Amazon innovation project

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M. Francesca Cacciani 874906
Filippo Franco Cheli 876241
Massimiliano Banterle 883711
Luca Battaglia 875486
Mariagiulia Marmiroli 877939

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Abstract
The aim of the report is to design a solution for the last mile delivery for Amazon. The importance of the last mile delivery has
increased in the last years, especially due to the exponential growth of the eCommerce: over 50% of the total delivery cost is
consumed by the last mile. The impact associated to the delivery process not only affects the margins, but also customer
relationships: in the last years, a growing number of customers desires faster home delivery. For the next years, the fast delivery
will be no more considered as an order winner performance, but as an order qualifier parameter: it is fundamental for companies
to invest in this logistics field to avoid being cut off from the market. Also for this reason, Amazon is moving from a commodity
outsourcing to a full in house for what concern the last mile delivery.
Problem setting
Amazon’s mission is to become the most customer-centric company in the world. To be coherent with this statement, in the
designing phase of the solution to the “Last Mile”, it is fundamental to focus on how to better meet customers’ requirements,
also anticipating their needs, and consequently increasing their satisfaction. Moreover, it is necessary to strictly take into account
Amazon’s policies: for instance, the idea must fit with the Company’s delivery time window and with national labour contract
(for carriers in Italy look at contract form – CCNL logistica, trasporto e spedizione). Before designing the solution, the first
important decision to take is related to the area considered where to implement the last mile delivery. The aim of this idea is to
generate the highest possible delivery service at the lowest possible delivery cost, just considering the urban area. To better
explain the concept, Milan will be considered as a city model. Obviously, this decision will also affect the location of the ideal
delivery station that is supposed to serve both the urban and the rural areas within the entire Lombardy. Milan represents the
area with the highest daily order density in the region. For this reason, the delivery station should be positioned close to the city
(e.g. Origgio delivery station case).
Direction
The idea is composed by:
A. The introduction in the urban area of a third echelon made by the so-called Amazon Pick&Break station – nodes – and two
different transportation solutions, the vans and the Amazon cars – arches of the network. The third level of nodes aims to reduce
local distribution costs leveraging on a capillary distribution network within the city. It also allows to increase both the efficiency
and the flexibility of the last mile transportation to the customer relying both on fixed stations (Amazon Pick&Break station) and
vehicles for door-to-door deliveries. In addition, the higher flexibility can be achieved also thanks to temporary and local storing
functions and to the possibility to locally collect returns. Finally, the third echelon allows the company to be closer to end
customers.
B. The introduction of new value-added services aims to better satisfy customers’ requirements. These services are additional
delivery conditions, return services, tracking system and notification system. When placing the order, customers have the
possibility to decide exactly the delivery time window or – in alternative - can select the days that they prefer (for instance, you
can ask for receiving the parcel every day from 9.00 to 10.00 in the morning or receive it on Tuesday, Wednesday and Thursday
at any time). In addition, through the tracking system, customers can check their order’ movements and communicate directly
to the information system in case they cannot be at home at the expected delivery time. In this way, it is possible to reduce the
percentage of the “not at home” cases. The notification system supports the deliveries and it warns customers if the delivery
was not successful. It allows customers to choose between different solutions for its reallocation in another time/day or in the
locker. The returns can be managed in two ways: they can be dropped off at the Amazon Pick&Break station or they can be
returned when receiving a parcel. The first case is convenient for customers because they avoid both temporary payments and
queueing at the post office; the service is also available 24/7. The second case in order to be implemented needs that the return
is concurrent with a delivery. However, these additional services are expected to increase the complexity of the system,
especially in terms of data management.

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C. Finally, the idea is sustainable both in terms of costs and, especially, in terms of environmental issues. Amazon cars are full
electric vehicles and they are used for the local distribution also to increase the reputation of the company. Moreover, the
lockers have solar panels on their roof, so that it is possible to recharge the Amazon’s vehicles with green energy.
Lockers can be considered also as a revenue centre:
1.The surface structure can be used as an advertising space that companies can monthly rent;
2.Each locker is associated with an Amazon bar. It represents an important revenue stream for the company and can
also guarantee a certain level of security for the locker;
3.Energy can be sold to power external electric vehicles.
