The Amazon/Kiva deal came as cannon shot across the bows of warehouses everywhere?and not just at pick & pack, goods-to-person order fulfillment shops.
All warehousing, up and down supply chains everywhere, is now on notice that the robots are coming. No-debt, cash-rich Amazon ($5.3 billion), with sixty-five fulfillment centers globally (seventeen of which were built last year for $4.6 billion, with another slated to open in Sao Paulo, Brazil, in September 2012), lit off the big bang with Monday?s (March 19th) acquisition announcement of privately-held, nine-year-old Kiva Systems of Bedford, MA (RBR50: Kiva Systems) for $775 million. Amazon shares (NASDAQ: AMZN) enjoyed a nice spike at the news, trading up by $7.69 to $193.21 the same afternoon.
Monday afternoon shocker
In the modest investing world of robotics, where an investment of a few million is cause for gushing optimism, this deal for three quarters of a billion dollars is downright colossal. The shock waves reverberated globally. Jan Westerhüs, investment partner at Robert Bosch Venture Capital GmbH (RBVC), spoke with Robotics Business Review about the deal Wednesday afternoon following the big bang.
It was 9:30 in the evening in Frankfurt, Germany, and Westerhüs was still in amazement. ?This is game changing for robotics,? he announced, with the interest of a VC who has just had his eyes opened to a new possibility. ?No one saw this coming. Nothing like this has happened in robotics previously.? Especially noteworthy to him was the direction of the deal: from the giant online retailer directly to the robotics OEM and not the OEM approaching the industry, as is the usual case. Moreover, the investment didn?t come from an investment bank seizing on opportunity to promote robotics or from VCs or corporate parents, but rather, Amazon itself reaching out for a fulfillment center solution. Westerhüs saw it as a very good sign for robotics and that more of the same is likely to result.
PSFK.com, the publishers of ?The Future of Retail,? were quick to comment that the deal, ?offers a clear (and rather obvious) signal into the present and future of warehouse and inventory management?that of increased automation. The robots manufactured by Kiva will add an increased layer of efficiency to Amazon?s shipping regimen, improving human productivity by delivering merchandise to the human workers to package and ship.?
The next big thing for robotics
Indeed, the whole of material handling may well be the next big thing for robotics, an industry still basking in its prowess at pumping out millions of automobiles yearly. Industrial robotics is the big daddy of the entire technology. Now, however, Amazon has changed the landscape. Mobile and humanoid robot developers, and there are many of them out there whose machines don?t do much of anything?least of all manual labor?might soon be fitting their creations for warehouse uniforms. Boris, the little tyke from Harvest Automation that picks up nursery shrubs and moves them around, might be a good candidate. With a little more muscle and a bit of height, Boris could easily don UPS brown to move some or all the one million packages sorted each night at its Louisville air-distribution center.
Ben Schachter, an analyst at Macquarie, noted that the Kiva acquisition ?appears to be about bringing robotics and higher levels of automation to [Amazon]’s fulfillment centers in order to improve productivity.? Shachter, during a previous visit to Amazon?s Arizona fulfillment center, was amazed at the amount of manual labor involved in the operation. Some bad publicity was added to the beehive-of-workers scenario when Time reported, ?last fall when employees complained about extremely high temperatures and mandatory overtime while working in the company?s warehouses.? A small to middling Kiva system is reported to go for $5 million. CNN says that an Amazon-size facility, utilizing 1,000 robots, costs ?about $15 to $20 million to install.?
All of which must be music to the ears of Mick Mountz, Kiva?s CEO, who is seeing his vision for a completely unique order fulfillment solution pay off in a big way. According to Modern Materials Handling, ?Although Kiva does not release sales figures, it has been noted in the Boston Globe and the Boston Business Journal that Kiva ?is reportedly seeing more than $100 million in annual revenue.??
Bring on the robots
Kiva uses a series of computer-controlled robots to bring product to warehouse pickers rather than employees running the floor to find the same products. A central computer runs the operation, keeping track of each robot as it scans codes set on the floor and coordinates their position, as seen here in this TED Talks video of Mountz explaining why his visionary system is so revolutionary.
Amazon is already a major Kiva Systems customer, along with other mega-retailers such as GAP, Staples, Saks, and Crate & Barrel, as well as companies owned by Amazon: Soap.com, Diapers.com and Zappos.com. The cyber angle behind all of this is e-commerce; it is the primary driving force for Kiva?s robot miracle. The obvious corollary being that as online commerce grows?and it?s already one of the largest economies in the world and still growing?so too will the need for more automated warehouses with robotic order fillers.
Some may balk at the transformation, but it seems inevitable. Barron?s Online spoke with ?Staples who uses Kiva systems in two of its FCs [Fulfillment Centers]. The company said it definitely improved efficiency, but was hesitant in saying a full-blown rollout (retrofit) to all locations would be worth the investment.? Keith Wagstaff of Time-Techland.com reports that, ?Typically the rule is that if a robot costs more than two years salary, it?s more cost effective to just hire a human worker.?
Here is exactly the kind of looming opportunity posed by Bosch?s Westerhüs for the robotics industry to enter the fray with the right robot at the right price. In fact, the right robot might also be able to attract SMBs, heretofore excluded because of prohibitively high cost of entry.
“Increase efficiency by technology”
Robert Broens, Seeking Alpha, succinctly sums up the rationale and future behind the mega-deal that has so shocked the world of robotics: ?CEO Jeff Bezos has focused intensely on infrastructure in order to increase reliability and lower its lead times. The investments that the company has made have resulted in a margin decrease over the last years with net margins shrinking to 1.3% in 2011. With the acquisition of Kiva, Amazon hopes to increase efficiency by technology and thereby hopes to achieve significant economies of scale. Kiva’s systems…are two to four times as productive as conventional systems.”
Now that the world of robotics has been duly shocked, let?s hope that its equals in inspiration and motivation are soon to arrive.
RBR50: Kiva Systems
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