Retail Deliveries by Drones: How Will Logistics Networks Change?

Abstract

Emerging technologies such as drone delivery services enable retailers to cost‐effectively offer unprecedented delivery speed and adaptable delivery lead times using dedicated aerial vehicles for individual orders. A natural and important question arises: What is the impact of a drone delivery system (DDS) on a retailer’s extant logistics parameters, for example, the number of customer‐facing delivery centers (last‐mile warehouses) it uses and delivery lead times it offers? On the one hand, the ability to reach customers faster than through traditional means argues for more centralization of delivery services. On the other hand, more decentralization can allow the retailer to offer hitherto unheard‐of delivery lead times and thereby spur demand. We show that, as drone technology matures and becomes more cost‐effective, delivery networks will become increasingly decentralized while delivering products at faster speeds. While perfect delivery customization—under which each demand location is offered a customized delivery guarantee—is theoretically feasible under a DDS, it may not be practical to implement such a finely differentiated delivery strategy. Instead, we show that retailers can recover a significant portion of the profit under this ideal scenario by offering limited delivery‐time customization, that is, partitioning the market into a few delivery “zones” and offering the best feasible delivery guarantee for each zone. In physically congested metropolitan markets, where retailers may be forced to operate with only a few delivery centers, it may be optimal to operate a DDS by offering delivery guarantees that are inferior to the best possible in order to throttle unprofitable demand. In such markets, the effectiveness of limited delivery‐time customization increases as the extent of physical congestion increases.

Disruptive and Conventional Technologies for the Support of Logistics Processes: A Literature Review

“…Drones or unmanned aerial vehicles have the ability to travel without being linked to road infrastructure (Gonzalez-R et al, 2020), enabling retailers to offer unprecedented delivery speed and adaptable delivery lead times using dedicated aerial vehicles for individual orders (Perera et al, 2020). Factors such as the expanding online retail industry, the improved capability, reliability, and cost effectiveness of drones, and high competition among pick-up and delivery service providers will increase drone usage for delivery applications in the next few years (Karak and Abdelghany, 2019).…”

“…The cooperative use of drones with another vehicle acting as a moving base is the most versatile solution, allowing the drones to operate over an enlarged action radius, at the cost of complicating the determination of landing locations (Gonzalez-R et al, 2020). Through decentralization, retailers can increase their high-speed and dedicated delivery capabilities to lower delivery times (Perera et al, 2020). Some of the technical challenges faced by drone delivery systems are related to the limited life of the electrical batteries powering each drone (Gonzalez-R et al, 2020) The most critical barriers to implementing drones in the logistics sector are technological advancements, government regulations, threats to privacy and security, public perceptions, and psychological and environmental issues (Raj and Sah, 2019;Sah et al, 2020).…”

Can we work more safely and healthily with robot partners? A human‐friendly robot–human‐coordinated order fulfillment scheme

“…expectations for workers…The robots have raised the average picker's productivity from around 100 items per hour to what Mr. Long and others have said is a target of around 300 or 400, though the numbers vary across teams and facilities… (Del Rey, 2019). Indeed, there is no doubt that advancements in such disruptive technologies as robotics and related applications (Azadeh et al, 2019;Chung, 2021;Perera et al, 2020;Shi et al, 2021;Wang et al, 2022) have brought new benefits to electronic commerce (e-commerce) companies (such as Amazon, Alibaba, and Jingdong) by increasing the efficiency of order fulfillment. However, they are simultaneously creating new safety challenges.…”

Last mile delivery in logistics and supply chain management: a bibliometric analysis and future directions

“…The bulk of the last mile logistics articles have been leaning toward aspects such as horizontal collaboration (Allen et al, 2017), emerging business models such as crowd logistics (Frehe et al, 2017), logistics networks design (Wollenburg et al, 2018) and the design of last mile logistics models (Lim Stanley Frederick et al, 2018). One study also examined how emerging technologies such as drones would impact the logistics networks (Perera et al, 2020). The literature under last mile logistics tackles strategic, long-term planning concerns and…”