Why Amazon drones is not a solution for universal delivery

All the virtual shop use a courier service to deliver their products. The cost of delivery is significant for virtual shops and depends on the products (price of the products and the delivery distance) the delivery cost may go near 10 % from the  product price. It is a good practice the virtual shops looking carefully for the delivery costs and try to lessen this costs.

At the end of last year i saw a marketing movie from Amazon witch make delivery with drones. The movie it is only for marketing they will not use the drones for delivery very soon, because from logistic point of view it is difficult to do this job. But, because it near Christmas and Amazon like any other online shop need good marketing the movie achieve his scope: make a lot of noise on the Internet.

Read few reason witch make Amazon implement drones a difficult tasks:

–          All drones must be controlled by human (the drones that we saw in the movie) and the technology do not allow autonomous drones. So you will use one man to controlled one drone instead of 1 man to delivery the goods. You will payy the man in any cases, but maybe the salary of a drone controller can be lower then the deliveryman.

–          Autonomous drone cannot be used right now because the precision of the GPS it is not so accurate and it is possible sometimes the drone will let the parcel in the neighbor not in your yard.

–          Autonomy of the drones it is a problem, because according to my info the drone autonomy is 20 km and this means that you must to place a warehouse in center of the area the drone can delivery. This means more warehouse than now and this warehouse must be placed in the residential area. This means more costs witch is caused by the number of extra warehouse and by the higher rented value for the warehouse.

–          More warehouse means more products on stock or increase the value of delivery time.  If you decide to have more goods on stock to keep the same service level at delivery time, this means more money blocked in stock. If you decide to increase the delivery time this means problems with the clients. Also increase the number of warehouse will increase the defiective products because of the manipulation. In any cases means more costs for company.

–          If you delivery (for example) 6 regional warehouse instead of 2 (using drones increase the number of warehouse) will increase the delivery cots to regional warehouse.

–          Delivery with drones means that every client have a personal space where the drone can leave the parcels and this can happens in some special conditions and cannot be used for all clients.

–          In real life delivery with drones it can have also other problems: as we saw in the movie the drone leave the parcels in the front of the house. If you have a dog and the drone leave the parcels there that parcel will become the new toy for the dog and when you come home you will find the parcel but in small pieces because the dog will destroy the parcels.

–          Delivery with drones means that you must use special boxes for delivery. Manage this boxes will increase the price of delivery because you must recover the boxes on every delivery (witch is not possible all the time) or use a unique boxes on every delivery (higher costs than recover the boxes). In any cases the cost will increase;

Every drone must recharge every 1-2 deliveries or replace the battery. Management of recharge or battery management will also increase the costs of the delivery.

For my belief the delivery with drones it is not a universal solution because it is necessary to solve a lot problem before to use this kind of delivery and also increase the cost of delivery.

It can be use in certain condition and for certain products (product with high price where the costs of delivery is low no matter what delivery solution you use).

But the movie it is good for marketing and I want to congratulate Amazon for the viral effect on the movie.

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About cost……

…. in transport and distribution. In this post I want to discuss about the cost in transport and distribution. It is the most important thing to control this cost, otherwise you can loose a lot of money.
The basic parameter that you must calculate is 
cost per km (mile) or cost per hour (for some machinery or vehicle). I am from Europe and i refer to cost per km because we use km here, but all this principle can be easy transfer  to cost per mile.

When you calculate the cost per km you must can take in consideration as many parameter as you have at the time because when you use more parameter the value become more accurate. I made a web application (http://www.logistic-specialist.com/costpekm/index.php) who may help you to calculate cost per km (unfortunately it is in Romanian language, but i hope to have time to translate it, in the meantime you may use Google translate) and this application take in consideration more than 20 parameters. Also here the rule 20-80 may be apply because only 3 parameter influence 70% of the cost, and this parameter is: fuel cost, drivers salary and maintenance. In this order, fuel may influence between 35 to 65% of the cost per km (depends on the car type and also of the transport activities that you have), driver salary may influence between 20 to 35 % (can be more in certain country and less  in other country) and maintenance between 8 to 17% (can be more or less depends on the conditions).

In my consultancy project i have case where fuel cost is 25% of this cost, but that car is used in small area distribution.

Cost per km is a (let’s say) technical value and it cannot be correlate easy with the other business parameter. In most of the case the management want to transfer this value into other value which can be connected with the products and profitability. They want to have a cost per products or cost per kg (ton) etc.

