Amazon's delivery drones: Future of deliveries?

Women awaiting delivery of children by storks [painting by Carl Spitzweg]

Some of us still fancy children being delivered to the parents by storks [popularized by Looney Tunes], and wanting mothers would leave sweets by the windows as a message (or an order) for storks to deliver a child. Wait a minute! How does this relate to Amazon? The answer lies in the new R&D initiative of Amazon that will employ drones to deliver packages (upto 5 lbs.) to customers living within a certain proximity to their warehouse. [link to wall street article]

Even though the Amazon drones project is still in R&D stage, and it might be too early to even speculate about the future of deliveries and its impact on big-time logistics players such as UPS, USPS, and Fedex, it is safe to say that reducing the lead time to customers is certainly on the minds of e-retailers. Conventional transportation by road and by air mail has been improved over the years but a paradigm shift still awaits the industry where overnight shipping can be changed to next 30 minutes of ordering.

Questions facing drones as future leaders of deliveries are:

• Working cost of using a drone compared to using a delivery man?
• If the cost of keeping a drone is relatively high compared to keeping a delivery man who can drive to nearby customers from warehouse on demand maintaining the shipping time of 30 minutes. What will be the benefit of using a drone?
• Approval from federal aviation authority?
• The drones shown so far are noisy, fly at certain elevations and will definitely need an approval from FAA for safety and security.
• Staffing of drones at a warehouse?
•  Sporadic delivery schedules coupled with a short lead time will make the scheduling and recruitment of drones difficult specially for Amazon who has a very high service level for deliveries
• Delivery confirmation, package safety and theft?
• With human interaction package confirmation, safety and theft and easier to track. What will be the new technologies that will replace the existing ones?

I will wait for answers to these questions as well as my first delivery by drones in the coming future!

Update: UPS is also speculated to be researching on its own delivery drones. [link]

Update on AA and US Airways merger: a curse for consumers?

This is a follow up on my previous post

AA and US Airways merger: a curse for consumers?

With the clearance of merger after reaching an antitrust settlement the merger is worth $17 billion! [article here]

To space out concerns over consumer protection, the airlines have agreed to give up space at few major airports to low-cost airlines such as Southwest, JetBlue etc. This will effectively reduce their combined  capacity. The settlement affects about a little over 100 flights out of more than 6500 flights which is just a small fraction of their business. 

AA and US Airways merger: a curse for consumers?

What makes the settlement interesting from a supply chain and revenue management are these questions.

1. With more capacity and opportunities for low-cost carriers such as Southwest, the hope is to maintain competition among airlines which is to protect consumers, however the challenges are:
• Keeping the prices low in remaining sectors which do not see increase in capacity for low cost carriers.
• Are the low-cost airlines prepare to milk this new space? Does this mean a consolidation of low-cost airlines to compete with the big fish, i.e., 'AA and US'? In case of such a consolidation consumers will suffer the most...
2. With the antitrust settlement reached, the consumers are now in open and can only wait and hope for the prices to remain low. On the bright side we have AMR filed for bankruptcy that can recover, US Airways that can benefit from synergies of the merger. The challenge here is however for current consumers:
• AA is part of OneWorld Alliance and US Airways is part of the Star Alliance currently. For customers who are loyal to a particular alliance and have accumulated huge points on either of these network of alliances may face the brunt. As they have to switch to either of these alliances in future. For some customers it will be a Christmas present and for some a Halloween trick! It will be interesting how will the merger accommodate both these customers, keeping everyone happy is difficult anyways !
3. Will other airlines follow suit? Will we see further government intervention or laws passed by congress to restrict other airlines from merging?

I feel there is a lot of uncertainty because of this merger, and we all have to hold on to our seat-belts and see where and when the flight takes off... 

What will be the future? and more importantly what should be the future of airline industry?

Vendor Flex - Amazon's Innovative Logistics Strategy

Internet retail (e-commerce) boomed in the 90's and businesses have transitioned from brick and mortar stores to online sales channel. Businesses such as eBay and Amazon have taken this e-commerce to the next level by providing a marketplace in itself for a variety of products including groceries, textbooks, peripherals, home and gardening and even kitchen items, which were hard to imagine having been sold outside a traditional store. Amazon is trying to increase its share of retail products such as soaps, groceries, food products, cosmetics online and in such a move it is experimenting with a logistics system - 'Vendor Flex'. [Article is here].

