Amazon Innovation Award 2017
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Team Bartesaghi Stefano 878503 Bianchi Francesca 883938 Bonfiglio Roberto 871999 Casali Carolina 884103 Villa Anna 884587
Currently Amazon performs door-to-door deliveries through couriers. When the customer issues an order, the company provides details about the expected date of the delivery to inform the client.
Introduction The objective of this narrative is to propose a last mile solution for the Amazon’s Italian market. In a B2CeCommerce giant like Amazon, it is particularly important to have an efficient and effective last mile delivery system. Amazon aims at a constant improvement of its service level, i.e. the quality of its last mile deliveries, which has a huge impact for the company on both the satisfaction of its clients and its overall cost structure. For this reason, our focus will be on finding a solution for the deliveries to the final customers that offers an improved service level, while reducing the costs for the company. The implementation of a better service level could increase the precision of the details about the delivery and the possibility of finding the customer at home. This would result in lower costs for the company and higher satisfaction of the clients.
Nonetheless, some problems may arise due to the impossibility of the courier to find the customer at home. In such a situation, further delivery attempts are performed and, in case of total absence, the product is entrusted to some predefined shops or post offices. The delivery routes are prepared based on the instructions and ready to be collected at the delivery station after 7 a.m. for next day shipments and after 1 p.m. for same-day shipments. Customer deliveries are allowed only in the time window from 8.30 a.m. to 9 p.m. This delivery station is assumed to serve the whole Milan municipality of nearly 180 km2. During peaks period in December, it is possible to have on average nearly 280 deliveries/km2.
A consistent part of our solution deals with the usage of parcel lockers, acting equally as transit and collecting points. The lockers bring advantages to both the company, that reduces its costs and increases the capillarity of its distribution network, and the clients, who can choose when and where to receive the ordered product.
Solution Our narrative focuses especially on the case of a highdensity area, like the Milan municipality. The solution consists in a structured introduction of parcel lockers among strategic areas of the city. These parcel lockers have a double function: they are used both as pick-up points for the final customer and as an additional level in the distribution network for simplifying the delivery activity in these concentrated areas using light and green transportation means.
Problem setting The problem of the last mile solution has to be solved taking in consideration two main objectives: delivery cost efficiency and service level. The analysed scenario is a hypothetical delivery station serving Milan municipality with a yearly volume of 4.6 millions of shipments for the next day and 0.6 millions of shipments for the same day. The volumes have a strong weekly and monthly seasonality. Daily deliveries range between 3.640 in March-Friday and 59.800 in DecemberMonday.
PARCEL LOCKERS The solution about last mile deliveries deals with the placement of parcel lockers in strategic areas of cities, especially the ones with a high population density. Our explanatory example is the city of Milan, where some placement points are selected, mainly according to the flow of people.
Most of the parcels delivered are small, the 85% of orders has a weight lower than 5 kg. 50%
35%
small (< 1kg)
In this way, workers can retrieve easily their order when it is most suitable for their schedule. Besides, the collection would take place in a convenient position, which allows them to carry their boxes for not too long. Moreover, this solution prevents the customers from the inconvenience of going to the postal office to retrieve an order which could not be delivered since no one was home.
