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Drone or Not, Speed Counts

Drone delivery, anyone? We're not completely there yet, but while we wait for products to fall from the sky, businesses need to maintain a competitive edge by outsourcing fulfillment to the right provider.

Despite being both parodied (make sure to watch Netflix's Drone to Home video) and parroted (in February, the FAA clipped a brewery's attempt to deliver beer by drone to Minnesota fishermen), Amazon insists unmanned aerial delivery vehicles will soon be as common as mail trucks.

(Source: Amazon)

(Source: Amazon)

In the meantime, for those of us who have to use traditional means to get our products from point A to point B, Amazon's shadow is likely to play a role in any decision to outsource fulfillment. Again, the company has set the standard and revolutionized the retail part of the game with free two-day shipping for Prime members. Even without the help of futuristic octocopters, it likely won't be long before same-day delivery is realized.

“The reality is that Amazon is so big that they are now mandating what the customer satisfaction requirements are for everyone, even if you don't think that you compete with Amazon,” Jim Tompkins, president of Tompkins International, told Modern Materials Handling in 2012.

Internet forums abound with stories of the pros of outsourcing fulfillment. One attempt to discredit outsourcing as too costly, too risky, and riddled with breakage issues and erroneous orders was largely shot down in the comment section.

“My book business has outgrown my storage space,” one proponent of outsourcing wrote. “Fulfillment by Amazon allows me to increase stock without renting a storage unit or the like. Much cheaper to 'rent' space at an Amazon warehouse than do it on my own.”

The commenter makes some good points. Taking the warehouse woes of equipment purchases and employee costs out the business equation make sense for some. If you are spending too much time and money on filling orders, if the size of your warehouse is keeping your company from growing, or if you would rather spend your expertise on developing and marketing your products, you may want to take a good look at fulfillment business partners.

As a first step, make sure you know your exact fulfillment cost per order before you start gathering quotes from fulfillment companies.

Locating your fulfillment as close to your customers as possible is crucial, not only to reduce shipping costs but also to achieve that necessary speed of delivery. Once again, Amazon has taken the lead by investing untold amounts in building distribution centers near major metropolitan areas. “In 2004, 38% of Amazon's fulfillment capacity was less than 200 miles from a major metropolitan area,” Tompkins told Modern Materials Handling. “If you look at what Amazon is building today, 79% of its DCs are within 200 miles of a major metropolitan area.”

Scalability is important, as well. Can the third-party distribution center grow with your business and absorb the seasonal peaks and valleys of ordering?

In a 2013 whitepaper, Integrated Distribution Services discusses some other questions you should ask:

  • Is the fulfillment center financially sound? Inquire about debt and ask for bank references.
  • What is its reputation? Check how long the company has been in business and its credibility in the industry.
  • What kind of technology does it use? The systems in place will tell you about the service that you can expect.
  • How effectively does it communicate? Great communication is key when dealing with back orders, returned items, and cancellations.

For those whose product offerings target individual consumers, Amazon (again) offers almost unbeatable value. In a 2013 survey, Amazon said on its website, 74% of Fulfillment by Amazon sellers “reported that their Unit sales increased on Amazon.com more than 20%, since joining FBA.”

In any event, it will be a while before we'll see our products fall from the sky. What is your take on Amazon's impact on fulfillment outsourcing?

43 comments on “Drone or Not, Speed Counts

  1. Daniel
    May 20, 2014

    “Locating your fulfillment as close to your customers as possible is crucial, not only to reduce shipping costs but also to achieve that necessary speed of delivery. Once again, Amazon has taken the lead by investing untold amounts in building distribution centers near major metropolitan areas”

    Frank, speedy and cost effective delivery are important. Now a day's ecommerce sites are offering same day deliver and within 2 hours delivery at a premium delivery charges. Actually, if they are keeping small warehouse at different points or tie up with local distributors, they can do this type premium delivers at a nominal cost.

  2. Andrewboon
    May 21, 2014

    Great to see technology playing a major role in warehouse productivity. Adapting to technology will help retailers increase efficiency and improve their supply chain management , new developments such as this will ease the pressure on the retailers. I work for McGladrey and there's a very informative whitepaper on our website that readers of this article will be interested in. @ Count, manage and move: Warehouse inventory control strategies  http://bit.ly/1kgYXWo

  3. Houngbo_Hospice
    May 21, 2014

    Package delivery with drones seems to be an interesting and innovative idea, but whether this will be a cost effective solution for most retailers, remains to be proved.

  4. Daniel
    May 21, 2014

    “Great to see technology playing a major role in warehouse productivity. Adapting to technology will help retailers increase efficiency and improve their supply chain management , new developments such as this will ease the pressure on the retailers.”

    Andrew, the latest addition to this is by drone from Amazon.

  5. Daniel
    May 21, 2014

    “Package delivery with drones seems to be an interesting and innovative idea, but whether this will be a cost effective solution for most retailers, remains to be proved.”

