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[16 comments]

Amazon puts robots to work

June 3, 2014

In 2012 when Amazon.com purchased Kiva Systems, a manufacturer of robots used in distribution centers, it was clear the company intended to use the technology to increase efficiency and reduce costs.

At the company's recent annual shareholders meeting, CEO Jeff Bezos said Amazon would deploy 10,000 robots in its distribution centers by the end of the year, up from 1,382 it had working in three warehouses in the middle of 2013.

Shawn Milne of Janney Capital Markets, via The (Philadelphia) Inquirer, estimates Amazon will save up to $900 million a year with the robots it is adding this year. In human terms, the company will be able to lay off or avoid hiring roughly 25,000 workers making $14 and hour plus benefits. Robots typically can be run for 20 percent to 40 percent less than the cost of human labor for the same job.

Robots cost about $25,000 per and an entire warehouse filled with them will run the total price tag up anywhere between $1 million and $25 million, depending on the facility.

One obstacle to Amazon more quickly rolling out robots, according to Mr. Milne, is the design of its existing facilities, which were built for humans. The company is now building distribution centers with robots in mind.

FINANCIALS:     [NASDAQ:AMZN] [ ]

Discussion Questions:

How do you see the role of robots in distribution centers developing in the years ahead? Will we see almost fully automated distribution centers at any time in the near future?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How important will automated warehouses become to the competitive positions of retailers in the next 10 years?

Comments:

It's not surprising that Amazon is moving quickly on automated technology in its growing network of distribution centers. It's likely to be successful, especially in functions like picking goods off of specific shelf locations. The question raised in the article is key, however: How can Amazon retrofit the large number of warehouses it already has? If they figure it out, they are likely to have plenty of followers in the e-commerce industry.

But here's an even bigger question: What happens to the tens of thousands of employees replaced by robots? Does Amazon need to consider the PR costs of this rollout, just as it is taking a PR hit right now in its battle with Hachette? There are likely to be some human costs associated with displaced workers, less buying power, and so forth.

And one more (facetious) question: Do the robots commute to work in Google cars?

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Dick Seesel, Principal, Retailing In Focus LLC

Robot usage will continue to grow in distribution centers as it has in manufacturing. As noted, one of the issues is that in many cases the existing facilities were built with a human picking system in mind and therefore may not be adaptable to an automated system; or if so, only at an increased cost.

While that capital cost up front may seem daunting, the ROI can be significant. The cost savings include not only wages, but all the associated costs, such as insurance, and can extend to such areas as smaller parking lots, dining areas, etc.

How automated can a distribution center be? That will depend a great deal on the items stocked. More automation will likely require the manufactures to change packaging, case packs, etc.

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Steve Montgomery, President, b2b Solutions, LLC

Having robots in the warehouse is nothing new, and Bezo's is just running through his make the old stuff sound new for Millennials or non-retail people. The Goods-to-Man approach has been in play for years and we will always see a mix of people and technology.

More on robots from the real pros - and not the news-hungry Bezos.

PS: The Instant Poll should have an item for Already Important. This is NOT a new thing....

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

Look for more robots. As the devices get smarter, companies will redesign their facilities to be more robot-friendly and will bring more onboard, in a desire to cut costs and error. Warehouse workers have much to fear from more robots in the workplace.

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Max Goldberg, President, Max Goldberg & Associates

Self-service retailers are really simply merchant-warehouseman, catering to their unpaid stock-picker shoppers. Their interest in the efficiency of those shoppers is nil, since most of their profits come from their suppliers, for their suppliers' use of those grossly inefficient neighborhood warehouses, for the suppliers distribution (to shoppers,) purposes.

Trying to semi-automate those human stock-picker shoppers with their own smart phones has proven to be a fairly brain-dead effort. Who needs a GPS to get to work in the morning? Same for shoppers in their regular stores. Amazing how many "non-salesmen marketers" see SPAM as a panacea.

Instead, many of those stores - or major portions - will go "dark," essentially as robot served warehouses. Some retailers will figure this out, go with the flow - or lead it - and be the winners of the future. Read all about it in a few years!

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Shopper Scientist LLC

The future is here already. There are already several DCs running close to full automation. ES3, the C&S Wholesale unit, as well as Gordon Food Service run highly automated facilities that receive, store and retrieve pallet loads in a mechanized system of conveyors and lifts. The ES3 DCs are lights out, meaning they don't have operators in the warehouse except for issue resolution. Preferred Freezer Services is doing the same with several of its seafood facilities.

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Ron Margulis, Managing Director, RAM Communications

Amazon continues to amaze. Robots in the warehouse are a logical ... and very timely solution to Amazon's problem of a SG&A that continues to balloon and reduce profits to shareholders.

SG&A (Sales General & Administrative Expense as a % of revenue) is a critical KPI for a retailer's ongoing operating costs. While ecommerce is not the same exact business model as running retail stores, it is interesting to note that Amazon's SG&A has ballooned to 24.5 %, while Walmart's SG&A is only 19.3%.

A robot at $25K is considerably cheaper than human labor on an annual basis, especially considering the potential hours a day a robot can be deployed.

Amazon stock is getting hammered for lack of showing any signs of profitability. While Bezos must yet again argue for investing in the future to deploy robots, this one seems to have an immediate and long term benefit of reducing SG&A ... and at least creating the potential to add to bottom line profit.

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Chris Petersen, PhD, President, Integrated Marketing Solutions

This is the way commerce is going, and the investment in robots will continue to grow, as automation is replacing people. No lunch breaks, no grievances, no health care benefits, and a steady stream of work without someone calling in sick. Amazon is looking at the bottom line, and why shouldn't they?

