In March of 2012, Amazon agreed to acquire privately-held warehouse automation and robotics provider Kiva Systems in an all cash deal of $775 million. At the time, there was much speculation regarding Amazon’s strategic intent in acquiring this warehouse and distribution center robotics automation provider at such a hefty price. Speculation primarily centered on what was Amazon’s strategic intent. That speculation changed shortly thereafter when external sales of Kiva based technology was no longer offered to new external customers. In essence, Kiva was to become an in-house fulfillment center automation innovator for Amazon.
In June of this year, Supply Chain Matters highlighted reports noting that at Amazon’s annual investor meeting, founder Jeff Bezos indicated that the Internet retailer would have upwards of 10,000 Kiva based robots deployed by the end of this year.
Last week, The Wall Street Journal reported (paid subscription or free metered view) that during the current surge of holiday orders across the Internet retailer’s 80 distribution centers, Amazon will be able to now leverage its Kiva deployments. Readers further have the opportunity to view information relative to the results of some deployments.
According to the WSJ, in the first nine months of this year, Amazon’s fulfillment costs averaged 12.3 percent of net sales compared with 8.9 percent in 2009. Wall Street investors are obviously quite concerned with the size and current growth of that number. But, with full deployment of robotics, fulfillment center workers who previously recorded upwards of 100 order picks-per-hour are expected to average 300 picks-per-hour. A security equities analyst is quoted as indicating that Amazon could reap $400-$900 million in annual cost savings as a result of Kiva technology deployment. If those savings are accurate, they more than justify the original acquisition cost and would provide some buffering to the growth of Amazon’s fulfillment costs.
In our June commentary, our view was that Amazon has a broader strategy, one that allows robotics to buffer the often perplexing need to flex fulfillment center human resource requirements during seasonal peak periods. For the current 2014 holiday fulfillment surge, Amazon has brought in 80,000 temporary workers, an increase of 10,000 from the 2013 period.
In September, Supply Chain Matters called reader attention to Amazon’s efforts in testing deployments of new sortation centers to mitigate shipment delivery congestion and provide added flexibilities in the selection of last-mile delivery carriers.
Amazon’s supply chain leadership has numerous technology enablement strategies underway and we will all have the opportunity to observe the initial results of these efforts over the next few weeks.
Bob Ferrari