    HH, I have the same question; whether it's a cost effective solution? More over how they can ensure correct delivery over a vertical structure (Apartments, Mansions etc)

  6. prabhakar_deosthali
    May 22, 2014

    As per today's local newspaper a Pizza chain in Mumbai has successfully tested delivery of Pizza by a remote controlled GPS-enabled drone .

     

    The drone travlled at a speed of 30Kms /hr over the high rise area buildings  and delivered the 13″ Pizza on the rooftop of the 21st floor and returned safely.

    So whether it is  a big giant like Amazon in US or a small Pizza house in Inida  – this technology seems to be affordable to both.

    This could be a big game changer in the supply chain logistics context.

  7. Susan Fourtané
    May 23, 2014

    Prabhakar, 

    How interesting. Thanks for the news. 🙂

    It sounds exciting when you hear about something simple as a pizza delivery because then it's when we can see how far the technology has gone. This means that any of us now could be having a pizza delivered by a drone. 😀 I will have to investigate this possibility. 

    -Susan 

  8. Daniel
    May 23, 2014

    “As per today's local newspaper a Pizza chain in Mumbai has successfully tested delivery of Pizza by a remote controlled GPS-enabled drone .”

    Prabhakar, yes we also joined to the drone delivery for pizzas. Testing was successful, but the same newspaper article saying that using of such Ariel vehicles are prohibited by law in India

  9. Daniel
    May 23, 2014

    “this means that any of us now could be having a pizza delivered by a drone. 😀 I will have to investigate this possibility. “

    Susan, the big question is how far its cost effective when compare with the normal shipping by delivery boy.

  10. prabhakar_deosthali
    May 24, 2014

    @Jacob,

    The prohibition to use drones for commercial activities is there yes. But someday it will go. The point is that the technology has proven to be cost effective for time critial door step deliveries (like Pizza in this instance where it is 30 minutes guaranteed delivery or Pizza free kind of commitment from the supplier.

    Other point is that in a crowded city like MUmbai , in a rush hour those 3 kms can take anything between 30 mintes to 2 hours by road , where as the drone took just 10 minutes to reach the destination. That is a worthwhle alternative .

    For delivering medicines to the paitents in emergency such drones could be a best alternative.

  11. SunitaT
    May 25, 2014

    Like the title reads, drone delivery is not cheap because the costs of replacing/repairing are too much for one single outlet to handle, also, delivery using drone is not acceptable everywhere like in India, pizza outlets can easily deliver using drones without suffering losses on free pizzas, but cannot do so, because the government doesn't allow. 

  12. SunitaT
    May 25, 2014

    @hospice: I think that since technology is on the rise, cost effective models would have to be developed by owning companies. A drone can have limited range of operation and this will also come into account in the cost models.

  13. SunitaT
    May 25, 2014

    @Prabhakar: Drones can be hacked, and people are intelligent nowadays, and therefore they may try to hack a drone for getting a free pizza or two, and this will be the case sooner or later. Not only has the retailer to understand the problem and find effective solutions, but also get smarter drones into operation. 

  14. Adeniji Kayode
    May 25, 2014

    @jacob,

    Do you actually think that proximity would reduce the cost of delivery made by drones.

    I am sure customers would be giving right to choose in-between means of delivery and so that would determine the cost.

    My point is even if the ware house is close by, a customer that choose drone delivery will pay more than hand delivery. 

  15. Adeniji Kayode
    May 25, 2014

    @tirlapur,

    Hacking is not the only challenge delivery drones might encounter, but even after a drone deliver parcel and another person gets there before the owner comes, who is going to be held responsible?

  16. Adeniji Kayode
    May 25, 2014

    @tirlapur,

    You are right on that. Technology may guarantee faster and better services but not necessarily cheap.

  17. Adeniji Kayode
    May 25, 2014

    @prabhakar,

    You are right, you listed important applications of delivery drones for commercial use. I also believe that more applications would be discovered for the use of drones commercially than for military use.

  18. ahdand
    May 26, 2014

    @Kayode: Yes and you cannot expect technology (especially the good ones) to be cheap. Good quality does carry a good price tag just to make sure that their quality is being identified and being well respected. 

  19. ahdand
    May 26, 2014

    @Kayode: If they are reducing the cost then there can be many areas to be looked carefully at:

    1.       There are hidden conditions behind it.

    2.       Quality will differ in certain stages

    3.       Aftersales service and warranty will not be at 100%.

  20. Adeniji Kayode
    May 26, 2014

    @nimantha.d, you are right, premium service would attract premium cost.

  21. itguyphil
    May 27, 2014

    Agreed. But you must also be sure that the “premium” part is what consumers are willing to pay for. If it's not, you have a higher-end service that will not generate revenue.

  22. Eldredge
    May 28, 2014

    So, if I could hack into Amazon drones (similar to plot for this season of '24'), who knows what kind of merchandise I could acquire!

  23. Susan Fourtané
    June 1, 2014

    Jacob, 

    ” … the big question is how far its cost effective when compare with the normal shipping by delivery boy.”

    How much does the drone pizza delivery costs? It's certainly a cheaper delivery option for the pizza place. It's also faster, which attracts more customers for delivery service. 

