1. FULL-TIME MBA
2014-2015
INTEGRATION OF KIVA ROBOTS
IN AMAZON
Course
Sustainable Supply Chain Management
Prof Dr Behzad Samii
Marc Sala Casals
Engaging in irregularities is severely sanctioned in correspondence with article 34 of the Examination
rules.
We hereby declare that we have not engaged in any such irregularities.

2. Table of content
1. Description of the issue.................................................................................................3
2. Evaluation of the proposed solution...............................................................................3
2.1. Amazon’s strategic fit in the integration of Kiva robots ......................................4
Step 1: Understanding the customer and supply chain uncertainty..........................4
Step 2: Understanding the supply chain ....................................................................4
Step 3: Achieving strategic fit.....................................................................................5
2.2. Allevieting the bottleneck....................................................................................5
2.2.1. Numerical analysis of Kiva robots integration...................................................7
3. Propose your own solution............................................................................................7
4. Benchmark with industry peers......................................................................................8
5. Conclusion....................................................................................................................8
6. Appendices.................................................................................................................10
6.1. Appendix 1: Kiva robots....................................................................................10
6.2. Appendix 2: Evolution in the number of accounts in Amazon..........................10
6.3. Appendix 3: Evolution in the number of accounts in Amazon..........................11
6.4. Appendix 4: Data analysis of Amazon’s supply and demand w/ Kiva robots..11

3. 1. Description of the issue
Amazon -the world biggest online retailer- strategy’s is to be the number one in terms of
customer-centricity, as it can be understood from Jeffrey P. Bezos -Founder and Chief
Executive Officer Amazon.com, Inc.- who stated: “We seek to be Earth’s most customer-centric
company for four primary customer sets: consumers, sellers, enterprises, and content
creators.”1 In order to achieve this ambitious goal, not only Amazon needs to keep innovating in
the products they put into market, but also, and more importantly, in the operational excellence
that they pursued from its foundation.
Amazon projects itself in its value proposition as a convenient online retailer offering cheap and
reliable delivery anywhere in the US and they want to uphold this value proposition also during
any busy period of the year. For instance, last year Amazon received 426 orders2 per second
during the last Cyber Monday and this is expected to increase year after year.
As it can be inert from the enormous amount of orders that Amazon receives from customers
every second, the e-retailer needs to be extremely responsive, efficient and try to minimize
working capital in order to be able to fulfill this massive demand and keep prices low. As a
consequence, Amazon has come up with the implementation of Kiva robots in some of their
warehouses.
Kiva robots –which were created by Kiva systems, a company acquired by Amazon for $7753
million- are automatic machines that lift the shelves and carry them around the warehouse.
(Please see appendix 1 for a picture of Kiva robots)
Since the acquisition of Kiva Systems in 2012, Amazon has invested a considerable amount of
money in order to improve its features. After a couple of years of hard work, engineers have
been able to improve their performance, now Kiva can move 50 % more inventory4 out of the
center than its predecessor could.
Nowadays, Amazon has been able to integrate the solution in 10 out of 50 fulfillment centers,
having 15,000 Kiva robots spread over these 10 fulfillment centers. 5
2. Evaluation of the proposed solution
At this stage, an evaluation of the Kiva robots will be scrutinized.
1 http://www.ecommercetimes.com/story/75978.html
2 http://www.cnet.com/news/meet-amazons-busiest-employee-the-kiva-robot/
3 http://www.bloomberg.com/news/articles/2012-03-19/amazon-acquires-kiva-systems-in-second-
biggest-takeover
4 http://www.cnet.com/news/meet-amazons-busiest-employee-the-kiva-robot/
5 http://www.cnet.com/news/meet-amazons-busiest-employee-the-kiva-robot/

