How robots are building Amazon's future
Thanks to an army of robots, Amazon became a retail giant. Now, these robots are creating the future not only of Amazon, but also of retail and logistics
Ordering on Amazon is simple: just click 'Buy Now,' and the next day your items are delivered. Behind the scenes, Amazon finds the item you ordered from the warehouse closest to you and sets in motion a complex logistical system that is invisible to the customer, involving not only thousands of people but also a growing number of robots.
In this article, we will explore how a question in one man's mind led to the creation of an army of robots that transformed retail and logistics, and how that army of robots of various shapes and sizes is now shaping the future of Amazon.
From Kiva Systems to Amazon Robotics
The story of Amazon Robotics begins outside Amazon.
It was early 2002, and Mick Mountz's mind was occupied with one question: Is there a way to make warehouse operations faster? From 1999 to 2001, Mountz was working at Webvan, an online grocery shop, one of many online businesses created during the dot-com bubble and one of its many victims when the bubble burst in the early 2000s. As the business process director for logistics, Mountz was acutely aware of one fact - Webvan’s cost of fulfilling orders ran three times as high as what the business plan had estimated.
After coming up with idea after idea, Mountz eventually came to the conclusion that the answer was robots. A lot of robots. He then called up his former roommate from MIT, Peter Wurman, to find out what kind of software would be needed to orchestrate so many robots. Together, they came up with a system which then they tested in a simulation. The results were amazing: their system performed better than any real warehouse. On 15 July 2002, Mountz filed U.S. Patent No. 6950722 and later founded Distrobot Systems to make this vision of a fleet of small robots zooming around a warehouse a reality.
With a patent in hand and with a concept proven in a simulation, Mountz now needed someone to build those robots. Through a recommendation from a colleague, Mountz met Raffaello D’Andrea, who at the time was leading Cornell’s RoboCup team and just so happened to take a sabbatical from MIT. D’Andrea, as well as Wurman, officially joined Distrobot in late 2003 and all three of them got to work.
The business was growing. In 2005, Distrobot became Kiva and signed its first customer, Staples, followed by Walgreens in 2007 and Zappos in 2008. In 2008, Kiva employed 80 people and shipped its 1000th robot. In 2009 Kiva was ranked #6 on the Inc. 500 list of the fastest-growing companies in America, and Gartner named Kiva one of its “Cool Vendors in Supply Chain Management.”
How Kiva increased warehouse efficiency
What Kiva was offering was an innovative way of managing a warehouse. In a typical conveyor-based warehouse, a worker can pick 200 to 400 items per hour. Kiva robots can present a new item to a worker every 6 seconds, leading to a base rate of 600 picks per hour. With Kiva, warehouses could be not only more efficient but also require fewer people. To hit 200,000 picks a day, a traditional warehouse would need two 75-person teams working 8-hour shifts. With Kiva, the same work can be done with 25 people a shift. Kiva robotics system was also cheaper and quicker to set up, taking weeks not months to be fully deployed.
And that’s not all - a warehouse full of Kiva can also self-organize and self-optimise. The computer controlling all robots tracks high- and low-selling products and stores them accordingly, storing the most popular products closer to pick-and-pack stations and placing less popular ones at the back of the warehouse.
Kiva Systems becomes Amazon Robotics
The innovation and efficiencies Kiva was bringing to warehouse operations caught the attention of Amazon. At that time, Amazon was rapidly expanding and opening new warehouses. Fulfillment costs as a percentage of revenue rose to more than 9 percent in 2011, from just over 8 percent in 2010. Two previous Amazon acquisitions, Zappos.com and Diapers.com, have been using Kiva robots and were proof that this technology works and can improve the efficiency of warehouse operations.
In early 2012, Amazon acquired Kiva for $775 million. Since the acquisition by Amazon, Kiva hasn’t announced any new customers and let existing contracts expire. In 2015, Kiva Systems became Amazon Robotics.
Even though today the acquisition of Kiva might be a bit forgotten, it is probably one of the most important business decisions Amazon have ever made, maybe even at the same level as launching Amazon Web Services (AWS). By the time Amazon fully implemented Kiva robots in 2014, the company had cut the so-called "click to ship" cycle down from 60 to 75 minutes to just 15 minutes and saved the company 20% on operating costs. According to PitchBook, the acquisition of Kiva could have saved Amazon up to $2.5 billion by 2018.