Amazon Patents Net Present Value-Based Delivery Dates

from the and-the-rich-get-faster-delivery dept

theodp writes "Just in time for holiday shopping, the USPTO has awarded Amazon a patent for Generating Current Order Fulfillment Plans Based on Expected Future Orders, which explains how to use modeled net present value to adjust an order's delivery date favorably or unfavorably based upon expectations that the customer will have high-profit orders in the future. So don't blame Santa if that special gift isn't under the tree on Christmas morning, kids - it could just be dear-old-Dad's low NPV score!"


Reader Comments (rss)

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  •  
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    Morgan, Nov 21st, 2007 @ 8:23pm

    Man I love Amazon

    Seems like you might just have that as policy rather than telling everyone through a patent application, but I do love it. It'll likely slow my cheap-rear-end orders down if it affects me at all, but I just like the creativity.

     

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      Joe Smith, Nov 23rd, 2007 @ 8:37am

      Re: Man I love Amazon

      Seems like you might just have that as policy rather than telling everyone through a patent application,

      The real problem with the patent system that Amazon probably felt they had to file this patent or run the risk of some troll patenting the idea and then demanding $100 Million dollars for "his" "intellectual property". Defensive patent stockpiling is the order of the day - and the only rational response by successful companies to the multiple attempts to extort money from them on the flimsiest pretexts.

       

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        Chuck, Nov 24th, 2007 @ 7:07am

        Re: Re: Man I love Amazon

        Maybe if they released it into the public domain, it would also stop anyone from doing that...

         

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    Aetuneo, Nov 21st, 2007 @ 9:00pm

    Effecting data?

    So, if presented with a small enough data-set, this system might increase the time it takes to fulfill an order on the basis that a customer might not shop at amazon again, but the customer might be intending to shop again, and the slow delivery time might make the customer decide not to?

     

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    NgJun Siang, Nov 21st, 2007 @ 10:22pm

    Long time coming

    I can't believe I actually tried to read that.

    It seems to be a natural extension of logistics management, the target being optimised long-term cost. They're trying to balance "customer satisfaction" with short-term (shipping, packaging, transportation) and long-term (customer return rate, order fulfillment rate) costs.

    The way I see this, your order could be expedited (order diverted from overloaded warehouse to slightly further but unburdened one) or delayed (shipment deferred to slightly further but much cheaper warehouse).

    In short, Amazon "tries to please everyone" while lowering their own costs. Of course, this is just my interpretation of patent moonspeak, it could very well be something else altogether - we can only wait and see how this affects Amazon's performance.

     

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      Wade Menard, Nov 22nd, 2007 @ 1:22am

      Re: Long time coming

      The patent was applied for in 2001 so i'm certain an implementation has been attempted even before that if not in use currently.

       

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    Max Powers, Nov 22nd, 2007 @ 1:42am

    Saving Costs

    I do like Amazon and this idea they patented, but everything they do is aimed at saving money.

    Like most companies, they always make the announcement sound like they are doing the customer a favor and saving money is just a byproduct.

     

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    Vincent Clement, Nov 22nd, 2007 @ 4:28am

    More importantly, why is this patentable in the first place?

     

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    Anonymous Coward, Nov 22nd, 2007 @ 4:35am

    So in other words, the fact that I've spent about $15,000 through Amazon in the last six years gives them evidence that I am likely to spend a lot of money with them in the future, thus my order will be arranged for most efficient delivery process possible?

    Or are we talking about who has the priority in receiving ordered units when there is a limited amount (such as a shortage of new release video games and such)?

     

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      Miller, Nov 22nd, 2007 @ 6:09am

      Re:

      This is about turning shipping costs into a separate profit center since it is difficult to compete with other Internet retailers on product price alone. The method provides a way to delay, yes DELAY, delivery dates based on the customer's perception of delivery time. If a customer wants it faster, you gotta pay up!

      How long before Amazon recognizes this will kill their business?

       

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      Anonymous Coward, Nov 22nd, 2007 @ 7:10am

      Re:

      Negative. The dollar value is meaningless. If that $15k that you've spent over the last 6 years only returns a 3% margin to Amazon, your orders get low priority. Where if another customer only has ordered $5000 in the last 6 years, but has a 28% profit margin, their order gets expedited.

       

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    Neal, Nov 22nd, 2007 @ 6:16am

    A big thumbs up for Vincent!

    The only reason I bothered to read the comments was because I thought every one of them would be asking the same question Vincent did. Way to go Vincent, at least one eye is on the ball.

    Well anyone, why is it? Businesses have been doing this to one degree or another since businesses were first created and certainly on a large, carefully studied, scale for decades. Isn't this just another case where an old idea naturally progresses into the e-space? Nothing new or novel that should be patented?