15%
medium
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Amazon Innovation Award 2017
big (>10kg)
Image 1- Weight of Amazon orders 60.000,00
40.000,00
20.000,00
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fri
Aug sat
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Graph 1 - Daily deliveries
Amazon Innovation Award 2017 We believe that this solution will be particularly suitable for those who are usually not at home and who do not want to be bothered by the planning of their schedule according to the courier’s arrival. Moreover, exploiting lockers in this way will be a great advantage for the company, since couriers are not needed to reach outskirts or smaller areas where commuters live. The packages’ delivery in the lockers can be fulfilled in “dead times” like early morning or late evening (when home deliveries are not allowed). Lockers should be positioned outside the stations, where the couriers can easily drop or retrieve the packages without increasing the lead time. Moreover, the position should exploit locations with already existing video surveillance in order to cut some costs and at the same time reducing risk of thefts and vandalism. Another security feature we propose is the presence of a camera in the display where the customers will enter their code to have a record of everyone who visited the locker station. As for the number of lockers that should be provided in each station, we think it certainly depends on the flow of people in that specific area. However, we can make some assumptions and suggestions by proposing a possible number of subway/railway stations where to place an assumed number of parcel lockers. In order to get these data, we measured a locker station in Seregno near U2 supermarket to base our forecasts. Here are the dimensions and number of units of the locker station:
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A software would place the orders in the closest locker station with respect to the final destination and then the courier would go to the locker area and pick-up all the items in the nearby route. Indeed, each locker is divided into two parts: one is dedicated to couriers and in each box there could be products of different orders; the other one is dedicated to final customers and each box contains products related to just one order (Option #0). Bike deliveries should be performed in the ZTL zones or the most trafficked ones in the centre of Milan. The courier has a sac as the Deliveroo’s one (35 x 35 x 50(h) cm approximately) to carry the products. Amazon provides bicycle and helmet and it pays basic insurance for each employee. Scooters will be used as well in central areas, but with more area coverage. Beside cutting the lead time due to traffic jams, delivering with a scooter also enables the courier to pull more easily the vehicle aside and let the other cars pass by (the lack of parking spot in Milan is a big problem). Amazon provides scoters, insurances and helmets for all employees who have to own at least the driving license 125 cc. There is a box (35x35x50 (h) cm approximately) on the baggage rack of the scoter to carry the products. Traditional couriers will be always used for the door-todoor delivery of big (heavier than 5 Kg) and particular orders, but their task is much simplified since the majority of orders (small) is delivered at local parcel lockers, giving them advantage in avoiding the time-consuming activity of delivering packages door-to-door inside a city like Milan with a van. The van couriers have different roles: firstly, they have to deliver the “special” products to the customer; secondly, they have to fill the parcel lockers. Finally, they have to take away those products from the lockers that no one picked and replace them with the products of the current day. These employees have to own at least driving licence B.
Image 2 - Amazon parcel locker size
TRANSPORTATION The lockers in strategic positions play also a helpful role in the second point of our proposal about transportation system. These lockers would indeed be also transit points: big trucks will deliver also orders which will then be retrieved by a second, smaller courier. Our idea foresees two solutions for the delivery in the central areas of a metropolis like Milan: the usage of bikes and of scooters. Having parcel lockers as additional layer in the network for some classes of orders (small and not fragile) leads to the introduction of a new transportation mode for these smaller batches of orders. The products delivered in these ways are those having a maximum weight of 5 Kg (around the 85% of the Amazon delivered products) and without peculiar characteristics (fragile, voluminous).
Due to the high volumes managed by Amazon logistics, we suggest to enter directly in the bike and scooter delivery market acquiring a bike and scoter delivery company. According to this solution, Amazon will be able to cover a maximum demand of 0,5 million order deliveries/month that is a little bit more than the demand of the months with the lowest shipment. Moreover, it can also be a new source of revenues in the future (sell bike delivery services to others companies). Our proposal would be coherent with Amazon’s trend of moving towards a fully in-house strategy.
Image 3 - Amazon logistics outsourcing approach
Other Solutions: Another option is the outsourcing of the last mile delivery process to a third company (ex.
