{"id":21458,"date":"2017-11-12T15:27:08","date_gmt":"2017-11-12T20:27:08","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/amazons-last-mile-delivery-is-reaching-new-heights\/"},"modified":"2017-11-12T15:29:05","modified_gmt":"2017-11-12T20:29:05","slug":"amazons-last-mile-delivery-is-reaching-new-heights","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/amazons-last-mile-delivery-is-reaching-new-heights\/","title":{"rendered":"Amazon\u2019s Last-Mile Delivery is Reaching New Heights"},"content":{"rendered":"

Digitization of Delivery<\/u><\/em><\/strong><\/p>\n

Digital technology is transforming Amazon\u2019s supply chain. In 2013, Amazon announced Amazon Prime Air,<\/em> an initiative to develop a fleet of unmanned aerial vehicles (UAVs) to digitize and automate its last-mile delivery process.[1]<\/sup> UAVs will enable Amazon to deliver within 30 minutes, thus enhancing its customer promise of fast, convenient product delivery.[2]<\/sup><\/p>\n

Amazon\u2019s investment in digitizing its own logistics operations will be a significant driver of future profitability, making this of notable concern for Amazon management.[3]<\/sup> In 2016, net shipping costs grew by 43%, outpacing net sales growth of 27%.[4]<\/sup> Although the vertical supply chain integration through UAVs would require significant up-front investment, it would ultimately lower variable delivery costs by avoiding markups from traditional third-party carriers. Additionally, electricity-powered UAVs would decouple Amazon\u2019s shipping costs from the price of oil and reduce its carbon footprint.<\/p>\n

When combined with Amazon\u2019s digitized fulfillment centers, UAV delivery will help increase visibility of product movement from warehouse to consumer, thus providing Amazon with increased data which could help inform demand predictions.[5]<\/sup> Shorter lead time would also increase supply chain efficiency and limit the amplification of issues within the chain.<\/p>\n

Redesigning the Airspace From the Ground Up<\/u><\/em><\/strong><\/p>\n

To address the digitization megatrend in the short- and medium-term, Amazon is focusing on regulation and R&D.<\/p>\n

Operating at the forefront of a new technology, Amazon is facing a regulatory environment that is not yet equipped to handle the change. Amazon is working with the Federal Aviation Administration (FAA) to develop an air traffic system that will enable safe operation of commercial UAVs.[6]<\/sup> In 2016, the FAA announced preliminary rules for autonomous drones, including weight limits, daylight-only operation restrictions, and designated no-fly zones (i.e. near airports).[7] The most limiting regulation for Amazon is that drones must operate within a visual line of sight (VLOS).[8]<\/sup><\/p>\n

Amazon has focused its R&D efforts in the UK, where airspace regulation has been less stringent. This year, Amazon opened a new R&D facility in Cambridge, UK where it continues to refine its sense-and-avoid technology and autonomous vehicle maneuverability.[9] <\/sup>In December 2016, Amazon successfully delivered its first package via UAV during a beta test in Cambridge, UK.[10]<\/sup><\/p>\n

Ultimately, Amazon\u2019s fulfillment centers are at the core of its strategy to deliver to customers quickly. Amazon is expanding its network of fulfillment centers by over 30% year-over-year, bringing Amazon closer to end consumers.[11] This network will be a critical component supporting its UAV strategy.
\n<\/strong><\/p>\n

Despite technological advances, regulation represents the greatest barrier to UAV delivery. Continuing to work with government and regulatory bodies around the world over the next decade will be critical to Amazon\u2019s success in rolling out this potentially industry-altering service.<\/p>\n

Getting Off The Ground: Additional Considerations<\/strong><\/span><\/em><\/p>\n

There are a number of additional considerations that Amazon management will need to address in order to make drone delivery a reality:<\/p>\n

Air Traffic Control Capacity:<\/u><\/em> Air traffic control tends to be the limiting factor on airspace capacity.[12]<\/sup> US Air Traffic Control currently manages 85,000 flights per day.[13] As more UAVs enter the airspace, finding ways to alleviate this bottleneck, such as creating a separate air traffic control system for low-altitude aircrafts, is critical.[14]
\n<\/sup>
\n<\/strong>Safety and Security:<\/u><\/em> In the event of a malfunction, a drone could fall from the sky and cause serious injury. Amazon needs to navigate potential legal consequences and proactively develop its technology to avoid these incidents. Amazon will also need to secure its drones to prevent hacking. In the wrong hands, drones could potentially be used by terrorists to deliver bombs. Unattended packages also present opportunities for theft. This risk could be mitigated by adapting and expanding Amazon\u2019s existing locker system to create a network of secure personal mailboxes capable of receiving drone deliveries.
\n
\n<\/strong>GPS Accuracy:<\/u><\/em> Amazon will need to develop constraints for dealing with less-than-perfect GPS accuracy levels that prevent package delivery. For example, if a drone is uncertain about a delivery location, it should be programmed to return to the nearest fulfillment center.
\n
\n<\/strong>Optimizing Fleet Size: <\/u><\/em>\u00a0<\/em>Given the capital-intense investment required, Amazon will need to optimize the size of its drone fleet relative to anticipated demand to avoid underutilization during periods of low demand, and avoid capacity constraints during periods of high demand (i.e. Christmas).<\/p>\n

