Amazon Sweatshops Get Cool Robotic Workforce--Just in Time For Summer
jean is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Over the past year, there have been a couple of exposés looking inside warehouses or fulfillment centers at working conditions.
Amazon (NASDAQ: AMZN) does not call these warehouses, instead preferring to place the emphasis on the customer—fulfilling the needs of consumers. It shapes the culture at Amazon and places relentless pressure on employee performance.
From Jeff Bezos -- a 2009 video:
"The first thing I know is that you need to obsess over the customers. I can tell you that we have been doing this from the very beginning, and it is the only reason that Amazon exists today in any form. We always put the customer first."
Articles appeared in the Lehigh Valley Morning Call and the Seattle Times initially (later syndicated), detailing the working conditions at several warehouses/fulfillment centers. What the articles detail is a working environment focused so intently on the consumer, it requires super-human efficiency often putting workers at risk. Amazon does have a remarkable safety record, but it has not prevented employees from working under some difficult conditions including high heat and long hours lifting, kneeling and walking for miles on concrete floors.
Typical fulfillment center:
From the Seattle Times article quoting Amazon:
To accurately reflect our operations, any reporting must focus on examining our safety record as measured against relevant industry benchmarks
From January 1, 2006, to September 30, 2011, our U.S. fulfillment network had an annual average recordable incidence rate ranging from 2.5 to 4.2. These rates are lower than for auto manufacturing, the warehousing industry, and even for department stores.
To put it simply, it's safer to work in an Amazon fulfillment center than in a department store.
Of course, what we have from the exposé articles are anecdotes not measurements of safety and while it is a safe place to work, the emphasis on productivity does not make it always a physically tolerable working environment. Jobs in the warehouse include stowing items in bins, picking, sending them for packing, shipping and receiving. Quotas are set for how many items must be handled in each job – the pace is fast and the miles pickers walk are long. Pickers report walking up to 15 miles a day and depending on the size of the item picked, will handle in excess of 100 pieces per hour.
Amazon has a point system that levies points for shortfalls and infractions—gather enough points and it’s grounds for dismissal. Employees can accumulate demerits for breaking safety rules, missing work without a doctor’s note, being late, and for shortfalls in production. Not working fast enough—production rate—is one in particular that creates stress both physically and mentally.
Productivity and efficiency are obsessions, and Amazon may be bumping up against the ceiling of what a human workforce can accomplish. High heat, sore feet and aching muscles are not always able to comply with quotas and production targets.
In Washington state, Amazon opened a huge 500,000 square foot warehouse that has a high-tech system that helps minimize worker movements and track their work output. A computer works through a scanner to guide employees to the next closest item to pick. In spite of this, scanners malfunction, workers slow down and if they fall behind, they are penalized with points.
As Amazon continues to grow, productivity appears to be declining even as they are implementing high-tech systems to analyze efficiency and track items and workers. The increasing costs, without higher returns on those expenses, are impacting margins and the bottom line -- earnings per share are dropping.
*Warehouse SF in 1000’s
*Adjusted gross is gross profit less fulfillment expenses
From 2006-2009 [except 2008], revenue growth exceeded growth in square footage indicating Amazon was able to use the extra square feet to spur growth beyond a simple 1:1 ratio. In 2010 and 2011, revenue growth lagged rising SF. In 2011, revenue grew at 40% and trailed the increase in SF of nearly 70%. During that same period, Amazon’s head count increased 67% and 2011 fulfillment costs decreased the adjusted gross income by 4% over 2010 figures. Operating margins dropped from 4% in 2010 and nearly 5% in 2009, to 1.8% in 2011.
*SF and employees in 1000’s
Robots to the rescue—score one for machines
Amazon has agreed to acquire Kiva Systems for $775 million. Two of its divisions already use the Kiva-bots—Zappos shoes and Diapers.com. The acquisition will close in the second quarter. As Amazon fulfillment centers multiply and now include warehousing for the businesses it works with, it is becoming clear that the model is reaching its limits. Even with high-tech quota monitoring and analysis, productivity is falling. Kiva gives them a chance to get to the next level. Kiva-bots may also help restore margins as the ever-increasing warehouse square footage is used more efficiently.
Instead of pickers walking miles per day, the little orange Kiva cubes will bring the merchandise to the pickers. The robots can bring several feet high of stacked shelves to employees, move them around the warehouse as commanded, and take boxes to the loading docks. The shelves come to the picker; a laser pointer indicates the item needed; the item is scanned to confirm accuracy and the product is placed in a box on an adjacent pod controlled shelf. The worker never needs to run a mile to find an order. Robots can help to fulfill 3X to 4X as many orders compared to human labor alone.
Amazon has created its own fulfillment morass with aggressive spending for 17 new distribution/fulfillment centers in 2011. Purchase of PP&E was 85% higher in 2011, after a 162% increase in 2010. The spending has resulted in slowing growth, lower margins and decreased EPS. Thus, it has not impressed analysts or the market. Amazon has seen its shares drop from over $240 per share to $189 today.
If Kiva-bots can get the massive distribution system under control, Amazon's aggressive growth strategy may yet be vindicated, rewarding shareholders with more valuable shares.
In a previous article I speculated that employees must be working flat out to make the numbers all these years. The comment that if they were not, they could be given the opportunity to produce more was meant to be slightly ironic at the time since it's pretty clear employees are pushed hard. Just how hard was not appreciated until I started finding investigative articles and now a first-hand account of working conditions. They are brutal and not for the weak and faint of heart.
This "undercover" article gives a detailed first-hand account of a typical day at a warehouse.
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