4. In any innovation implemented in supply chain, the consistency between the customer priorities
of competitive strategy and supply chain capabilities specified by the supply chain strategy is of
essential importance to make sure that it will add value to the company. An analysis of the
strategic fit of the solution is carried out below trying to asses the quality of the strategic supply
chain network design.
Besides the strategic fit, a numerical analysis of the positive impact created by the integration of
Kiva robots is executed. The main impact will be created to Amazon’s inventory and hence to
the enterprise’s working capital.
2.1. Amazon’s strategic fit in the integration of Kiva robots
In order to assess the strategic fit of this solution, the next three steps have been followed:
Step 1: Understanding the customer and supply chain uncertainty
The world biggest e-retailer has been building its reputation of being extremely reliable and with
an outstanding response time. What’s more, offering an astonishing variety of products at a
reasonably low price. As a matter of fact, Amazon’s number of customers has been
skyrocketing since 2003. (See appendix 2 for the evolution in the number of customers
accounts) In fact, customers expect an excellent service level from Amazon that includes
everything that a customer can desire; response time, service level, product variety, low price
and high innovation. Kiva robots will maximize the accomplishment of the above mentioned:
improving response time, increasing service level, allowing an enlargement in product variety,
keeping the ability of offering low prices and indeed being highly innovative.
Moreover, the e-retailer has achieved this with a mid-uncertain demand caused by the massive
variety of products offered, from convenience products like food to highly uncertain like
technology, hence one balance the other out.
Step 2: Understanding the supply chain
The American e-retailer has had some problems in meeting the demand in the past. For
instance, in 2013 it could not deliver the Christmas presents on time, however, in that case the
bottleneck was external in the last mile delivery (UBS) and problems with bad weather.
Internally, it has also been challenging for Amazon as orders in days like Cyber Monday have
been catapulting. It is important to bear in mind that the e-retailer most potentially has its
bottleneck in their picker.
Amazon -in order to meet this massive demand with high responsiveness- has actually been
breaking-through the limits several times in terms of cost-to-serve with an extremely high
response time. (See appendix 3 for graphical information of the present positioning of Amazon
against the average boundaries caused by the Kiva robots implementation) However, in a highly
competitive market like US, Amazon needs to keep innovating in order to maintain this
competitive advantage as the 1-click system (1rst Amazon breakthrough) has already been
implemented by other companies. Once more, the e-retailer is achieving this competitive
advantage through the Kiva robots.

5. Step 3: Achieving strategic fit
This primarily goal of quick response time has not undermined Amazon’s ability to keep the cost
low. Leveraging economies of scale and pushing inventory to suppliers –in the minority of the
cases though- has allowed the retailer to keep prices down while having the ability to have quite
high margins.
Analyzing the product life cycle that Amazon delivers is really challenging as, even though the
giant retailer started with books, –which is a product with an extremely long life cycle, specially
in the e-commerce where it can be leveraged the Long Tail6- now it has expanded to practically
any other good, elastic, non-elastic, long or short life cycle goods. Fact that adds complexity to
the Amazon’s supply chain as each product type requires a totally different strategy. The e-
retailer can split each reordering point per type of article being able to minimize cost in a rather
efficient way thanks to Kiva robots.
According to the above mentioned the integration of Kiva robots is deeply aligned to the
company’s strategy. However, an assessment of the value created in terms of cost savings and
increase of response time needs to be developed to further understand whether it is a good
solution.
2.2. Allevieting the bottleneck
An e-commerce like Amazon keeps receiving orders at a hugely fast pace. As it can be seen in
the below graph, the process that an order follows since it is received from a person that clicks
to a product until the shipping of the order, Kiva robots have been able to contract four steps in
the process lowering the need of human resources.
Dave Clark, vice president, global customer fulfillment, Amazon.com discussed the matter with
the following statements: "Amazon has long used automation in its fulfillment centers, and
Kiva's technology is another way to improve productivity by bringing the products directly to
employees to pick, pack and stow," "Kiva shares our passion for invention, and we look forward
to supporting their continued growth.7"
6 http://www.thelongtail.com/the_long_tail/about.html
7 http://www.sec.gov/Archives/edgar/data/1018724/000119312512122135/d318297dex991.htm

6. Amazon's previous process betw een ordering and shipping.
Amazon’s solution was to alleviate the internal bottleneck that they had in the warehouse. Did
the retailer achieve this aim by the implementation of these automatic machines?
In order to scrutinize it, the following numerical statistics needs to be understood.
Before implementing Kiva robots an order took 90 minutes to be processed whereas now it just
takes 15 minutes.
Kiva robots can move at a high geared -3, 4 miles per hour- taking into account that carry heavy
weighted shelves.
In addition, Amazon claims that a 15% more inventory can be squeezed in the same warehouse
caused by a better usage of the square meter. Kiva robots can sneak under the shelves where
men cannot access.
The retailer management team is also being proactive and setting clear rules, among them
there is one that ensures that no more than 10 robot per floor are out of commission at one
time. To do that the company claims that if a robot breaks down, Amazon’s engineers can fix it
within a couple of hours.
There are 3000 Kiva robots working at the same time in the fulfillment center of Tracy,
California, (TFC). Besides, as mentioned above, 426 items per second were demanded during
last Cyber Monday in the 50 warehouses in the US (21,000,000 items)
As it can be clearly understood from this numbers like Ken Goldberg -a robotics professor at the
University of California-, said8, "Robots are essential for meeting that kind of demand,"
“Humans just can't work as fast”
8 http://www.techinfaa.com/amazon-uses-robots-called-kiva-instead-of-employees-in-its-
warehouses/#sthash.kiDs1uzY.dpbs