The 3rd echelon of the network
The Amazon Pick&Break station is the main element of the new layer and it represents its node. This building is powered by solar
panels in order to be capable of charging the Amazon cars. The extra-energy produced is sold to the grid and then bought back,
in order to sell it externally to charge other vehicles, through a recharge station with pillars. As the station is not energetically
autonoumous, specific contracts with local government will be signed. The Amazon Pick&Break station is characterised by two
principal areas: the Lockers and the Bar. The Locker is divided into three different areas (see annex for images). The main one is
related to the Pick area, where customers have the chance to directly pick their orders. The rest of the Locker is devoted to the
return area (Return hub), where people can return the items. In this way, customers can easily manage the returns of their items
through the lockers, whenever they want. Finally, there is a section, called Car Load WHS, that is devoted for the Amazon vans
to drop off the load for the Amazon cars. It also helps in avoiding unexpected problems such as Amazon cars’ load rapture or
delays in cars’ loading. The other part of the building is the Amazon Bar. This allows to enlarge the roof of the building and
therefore produce a higher amount of kwh through the solar panels. Moreover, the Amazon Bar offers a different customer
experience, getting closer to consumers and supporting them in their daily rituals and habits (the first coffee in the morning and
the last spritz in the evening). This would change the meaning of the station, giving customers the possibility to enjoy the moment
in which they pick and return their items. In this way, the bar would also make the station safer, preventing it from acts of
vandalism.
The arches of the network are the transportation system. It comprehends two different transportation solutions:
1. The Amazon van are the vehicles that Amazon currently uses (L1 H1 105 SWB Ford Van). There are two types of
vans, one dedicated to the urban area, and one dedicated to the interurban area, which is not considered in the solution.
The urban vans manage the deliveries and returns of big packages in the city and each van is allocated to a specific
Amazon Pick&Break station. Moreover, in the early morning, the vans carry the small packages from the delivery station
to the Amazon Pick&Break station; in the late evening, they have to transport the returns from the Amazon Pick&Break
station back to the delivery station. Their work is scheduled on two different shifts of 6 hours each: the first shift goes
from 7 am to 13 pm; the second shift goes from 13 pm to 19 pm. The organisation on two shifts allows to be more
flexible, in fact also the late orders, which are done in the morning for the same afternoon, can be satisfied. The table
underneath shows the main structural constraints:
2. The Amazon cars are inspired to the model “e2 Mantra Gem” that has been specifically designed for the French postal system.
This vehicle is fully electric-powered and allows to achieve together comfort, safety and sustainability. The battery can be chosen
according to the availability needs. More precisely, the specifications of the e2 Mantra Gem are:
*We assume that the price for a big firm such as Amazon will be -30% respect to a final consumer, also because of the big quantity ordered (8000€ the vehicle,
1700€ the S-Box)
**The autonomy guaranteed by the battery will be enough to power the vehicle for the whole day. In fact, the average distance travelled is 33,89 km/shift x 2
shifts/day. See page 4 for more detail about the average distance travelled per shift.
**

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These electrical vehicles oversee the deliveries and returns in the city, but only for the small and medium packages. It should be
possible to park the vehicle more easily compared to the delivery van, wave in and out the traffic and access to all areas. In fact,
the electric-powered vehicle can exploit sustainable mobility advantages and access also ZTL zones. Moreover, each vehicle is
endowed with a tracking device, giving customers the possibility to track its package and enabling Amazon to know where is the
driver in each moment. The car means work on two shifts of 6.5 hours each, the first one goes from 8:00 am until 14:30 pm, the
second one from 14:30 pm until 21:00 pm. The Amazon cars have been selected over bicycles because they could not be
exploited over the entire year, as a consequence of the variable weather conditions during the seasons (Can you imagine
delivering packages with the snow on the street? It does not respect safety conditions both for the driver and items transported).
Also, bicycles have a lower cargo capacity, so the fleet should be oversized to guarantee the same amount of deliveries. This
means a lower initial investment – bicycles are less expensive that cars – but a higher operative cost for human resources.
Crowdsourcing solutions are not considered because of reputation and contract management issues.
In conclusion, it is provided as an output on the solution the average distance travelled within the area assigned to the single
Amazon Pick&Break station. The only main assumption is that the distribution of the population among the different areas is
constant. See the table underneath for more details.
The process
As the packages are allocated to different transportation modes depending on the sizes, the daily routine of the vans and the
one of the Amazon car are analysed separately.
Typical day of the van driver
The first shift starts at 7:00 am and the driver loads the vehicle with:
1. the big packages that have to be delivered in the city;
2. all the packages allocated to the specific Amazon Pick&Break station.