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Amazon Innovation Award 2017 http://www.urbanbm.it/). According to this solution, the outsource company’s employees pick up the products from the lockers and then they will deliver them to the final customers. In this case Amazon logistics fixed costs will decrease, but the variable ones will probably increase. We also came up with a better and more efficient idea: what if the company can pay less than a rent and at the same time have more availability of vehicles? We think it would be an excellent idea to use a scooter sharing activity, like Enjoy or the upcoming start up Mi Moto which rents electrical scooters, so that it doesn’t imply a further investment for the company. Indeed, a contract stating that a part of scooter would be dedicated just to Amazon, who will pay a discounted price in terms of hours per day, would be a win-win for both companies. Enjoy, for instance, would secure a part of guaranteed profits on a daily basis, while Amazon would have the flexibility to take an additional vehicle whenever the deliveries are too many. Amazon could also rent bikes and scooters by a third company (e.g. Biciclette Rossignoli Milano): in this case the company will just hire employees. Insurance costs and other bikes and scooters costs will be paid by the third company. COURIERS’ ESTIMATION
BIKES AND SCOOTERS 0.25 / 25 = 0.01 milion deliveries /day (< 1 Kg) 0.175/25 = 0.007 milion deliveries/day (< 5Kg) 10.000 x 0.6= 6.000 Kg/day (for pieces < 1Kg) 7.000x5x0.6 = 21.000 Kg/day (for pieces < 5 Kg) 6.000 + 21.000 = 27.000 Kg/day 27.000x0.9 = 24.300 Kg/day (10% picked up) 13 (Kg/h) x 14(h/day)=182 Kg/day for vehicle 24.300 /182= 134 vehicles (67 bikes + 67 scooters) 134* (12/5)= 321 EMPLOYEES
Vans for small and medium orders are saturated (1000 Kg/van). Vans for big orders have instead the time limit constrains. VAN 27.000/1000 = 27 VAN (for parcel lockers) 14 (hours/day)x 6 (deliveries/hour)= 84 deliveries/day using a van 3.000 / 84 = 36 VAN
Assumptions: • Employees will work 35 hours/week (from Monday to Saturday with at least one day of rest) • 30 days/monthà 25 working days/month • 7 hours/shift (2 shifts/day, 7 a.m.-2 p.m. and 2 p.m.- 9 p.m.) • Wage: 13 €/hour (gross payment) • Coverage: 0,5 million orders/month • Delivery period: 8.30 a.m.-9 p.m. (but they should be at work earlier to prepare the delivery) • 50% of the products delivered with the first shift and 50% with the second one • 50% of the products delivered in the closest areas (with bikes) and 50% in the other urban areas (with scooters) • 8 Kg = sac e box scooter maximum transportable weightà saturation 80% à 6,5 Kg/delivery • 0,5 hour/routeà 14 routes/daily shift • We take 0.6 as the average weight (lower than max Kg) ORDER SIZE # Orders [mln]
< 1 Kg 0,25
< 5 Kg 0,175
< 10 Kg 0,075
Bike and scooters’ orders: 0.25+0.175=0.425 million
We have to take into consideration both the employee’s time saturation and the van’s saturation. Our goal is maximizing both, but at the end we have to consider the lowest value.
36+27= 63 VAN 63 *(12/5)= 152 DRIVERS
To sum up:
321 employees by bike & scooters 152 emplyees by van
473 employees in total
473 x 13 €/h x 35 = 215.215 €/ weekà weekly costs of employees salary
Comparing our solution to the current one only for small and medium orders we have obtained the following results:
OLD
NEW
Capital cost
Van
202,4
27
Scooter
66,76
Bike
66,76
Workers
485,7
374,440
Van drivers
485,7
54
Riders
320,4
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Amazon Innovation Award 2017 Our solution consists in an important reduction in vans required for the delivery of small and medium orders. The savings from this reduction will offset the increase of employees required. LOCATION OF PARCEL LOCKERS Parcel lockers should be in strategic points that are relevant and well-positioned for consumers, but that are also well distributed for the last delivery at different delivery points. The first step is to have an idea of the distribution of people around the city. To do that, we can analyse the map of the population density of the 88 areas (NIL) of Milan.
Image 5 - Pareto analysis graph
IMPACT ON CUSTOMERS: AVAILABLE OPTIONS AND THEIR IMPLICATIONS During the purchasing phase, customers choose the delivery option that better fits their needs:
Image 4 - Population density of Milan
There are others alternative studies, like the one realised by University of California San Diego which estimates population basing the calculation on the data provided by the records of 600 million calls provided by Telecom Italia. Independently by the type of study, it can be deducted that most people stay in a belt and in areas around the city centre. Another interesting point is the analysis of the mobility of people around the city. The annual number of passengers of the local transportation ATM in 2015 was around 113,6 millions of passengers (average of 311.000 passengers/day) and it is constantly increasing. The transportation system peak is near to 1,6 millions of passengers transported in one day. We believe that there is a good possibility to combine the journey of people with the delivery of orders using a customers’ pick-up approach: while customers are waiting for their train/metro they can easily pick up their order. Parcel lockers will therefore be positioned outside some train and underground stations. The selected stations could be those crossed by a high number of train and/or metropolitan lines. According to the data of a survey of 2011, we built the following Pareto analysis with the no. of people who depart or arrive in one of the 88 NIL (‘Nuclei di Identità Locale’.