7. 2.2.1. Numerical analysisofKivarobotsintegration
Amazon can meet the demand having a lot of unused capacity most of the time. If the demand
is matched with the potential in TFC, we see that Amazon is having a huge slack. Average daily
demand in Tracy = 3,486 items < Average supply at full capacity with Kiva robots = 37,895
items. This average supply would even be able to fulfill the peak in demand of Amazon with an
unused capacity of 60 %. That means that Amazon has left a huge slack for possible
unforeseen challenges in these first calculations. (Please see appendix 4 for the table of
calculations supporting the above statements)
As compared to the same fulfillment center replacing the 3,000 Kivas (1,500 picking orders and
1,500 filling shelves) to 6,000 workers (3,000 picking orders and 3,000 filling shelves) one can
see how big is the impact of this new automatic pickers. While 3,000 human pickers could take
16,000 items a day, Kiva robots can go up to 37,895 items.
In addition, Amazon can leverage the continuous review in its replenishment policies.
It is true that the investment of integrating these robots to the Amazon’s 1-click service is
immense, but it is also true that this investment is a one-off. After this extraordinary investment,
everything will be earnings for Amazon, being able to become even more responsive at an even
lower price of the products.
What’s more, Amazon is achieving a better integration of the S&OP which is widely known that
is one of the most challenging parts to achieve. It will allow them to better implement the S&OP
routine to a monthly, or even less, basis, as learned in “sales and operations planning.
Finally, when this technology will be more reliable, Amazon will be able to reduce this 60 %
unused capacity and cope with the volatility in demand at the same time, leaving this one-off
investment reduced dramatically.
3. Propose your own solution
It is widely known that Amazon is on the first places of the list of innovation in supply chain
management. To be consistent with that, the retailer has come up with the integration of this
amazing and disruptive innovation that are the Kiva robots.
Now, that Amazon has the know-how and control of Kiva-systems, the giant company should
keep on investigating in this field. My suggestion is to invent another integrated robot that will be
able to extend a sort of an arm in such a way that they would be able to pick by themselves that
would not only safe money Amazon, but also time.
Notwithstanding, Amazon should also bear in mind the impact that this replacement of human
beings would create on the media. Fortunately, Amazon is still growing an astonishing fast pace
so the company would not have to lay off any worker as did not have to do it with Kiva robot.

8. Therefore, it is now or never as Amazon does not know how long this massive expansion will
last.
4. Benchmark with industry peers
Amazon has no competitor as such, depending on the business unit, this competitor changes.
Among the competitors we can list the following in the media segment: Google, Netflix, Apple,
and Time Warner Cable. It can be clearly seen that none of those companies have the level of
automation of Amazon, though they might not need it as their solutions are quite different.
At the same time, Amazon can be compared to the following companies in the electronics and
merchandise sector: Best Buy, Family Dollar, RadioShack, Staples, Target, Wal-Mart, Sears,
Big Lots, Delia and Systemacs. Each of them has different strategies. For instance, Wal-Mart is
over pacing Amazon in terms of working capital, but not for what automation is concerned.
In addition, Amazon competes in the operations sector with: CDW, PC Connection, Insight
Enterprises, Google, Oracle; salesforce.com, Accenture and Citrix Systems. In this field we can
see that the rest of the companies are lacking behind in the automation of their supply chain.
Finally, Alibaba would be the most similar competitor of Amazon worldwide. Even in this case,
Alibaba is lacking behind Amazon in terms of automation. Therefore, Amazon has built an
extremely strong competitive advantage in their operational excellence strategy that would
potentially leave them as the world biggest e-retailer for a long time.
5. Conclusion
Amazon is growing at an enormous fast pace and so it is doing its demand. In order to fulfill that
the world biggest e-commerce retailer had to find a way to pursue his dream of customer
centricity.
The Amazon’s complex variety of products makes it extremely challenging for managers to
anticipate the reordering point. By this Kiva integration, they can split each reordering point per
type of article being able to minimize cost in a rather efficient way.
Moreover, a better usage of square meter in fulfillment centers can be achieved, fact that
becomes of essential importance taking into account the 21,000,000 items that Amazon stores
in their warehouses.
Branding will be maximized by Amazon as they will reinforce their image of the most innovative
company in the e-commerce supply chain field. What’s more, the recently acquired company
Kiva Systems will be able to sell its products to other retailers like Amazon as it has been
proved that it works.
Amazon –through the integration of the Kiva robot- is successfully reaching this goal. The future
of the company looks bright in all the aspects, specially the ones analyzed in this paper. For an