    -Susan

  24. Susan Fourtané
    June 1, 2014

    tirlapur, 

    “Drones can be hacked, and people are intelligent nowadays, and therefore they may try to hack a drone for getting a free pizza or two, and this will be the case sooner or later.”

    I never understand why there always has to be negative thinking right away after something good is coming from a new technology. 

    What about thinking about the positive, for example, fast medicine delivery in remote areas, and other useful uses instead of thinking of hacking the thing before the drone can even fly. 

    -Susan

  25. Daniel
    June 2, 2014

    “The prohibition to use drones for commercial activities is there yes. But someday it will go. The point is that the technology has proven to be cost effective for time critial door step deliveries (like Pizza in this instance where it is 30 minutes guaranteed delivery or Pizza free kind of commitment from the supplier.”

    Prabhakar, did you mean that delivery through done is cost effective. I won't think so; it's always costly.

  26. Daniel
    June 2, 2014

    “Do you actually think that proximity would reduce the cost of delivery made by drones.”

    Adeniji, No. in drone delivery cost may be independent of distances within the city limits.

  27. Adeniji Kayode
    June 2, 2014

    Of course, but then it would be a matter of choice and conditions. 

    Some consumers would not mind at all.

  28. Adeniji Kayode
    June 2, 2014

     And why would you want to hack another man's order.

  29. Daniel
    June 5, 2014

    “How much does the drone pizza delivery costs? It's certainly a cheaper delivery option for the pizza place. It's also faster, which attracts more customers for delivery service. “

    Susan, now it's in testing phase and hence they charge you only regular shipment fees. But once it's get commercialized, they are forced to charge at a premium level because of the high investment and operational cost of Drone.

  30. Susan Fourtané
    June 5, 2014

    Adeniji, 

    “And why would you want to hack another man's order.”

    Excellent question. 

    -Susan

  31. Susan Fourtané
    June 5, 2014

    Jacob, 

    Is it for sure that they are going to charge a premium prize later on, or you are speculating?

    A much better and efficient marketing startegy would be to keep the same price and do some target advertising.

    They would get extra orders because people are always curious about something new, especially if it's something that comes at a regular price known to them. 

    The novelty would generate more sales and that would complete the ROI in a short period of time. I don't think the investment has been too high either. Charging a premium price can result in lower orders delaying the ROI. 

    Also, in the long run drone delivery represents less investment for the pizza business than having delivery boys. 

    -Susan

  32. Daniel
    June 6, 2014

    “They would get extra orders because people are always curious about something new, especially if it's something that comes at a regular price known to them. “

    Susan, how long.?

  33. Daniel
    June 6, 2014

    “Is it for sure that they are going to charge a premium prize later on, or you are speculating?”

    Susan, it's not a speculation. Otherwise how they can generate ROI, advertisements won't fetch much.

  34. Susan Fourtané
    June 6, 2014

    Jacob, 

    By asking if it was a speculation I meant to ask if it's something you think they will do, or if the pizza place already announced the new prices. 

    I told you how they can generate ROI. Charging more is not the answer. I can't develop a whole marketing strategy here, but I told you the basics of what would work and what woudn't. 

    -Susan

  35. Susan Fourtané
    June 6, 2014

    Jacob, 

    How long what? How long customers will be curious? As long as the company keeps their interest offering good value for money and innovation. 

    -Susan

  36. Daniel
    June 9, 2014

    “By asking if it was a speculation I meant to ask if it's something you think they will do, or if the pizza place already announced the new prices.  I told you how they can generate ROI. Charging more is not the answer. I can't develop a whole marketing strategy here, but I told you the basics of what would work and what woudn't. 

    Susan, it's based on an analysis report in latest “The economic times” daily.

  37. Daniel
    June 9, 2014

    “How long what? How long customers will be curious? As long as the company keeps their interest offering good value for money and innovation. “

    Susan, I meant how long the customers will be curious; such curiosity will last only for a certain period (Weeks or months) and cannot sustain for a longer period.

  38. Susan Fourtané
    June 9, 2014

    Do you have the link? 

    -Susan

  39. Susan Fourtané
    June 9, 2014

    Jacob, 

    They will be curious just enough time until the service becomes more common, there is competence which prompts to reduce prices. 

    In short, I believe drone delivery services are going to bloom and become widely used as more robots join different industries. This is just a matter of time. 

    -Susan

  40. Daniel
    June 10, 2014

    “Do you have the link? “

    Susan, it's a printed version.

  41. Daniel
    June 10, 2014

    “They will be curious just enough time until the service becomes more common, there is competence which prompts to reduce prices. In short, I believe drone delivery services are going to bloom and become widely used as more robots join different industries. This is just a matter of time. “

    Susan, I think service can become common within a short span of time. By combining various services they can make it profitable.

  42. Adeniji Kayode
    June 14, 2014

    @Susan, 

    I agree with you on that. We should expect more drone services in various ways even though military seems to have the highest use of it as at today.

  43. itguyphil
    June 19, 2014

    Too many choices isn't always a good thing. You have to know what the main value proposition is that makes customers want to stay with you.

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