First, the driver visits the Amazon Pick&Break station in order to make all the packages available for the Amazon Cars when they start their
shift in the morning. When he gets there, he also replenishes all the lockers with the orders of the customers. Clients will later go there to pick
the package up. Then, the driver continues the deliveries around the district of the city he serves. Moreover, the driver takes the returns of
big packages: the customer can choose, like in the delivery case, the time window or specific days when to return the item to the driver or
differently returning the item to the Locker. At the end of his shift (13:00 pm), he returns to the delivery station. As soon as he arrives, another
driver starts the second shift (13:00 pm – 19:00 pm) on the same van and has the same responsibilities. Like before, the driver at first visits
the Amazon station to replenish it for the afternoon deliveries. Moreover, the second shift driver, in the late evening, transports the returns
from the Amazon Pick&Break station back to the delivery station.
Typical day of the electric vehicle driver
The employee starts his shift at 8:00 a.m. First, he picks from the Amazon van the bag with the packages he needs to deliver. He is endowed
with a device that:
1. suggests him the best routing and give him data about the customers;
2. provides Amazon with data about location and creates an immediate contact channel;
3. allows the customer to know in real time where the delivery is, in order to maximize the percentage of successful deliveries.
When the vehicle is loaded, the car starts the deliveries of small and medium packages. It is supposed to visit the first customer’s house by
8.30 a.m. and then continues with the optimal routing provided by Amazon. If the customer wants to return an item while collecting another
one, the car driver can manage both the deliver and the return at the same time. Otherwise, if the customer wants only to return the item, he

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should go to the Amazon Pick&Break station. When both the van and the car driver get in touch with a customer, for the order delivery, some
scenarios can occur:
1. the customer is at home and the delivery is successful. In this case the employee registers through the device that the package has
been delivered;
2. the customer is not at home. In this situation, the customer receives a notification asking if he wants to receive the package in the
afternoon, the next day (or another day) or have it dropped in the Amazon Pick&Break station. Amazon acquires in input the choice
and computes the new optimal routing both for the next shift or the following day. If this situation happens in the afternoon the
customer can choose only the next day delivery (or another day) or the Amazon Pick&Break station option.
Daily parcels per day on Milan’s surface
The main assumption is that the overall flow of 5.200.000 deliveries (considering both next day and same day deliveries) is not all allocated to
Milan, but is spread over Lombardy region. Milan’s inhabitants represent the 16% of Lombardy citizens, so for Milan we assume that the
deliveries are proportional to this percentage. Considering also the return flow (20% of the overall flow), the number of working days in a year
-equal to 250- and that small and medium parcels represent the 85% of the overall flow, we obtain an average daily number of deliveries for
Milan’s surface equal to 4.058 parcels/day per Milan. These packages represent the overall amount of deliveries that should be managed by all
Amazon stations in a day. Having nine Amazon stations (later explained) in Milan means that each station has a daily flow of 451 parcels/day
per station. As a further analysis, it is possible to verify the effectiveness of the solution in relation to the weekly deliveries distribution. Giving
customers the opportunity to choose among different delivery options, it would be possible to better leverage the distribution of weekly
deliveries. In fact, customers can choose the delivery time window, but this is constrained by the scheduling of all the deliveries. Letting
customers choose between free spaces in the scheduling, Amazon keeps under control the overall distribution of the packages among the
week. The Locker’s dimension has been tested considering the worst case possible, a Monday of December3
. In this case, the urban shipments
increase more than 80% on the standard daily flow. In spite of the benefits coming from the solution, the Amazon Pick&Break solution cannot
satisfy the overall demand for the “worst case” and the company has to deliver a part of demand through third part logistics providers.
Number of station and number of cars per each station
Assuming that each station could manage an urban surface of 200.000 citizen each, it is possible to determine the number of station dividing
the total number of Milan inhabitants by 200.000. Therefore, the number of stations required is 9. By having the daily urban shipments for
Milan, it is possible to deduce the total number of cars needed considering that each car makes two trips per day.
𝑡𝑜𝑡𝑎𝑙 𝑐𝑎𝑟𝑠 =
#𝑝𝑎𝑟𝑐𝑒𝑙𝑠 𝑎 𝑑𝑎𝑦 𝑝𝑒𝑟 𝑀𝑖𝑙𝑎𝑛
𝑚𝑎𝑥𝑖𝑚𝑢𝑚 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠 𝑝𝑒𝑟 𝑐𝑎𝑟 ∗ 2
The number of cars per each station is given by dividing the total number of cars by the number of stations. This analysis leads to the necessity
of 5 cars per station.
