Demand for drones is sizzling. Formally known as aerial unmanned aircrafts, drones can potentially reduce product delivery times and costs for manufacturers, retailers and service providers across sections of the economy, including the high-tech industry where some see its utility in fostering better and tighter inventory management. So far, though, few companies in the electronics industry have indicated they are exploring how drones can be used in the supply chain.
That may soon change. On Wednesday, the Federal Aviation Administration (FAA) said it issued approvals for four companies to use commercial drones to perform a variety of services, including aerial surveying, construction site monitoring and oil rig flare stack inspections.
“Unmanned aircraft offer a tremendous opportunity to spur innovation and economic activity by enabling many businesses to develop better products and services for their customers and the American public,” said Anthony Foxx, U.S. Transportation Secretary in the statement. “We want to foster commercial uses of this exciting technology while taking a responsible approach to the safety of America’s airspace.”
Not everyone believe the FAA is moving fast enough. In fact, the approvals – or exemptions as the FAA described them – issued so far do not give the recipients the rights to use drones in residential areas or in congested manufacturing centers. If approved by regulators, however, electronic companies and supply chain partners could use drones for direct delivery of components to design engineers and to production facilities, thereby eliminating or reducing the need for in-plant inventory storage, according to observers.
But first governments and industries have to agree on how, where and when unmanned aircrafts can be used. That’s proving to be difficult. The use of drones by the military and some police forces is already controversial but a more intense debate is raging in the larger economy where major consumer and retailing giants like Amazon.com Inc. (NASDAQ:AMZN) and even much smaller companies are fighting governments globally for the rights to use these devices to further their commercial interests.
“Aerial delivery is poised to make goods available to consumers in a manner that is more environmentally –friendly than current surface delivery methods, while improving the overall safety of the transportation system,” said Paul Misener, vice president of global public policy at Amazon, in a letter sent earlier this week to the FAA.
Amazon wants to test the use of drones outside its laboratory and indoor testing facilities but has encountered resistance from the FAA, which hasn’t granted an application for exemption submitted by the company five months ago. The government will eventually have to approve the use of drones by many more commercial entities although it is expected to maintain a firm control over their use following a decision to classify the devices as aircrafts.
The latest approval granted by the FAA followed a ruling earlier this year by a judge with the U.S. National Transportation Safety Board who noted that “there are no laws against flying a drone commercially,” according to a report. Partly in response to rulings like this, the FAA has banned temporarily the use of commercial drones without its direct approval. “Unmanned aircraft systems operations are currently not authorized in Class B airspace, which exists over major urban areas and contains the highest density of manned aircraft in the National Airspace System,” the agency said in a posting on its website.
“The FAA’s first priority is the safety of our nation’s aviation system,” said FAA Administrator Michael Huerta in the statement announcing the latest approvals out of a total of 167 requests. “Today’s exemptions are a step toward integrating UAS operations safely.”
The agency is currently reviewing conditions for allowing commercial use of drones in the so-called Class B airspace, the area of interest to companies like Amazon. The company is not keeping quiet about the need for the government to allow it to conduct tests to determine whether drones can be safely and cost-efficiently deployed in the United States. It’s a battle that has been raging for some time but this time Amazon is emphasizing its willingness to take the testing outside the United States with the implication that other countries could benefit faster from the use of commercial drones.
“We are poised to significantly expand our distinguished team of engineers, scientists and aeronautical professionals at Amazon’s next-generation R&D lab in Washington State. Amazon Prime Air currently has dozens of United States job openings for high-skilled professionals, including engineers and research scientists,” the company said in the letter sent to the FAA. “Subject to demonstrating the appropriate safeguards that Congress outlined in Section 333, Amazon should be free to conduct research and development operations over our own private property in the United States without delay. Without approval of our testing in the United States, we will be forced to continue expanding our Prime Air R&D footprint abroad.”
A ruling by the FAA approving the use of commercial drones will impact the relationship many electronic companies currently have with their logistics services providers and other supply chain partners. In fact, it might be time for electronic component suppliers, OEMs, EMS providers and component distributors to begin asking logistics partners if they have any plans in place for the use of unmanned aircrafts.
Drones may change the dynamics of the relationship electronic companies have with logistics partners. Amazon’s push for the use of drones indicates logistics services companies that currently partner with the retailer may be excluded from certain parts of its operations. In fact, Amazon has set up its own logistics business called Prime Air.
What this means is that sometime in the foreseeable future, Amazon with its $74 billion in annual revenue, will be able to serve as its own logistics services provider for small deliveries and, possibly, offer this service to other companies. The benefits to Amazon include the opportunity to reduce its overall shipment costs and accelerated delivery of products to customers within a defined community, the company said.
“As described in our petition, the Amazon Prime Air delivery system will get packages to customers in 30 minutes or less using small aerial vehicles,” Misener said. “We believe customers will love it, and we are committed to making Prime Air available worldwide as soon as we are permitted to do so.”
In the electronics industry where everyone is consumed with just-in-time inventory management manufacturers could conceivably pull in parts from nearby hubs and warehouses less than one hour before assembly rather than days ahead. This may help to reduce ground delivery costs for services currently provided by logistics services providers.
Of course, logistics services partners could maintain and deepen the relationship they currently have with suppliers and distributors by proactively exploring how high-tech manufacturers can benefit from using unmanned aircrafts once the FAA gives them the go ahead.