Cost per kg or cost per ton is easy to calculate if you have cost per km. For example: if you cost per km is 0.4 euro and the car made 400 km with 2,5 ton result a cost per ton: (0.4X400)/2.5 = 65 euro/ton. It is easy, but you must take care because in most of the time the number of km must be the total km of the route.

In some cases cost per ton is not relevant for the business. Cost per ton it is use for products who is sell in ton or kilo (food for example), but if you have computers or television the cost per ton is not relevant, but it is relevant cost per products or per pallet, box etc.

Cost per product it is more complicate to calculate than cost per kg in case of distribution, if you have only one products in the car the calculation is simple, also if you have 2 products the calculation can be simple (if you have products with similar dimension) because you can assimilate percentage of the cost related with the percentage that each products represent from total number of the products. Even if you have 2 products, but with different dimension (for example laptop with washing machine) the calculation become more difficult. Laptop it is small and easy, with similar value like washing machine witch is heavy and larger than laptop and it is very difficult to have some clear criteria how you associate the percentage with the products.

This calculation become more complicate if you have 20 products with different dimension and weight. In this case is easy to calculate an average and consider this value for further calculation.

If you distribute your products to clients the same product do not have the same cost for different client because each client is in other geographical location. In this case it is necessary to calculate cost/product/client or cost/ton/client witch become more complicate to calculate. I will made an example of this calculation in the future posts.

Also it is possible to use average in this case, but in this case (when you use average) you consider that all the client from a route have the same costs and all it is profitable witch is not real all the time: for example a client witch is close by the distribution center will have a smaller cost that a client witch is far from distribution center (close or far means the distance considering the way that you made the route, not the geographical distance). In most of the case the client witch s far from distribution center order small value and in this case that client it is very possible to be unprofitable. If you use average you cannot see unprofitable client and this unprofitable client “eat” profit from profitable client. For my point of view it is very important to identify the unprofitable clients and find war to made them profitable (in most of the case this will involve the sales department). We will discuss in the future posts about the way to made clients profitable.

Days of stock

When we discuss of stock we can have multiple approach: we can discuss about quantity of goods (how many products we have on stock), we can discuss about value (what is the value of the products that we keep on stock), but more often we discuss about day of stock.
Days of stock mean if i sell all the products that i have it in the stock in how many days all the stock is finish. This therms is relative to sales. But why we use this instead of quantity or value of the stock?
One of the reason is that this parameter days of stock it is constant for all the period of the year, and it is not affected by the sales fluctuation, it remains constant even if sales fluctuated in different period of the year or in different period of the month. For example 3 days of stock for product X is 3 days of stock in August(worst month in the year) and 3 days of stock in December (best month in the year). What is the difference between those 2 months? Even if i have 3 days of stock in August and in December the quantity will not be the same and we adjust the quantity of products X in those different months related to the sales. How we correlate this? It is a simple relation days of stock = (total quantity of product x) / (ADS) where ADS means average daily sales and means how many product X do we sale average per day. So, days of stock is constant but we adjust the quantities related to the daily sales.
Days of stock is calculated using input like: difference between payment term that we can obtain from customers and from suppliers, lead time between order and delivery, transport time, avoid out of stock etc. After we calculate the days of stock we can calculate the quantity of goods related to the average daily sales.
Another reason that days of stock is used is the ease of use. This parameter it is very important and a less value of this parameter can save a lot of the company money. One days of stock for every products that you have in portfolio will block important financial resources. On the other hand less days of stock increase the risk of out of stock and you will loose sales.
Always you must have a optimum value to not have out of stock or block a lot of money in stock.
If you have problem with stock we can help you to find the optimum.

Push back racking system

In some warehouse i saw many times dive in racking systems. It is a good system for those who cannot use, for different reason, FIFO. This system reduce waste space into the warehouse and can be useful for many industries. It have some disadvantages but it is a good racking system. For those who do not not how a drive in racking system works i advise to see this short movie:

Working with this kind of racking systems create some problems in the future because the forklift driver will hit the racking system and in time this will create problems. Even if the forklift driver it is a good one, because the tight space it will hit the racking system in different area. Another disadvantage is that this racking system requires long time to place the pallets into the position. This long time is required because the forklift driver must drive with low speed and very carefully inside the drive in racking system.
To prevent this it is create a new systems call push back racking system. It can replace the traditional drive in racking system, have the same advantage of the drive in system but do not have the disadvantages that i present previously, because the forklift driver it is not necessary to enter with the forklift inside the racking system to place the pallet. He put the pallet like in a traditional raking system and push the pallet in the back. This system will increase the speed and preserve the racking systems in good condition. For those who do not know how this systems works i invite them to see the following movie: