This article was published by The McAlvany Intelligence Advisor on Friday, October 19, 2018:
Over the last two or three years, tens of thousands of people have watched YouTube videos (see Sources) of the unbelievable technology that companies like Amazon and British online grocery company Ocado are using to cut delivery costs and times for their customers. Each of Amazon’s “fulfillment centers” ships upwards of a million orders every single day, with nary a human in sight.
Give Amazon credit. It saw the technology it would need as far back as 2012 when they bought Kiva Systems, the developer of the little Kiva robots that look like oversized Roombas. Kiva was leasing their robots and their technology to companies like The Gap, Walgreens, Staples, Office Depot, Crate & Barrel, and Saks 5th Avenue. But when those leases ended, Amazon didn’t renew them. It wanted the Kiva technology for itself.
Today, in its more than 100 massive distribution or “fulfillment” centers, there are hundreds of thousands of Kiva robots doing the work humans used to do just a few years ago.
The million-square-foot fulfillment center in Baltimore is typical, as Christopher Mims explained in The Wall Street Journal:
Amazon’s one-million-square-foot distribution center in Baltimore is a massive fulfillment machine. Stand at one end of the warehouse, and its titanium-white scaffolding and seemingly endless conveyor belts disappear at a vanishing point that is, somehow, within the building.
The machine is a dazzling combination of chutes, ladders, rollers, and 11 miles’ worth of conveyor belts. Customers’ orders move from shelving into bins and from bins into boxes as they travel via the machine straight into delivery vans, passing by stationary workers at various points along the way.
Humans are rarely required to move around here. It’s much faster, and cheaper, to have stuff brought to them.
Artificial Intelligence (AI) informs a Kiva robot where the product is located, and the robot scoots to that location, slides under a stack of shelving containing the customer’s product, and moves it to a human worker. The picker then retrieves the product, places it in a bin that is then carried off on a belt to another human who packages the item, seals the box, and sends it off to shipping.
This saves each human picker about 10 miles of walking every day, and the company millions of dollars. It’s estimated that those “fulfillment” costs have been reduced by 20 percent, putting enormous pressure on its competitors, some of whom are disappearing (think Sears) or have already disappeared (think Borders).
The AI-informed robots can’t do the picking, placing, or packing, so humans must do that part. But Kiva, now called Amazon Robotics, is working on that.
At present, Amazon employs 575,000 people, up from 340,000 just a year ago. As it savages its competition, it will continue to add new people just as fast as they can build new fulfillment centers. Rather like Walmart, Amazon seeks to place its centers near high population density centers to meet their growing customer base.
Ocado, the British only-online grocery supermarket, isn’t so proprietary about its technology. In May this year it happily signed an agreement with Kroger (the country’s largest supermarket chain and its second largest retailer behind Walmart) to use its automated delivery technology to build up to 20 of its own fulfillment centers.
As Mims explained:
Ocado’s system takes a fundamentally human and Byzantine process – receiving shipments from food manufacturers, stocking and restocking a warehouse, assembling customers’ orders and placing them into baskets, scanning them and packing them into bags – and automates it to an unprecedented degree.
It took 18 years and many iterations to create this system, which has enabled Ocado to quickly deliver groceries to a customer’s front door for about the same price as they would cost at the store.
The next step: “pods” that take the customer’s order from the fulfillment center to their home or office. Dallas has just approved a pilot program for pods, 26 inches wide and 48 inches high, which operate at a maximum speed of 5 mph. The Dallas Mobility Solutions, Infrastructure, and Sustainability Committee was persuaded that, if successful, a complete rollout would reduce the number of manned delivery vehicles on the roads, cutting both congestion and pollution. A pod would arrive at its destination, a code to open it would be sent to the customer, who would open it and retrieve his order. The pod would then return to the fulfillment center.
The next step in that technology is to let the customer order up an empty pod, much like Uber, place in it the package he wants shipped elsewhere, all paid for and managed online.
Even as those fulfillment centers are being built, they are already becoming obsolete. They are immobile and cost millions to update as the technology improves. According to Mims, the next step is … floating warehouses, serviced by drones:
A fully-automated warehouse is just the beginning. Amazon and Walmart have patented blimplike warehouses that will float 1,000 feet in the air, armed with drones ready to deliver toothpaste and toilet paper to your doorstep, as if they were [digital] files.
Welcome to the physical cloud!