9. e-retailer like Amazon, reliability and response time are of essential importance for customer
satisfaction. Not only Amazon is leveraging both customer needs, but also it is working hard to
be able to keep the prices down by lowering its costs.

10. 6. Appendices
6.1. Appendix 1: Kiva robots
KivaSystemsrobotsat an AcumenBrandsfulfillmentcenterinFayetteville,Arkansas.
Photographer:BethHall/Bloomberg9
6.2. Appendix 2: Evolution in the number of accounts in Amazon
9 http://www.bloomberg.com/news/articles/2012-03-19/amazon-acquires-kiva-systems-in-second-
biggest-takeover
0
50
100
150
200
250
300
1997
1998
1999
2000
2001
2003
2007
2008
2009
2010
2011
2012
2013
2014
1.5 6.2
14 20 25
40
76
88
105
130
164
200
217
270
number of accounts (in millions)
number of accounts (in
millions)

11. Source: Ow n creation based on the “statistics portal data”10
6.3. Appendix 3: Evolution in the number of accounts in Amazon
Source: Handouts_session 3 Strategic supply chain network design
6.4. Appendix 4: Data analysis of Amazon’s supply and demand w/ Kiva robots
Peak demand in Amazon US
Inventory Throuhput Time Unit time
7,10 426,0011
0,02 Hour
Demand in peak times in the fulfillment center of Tracy, California12
(T. F. C) *
Inventory Throuhput Time Unit time
1,42 85,20 0,02 Hour
2.044,80 85,20 24,00 Daily
14.313,60 85,20 168,00 Weekly
Average itemsdemandeddailyworldwide Average demandin Amazon
300.000,00 13
58,10%14
** 174.300,00
63.619.500,00 Demandannual AmazonUS
1.272.390,00 Demandannual inT F.C.
3.486,00 DailyDemandinT. F.C.
435,75 HourlyDemandin T. F.C.
*Assumption: The demand is equally divided in the 50 fulfillment centers located in US
10 http://www.statista.com/statistics/237810/number-of-active-amazon-customer-accounts-worldwide/
11 http://bgr.com/2013/12/26/amazon-holiday-season-sales-2013/
12 http://www.techinfaa.com/amazon-uses-robots-called-kiva-instead-of-employees-in-its-
warehouses/#sthash.kiDs1uzY.dpbs
13 https://medium.com/@atendy/becoming-the-amazon-for-live-entertainment-dd1d5afc1fe8
14 http://www.alexa.com/siteinfo/AMAZON.COM

12. **Assumption:Demandof AmazonUSis proportional tothe % of clicks in the US as compared
to the rest of the world
Supply at full capacity in Tracy fulfillment center (T.F.C.)
# of Kiva robot in T. F. C. Item Minutes # total numberof items Unit time
1.500,00 * 1,00 19,00 15
78,95 Minute
1.500,00 16
3,16 60,00 4.736,84 Hour
37.894,74 Day
# of human pickersin T. F. C. Item Minutes # total numberof items Unit time
3.000,00 1,00 90,00 33,33 Minute
3.000,00 3,16 60,00 2.000,00 Hour
16.000,00 Day
*Assumption: Kiva robots used to load and to unload items are 50 – 50 %
15 http://www.techinfaa.com/amazon-uses-robots-called-kiva-instead-of-employees-in-its-
warehouses/#sthash.kiDs1uzY.bJobCPCj.dpbs
16 http://www.techinfaa.com/amazon-uses-robots-called-kiva-instead-of-employees-in-its-
warehouses/#sthash.kiDs1uzY.bJobCPCj.dpbs