OPTION # 0: SELF SERVICE In choosing this solution, customers decide to pick up the ordered goods on their own. These items will be available for the collection in the parcel locker selected during the order. If the customer acquires the product in the morning, he can pick up it starting from 1 p.m. of the same day. While if he/she buys the good during the afternoon, the product will be available from the following morning. In both cases, the customer will have 24h hours to pick up the product. The collection of the order is made possible by the receiving of information about box number and the unlocking code. If the customer does not pick up the product during the given period, it would be transferred to one of the predefined collection points that will be subsequently referred to the customer by e-mail. Differently from the already discussed one, the options #1 and #2 follow the traditional approach of delivery: the courier delivers good to the address specified by the customer during the purchasing phase. OPTION # 1: BASIC DELIVERY With the order, the acquirer chooses to receive the product at a specific address. Case 1: The customer orders in the morning After the purchase, an email is sent to the customer explaining that the good will be delivered during the afternoon of the same day (1 p.m. - 9 p.m.). Around midday the customer will receive a further email with the hour range in which the delivery is expected (ex. 4 p.m. - 5 p.m.). Case 2: The customer orders in the afternoon The email that follows the order explains to the customer that the delivery is due on the following morning (8.30 a.m. – 2 p.m.). During the night another email is sent to the customer providing the exact hour range at which the courier will deliver the product. OPTION # 2: PLUS DELIVERY As in the previous option, the acquirer chooses to receive the product at a specific address. Case 1: The customer orders in the morning After the purchasing phase, the customer receives two emails. The first one, received as soon as the customer orders, states a wide period range of the delivery (2 p.m.
Amazon Innovation Award 2017 – 9 p.m.) and the second one, proposing a narrower delivery period (ex. 4.30 p.m. – 5.30 p.m.), is sent around midday. At this point, the customer has one hour to accept or refuse the hour range through answering the email. If the buyer does not answer to the email, the product is delivered in that hour range. In case of refusal, another period is proposed through a second email. Other two subsequent ranges can be provided. Case 2: The customer orders in the afternoon. With the order, the customer receives the first email with the wide period in which the delivery is scheduled (8.30 a.m. – 1 p.m.). Then, a second email provides the proposal for the narrower time window for the delivery. The customer has the possibility of refusing the hour range by answering the email by 7.30 a.m. of the following day. If the buyer does not answer, the product will be delivered in that hour range. If he/she refuses it, another period is provided. Other two ranges can be proposed and they are subsequent to the first one.
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NETWORK DESIGN
We assumed that maximum 85% of orders will pass through parcel lockers. These orders, as said before, are the parcels classified as small (<1kg) and medium(<5kg) and have not any particular issue (fragility, temperature, …). Based on the data provided in the analysis of distribution and mobility of people around the city, we have selected 20 key points where to locate parcel lockers. These positions are key transportation nodes and are well distributed around the city to cover it easily. This hypothetical network should be considered as an initial step, if it demonstrates to be sustainable and appreciated by consumers it can be replicated in many other stations and in peripheral areas. STATIONS Porta Garibaldi Centrale
Both the options #1 and #2 have in common two features. The first one is about the case of impossibility of the delivery due to the absence of the customer. In such eventuality, the ordered product is left by the courier in one of the predefined collection points. Its location is provided to the customer by email. The second feature deals with an additional service offered by Amazon. Inserting the code of the order in the Amazon application helps the customer understanding exactly the position of the courier who is going to deliver the ordered good. Such possibility has positive effects on both the company and the final customer: the first one reduces its costs of failed deliveries, while the second one can experience a better service.
Image 6 - Amazon application
All the three options provide information through a “PUSH” approach: Amazon (seller) sends information as delivery day, delivery range period to the customer. Furthermore, Amazon orders are usually of few lines and few pieces per line. many # pieces/orders few many # lines/orders
few
AMAZON
Duomo Cadorna Bovisa - Politecnico Porta Genova Porta Romana
Lambrate
Porta Venezia Forlanini
Romolo
Lotto Repubblica
Loreto Affori
Greco Pirelli Zara Domodossala
Image 7 - Parcel lockers stations in Milan The size and capacity of the lockers should be defined according to the two types of orders: • Orders picked-up directly by the consumer • Orders picked up by a bike/scooter driver who takes care of the final transportation Each locker in the network covers a similar area, therefore we can assume that the amount of deliveries to final customers through drivers and pick-ups is equally distributed.