The Vendor Flex system is characterized by:

• Amazon has some workforce at P&G warehouses.
• This workforce manages orders for P&G products at that warehouses which includes:
• maintaining inventory (replenishment and count),
• packing and shipping out.

Vendor Flex helps Amazon by

1. reducing cost,
2. reducing shipping lead-times to customers,
3. increasing average number of orders per day.

Vendor Flex helps P&G by

1. reducing cost to manage inventory,
2. reducing cost to ship to Amazon,
3. information sharing by Amazon about demand (mitigates the bullwhip effect, Lee, Padmanabhan and Wang 1997)
4. increase in sales.

Walmart employs a similar system however it does the opposite, it has a Vendor Managed Inventory System where vendors such as Coca-cola manage their product's inventory at Walmart. Amazon has moved up the supply chain by managing inventory at its supplier P&G. At the core of any GOOD inventory management system is an ERP system that is able to record and transmit information about orders (sales) and inventory. The strategies of Walmart and Amazon should be highly different from a supply chain perspective since Amazon is a pull system for consumer demand (it gets demand and then it ships to customers like Dell) and on the other hand Walmart has a push system for consumer demand where consumers typically visit the store and make purchase decisions and Walmart procures products before this.

Amazon is already inside or in talks to enter the warehouses of companies including Seventh Generation Inc., Kimberly Clark Corp.  and Georgia Pacific Corp.. [Article is here] It will be interesting to see if other online retail firms adopt Vendor Flex and will it be a success for Amazon? Vendor Flex looks promising but will it stand the trust of time and ever evolving consumer needs?

Resources for Scientific Writing: LATEX

The writing tools I use for white papers, cases, and class reports are:

• Microsoft Word
• OpenOffice
• Google Docs - to share with friends (most informal due to lack of templates and not friendly in terms of formatting and shortcuts)

1. Figures/Tables/Equations: very easy to write and automatic number of equations etc.
2. Higher control on formatting and fonts unlike MS word.

What I use for scientific writing: LATEX

LATEX is a typesetting program that is based on document markup language very similar to html (hypertext markup language). Key benefits of LATEX are:

Download LATEX here:

LATEX plugin for powerpoint slides: IguanaTex, Texpoint (paid) or beamer.

LATEX plugin for excel to convert excel tables to LATEX format. excel2latex

LATEX forums: 
http://tex.stackexchange.com/ : Stackexchange for TeX

http://en.wikibooks.org/wiki/LaTeX : Wiki for LATEX

I have seen a few online (cloud based) websites forLATEX, that might be the future of scientific writing, where authors can collaborate online to write articles, and possibly integrate with Journals/ Publishers.

https://www.sharelatex.com/, http://www.scribtex.com/

Then for this blog I use http://www.texify.com/ or http://www.codecogs.com/latex/eqneditor.php to write latex based equations as rendered images into html code.

People are usually scared to start with LATEX as it is typically not WYSIWYM /ˈwɪziwɪm/ (an acronym for "what you see is what you mean") . Lyx is a downloadable software for Windows/Mac that is based on TEX and is WYSIWYM. ( http://www.lyx.org/)

MOOCs vs. 'Brick and Mortar' Classroom Education

MOOCs (Massive Open Online Courses) are the next big thing that is happening or will happen to the way education is practiced today. It has its own pros and cons, and people who love it and people who don't like it. What excited me about this was the news on Friday the 13th, September (a day widely known for bad omen), where Wharton (leading business school in the world) is offering its 1st year online courses on coursera.org. People have already started speculating about this move of Wharton. First some facts [source: Bloomberg]:

Source: Bloomberg



coursera: A hub of MOOCs

1. "For a $49 fee, students can get a verified electronic certificate showing they’ve completed course requirements."
2. "Some Wharton professors are using the MOOC content in their own classes, asking students to watch the lessons beforehand so that class time can be used for discussion -- a practice known as “flipping” a class."
3. "About 700,000 students in 173 countries have enrolled in Wharton MOOCs, more than the combined enrollment in the school’s traditional MBA and undergraduate programs since its founding in 1881."
4. "Wharton has no skeleton to accept a certificates for course credit should students subsequently enroll."

Once we get a grasp of the above facts, we are in a better position to understand the role of such MOOCs in present as well as in future. 

What is in it for Wharton/MBA programs?

• Let us say about 1% of registered students apply for electronic certification, this gives about $343,000 revenue to Wharton/coursera which is not bad.

• Philanthropy.

• Advertising/knowledge about their MBA program world-wide.

