In a warehouse at the headquarters of Kiva Systems in Woburn, Mass., an ottoman-shaped robot slides beneath a four-shelf storage unit holding an assortment of consumer goods, lifts it, and navigates back to Mick Mountz, the startup's founder and chief executive. Mountz grabs a box of Kellogg's Frosted Mini-Wheats off of the shelf and turns to put it in a shipping box. By the time he has turned back again, the robot is carrying the 8-ft.-tall shelving unit away, and he is facing another stack of goods carried by a different robot.
This is Kiva's demo space, where Mountz shows potential customers what his wireless robotic fulfillment system can do. It's also where Kiva handles manufacturing, turning out 200 squat, orange robots—one model can hoist 1,000 lb., while the other is strong enough for 3,000-lb. pallets—every month. But you don't have to go to this Boston suburb to see Kiva's bots and pods, as the company calls the shelving units: They're already fast at work in warehouses run by Staples (SPLS), Walgreens (WAG), Gap.com (GPS), and online retailer Zappos.
"It's exceeded all of our expectations, doubling the productivity of our pickers and cutting our energy costs in half," says Craig Adkins, vice-president for fulfillment operations at Zappos, which began using Kiva nine months ago. Adkins won't say how much Zappos paid for its little helpers, but the average Kiva installation costs $5 million, with set-ups ranging from $1 million to $25 million now in the works.
Mountz, now 43, first grappled with the challenge of efficient fulfillment as an executive at Webvan, the ill-fated online grocer that went under in 2001. Deciding robotics held the answer, he moved back to Boston, where he had studied mechanical engineering at Massachusetts Institute of Technology and earned his MBA at Harvard. To date, after two rounds of funding led by Bain Capital Ventures, Mountz's six-year-old company has raised more than $18 million, with annual sales topping $50 million.
Robots have been around a long time, of course. The newness of Kiva, which has four patents, with another 14 pending, is the way in which Mountz's team has integrated three technologies: WiFi, digital cameras, and low-cost servers capable of parallel processing. The servers work in real-time, receiving orders, immediately dispatching robots to bring the required pods to the worker fulfilling the order, and then returning the pods to their storage locations. The robots receive their orders wirelessly, while using cameras to read navigational barcode stickers on the warehouse floor.
In combining these technologies, the 125-employee company is bringing a potentially breakthrough innovation to warehousing and distribution, which supply-chain research firm Armstrong & Associates estimates is $37.5 billion-a-year business. "Kiva represents the first really 'new' technology in order fulfillment in years," wrote analysts at Aberdeen Group after touring the Zappos warehouse last year.
With plans for 1,000 bots in its distribution centers by summer, Walgreens will be Kiva's biggest customer. "I don't need to tell my competitors how much more productive it makes us," says Randy Lewis, senior vice-president for supply chain and logistics at the Deerfield (Ill.) drugstore chain. "It's been a good investment."
Beyond the Conveyor Belt
Most of the 8,000 commercial warehouses in the U.S. depend on humans to stock the shelves with incoming goods and then retrieve them for outbound shipments. Those workers might use tow racks and forklifts, but the basic tasks haven't changed much in decades. Roughly 20% of U.S. warehouses are automated, meaning that after workers pull goods off of the shelves, they are put on conveyer belts, carousels, and/or other automatic sorting systems that move the products through the warehouse more efficiently.
That's the kind of system that Amazon.com (AMZN) employs—its distribution center in Fernley, Nev., boasts nine miles of conveyer belts. And that's what Zappos installed in its Shepherdsville (Ky.) distribution center in 2006. "We have static shelves, four stories high, 128 carousels, and 20,000 feet of conveyer belts," says Adkins. This loud, Rube Goldberg-like set-up, which was state-of-the-art when Zappos bought it, covers 86 acres and enables workers to fulfill orders in anywhere from 48 minutes to three and a half hours.
Off to the side in the Shepherdsville warehouse, 72 Kiva bots are in constant, quiet motion, carrying one of Zappos' 3,000 storage pods to or fro. Every six seconds, a worker takes an item from its pod and puts it into a shipping box, packing some 600 items an hour. While the initial cost of a Kiva system is roughly 10% to 20% more than a conveyer belt system, orders to the Kiva side of the warehouse are fulfilled within 12 minutes, at least four times faster.
But higher productivity isn't the only advantage, according to Adkins. Because the bots don't care about air conditioning or lighting, Zappos, based in Henderson, Nev., has cut in half its utility costs per square foot. And although the company didn't lay off any workers, Adkins says that because of Kiva's efficiency, "as we continue to grow, we won't hire as many as we would have."
Unlike the conveyer belts and 30-ft.-tall shelves that are bolted down in conventional warehouses, the Kiva system can easily be moved to a different facility. As companies adjust their fulfillment operations in response to higher gas prices and soft consumer demand, the ability to shift capacity inexpensively from one center to another is looking like an important strategic advantage.
Perhaps even more important in today's environment of limited credit and unpredictable demand is that Kiva could allow wholesalers and retailers to delay capital investments and thereby mitigate risk. "With a traditional automated system, we'd have to build a big section of conveyer belts at one time," says Adkins, "and it might take us three years to actually grow into it, so early on you're paying for a lot of capacity that you don't need." He calls Kiva a "just-in-time" fulfillment system, meaning that Zappos can expand incrementally as its volumes increase by simply adding robots or pods. "In the long run," says Adkins, "we'll use Kiva for everything."
As executive vice-president at Pittsburgh's Genco, which operates almost 40 million sq. ft. of warehouse space for companies such as Unilever and Becton Dickinson (BDX), Pete Rector has seen most every fulfillment system out there. "What takes the time in picking is the person having to move from one product to the next," he says. "Kiva eliminates the horizontal travel, and that's transformational." Genco tested a 12-bot, 100-pod Kiva system five years ago in a distribution center it runs for Hershey (HSY) and saw productivity double.
But most of Genco's clients are moving full cases or entire pallets, and although Kiva has introduced a larger robot capable of carrying 3,000-pounds, Rector says that new systems from Seegrid, also in Pittsburgh, and Sky-Trax in Newcastle, Del., are better for those purposes.
The fact that fulfillment is so critical to a company's business makes some resistant to try a new technology. "No one really likes revolutionary changes, especially in an industry like warehousing and distribution where people have been doing things a certain way for years," says Bruce Welty, CEO of Quiet Logistics in Andover, Mass., a new third-party distribution and fulfillment service based entirely on the Kiva system. "But once they understand Kiva, it's a revelation."