Deutsche Bank: drones could save Amazon 80% on delivery costs

Amazon could save up to 80% on shipping costs for last-mile delivery services using its autonomous drone delivery service, according to a recent study by Deutsche Bank. On average, delivery of a shoebox-sized package in the US is said to cost around $6 to $6.50 with high-end delivery services like UPS or FedEx; Deutsche suggests drones could deliver the same for less than $0.05 per mile, however, it does not take into account the cost of covering lost, damaged, or intercepted parcels. While the drone delivery service is still subject to tests and regulations, Amazon-owned Kiva robots, introduced into 13 of its fulfilment centres in 2014 have reportedly cut operating expenses by up to 20%; Deutsche suggests a one-off saving of $800m could be achieved if Kiva robots were deployed in the remaining 110 centres and sees significant potential for the robots if Amazon opens mega-fulfilment centres in Asia.

Kiva robot Reuters / Noah Berger

It wasn't until 2014 that Amazon really started to use the machines made by Kiva, the robotics company it bought for $775 million in 2012. Kiva makes robots that automate the picking and packing process at large warehouses.

But in the short two years they've been deployed across Amazon's warehouses, Kiva's robots have been a real cost saver, according to a new note published by Deutsche Bank on Wednesday.

The note says Kiva robots have cut operating expenses by about 20%, quoting Amazon exec Dave Clark, adding that it would translate to roughly $22 million in cost savings for each fulfillment center.

Additionally, Deutsche Bank estimates Amazon could cut another $800 million in one-time cost savings once it deploys more Kiva robots across the 110 fulfillment centers that don't have them yet. Amazon uses Kiva robots in only 13 of its fulfillment centers currently.

The cost savings are mostly derived by simply improving warehouse efficiency. The note says cycle times have been cut from 60 to 75 minutes to roughly 15 minutes after deploying Kiva robots, while inventory space grew 50% due to smarter use of space, such as building narrower isles or getting rid of certain handling systems.

And it's safe to say Kiva will play an even bigger role at Amazon, as it continues to expand to other markets in Asia, the note said.

"In our vision for Amazon’s future fulfillment footprint, we see Kiva robots playing a much bigger role in improving efficiency if mega-fulfillment centers are deployed in Asia," Deutsche Bank wrote.

In case you haven't seen the Kiva robot, it's a square-shaped, yellow machine that runs on wheels. They're about 16 inches tall and weighs almost 320 pounds. They can run at a steady 5 mph and haul packages weighing up to 700 pounds.

The video below gives a good look at how it works at Amazon's warehouse facilities: