There was a rather stunning announcement yesterday regarding integrated robotic warehouse and online fulfillment automation.

Amazon .com Inc. agreed to acquire privately-held warehouse automation and robotics provider Kiva Systems for an all cash deal of $775 million, a considerable premium over Kiva Systems revenues. Kiva had major backing from Bain Capital Ventures.

Business media reports indicate that Amazon’s takeover of Kiva is directed at further automation of Amazon’s network of online distribution centers. It is no secret that Amazon’s fulfillment centers are predominantly labor expensive and the leverage of Kiva’s robotic warehouse layouts could greatly benefit Amazon’s long term fulfillment cost efficiencies. A Bloomberg article reporting on the acquisition notes that Amazon’s operating margins will narrow to 1.6 percent in 2012 after falling over 2 percentage points last year.

This deal is the biggest acquisition by Amazon since its 2009 takeover of, also adding credence to the importance of this technology to Amazon’s online fulfillment strategies. The announcement further indicates that Kiva will retain its corporate headquarters in North Reading Massachusetts.

Of most concern for the rest of the market, this deal could deny access to Kiva’s most innovative warehouse robotics and online fulfillment technologies to other customers, also providing Amazon an edge in this technology. This remains to be seen until after the deal closes and further information is shared. No doubt, Kiva’s competitors will attempt to take advantage.

Kiva has been on an explosive growth path since its founding, when this author had the opportunity to view its innovative automated warehouse powered by wire-guided robots and artificial intelligence software.  Noted customers include Boston Scientific, Crate and Barrel,,, Staples and Timberland, among others. The company’s marketing boasts doubling or even quadrupling warehouse fulfillment productivity which we tend to believe. Pricing for Kiva technology can range from $1 million – $2 million for so-called starter kits, and extend to $10 million-$20 million for large-scale warehouse deployment implementations such as Walgreens.

In the view of Supply Chain Matters, this deal is noteworthy and should be of the attention of distribution center management and online fulfillment execution teams as well as senior supply chain management.

Bob Ferrari

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