     

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    Alfred E. Neuman, Nov 22nd, 2007 @ 6:50am

    Amazing

    Is a patent worthless if there is no reasonable way to enforce it ? Are they going to create a bunch of accounts with varying degrees of purchasing power and then go about buying stuff from their competitors ?

     

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    B, Nov 22nd, 2007 @ 6:50am

    looks like patent office people are up in a race of who-looks-more-dumb. to the retarded, any IDEA could be patentable. ...so who is in the leading position now for the country? generally mentally slow ones?

     

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    Anonymous Coward, Nov 22nd, 2007 @ 10:23am

    How is this a good thing? Maybe I'm not getting it... but shouldn't they just ship everything as fast as they can, like they've always done?

     

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      Danny, Nov 23rd, 2007 @ 5:29am

      Re:

      sarcasm
      I knew someone was gonna post with some common sense.
      /sarcasm


      In an ideal world you would be right but since we are talking about business where profit margin is the number one priority good customer service takes a back seat.

       

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    Cory, Nov 22nd, 2007 @ 11:57am

    The way I read this system is a system that gives priority to those with a better credit rating and profile.

    US Bank actually has been using this system for years. The more products you have with them, plus a high credit rating will equal better customer service and choices for you.

    Just trying to ensure we try very hard to be the best consumers we can be.

     

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    Lucretious, Nov 23rd, 2007 @ 10:13am

    Can someone please explain what this is in laymans terms? I don't have a 4 year business degree ya see......

     

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    Rahul, Nov 23rd, 2007 @ 11:07am

    Dumbest Mistake

    This gonna be part the dumbest mistake corporate have done book. I am sure the patent office must have loughed at it initially. Man they are having so much of fun.

     

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    18th poster, Nov 23rd, 2007 @ 12:28pm

    Maybe they should work on getting permission to ship early on DVD/book preorders so you get them delivered on the actual release date. Last time I tried this, no joy. Although that was a while ago.

     

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    Tom Greenhaw, Nov 24th, 2007 @ 7:14am

    So let me getthis straight...

    They got a patent for taking care of their best customers first???

     

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    A, S, Nov 24th, 2007 @ 8:16am

    Positive Feedback

    Implementing this feature is more likely to create positive feed back loops. i.e "Good" customers will get better and "bad" customers will get worse.

    I am now a very reluctant shopper at Amazon after one of the reps told me on the phone that if you choose free shipping, your order goes through a delivery tar pit (Delivery is deliberately delayed)

     

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      Scott, Nov 25th, 2007 @ 4:00pm

      Re: Positive Feedback

      I have been using free shipping for about 3 years now and never once seen a delay. Most of my orders are shipped in a few hours...

       

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    Bruce Jones, Nov 24th, 2007 @ 10:37am

    Amazon's Order Fulfillment

    I used to work at Amazon, in fact I was responsible for a lot of the algorithms used in Amazon's logistics network in use today. I've read a lot of FUD about Amazon order fulfillment so I have to try to add some facts to these discussions.

    Amazon's order fulfillment process is insanely complex and involves hundreds of different variables which impact customer satisfaction and costs. Since keeping costs (and thus prices) as low as possible is also a major factor of customer satisfaction, it's important to understand that the underlying principle for all of the algorithms used is to maximize the customer experience. But that's very complicated. Without disclosing any trade secrets, here are a few of the types of parameters which go into the order fulfillment decisions:

    * What has the customer paid for? If they've paid for next-day delivery, Amazon assumes they want their order as quickly as possible. Likewise, if they've chosen super-saver free shipping, they assume it's not needed that quickly.

    * Where is the inventory? Amazon has many distribution centers scattered across the U.S.A. and not all items are available at each center. It obviously costs less to quickly get an item to a customer from a nearby warehouse. But it might be necessary to ship from further away.

    * Are inventory levels as low as possible? To maximize cash flow and utilization of its warehouse space, Amazon is very aggressive about managing its inventory levels. This may mean that rarely ordered items are not kept in inventory and may require time to source from a supplier. It also means that Amazon tries to move inventory out to customers as quickly as possible. Usually, delaying shipments has inventory costs. Believe me, Amazon has no desire to own inventory one minute more than it has to.

    * Where is there space for inventory? Related to the above point, space can get very very tight in the Amazon warehouses, especially before the holidays. They just may not have room for dozens of 60" plasma TVs in every distribution center.

    * Does the item need to be ordered from a distributor or manufacturer? If an item is not in Amazon's inventory it may already be on order and due on a future date supplied by the source or it may need to be ordered. Obviously it's cheaper to buy large volumes directly from a manufacturer, but those items may not be available quickly. If a customer has paid for next-day delivery though, Amazon will pay to get that item to them.