Car load design
The sizing of the system starts with the car load design; the average weight parcel [kg] is not a critical restriction, as the e2 Mantra Gem has a
maximum weight capacity more than sufficient. Therefore, the two main constraints are: the car’s maximum capacity (volume) and the hours
allowed for a shift. The focus is only on small and medium packages, because in our proposal the big ones are carried by Amazon vans. For
what concerns the volume constraint, the base element is the average volume package [cm3]. It is computed as:
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑣𝑜𝑙𝑢𝑚𝑒 𝑝𝑎𝑐𝑘𝑎𝑔𝑒 = 𝑣𝑜𝑙𝑢𝑚𝑒 𝑠𝑚𝑎𝑙𝑙 𝑝𝑎𝑐𝑘𝑎𝑔𝑒 ∗ 59% + 𝑣𝑜𝑙𝑢𝑚𝑒 𝑚𝑒𝑑𝑖𝑢𝑚 𝑝𝑎𝑐𝑘𝑎𝑔𝑒 ∗ 41% 1
This data is the input to derive the maximum number of packages that can be carried by a single car. The result is 44.4 packages per car. Then,
the overall number of hours needed to deliver the 44.4 packages is calculated as:
𝑡𝑖𝑚𝑒 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑡𝑜 𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦 44.4 𝑝𝑎𝑟𝑐𝑒𝑙𝑠 = 44.4 𝑝𝑎𝑟𝑐𝑒𝑙𝑠 ∗ 9
𝑚𝑖𝑛
𝑑𝑒𝑙𝑖𝑣𝑒𝑟𝑦
∗
1ℎ
60𝑚𝑖𝑛
(= 44.4 packs ∗ 9 min/packs ∗ 1/60 = 6.66 h). The hypothesis of 9 min per delivery is a reasonable assumption due to the logic applied in the
clustering process to assess the number of station and number of car per city2. Comparing the hours needed to deliver the 44,4 packages with
the hours available per shift (6,5h), it is possible to estimate Δh (= hours per shift – hours to deliver 44.4 packages) which results - 0.2 h. This
delta corresponds to 1,1 packages. A negative Δh means that the most restrictive constraint is the shift. The maximum number of packages
1 59% and 41% derive from a rebalancing of the flow based only on small and medium packs. See annex for more detail, in section named
“Amazon car design”.
2 See annex, in section named “Distribution of parcels’ flow over Lombardia”.

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carriable is 44.4 – 1.1 = 43 [packages]. At this stage, the result is the number of packages delivered by one single car. This data is one of the
inputs to compute the number of cars per station.
Amazon station dimensions
Starting from the total daily demand associated to each area, the estimation of the total number of shipments is equal to 451 packs/day. These
comprehend all types of delivery: 75% are small and medium size delivered by Amazon car and 15% are big size delivered by Amazon van,
finally 10% is allocated to the locker. While sizing the dimensions of locker, it is appropriate to consider the 10% of ordinary lockers packages,
increased by the 4%. This 4% represents the amount of unsuccessful deliveries that are reallocated to the lockers after the customer answers
the notification and shows his preference among the modality offered by the system. At the end, 62 is the average number of packages that
each station has to manage through the locker (14% of the overall 451 packs). The customer can pick the items in a time window of 3.5 days.
This means that locker’s dimensions must be oversized in order to guarantee this service level. By doing this, the average number of parcels
daily stored become 62*(3,5/2) = 109 – assuming a linear distribution in picking occurrences. The 109 packages are split according to the size.
It results in 54 small, 38 medium and 16 big packages. The big ones are the starting point for the dimensioning of the locker. The first three
levels of the locker should contain the biggest parcels. Imposing three level dedicated to this package size, it is possible to obtain 6 big size
parcels per level. Starting from the length of six big packages, the number of medium packages per level is obtained in this way:
#𝑜𝑓 𝑚𝑒𝑑𝑖𝑢𝑚 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠 𝑝𝑒𝑟 𝑙𝑒𝑣𝑒𝑙 = ⌊
# 𝑜𝑓 𝑏𝑖𝑔 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠 𝑝𝑒𝑟 𝑙𝑒𝑣𝑒𝑙 ∗ 𝑙𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑏𝑖𝑔 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠
𝑙𝑒𝑛𝑔ℎ𝑡 𝑜𝑓 𝑚𝑒𝑑𝑖𝑢𝑚 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠
⌋
The same formula is used to define the number of small packages. Then, the number of level per each size of packages is computed as:
# 𝑜𝑓 𝑙𝑒𝑣𝑒𝑙 𝑓𝑜𝑟 𝑠𝑖𝑧𝑒𝑖 = ⌈
𝑡𝑜𝑡𝑎𝑙 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠 𝑜𝑓 𝑠𝑖𝑧𝑒𝑖 𝑝𝑒𝑟 𝑠𝑡𝑎𝑡𝑖𝑜𝑛
# 𝑜𝑓 𝑝𝑎𝑐𝑘𝑎𝑔𝑒𝑠 𝑜𝑓 𝑠𝑖𝑧𝑒𝑖 𝑝𝑒𝑟 𝑙𝑒𝑣𝑒𝑙
⌉
i = standards for large or medium item
The height of each level is equal to the sum of the height of the packages stored in the level; meanwhile the width is equal to the one of the
big parcel. These considerations lead to define a rough design of the locker. To obtain the real one and to consider enough space for handling
