In Q2 2012, Amazon.com will be acquiring Kiva Systems, a manufacturer of robotic warehouse automation systems, for $775 million. This is the second largest acquisition in Amazon's history, with Zappos.com being the first at $847 million. Chief Executive Officer Jeff Bezos is making this investment in robotic automation to transform in-house logistics and decrease order fulfillment costs, which are the highest operating expenses for the Company. While Amazon is considered the world's largest online retailer of everything from DVDs to furniture, they are lagging behind in logistics.
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Companies such as Crate & Barrel, Office Depot, Saks Fifth Avenue, and Walgreens are already using Kiva's warehouse automation systems. It is remarkable that businesses that are primarily brick and mortar have adopted more high-tech and efficient means of in-house logistics before Amazon. Each company has noted improvements in pick rate, cycle time, and productivity since adopting Kiva's high-tech automation system. One can only imagine the improvements Amazon will see once they have implemented the unique automation system.
According to its website, Kiva is one of the only alternatives to a traditional conveyer belt order fulfillment system. The core of the system are hundreds of orange robots that move shelving units filled with products directly to workers who are packaging the items for shipment. Previously, workers would walk from aisle to aisle selecting items by hand and then return them to their station. To control the thousands of movements per second of all the robots, Kiva has developed proprietary software that can adapt to any company's needs. The system seems to work fluidly and with little effort on behalf of workers. Here is a basic synopsis of how the system works (as taken from the WSJ):
- To complete an order, Kiva's squat orange robots fetch tall movable shelves, or pods, that have the items needed, bringing them to the human "picker."
- A laser pointer tells the human which item needs to be picked from each shelf. The worker, who stays in one place, scans a bar code to confirm it is the right item. It's placed in the order box, which sits on another one of the mobile pods.
- New pods arrive steadily with additional items as needed. Items are grouped together to fulfill the orders.
- Pods filled with completed orders are taken by the robots to the shipping door, where a human tapes them closed in preparation for final transport.
Without a doubt, this is one of Amazon's wisest decisions yet. The acquisition of Kiva Systems will accomplish two major things:
- Amazon will more fully develop their core competency of delivering a limitless variety of products to consumers at a day's notice and a low-price. Specifically, it will cut labor costs, especially around the peak holiday seasons, and improve order accuracy.
- Kiva already has an extensive list of customers that continues to grow. Typical systems sold by Kiva cost up to $20 million. This could be a huge revenue generator for Amazon for the years to come.
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