    * Which distribution center has enough people working today? To help keep employees happy, Amazon tries to smooth work loads. Employees prefer to know when and how many hours they will be working next week. When there are high volumes of orders, this may mean delaying some low-priority orders.

    * Which distribution center has capacity in their automated systems? It's much cheaper to fulfill an order using Amazon's automated facilities than to do it using manual labor. But only so many orders can go through these automated systems a day. Orders may be routed to a different fulfillment center, or delayed to minimize the handling costs.

    * Are there any automated fulfillment lines? For big ticket items (think new Harry Potter book) Amazon will often dedicate mechanized packaging and shipping hardware to just that product. It may be much cheaper to wait a couple days until one of these mechanized production lines is in place before fulfilling an order.

    * Which shipping company is cheapest? Amazon utilizes just about every common carrier in the U.S. and can even use them together to minimize shipping costs and reduce delivery times. These rates change regularly and service levels can vary from day to day. It may cost 50% less to get a non-next day order to a customer by waiting a day or two before shipping it.

    * Do the shipping companies have capacity? Many of Amazon's distribution centers are in low-cost rural areas. It's not uncommon for Amazon to max-out the capacity of UPS, DHL, USPS, FedEx, or other shipping companies from one of these centers. If that happens, an order for New York City may end up coming from Nevada rather than near-by Pennsylvania.

    * How quickly can Amazon be paid for an order? Legally, Amazon can't charge you for an order until that order has shipped. To maximize cash flow, Amazon normally tries to get orders out as quickly as possible so they can be paid as quickly as possible.

    * How good of a customer is this? And yes, if you're a good customer, Amazon will spend more to keep you happy. In extreme cases, I've seen Amazon send employees to local Walmarts or other retailers to buy an item which is then couriered to a great customer. Believe me, this isn't cheap. This cost and effort doesn't go into a first-time buyer's Super Saver order.

    These are just a handful of the types of decisions which have to be made for every order. During peak periods Amazon handles over a million orders a day; trying to balance and optimize all of these constantly changing variables is a difficult job but I believe the company does a pretty good job of it. And yes, I believe there is intellectual property in the software created by Amazon to make this happen.

    In general, I think Amazon's customer service is great. But when I hear that some individual customer service rep, who is probably sitting in West Virginia or India and has never seen the algorithms used for fulfillment or even been to one of Amazon's fulfillment centers explains how free shipping works, I just have to giggle. They really have no idea.

     

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      Joseph Beck, Nov 25th, 2007 @ 6:17pm

      Re: Amazon's Order Fulfillment

      Thanks Bruce Jones.

      I have used the free shipping option a few times. Sometimes the order sits for several days before being shipped and I think it is part of a plan to "train" me to not use free shipping. Other times the order ships right away and arrives in two days.

      Now I see that it is a combination of factors, coincidental with my choice of free shipping, that causes those orders to sit for a few days.

       

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      tinkonthebrink, Nov 26th, 2007 @ 10:53am

      Re: Amazon's Order Fulfillment

      Thank you, Bruce Jones, what a great post.

       

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    Dan Cence, Nov 24th, 2007 @ 2:30pm

    Amazon Fulfillment Formula Patent - reaction

    Robinson & Patman are turning in their graves!

     

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    Traveling Critic, Nov 25th, 2007 @ 5:40am

    This Amazon being Amazon

    This is nothing revolutionary. It's barely evolutionary. This is what Amazon does. It means I can count on the expected delivery date that appears on the screen. I love super saver shipping. Many times it's the difference between Amazon or not Amazon. I just wish they had a pay-no-tax option!

     

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    Ben, Nov 25th, 2007 @ 9:45am

    And just where have you been, foul customer?!

    You will be pay for your insolence!

     

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    ziraffa, Nov 25th, 2007 @ 5:15pm

    Here's an idea

    Why doesn't amazon patent "getting a patent" or did Google already do that?

     

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    MC, Dec 4th, 2007 @ 2:26pm

    AKA: Delivery Dates Bait and Switch

    This Delivery Date Bait and Switch has been on-going for several years now. Amazon routinely places items in the "Shipping Soon" category even when such items are *not* in any end customer destination shipping process. This makes canceling an order impossible, either via the Amazon website or by contacting Amazon's customer service.

    We received notification that Amazon would not be able to deliver an item ordered on November 17th until at least January 2nd, or as late s January 25th. Amazon's claims that an order cannot be canceled once the item is "in the shipping process". This ongoing practice is dishonest and utterly ridiculous.

    We're sick of Amazon's deceptive practices. We'll simply order elsewhere, and will no longer use Amazon. Oh, and they'll get to pay the return shipment and stocking fees too boot.

     

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