Will holiday shipments arrive on time this year? Amazon’s (NASDAQ:AMZN) might, thanks to their robots.
Amazon is adding 14,000 robots to the 1,000 base installed in its distribution centers. Last year, total US industrial robot shipments were 23,700, lending perspective to Amazon’s recent robot activity.
Amazon has good reason for installing so many robots this year. They reduce warehouse operation costs by roughly 20%, a source of funds for lower prices, other investments, or higher profits. Given Amazon’s strategy, it probably would opt for lower prices, aiming to gain even greater share of the online retail market.
In some cases, Amazon’s Kiva robots have delivered more than 20% in savings. The robots’ primary function is to tote packages around the warehouse. In pre-Kiva distribution centers, some measuring as large as twenty football fields, Amazon’s employees would walk the aisles, picking inventory from shelves and transporting it to packaging and labeling centers. Kiva robots flip the process around, bringing the shelves to employees. The result is a less strenuous job with lower error rates and fewer labor hours per package shipped.
Kiva robots offer other advantages as well. They pack items closer together, allowing more goods to fit into distribution centers by auto-adjusting less popular items to the center of the stack. Robots are never distracted and ever-vigilant, contributing to lower injury-rates. They don’t need lights or heat to operate, saving on energy costs.
Amazon’s robot investments make a lot of financial sense. To replace one new employee who would earn roughly $30,000 per year, Amazon must purchase eight robots costing roughly $15,000 each. It would recover the $120,000 investment through wage-savings in just four years. Given these assumptions, the return on investment should exceed 20% in the US.
Thus far, fewer than 7% of Amazon’s global distribution centers have installed robots. If they all transitioned to robots, Amazon would install roughly 225,000 robots during the next few years, as shown below. Installed across its entire global distribution center footprint, robots should deliver more than $800 million in operating cost efficiencies, roughly half of the $1.6 billion in consolidated segment operating income reported over the last twelve months.
Given the company’s high rate of growth, even a complete transition to robots would not reduce the number of employees in Amazon’s distribution centers around the world. Such a large-scale investment would supplant only the need for incremental hires in that specific year. Only with dramatic improvements in Kiva’s productivity would Amazon have to lay anyone off.
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