Automated warehousing systems at Amazon
Importance of automated warehouses
In the last decade, Amazon has grown to be the largest online retailer. A large part of Amazon’s success is its ability to build out one of the world’s most sophisticated supply chain. Specifically, it has built out a very sophisticated and increasingly automated warehousing system. 
A great warehousing system is crucial to Amazon’s operations, because it can ensure the right levels of inventory across SKUs and fast fulfillment at low costs. That is key to Amazon’s differentiated value proposition: large selection, low prices, fast delivery, and convenience.
On costs, Amazon has very thin margins of 1.7% net margins in 2016, and fulfillment costs are a large part of expenses at 13.4% of operating expenses.  Any improvements in warehousing costs can make a big difference in profits. Currently, Amazon’s warehouses still have significant human labor, but additional automation can cut down on labor costs.
Warehouse operations is also important for delivery time. The quicker an item can go from order, to picking at the warehouse, packaging, and onto delivery, the faster the customer can receive the item. Amazon has been continuing to make delivery faster, first with Amazon Prime 2-day shipping, to next-day delivery, and to a few hours with Amazon Prime Now. 
Lastly, an automated warehouse can also help Amazon avoid poor workings conditions for its workers. In the past, Amazon has had a poor track record in this regard, including intolerably hot or cold temperatures in the warehouses. 
Management’s short-term & medium-term plan
Amazon has been on the forefront of automated warehouses. In 2012, Amazon purchased Kiva Systems, a company that develops automated warehouse robots. These internet-connected robots replace human labor to move around the warehouse and pick customer-ordered items. After piloting and optimizing Kiva robots in Amazon’s warehouses, Amazon stopped selling these robots externally, making one of their competitive advantages. 
Today, Amazon uses close to 45,000 robots in 20 of its warehouses, yielding warehousing operating cost savings of 20%.  In the short term, it is continuing to expand the use of robotics across their fulfillment centers. It is estimated that Amazon can save $22 million in costs for every automated warehouse.
In the meantime, the robotics industry is finally catching up about 4 years after the Kiva acquisition. There are many competing companies innovating on warehouse robotics. Specifically, this new generation of robotic systems have “embedded intelligence and application software” that make the robots even smarter, more flexible, and less reliant on human help.  Amazon is undoubtedly trying to stay ahead, and in the longer term, likely figuring out full-automation. We see this with the Amazon Robotics Challenge, a competition with a $250,000 prize to build a robot that can actually do the human job of picking without assistance, getting them closer to automation. 
Short-term & medium-term recommendations
As Amazon increasingly automates its warehouses, I would consider two points. First, Amazon needs to not only think about automating the warehouses, but think about how an automated warehouse system connects holistically with the rest of the system. For instance, at the same time, Amazon’s delivery system is likely to be increasingly automated with autonomous vehicles, like self-driving trucks or drones. How do you connect those two? I would recommend that Amazon creates an overall Research & Development team that considers these innovations and automation across the entire company. For example, the team may work on the how the current Kiva robots can evolve to work with the next step, such as dropping off packaged products to the delivery vehicle.
Secondly, proper inventory management is going to be increasingly important. Currently, Amazon is continuing to increase the number of SKUs, from its own private label products to third-party fulfillment. How can Amazon continue to service the increase in complexity while still best utilizing all of its existing warehouse facilities designed to serve its local markets? Warehouse space may become the constraint, and inventory management will be key. Amazon will want to keep just as much inventory is needed on hand to fulfill orders before the next deliveries. In order to do such inventory management effectively, Amazon should invest in its forecasting and predictive capabilities.
Questions to consider
As Amazon continues to automate its warehouses, and likely other company functions, how should it consider the human displacement impact? What responsibility does a for-profit company have to deal with the impact of automation?
Big technology companies (e.g. Facebook, Google) are increasingly facing government lash back for a lack of regulation of its services. Especially with its scale, does Amazon have similar concerns and challenges about government interventions? If so, how can Amazon be ahead of it?
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