A cost-benefit analysis of Amazon Prime Air

A cost-benefit analysis of Amazon Prime Air

Welch, Adrienne (2015). "A cost-benefit analysis of Amazon Prime Air". University of Tennessee at Chattanooga. add link kobus

Summary

Amazon is looking to employ drones for package delivery. Amazon offers products at prices consistently lower than traditional retailers. Amazon has also an advantage over other online retailers in the speed at which the company can send a package out for delivery. The current speed in package handling is made possible by 89 fulfillment centers around the world equipped with Kiva robots. By handling the deliveries themselves, Amazon eliminates the middle man between them and their customers saving considerable amounts of money. Drones could reduce labor costs, increase efficiency and reduce errors. In the paper titled, “Analysis of Unmanned Aircraft Systems and Application in the Civil Field”, Kharchenko and Prusov consider the various uses for drones, breaking them down into three groups: safety control, scientific research, and commercial. Kharchenko and Prusov specify the following requirements needed in the structure of an Unmanned Aviation Complex (UAC) or drone station:

the unmanned aircraft itself. control stations (management) of unmanned aircraft and antennas system. software and systems of on-board monitoring of the unmanned aircraft. communication means (earth/air and air/earth) for air traffic control and unmanned aircraft payload. terminals of data processing. landing system.

launch system and systems of the flight refreshment. maintenance equipment and the support of unmanned aircraft and its systems. systems of storage and transportation of unmanned aircraft complex. As drones become more and more popular the airspace could get crowded and the allocation of frequency range for UV’s. Tatham compares the costs of operating a fixed-wing light aircraft, helicopters, and UAVs and finds that UAVs are less expensive to obtain and operate by looking at capital cost, operating speed, and mission cost. The downsides to using drones is that they could invade people’s privacy and that people could try to steal the packages in transit. It is important to note that Amazon will set up this system only in areas where the system would be efficient and profitable. Amazon will have to weigh the costs of setting up and operating the drone system based on population, population density, and the number of customers and potential frequency of use in the area. Amazon could hold an market advantage via patents on the drones/system or by keeping the logistics secret. for the first few years, Amazon will experience an advantage in being the first firm to ever offer such an innovative technology. the optimum location for a firm with several inputs and outputs is the median transport location, the location that splits the total monetary weight of the firm into two equal halves. (the principle of median location). costs may include:

The drones themselves Buildings and land associated with the drone stations Computers and monitoring software systems for drone flights Computer technicians and drone monitors on site Robotics Engineers for maintenance and upgrades to drones on site Utility costs of running the building Logistics management team to oversee operations Potential insurance and legal fees associated with drones Potential air and/or frequency rights for drones, etc.