activities, it is necessary to increase each dimension to 20%. The final results are: length 5.04 m, height 1.7m, width 0.5 m. Following the same
steps and formulas for the Returns Hub, the dimensions are: length 1.68m, height 1.59m, width 0,54m. The portion of the structure dedicated
to the Car Load WHS occupies an area of 1.55𝑚2
on two levels. These sizes are roughly estimated imposing two dimensions of the warehouse
width=0.54m, height=1.69m and estimating the length with the following formula:
𝑙𝑒𝑛𝑔ℎ𝑡 𝑜𝑓 𝐶𝑎𝑟 𝐿𝑜𝑎𝑑 𝑊𝐻𝑆 =
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑣𝑜𝑙𝑢𝑚𝑒 𝑝𝑒𝑟 𝑐𝑎𝑟 ∗ # 𝑜𝑓 𝑐𝑎𝑟 𝑝𝑒𝑟 𝑠𝑡𝑎𝑡𝑖𝑜𝑛
0.54 𝑚 ∗ 1.69𝑚 ∗ 2
The last two parts that have to be dimensioned are: the Amazon Bar area and the aisle in front of the locker part. The first one has an esteemed
surface of 8𝑚2; for the aisle, the length is 8,75m (5.04m+0.84m+2.87m) and the width is 2m. At the and the total surface is approximately
30𝑚2.
To better exploit the network and popularity effect, the Pick&Break’s location should be carefully chosen and it should be as close as possible
to very traffic-congested area such as: University campus, urban Malls, Parks, Metro stations... This location should help in melting the station
with the social fabric, moving the concept from a simple and separate pick station to a more familiar and warm space.
Economic evaluation
The initial expected investment to cover all the nine areas is consistent. However, in the medium-long term there will be benefits in terms of
brand image and customer service that will turn into additional revenues. The main cost items are related to:
1. The investment in the third echelon, which is considered only in the year 0. More in detail:

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2. The yearly operative costs, which are associated to the employees and the energy.
The last cost that Amazon supports is the cost associated to the change in the order entry interface of the website and app. It is an opportunity
cost, in fact the firm should just reallocate some engineer developers to the development of the change for a while. The new interface
implements the additional choices of time window or day preferred. The economic evaluation considers also the sources of revenues, to
compute the Net Present Value of the investment. The revenues considered are shown in the table underneath:
The revenue at year 0 are highly affected by the implementation period, so they are halved. In year 1, the project will be implemented, so we
consider the full amount reported in the table above. From year 2 on, the revenues from the Amazon “Pick&Break” station and from the
advertising are expected to increase at a constant growth rate of 5%, thanks to the popularity and network effect. Moreover, there are some
nonmonetary benefits that Amazon gains from this solution. First, the improvements in the values associated to the brand. In fact, customers
associate Amazon to sustainability values, thanks to the use of electric vehicles and solar panels. Also, the firm could exploit the subsidies from
the Italian government, thanks to the green solution. Finally, the additional services introduced in the solution (returns, tracking service,
possibility to choose the time window for the order) increase customer satisfaction. It is important to consider that the project is related to the
development and implementation to the third echelon in the distribution network, a logistic infrastructure. Also, the horizontal time considered
for the investments is 5 years and this is the more risky and variable time window. After the first years, the revenues should be more certain.
For these considerations, it is quite normal that the NPV, computed on 5 years, is only slightly positive: NPV = 71.016€.
Conclusion
Amazon Pick&Break station project aims at filling the gap perceived between people and Amazon. The company must demonstrate that ethics
can be implemented also in profitable business. Nowadays the first form of advertising is respect for both workers and environment, so it could
be a source of competitive advantage in the future. The network established thanks to the new designed stations can be beneficial not only
for Amazon’s customers, but in general for the community. The name “Pick&Break” derives from putting side by side traditional last-mile
services with the intimate everyday breaks, from the first coffee in the morning to the last beer with friends before going home. This approach
could be a chance for Amazon to enter our everyday life, standing next to people’s needs and lifestyle. In the background, the recharge stations
network is a concrete way to invest in a more conscious future and build with people a more sustainable life.

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