Reshaping Supply Chain Efficiency with Drone Delivery
The commercial drone delivery race has started and it is re-shaping delivery as we know it.
Tech giants, major retailers and logistic companies alike have dubbed drones the future of e-commerce fulfilment. With the likes of Amazon, Google, UPS, JD.com, DHL and other retail and logistic companies around the world all testing drone delivery services and systems.
The transformation of delivery operations has started. Early adopters are re-shaping delivery as we know it, but before we see rapid growth and mass adoption companies need to overcome a number of operational inefficiencies, regulatory barriers, technical issues, as well as gain consumer acceptance. There is a lot to take into account – think air traffic control, privacy and liability issues, interference and control, unforeseen risk as well as feasibility and operational infrastructure issues.
Despite wide skepticism one company, Chinese e-commerce giant JD.com, is already letting drones do the heavy lifting in China’s rural areas. With almost half of China’s 1.3 billion people still living in rural areas, drone deliveries hope to bring down costs, improve efficiency and transform the logistics industry.
We recently saw the company’s commercial delivery drone in action at the third annual RISE Conference in Hong Kong, July 2017. Eric Zhao, VP of Technology for the Chinese e-commerce giant JD.com took to stage to share his company’s vision for making e-commerce easier, more efficient and more enjoyable for customers and brands.
As Eric Zhao spoke about the e-commerce brands rural expansion, the crowd watched the commercial drone glide through the air carrying a red box under the center of its body. The drone reaches a rural village, releases the package to a landing pad in front of a distribution center, where a contractor picks it up and makes the final delivery to the buyer’s doorstep.
“What used to take two hours to ship, now takes about ten minutes by drone,” Eric Zhao, VP of Technology at JD, said.
The company’s investment in drone delivery is part of a larger industry trend, with other e-commerce companies such as Alibaba and Amazon also looking to increase their customer base and automate delivery to improve reliability and shorten delivery times for e-commerce customers.
So how will drone delivery help retail and logistic companies overcome challenges and improve their supply chain efficiency?
There hasn’t been much analysis of drone air freight costs, but what does exist suggests reduced labor costs and higher operational efficiency, meaning that drones have the potential of being both faster and cheaper than current delivery models. This is certainly the case with out-of-the-way locations that typically incur higher logistics costs.
Poor infrastructure, fewer orders, and higher logistics fees have long been a challenge for China’s ecommerce companies who are looking to increase their customer base through rural expansion. Drones open up the opportunity to make delivery operations more efficient, they’re fast, fluid and flexible making them a game changer for logistic companies and retailers who want to transport goods between cities and provinces in the future. JD.com has already carried out thousands of deliveries in the outskirts of Beijing and four other provinces. The company is now planning to expand its fleet and delivery routes, having already gained government sign off for heavy-load drones that can carry more than a metric ton.
Unlike JD who are using drones to deliver goods to rural villages, then have a local contractor deliver the package to the customer’s doorstep, Amazon is hoping to deliver goods to the end consumer’s door step. Last mile delivery is often where consumers judge retailers for their efficiency and is coincidently the most expensive part in parcel delivery costs. As drone delivery is more fluid, they can be easily re-organized to meet logistic demands which provide more flexibility for delivery times, which is a win for both companies and consumers. Though expect some limitations when it comes to door step delivery by drone especially when it comes to complicated addresses as drones cannot follow pre-defined or pre-configured paths. Retailers and logistic companies will have to rethink the delivery strategy.
So both companies have their own business models, JD uses their own delivery process, delivery vans and personnel and while Amazon has invested in its own delivery fleet, they also use third party postal services and shipping companies. Amazon’s investment in drones could provide more control of the delivery process in the future, reducing their delivery times and providing more accurate delivery slots. A faster delivery service, will help build trust and reliability among consumers improving the overall customer experience.
Lastly, drones are also less expensive to buy, store, maintain and operate, unlike traditional delivery methods that require large scale delivery models and investment such as drivers, delivery vans, airplanes, space to store equipment, regional depots etc. Nonetheless current deliver operations will need a complete overhaul and companies will need to modify their supply chain processes, man power and provide training.
The future of commercial drone delivery is on the horizon
Drone delivery is happening, it’s going to transform delivery operations and bring benefits to companies and consumers alike, but a winner would be a company who can innovate while still delivering on their customer promise. For now it’s likely that drone delivery will be limited to rural areas – where the safety risks are smaller and logistics are much simpler to manage. Of course companies will continue their test runs, while addressing some of the inherent safety and regulatory challenges – which will take several years.
We can expect companies like Amazon, JD.com and Google to continue to publicly push ahead. Regulations will be put in place by government and aviation authorities, drone technology will continue to improve and consumer adoption will likely take place in stages over the next few years.
But in the meantime, we’re excited for the future and how drones will reshape delivery operations, increase efficiency and continue to improve the customer experience.
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