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OM in the News: Before the Drones, Amazon Lets Loose the Robots

December 13, 2013

kiva2Amazon  received a lot of news coverage for its sci-fi drone-delivery idea last week. But an immediate robotics effort under way in the Seattle retailer’s warehouses could save the company more than $900 million a year. Amazon’s rollout of robots from a company it bought last year, Kiva Systems Inc., could help pare 20% to 40% off the $3.50 to $3.75 cost of fulfilling a typical order, reports The Wall Street Journal (Dec. 9, 2013). The robots can shuttle shelves full of merchandise to warehouse workers, relieving of the workers of having to dash throughout the warehouse. “We believe this could be a significant opportunity to drive higher operating efficiency across Amazon’s massive fulfillment-center network,” says one industry expert.

Amazon has been working to reduce order costs and speed delivery, in part by constructing more warehouses closer to urban centers. While many of its latest efforts focus on deliveries themselves, Kiva robots could improve efficiency within warehouses, where humans—and human error—still rule the day. Amazon just disclosed that it has 1,400 Kiva robots in 3 of its warehouses. A broad rollout of Kiva robots could save Amazon $458 million to $916 million a year.

Perhaps more tantalizing is the potential for Amazon to sell the robots to other companies. Before Amazon bought Kiva, the robotics company was charging about $2 million for a kit of robots and as much as $20 million for large installations. Meanwhile, warehouse robots will remain a source of fascination. Indeed, Amazon’s announcement of its drone-delivery idea appeared to have prompted to disclose its effort to build robots.

Classroom discussion questions:

1. What are the advantages and disadvantages of introducing robots in the Amazon system?

2. Compare the use of drones vs. robots in improving OM efficiency.

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