• A typical MBA program is  beyond just book-based knowledge, and when students can learn the book based stuff online, classroom teaching is even more effective - "flipping a class" concept.

• Creating a standardized course/syllabus that is known worldwide.

What is in it for coursera programs?

• Possible revenue sharing for certification.

• More recognition with top rated programs and schools offering classes.

• Overall increase in number of students.

What is in it for students?

• Extremely cheap way of acquiring 'reliable' knowledge.

• Certifications.

• Additional knowledge outside classroom for students who are already attending college.

• Students in developing or under-developed countries have access to open knowledge sources, and with this there will be an increasing pressure on academicians in the world to match up to that standard.

My Take:

• This is an exciting area for any university to launch into, it legitimizes their philanthropy, certification, course syllabus.

• It is a win-win for MOOC hubs such as coursera, which can make money as well as attract students with legit courses.

• It is also a good source for students to learn what is current, and what is standard to learn.

Vision:

• With so many universities that will spring into the MOOC market, there is a need for further standardization and coordination so that we can ensure uniform learning across platforms and countries.

• Offering courses in multiple languages to improve out-reach.

• Students should not confuse this with the classroom experience, where there is a more intimate connect with a teacher, and fellow students. This is the key issue which will govern the future of MOOCs, as well as traditional classroom. Narrowing the gap could be detrimental for at least one mode of education that will replace.

Collusion in a 'fair market': A case for Apple

This story is in reference to latest news on Apple's e-book business, whereby Reuters report - "U.S. District Judge Denise Cote in Manhattan found 'compelling evidence' that Apple violated federal antitrust law by playing a 'central role' in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices." [story here]

Amazon is the leading player in e-books market, and maintains about 65% market share right now, and had 90% market share once. The cause for this downfall is claimed to be a collusion between Apple and top 5 leading publishers which led to an increase in the prices of e-books. The basis for an anti-trust lawsuit is typically high prices which leads to loss of consumer surplus, its best practice is to have a healthy competition in the market which protects consumer rights [refer to US-Airways and AA merger lawsuit story, at CNN].

Amazon Kindle vs Apple iPad (ebook wars) source: Guardian

The question now is, in such dynamic and developing technology oriented markets with evolving business models, where Amazon had an almost monopolistic role, entry barrier can be very high. In defense of Apple, this price variation due to favorable contracts with publishers, secured its entry into the market in short term. However, long-term evolution can be totally different, and should lead to lower prices to direct competition between Amazon and Apple.

There are several questions of interest:

1. How upstream contracts affect downstream pricing in a competition?
2. Given an incumbent and an entrant, what should be the strategy (pricing, contractual) of entrant to be successful in - (a) short run (b) long run?
3. How can 1 and 2, be implemented without conflicting with RPA (robinson-patman act) ?
4. What should be the amount of Govt. intervention in technologically evolving markets?

People are already taking a case for Apple such as this article in Forbes, which defends Apple's position as an entrant in the e-book market. 

Microsoft's Acquisition of Nokia: A Supply Chain Perspective

Microsoft (MS) is acquiring Nokia and the deal is struck at a staggering $7.2 billion! The acquisition is also of top executives and 32,000 work force of Nokia, with MS entering hardware mobile market by 2014. With such a huge barrier to entry in mobile hardware market, with Microsoft's strong patent and software base what is going to be the future of mobile business is already under plenty of speculation. For me this is rather interesting as this is seems to be a strategic supply chain (SC) move where MS now fully controls the operations of its licensee for patents and software. Google is already geared up with Android based Google Nexus starting to increase its market share by being a very low cost smartphone in a smartphone market where customers have plenty of options and complicated decisions to make and keep up with loyalties.

Apple, Google and MS will soon have their own OS, own hardware and  own set of loyal customers and bargain hunters. The market is becoming increasingly complex and Google already is also trying to take some leap ahead by trying to purchase spectrum [story here at CNET].

As an SC enthusiast the smartphone is moving towards a vertical integration system, it is now interesting to see is this vertical integration beneficial for the industry as a whole? For consumers and industry this will be boon as this reduces the double marginalization effect and now all the players will be able to get more money for each penny. However, in a fierce competition with continuously decreasing smartphone production costs, will it lead to price wars? A simple way to avoid price wars is to invest in future technology that will differentiate the company from its competitor over long run and keep the market stable.

We will see how the market turns out to be, but people have already start posing questions, for example this post on TIME [here].