Imagine receiving a product within one hour of making the purchase online. It may seem like a something out of a sci-fi film, but the technological progress to take fulfilment services to the next level is already here: enter the drones.
Amazon started experimenting with drone delivery in 2013. And on December 7th, 2016, Amazon Prime Air successfully completed its first delivery in just 13 minutes from when the customer made the purchase, using a GPS-guided and automated flying drone. The growing popularity of goods transportation using drones is expected to revolutionize the retail industry and supply chain management over the next decade. And with free access to 3D Robotics’ open source software specifically developed for aerial vehicles such as delivery drones, anyone can program their own flight paths.
Increasing popularity and availability of delivery drones
Although Amazon seems to be dominating the media in terms of utilizing drones in their supply chain, other global organizations with a stake in supply chain management, including DHL, Walmart, and Google, are testing drones for the delivery of medical supplies, consumer goods, and pizza, respectively.
The 2016 Future of Retail study by Walker Sands revealed that 79 percent of consumers in the US would be willing to request drone delivery if their package would arrive within an hour, while another 73 percent would be willing to pay an extra $10 for the expedited service.
Different markets will benefit from drone delivery, especially the medical/pharmaceutical industry, consumer items with a long shelf life, shelf-stable foods and beverages, and fresh food and beverages, in that order.
Economics of delivery drones
Packages are currently delivered mainly through delivery trucks. A recent report by UPS revealed that each of their trucks delivers hundreds of packages per day, with an average of 120 stops. At first, it may not seem like drones have much competition to offer, considering that they can only deliver one package per round trip. However, drones can be an economical option if you would like to deliver a light package over a short distance.
In a recent report by ARK, Amazon stated that most of their deliveries (86 percent) weigh less than 5 pounds. Amazon’s Prime Air drone delivery program intends to offer done deliveries to consumers within 10 miles of any of their 75 fulfilment centres in the US.
To accomplish this, Amazon would need to make 30 deliveries a day from an estimated 30,000 to 40,000 drones costing $1,000-$3,000 each. To comply with regulations, the company would need about 6,000 human operators to pilot the drones, each making $50,000 a year. Additional costs include fuel ($4 million per year), maintenance ($15 million per year), and spare batteries ($200 each).
With these costs in mind, ARK estimates that Amazon would have to charge about 88 cents per package delivery, meaning that it could be the most affordable shipping option for consumers.
Drone delivery outlook
Though drone delivery seems ready for takeoff, there are still a few hurdles to overcome, including weather constraints, theft, wildlife attacks, and strict FAA regulations.
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