The human work force needs an overhaul, and we could be a great country in terms of manufacturing again (Yes, I do have a plan), and we have plenty of potential workers just waiting for the opportunity to create the new modern industrial revolution.

The #1 issue standing in the way of this is government, plain and simple.

To recreate greatness, we need common sense rules (there are none), in order to flourish like never before, and if that ever happens, look out world, as we can dominate and pay our workers a good wage with a stake in the game.

I have approached our local city manager about this plan, and it could be workable, if and only if the feds will get out of the way. Am I going off topic? Yes, but something bold needs to be done, and we the people can do this if allowed. There are a bunch of incredible business gurus out there waiting for change, so let's hope we actually can do something about it.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

"Almost" fully automated distribution centers are already in place in the food, beverage, apparel, and numerous other product, commodity, and industrial fields.

Robotics will play an increasingly larger role in those distribution centers, as well as in retail stores. Efficiency, safety, speed, ability to operate 24/7 are but of a few reasons.

Human capital does not have to go away. Associates are there to think and act by making use of data and insights. The 18th Century was defined by steam. The 19th Century was defined by electricity, and the 20th Century by hydrocarbons. The 21st Century will be defined by data, insights, and the analytics to move products and services through the enterprise channels of companies.

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Roger Saunders, Managing Director, Prosper Business Development

Here they come. Lower operating costs, more effective and efficient, never go on vacation, come with a manual. Don't need Obama Care (could not resist)...

Here comes another shift in the labor market. We need a new education system to educate the employees of today with the skills they need.

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Mel Kleiman, President, Humetrics

Automated warehouses are nothing new. They just become more and more automated. Ten years ago when I was looking for a distribution center for my company, I was blown away by the level of automation. There were distribution facilities the size of multiple football fields that had a total labor force of 6 or 8 people. Ultimately, there is no warehouse activity that should be done by a human that can be done by a robot. An auto plant in Canada cut their labor force by 90% and increased their output by using robots.

The real challenge is what happens to the workforce. Not just the Amazon workforce, but the national workforce. The answer is training and education, which unfortunately, the country fails miserably.

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Gene Detroyer, Professor, Independent

They don't complain, ask for shorter hours, raises, join unions, strike or do anything else to disrupt business. Robots are a substitute for unskilled labor.

I would expect most distribution operations to become fully automated in the next few years. Robots lower cost and reduce personnel headaches which allow business to focus on lowering costs, increasing profits and growing the business. What's not to like?

Ed Dennis, Sales, Dennis Enterprises

For my 2 cents...maybe retailers can find ways to use robots in more behind-the-scenes jobs that will save money. That way they can invest more in the customer-facing jobs that impact consumers' path to purchase! In a good way!

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

There are many industries where process automation has become a necessity for several reasons. Packaging and automobile assembly were early enthusiasts gaining billions of dollars in cost savings, the bulk of which is not through staff reduction. Automation not only brings increases in production with faster production rates, there is also the qualitative savings from far lower error and accident rates as well.

Amazon is a distributor of finished goods supplied by themselves, the manufacturer or private source. The mass marketing operations aspect of their sales is labor and logistics intensive. As the cost of business continues to spiral upwards, largely through the unbridled energy cost increases we are facing worldwide, the need to automate for production increases daily. In addition to the pressures of cost containment, increasing production turn rates within existing facilities is a better and faster way to address growth/demand world wide.

Retail stores are the true frontier for automation at present and for at least the near future. What the future holds is still highly speculative, but there are several technologies that hold interesting potential. Three dimensional visual screens with voice activated interactivity is much more than an item in a military war room, or a game. Stores could use the technology to display products and services in many single locations throughout the facility for customers to shop the whole store inventory without getting lost or tired. Orders could be picked and brought to the customer, their vehicle or a location of their choosing immediately, using state of the art and easy-to-own automation processes on location and behind the scenes. Simulators could be installed for an interactive examination of the desired product whether it be a vehicle like a car, RV or air transportation device or stationary product like an audio visual in home play ground.

Much of the technology being discussed is here today, but remains impracticable for reasons of scale and operational size or costs of ownership, and of course, software development. As these technologies become more apart of our daily lives, the consumer will have less need for laptops, smartphones, and standalone personal computers. Wearable, intelligent input/output devices or implants with even more advanced technologies are soon going to evolve from toys and taboo to the latest rave.

'gjarnoldjr'

While I have no doubt that robots will continue to play an increasing role in distribution centers, there are big differences between a facility that moves cases and pallets on and off of trucks versus one that picks individual items and ships them to individuals.

So far I haven't heard about the robot that can break a case and retrieve one item from the 12 contained within. And packing several unlike items into a single box for shipping seems like a task for a pair of hands, not a set of servos.

The latest Amazon.com DCs are at best partly robotic. I'd predict that the human-to-machine ratio will tend to decrease over time as the technology grows more sophisticated and cost-effective. I'd predict that future facilities will be designed from the ground up to accommodate the next level of robotics, pushing the ratio down further, and so on, in successive steps.

Retail firms with limited capital or smaller scale will find it challenging to finance a similar transition. An advantage for Amazon.com.

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James Tenser, Principal, VSN Strategies

Frankly, I thought Amazon and most other consumer goods distribution centers were already pretty thoroughly robotized. And if that were the case, most of the resulting job losses would already have occurred. To learn that bunches of job losses are still to come is truly disheartening.

In the late 70s the new Fleming Foods distribution center in Philly (I was Ad Mgr.) had a fully automated picking system for packaged goods. With a few hitches, it worked fine. It was new technology. We've been poking around for some time, now, figuring out to use robots, from auto manufacturing to mail sorting. Complete adoption of the technology in every way possible is inevitable.

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

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