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OM in the News: Amazon’s New Delivery Strategy

August 15, 2016
An Amazon Prime Air drone.

An Amazon Prime Air drone.

“Over the last few years, Amazon has left a trail of clues suggesting that it is radically altering how it delivers goods,” writes The New York Times (Aug.11, 2016). Among other moves, it has set up its own fleet of trucks; introduced an Uber-like crowd sourced delivery service; built many robot-powered warehouses; and continued to invest in a plan to use drones for delivery. It made another splash last week, when it showed off an Amazon-branded Boeing 767 airplane, one of more than 40 in its planned fleet.

These moves have fueled speculation that Amazon is trying to replace the 3rd-party shipping companies it now relies on — including UPS, FedEx and the U.S.P.S. — with its homegrown delivery service. Its logistics investments have also fed the theory that Amazon has become essentially unbeatable in American e-commerce.

The company, it appears, has a 2-tiered vision for the future of shipping. First, it’s not trying to replace 3rd-party shippers. Instead, Amazon wants to add as much capacity to its operations as possible, and rather than replace partners like UPS and FedEx, it is spending heavily on delivery services to add to its overall capacity and efficiency. Amazon’s longer-term goal is more potentially transformative. It wants to escape the vicissitudes of roads and humans, going fully autonomous in the sky. The company’s drone program could be combined with warehouses manned by robots and trucks that drive themselves to unlock a new autonomous future for Amazon.

If Amazon’s drone program succeeds (and Amazon says it is well on track), it could fundamentally alter the company’s cost structure. A decade from now, drones would reduce the unit cost of each Amazon delivery by about half.  According to Amazon, we will see drones in action within 5 years.

Classroom discussion questions:

1. Why does Amazon wish to enhance its shipping strategy?

2. What are the advantages and disadvantages of the drone program?

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