Consider this: Amazon.com
Increasing sales and declining profitability
In 2011, Amazon's net sales soared by an impressive 41% in the wake of an expanding e-commerce market. That also led the company to increase its number of warehouses by 32% to a total of 69. Amazon's warehouses -- or "fulfillment centers," as the company prefers to call them -- are a critical component of its business model, helping to ensure timely delivery.
As the company pushes its shipping volumes to a new high, its "fulfillment" costs have climbed a staggering 58%, outpacing revenue growth. Consequently, Amazon's net profit took a beating in the recently reported quarter, falling by 58%.
A good move
As of now, human workers have to walk around the huge warehouses, hand-pick items, and pack and ship them. With Kiva robots, they will have help that should improve their productivity. Kiva's robots specialize in moving boxes and shelves full of products around warehouses in a fast and efficient manner. The robots also efficiently organize the warehouse shelves, maximizing storage space. And they also keep a close check on their error-prone human counterparts. That makes four positives: cost savings, increased throughput, increased space, and less room for error.
Kiva claims that its technology can double or even triple a company's hourly order-processing capability -- something Amazon can surely use to cut costs. It's also a tried and tested idea. Kiva already has companies such as Gap and Staples on its customer list.
Competitive advantage, eh?
Let's see. For one, the company may need to build fewer warehouses as it accommodates more in the existing ones. Secondly, improved customer service owing to fewer errors and quicker deliveries surely has long term benefits. Finally, Amazon can even choose to continue with Kiva's present customers and add an additional source of revenue, as well.
But, the big question remains: Will the acquisition provide a competitive edge over its nearest rival, eBay
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Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Amazon.com and Staples. Motley Fool newsletter services have recommended buying shares of Amazon.com, eBay, and Staples. Motley Fool newsletter services have recommended writing puts on eBay. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.