Amazon Air — How Drone Technology Stands to Alter Supply Chain Norms

- January 28, 2014 1:57 PM
Categories: Guest Post, Industry News, Supply Chain | Tags: , ,

Spend Matters welcomes another guest post from Joel Johnson of GEP.

For product-oriented companies, the last leg of the supply chain is often the most inefficient. Urban streets are clogged with trucks, vans, and motorcycles operating on behalf of companies ranging from logistical giants to local grocery delivery chains. What if there was a solution that offered increased service levels and efficiency along with reduced labor and environmental costs? What companies are best positioned to capitalize on this emerging technology, and how could it impact future business operations?

Amazon recently made news when it released the latest product of its next generation R&D lab, Amazon Air. In actuality, Amazon’s CEO, Jeff Bezos, is embracing an emerging delivery solution that has been gaining momentum for the past decade. Unmanned Aerial Vehicles, or drones, have gained infamy for their role in executing strikes against terrorists in Afghanistan and Pakistan. Now their commercial utility is anticipated to drastically impact a number of industries while altering some fundamental supply chain practices.

While substantial regulatory hurdles may make drone drop-off on your front porch unlikely in the near future, it is worth exploring a few implications of this emerging technology with an emphasis on the role of Amazon.

  • Urban Warehousing Development – As consumer expectations for product deliveries transition from days to minutes, the importance of centralized distribution hubs take on an increasing level of significance. Through a combination of acquisitions and organic growth Amazon has established a strong presence in most major urban areas. These urban networks create an environment in which drones can thrive and will likely prompt other logistical providers to make similar investments.
  • Small Parcel Industry Mix-Up – Given the integral role of distribution to Amazon’s business model, it has long been speculated that the company would either acquire a major logistics provider such as FedEx or UPS or develop its own distribution presence through internal investment. With the advent of drone technology, Amazon could significantly reduce its reliance on small parcel firms for the last leg of delivery, perhaps breaking the UPS/FedEx duopoly that has existed since DHL left the market in 2008.

I would argue that Amazon’s leading role in the widespread adoption of drone distribution technology is representative of trend in which a small number of companies progressively encroach into multiple facets of our lives in and out of the office. Such companies include Amazon, Google, and Apple, all of which initially provided consumer-direct produces or services, but have since each established a formidable presence related to business applications and products. With visionary leaders, heavy emphasis on R&D, and vast budgets for acquisitions, they are forcing established players to innovate. For example, Amazon’s investment in drone technology is further complemented by its emerging presence as a MRO supplier via Amazon Supply which could be complemented by the Amazon 3D printing store as 3D manufacturing applications continue to gain momentum.

Established MRO industry players such as Grainger and McMaster Carr must now prepare themselves for a time when consumers expect a 15-minute delivery for a spare part. While it may be several decades until “Drone Transport” becomes another logistics procurement category alongside ocean freight, truckload, and small parcel, the technology is emerging quickly with clear benefits for the early adopters.

For more interesting thinking on procurement, visit the GEP Knowledge Portal.

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