Bike: purple path in the ZTL zones
Scooter: green path in other central areas
Image 8 - Examples of routing by bike and by scooter in Milan
The parcel locker network has been designed for managing 20.000 orders per day. This decision is a compromise, and the peak management policy is explained in the following section. daily orders 20.000 of which deliveries (90%) 18.000 of which pick-ups (10%) 2.000 Delivery orders in lockers are replenished twice a day (in the morning and in the afternoon), while pick-ups only once a day. In this way, the total lockers storage capacity should be of 11.000 orders (9.000 deliveries, and 2.000 pick-ups). Each locker station has to manage 1.000 orders per day, but its capacity is of 550 orders. Small and medium boxes are dedicated to single orders for direct pickup of the customer, while big ones are for bikers and scooter drivers, and each box contains on average 4 orders. no. of boxes total frontal area [m^2] Small 90 4,5 Medium 10 1,06 Big 112,5 20,25 25,81 Considering the dimension of the boxes we computed the frontal area needed for each parcel station, which is of 25,81 m2. Considering lockers dimension (length 3m x height 2m), 5 lockers are needed: 1 for pickups and 4 for orders to be delivered. In total 100 lockers are needed (20 traditional for pickups and the equivalent of 80 that act as transit points). These lockers are different, but should be positioned near each other and in a good place for simplifying the unloading of the courier. HOW TO FACE VARIABILITY? PEAKS MANAGEMENT Demand variability is a particular issue for Amazon. As seen at the beginning, deliveries can vary between 3.000 and 59.000 in a day. The solution proposed does not cover the entire demand: Mondays in July, September and October have higher expected flows, as well as the whole week in the last two months of the year. In order to cope with these peaks,
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Amazon Innovation Award 2017
extra workers have to be employed and flexibility in the modification of the capacity is needed. As for Mondays, vertical part-time is a suitable solution, while for November and December, seasonal work is the best option. The capacity can be increased exploiting additional lockers, which can be rented from other companies like InPost. In this case, agreements are to be signed in advance, according to availability, costs and location. It is not so likely that this extra capacity would face all the uncovered demand; therefore, also vans play a key role. They will have to deliver parcels not only to lockers, but also to final customers including them in the route. Some vans could deliver only in the traditional way.
Conclusions â&#x20AC;˘ Use of light, cheap and eco-friendly transportation means improving the sustainability of the company as well as the public image â&#x20AC;˘ Using smaller vehicles implies less incidence of traffic jams and less problems to find parking spot â&#x20AC;˘ Reducing deliveries at home for commuters/workers/students â&#x20AC;˘ Reducing lead time since locker stations are in strategic positions, where it is easy to load/unload packages (instead of postal offices or inside other buildings) â&#x20AC;˘ Goal reached = delivering 100% of the parcels Ă indeed customers can choose their most suitable time slot and they can follow the courier on the App to be sure about the expected arrival time â&#x20AC;˘ Faster deliveries since the van is in charge of replenishing the lockers twice a day and then couriers will pick them up autonomously Ă we do not employ all big vans and trucks for home delivery â&#x20AC;˘ All this results in a much better customer service as well as more potential customers who perceive their needs to have been understood â&#x20AC;˘ Ability to cope with variability and demand fluctuations â&#x20AC;˘ Another advantage is that this idea is immediately applicable since there is no specific compliance with regulations and norms â&#x20AC;˘ It would affect logistics costs by lowering secondary transportation costs since the distance towards the final consumer would be decreased and there will be more transit points closer to the locations.
Revenues Service Level can be improved with our solution. Deliveries with lighter transportation means allow to have more precise time windows. In particular, bikes and scooters are not affected by traffic jams.
ROA =
Working Capital Not affected too much by our proposal.
Costs Deliveries costs are reduced since the use of costly van couriers is limited mainly to replenish parcel lockers. The last mile delivery with lighter and cheaper vehicles is much more efficient. đ?&#x2018;š"đ?&#x2018;Ş
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Fixed Capital Reduction of van couriers needed, but at the same time some investments are needed for developing a parcel locker network and the new last mile delivery with others workers.
Graph 2 - ROA model