Weather:<\/u><\/em> Weather could introduce significant variability to UAV flight paths and could inhibit Amazon\u2019s ability to deliver during stormy periods. Amazon will need to establish procedures for mitigating customer dissatisfaction if they are unable to deliver on their 30-minute on-demand promise.<\/p>\n

Outstanding Questions<\/strong><\/span><\/em><\/p>\n

In conclusion, digitization of last-mile delivery represents an enormous opportunity for Amazon to revolutionize the e-commerce and aviation industries. But do consumers really need<\/em> such instantaneous delivery? Will consumers value 30-minute delivery more than their safety?<\/p>\n

(776 words)<\/p>\n

 <\/p>\n

Endnotes<\/u><\/strong><\/p>\n

[1] Amazon.com, Inc., \u201cAmazon Prime Air,\u201d https:\/\/www.amazon.com\/Amazon-Prime-Air\/b?node=8037720011, accessed November 2017.<\/p>\n

[2] \u201cAmazon’s Jeff Bezos Looks to the Future,\u201d60 Minutes, <\/em>CBS, December 1, 2013, https:\/\/www.cbsnews.com\/news\/amazons-jeff-bezos-looks-to-the-future\/, accessed November 2017.<\/p>\n

[3] Wall Street Journal, \u201cToday’s Top Supply Chain and Logistics News\u201d, January 29, 2016, accessed via ProQuest November 2017.<\/p>\n

[4] Amazon.com, Inc., December 31, 2016 Form 10-K, https:\/\/www.sec.gov\/Archives\/edgar\/data\/1018724\/000101872417000011\/amzn-20161231x10k.htm, accessed November 2017.<\/p>\n

[5] Philipp Berttram, Stefan Schrauf, \u201cIndustry 4.0: How digitization makes the supply chain more e cient, agile, and customer-focused\u201d, Strategy&, 2016, https:\/\/www.strategyand.pwc.com\/reports\/industry4.0, accessed November 2017.<\/p>\n

[6] Amazon.com, Inc., \u201cRevising the Airspace Model for the Safe Integration of Small Unmanned Aircraft Systems,\u201d https:\/\/utm.arc.nasa.gov\/docs\/Amazon_Revising%20the%20Airspace%20Model%20for%20the%20Safe%20Integration%20of%20sUAS%5B6%5D.pdf, accessed November 2017.<\/p>\n

[7] Lisa Eadicicco, \u201cHere’s Why Drone Delivery Won’t Be Reality Any Time Soon,\u201d Time, <\/em>November 3, 2015, http:\/\/time.com\/4098369\/amazon-google-drone-delivery\/, accessed November 2017.<\/p>\n

[8] Federal Aviation Administration, \u201cSummary of Small Unmanned Aircraft Rule,\u201d June 21, 2016, https:\/\/www.faa.gov\/uas\/media\/Part_107_Summary.pdf, accessed November 2017.<\/p>\n

[9] \u201cAmazon to Expand Development Centre in Cambridge, Boosting Investment in Machine Learning and other Research and Development Programmes\u201d, press release, May 4, 2017, on Amazon website, http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=251199&p=irol-newsArticle&ID=2269691, accessed November 2017.<\/p>\n

[10] Amazon.com, Inc., \u201cAmazon Prime Air,\u201d https:\/\/www.amazon.com\/Amazon-Prime-Air\/b?node=8037720011, accessed November 2017.<\/p>\n

[11] Amazon.com, Inc., December 31, 2016 Form 10-K, https:\/\/www.sec.gov\/Archives\/edgar\/data\/1018724\/000101872417000011\/amzn-20161231x10k.htm, accessed November 2017.<\/p>\n

[12] Amazon.com, Inc., \u201cRevising the Airspace Model for the Safe Integration of Small Unmanned Aircraft Systems,\u201d https:\/\/utm.arc.nasa.gov\/docs\/Amazon_Revising%20the%20Airspace%20Model%20for%20the%20Safe%20Integration%20of%20sUAS%5B6%5D.pdf, accessed November 2017.<\/p>\n

[13] Amazon.com, Inc., \u201cRevising the Airspace Model for the Safe Integration of Small Unmanned Aircraft Systems,\u201d https:\/\/utm.arc.nasa.gov\/docs\/Amazon_Revising%20the%20Airspace%20Model%20for%20the%20Safe%20Integration%20of%20sUAS%5B6%5D.pdf, accessed November 2017.<\/p>\n

[14] Amazon.com, Inc., \u201cRevising the Airspace Model for the Safe Integration of Small Unmanned Aircraft Systems,\u201d https:\/\/utm.arc.nasa.gov\/docs\/Amazon_Revising%20the%20Airspace%20Model%20for%20the%20Safe%20Integration%20of%20sUAS%5B6%5D.pdf, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

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