shopify Fulfillment Network means for partners, brands & 3PLs

Shopify had a big announcement at Shopify Unite 2019 this year; the pending launch of the Shopify Fulfillment Network (SFN). 

The big one https://t.co/klyl5JlmsL

— Tobi Lütke (@tobi) June 19, 2019

While Shopify didn’t directly mention Amazon or FBA by name, it was obvious that “marketplace fulfillment” referred to FBA when presented by CPO Craig Miller. 

It appears Shopify listened to the feedback from its core SMB opportunity and is attempting to position itself as the more brand-friendly alternative. It understands the importance of fast online fulfillment and the market opportunity it presents. Shopify claims it will invest over a billion dollars to the SFN initiative. Over what period and how remains to be seen.

There are some burning questions surrounding the announcement of the Shopify Fulfillment Network:

1. Will the SFN actually be a competitive solution to Amazon FBA?
2. How will SFN stand out from the rest of the fulfillment solutions, such as FedEx, UPS, FBA, and 3PL’s?
3. How will SFN be priced and will it be comparable to FBA?
4. Amazon, Walmart, and Target offer next-day shipping. How will Shopify compare?
5. What type of SLA’s will be offered by Shopify?

To better help you determine if the SFN is right for your business, below are some benefits we’ve identified for SFN.

For Brands

Benefits

• SMB Focused
  • Low barrier for entry, install an app, select products, get a quote and send products in (video)
  • Controlled thru Shopify backend
  • Send inventory to Shopify and they handle the rest
  • Ideal for a limited amount of orders 
    • Shopify claims they’ll support down to 3 / day and up to 30,000
• Your Own
  • Ship in your own branded box
  • Data & customer information belong to the brand.
• Multichannel
  • eBay, Amazon, Wholesale

Open Questions

These are open questions and expected limitations with v1 because no one really knows how SFN is going to be powered.

• Limited Flexibility
  • Will there be support for building kits/bundles within the Shopify UI?
  • Vendor Lock-in, tied to Shopify Ecosystem.
  • How customizable will it be?
    • Split shipments?
• SLA
  • What types of SLAs are available?
  • The claim is < 1 day to fulfill, 2 days to deliver, and 99.9% order accuracy
    • That data is from shipping Shopify POS hardware
• The US Only
  • No international capabilities
• Visibility / Control
  • Lack of visibility into individual warehouses / 3PL assumed
    • Where are your products actually housed?
  • Who will handle support issues when they arise with the end customer?
• Cost
  • It is unlikely that SFN will be competitive with stated low volumes.

How will Shopify progress towards SFN?

While no one knows right now, we have an idea of how they are doing this today. We suspect they will start by just white labeling on top of a WMS platform & 3PL network.

Short Term (< 2y)

• Partner with WMS Software Providers to integrate with new Shipping and Delivery APIs
• Partner with physical warehouse providers using these WMS systems
  • The warehouse can opt-in to become part of the Shopify Fulfillment Network once their WMS is integrated.

Mid/Long Term (> 2y)

• Start replacing poorly performing partners (both physical and technology) with better-performing partners.
• Start replacing both types of partners with their own assets
• Purchase physical real estate
• Build a Shopify WMS

Comments? Feel free to tell us your thoughts below.

What are the benefits for 3PL providers?

Benefits

• Access to Customers
  • Shopify has 800k + customers of which about 6,000 are assumed to use Shopify Plus
  • Increase in Revenue
• Shopify provides their WMS system
  • Perfect for a smaller 3PL without their own WMS system for pick pack and ship

Open Questions

• Technology
  • Shopify will likely require warehouses to integrate into their platform and adopt their standards whether or not they are compatible or make sense for specific use cases.
• SMB Focused
  • High SKU counts, few orders per month
• Redundancy
  • If Shopify acquires assets and builds its own 3PL centers, you will be cut out. Remember Amazon?
• Reduced Margins
  • Shopify will likely try to bundle postage and carrier fees to reduce costs and eliminate 3PL margins.

Conclusion

Shopify has taken a big step in the right direction with SFN. It will move the entire eCommerce industry forward and add some competition where Amazon has been dominant for over a decade. 

Smaller brands offering unique D2C products can compete based on quality and experience.

Shopify Plus EDI checklist.

Questions when looking for an Inventory Management System that integrates with Shopify.