The debate is more than academic. Fulfillment centers are under pressure to match customer expectations for online shopping, with the ability to sort through an ever-widening selection of products and get them to customers as fast as possible. But warehouses designed to house and ship big pallets of a glassware to retail stores aren’t necessarily efficient at getting a pair of roller skates, an iPod and paperback novel all into the same box.
The stakes are particularly high this year, with online shopping having its best holiday season ever so far. E-commerce sales for the first 47 days of the holiday season jumped 12% over last year to $27.5 billion, according to comScore Inc. Online shopping currently accounts for about 8% of U.S. retail sales.
Comparing the costs of human and robot systems is difficult because many factors are unique to each distribution center, and each approach has benefits like improving customer service that go beyond the bottom line.
Kiva founder Mick Mountz said Kiva installations can cost as little as a few million dollars, but have also gone as high as $20 million. Hiring seasonal staff has a cost, too: Amazon brought in some 12,500 this season, with a starting salary of $11 an hour.
Amazon said it has found ways to make its human handpicking process more efficient through weekly team-brainstorming sessions, called “kaizen,” to remove waste from the process. For example, items ready to be picked are stored in shelves in a random manner so shelf space doesn’t sit empty, and handheld computers help direct humans to walk the shortest possible path to pick items. Amazon has automated some parts of its fulfillment process, such as labeling boxes.
One sign of Amazon’s efficiency are its increasingly late deadlines for free shipping. Last week, the retailer extended the deadline for people who need to receive gifts by Christmas by two days to Dec. 19, its latest deadline ever.
In Phoenix, the general manager of Amazon’s fulfillment center, Prashant Bhat, said using humans, rather than robots or other automation, gives the company needed flexibility. “The variety of products that we have in this building is much greater than what you would see in a facility that has robots,” said Mr. Bhat.
Mr. Mountz at Kiva argues that e-commerce is reaching the point where relying entirely on humans will hold it back. He started Woburn, Mass.-based Kiva in 2002 after leaving Webvan Group Inc., a highflying online grocer that failed partly because of the cost of fulfillment.
“I thought there might be a better way if the products could walk and talk on their own,” said Mr. Mountz, who was a director of logistics at Webvan. “Kiva keeps humans in the loop, but we take out their nonvalue-added activity.”
At the Crate & Barrel facility, a human “picker” stands at a station to collect items for the next order; meanwhile, boxy Kiva robots controlled wirelessly by a computer scramble to bring the products the picker needs for the order. Once a robot has brought him a mobile shelf, a red laser automatically points to the place on the shelf holding the needed item, so there’s no confusion.
John Ling, Crate & Barrel’s executive vice president of global operations, said that with Kiva, it’s easier to ramp up temporary staffing for the holidays because training to use the robot system takes only a few hours and doesn’t require much reading. “You don’t have to do much product-specific system training,” he said.
The fulfillment center will pay for itself in a year and a half—rather than the typical three years for a big capital expenditure—thanks both to savings on hiring humans as well as processing and shipping improvements, he added. Crate & Barrel, a privately-held company owned by Otto Group of Hamburg, Germany, spent more than $4 million on fulfillment systems for the Tracy, Calif., facility, including Kiva as well as conveyor and rack systems, Mr. Ling said.
Dave Tavel, managing partner at AHS Inc., a firm that helps companies set up automated systems for their fulfillment centers, said he has looked at Kiva’s robots but has yet to find an application for one of his clients where they made sense. One major concern, he said, is that it is expensive to buy sufficient robots for the busiest time of the year that sit largely idle other times.
“It’s a trend, but when you break it down and analyze it, it’s very tough to justify,” Mr. Tavel said.
Kiva said it is testing a program to rent out robots seasonally, so that companies could beef up their robotic staff for the holidays, just as firms like Amazon do now with humans.
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