As outlined in this GeekWire article Amazon recently announced it expects to have 10,000 Kiva robots operating in its warehouses globally by the end of the year, up from around 1,000 currently. CEO Jeff Bezos did not elaborate on the reasons for this massive ramp-up in automation, but a spokesperson for the company said it will not affect employment levels or the rate of hiring in the warehouses.
This move towards goods-to-picker technology is consistent with reports of Amazon's plan to extend its Fresh grocery business to 30-40 US markets this year, supported by a major re-organisation of its distribution network and fulfillment model (see our blog on 21/3/14). Improved picking efficiency is an essential part of this strategy.
Kiva, which Amazon bought just over two years ago, has a number of drawbacks compared to other existing and planned automated grocery picking systems. Most notably, it is generally only cost efficient to operate at ground level, which makes it far less space efficient than multi-level solutions used by Ocado and Tesco in the UK, for instance. Kiva's robots are also relatively slow, which limits throughput rates. However, we estimate Kiva's autonomous robots could enable Amazon to roughly triple its current pick-rates of 100-150 items per person per hour. Amazon also has the advantage of being able to deploy this technology at cost, instead of paying Kiva's high gross margin, and the ability to develop future enhancements to optimize its utility in their applications.
So now we can see Amazon starting to execute its strategy of using Fresh to deliver more products more frequently to more people, which will justify the operation of its own delivery fleet (at least in urban areas) and hence enable it to provide next and same-day delivery at a lower cost. This will further erode one of the main advantages of physical stores - immediacy.
All the more reason for brick and mortar food retailers to start considering how to automate online order fulfillment, if they haven't already done so. The good news is that Kiva is not best in class, even by the standards of what is currently available today, let alone what is being readied for tomorrow.