Monday, January 20, 2014

Amazon to Apply Demand Forecasts to the Delivery Process

Amazon invests huge amounts of capital in research and development to reduce costs and gain efficiency in the largest part of their supply chain, delivery to the customer. Although most of us have read and heard jokes about the recent Amazon press on their development of delivery drones, another innovation coming out of Amazon R&D has flown under the radar (pun intended). The giant corporation has now successfully patented a “method and system for anticipatory shipping.” In other words, in order to cut down on the time period between when a customer purchases an item online to when it is received through the mail, Amazon is experimenting with beginning the first steps of the shipping process before the item is even purchased. Using the metadata Amazon collects on its customers (things like how long you hover your mouse over an item), they have developed algorithms to predict when it is likely for customers in particular geographical areas to purchase particular products. The products will be packaged for home delivery and sent to the targeted geographical hub, before a specific physical address is labeled on the package (since the customer hasn't actually ordered anything yet).

This idea is in the beginning stages of experimentation, but will be interesting to watch develop. Typically, demand forecasting is used to make decisions on inventory. Amazon is trying to take demand forecasting a step further and apply it to the delivery process as well. If successful, we may see other large online shops begin to apply customer data in similar ways. However, Amazon has a competitive advantage in their access to mindboggling amounts of customer data to use in their predictive modeling.

Do you think preemptive shipping will reduce delivery times? Will an improvement in shipping efficiency increase Amazon’s revenue?

Patent Abstract:
“A method and system for anticipatory package shipping are disclosed. According to one embodiment, a method may include packaging one or more items as a package for eventual shipment to a delivery address, selecting a destination geographical area without completely specifying the delivery address at time of shipment, and while the package is in transit, completely specifying the delivery address for the package.”


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