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Inside JD.com’s drone strategy

When it comes to the future of logistics, unmanned aircraft zipping across the city skyline is what probably comes to mind. Amazon is testing the capabilities of drone delivery, as well as Apple, Intel, and Uber. And we can’t forget the one-off Domino’s pizza delivery in New Zealand.

But commercial delivery programmes at scale are pretty non-existent, with an exception of a single a programme with an Icelandic marketplace called AHA.IS in Rejkyavik.

Meanwhile, on the other side of the world, Chinese eCommerce giant JD.com is using drones to help with last-mile fulfilment in the countryside. The first drone delivery was two years ago and it has since completed 20,000 drone trips to customers in two Chinese provinces: Jianjsu and Xi’an.

eCommerce shoppers in these remote locations pay no extra for their products to be delivered by drone. And unlike the future ambitions of the industry to use drones to delivery products to a customers doorstep, JD.com realised this mode of delivery was actually more useful to encourage more rural shoppers to discover the benefits of eCommerce.

JD.com began offering urban shoppers same-day delivery on orders placed before 11am seven years ago. Being the biggest retailer in China and third-largest internet company in the world with revenues of 55.7 billion in 2017, JD.com wanted rural customers to have a similar fulfilment experience. Some rural locations can take up to a day to travel to by car, while one village on top of a mountain takes a full day to climb – now a drone can scale the same mountain in four minutes. By significantly reducing the fulfilment time, JD.com is also using its fleet of drones to work with partner charities to deliver medicines to those hard-to-reach villages.

In-house technology development

Zheng Cui, director of JD drone R&D centre in Xi’an, describes how when the programme began in December 2015, the company couldn’t find any existing drone programmes that met JD.com’s needs, so it decided to develop the technology in house, with 200 people now employed to work on the design and development of drones.


DRONES BY NUMBERS:

  • 40 drones currently in operation
  • 15km is the farthest distance a drone can currently fly
  • 100kg is its maximum capacity
  • 20,000 completed drone trips in two years
  • 2 provinces in China receive drone delivery
  • 4 routes are used to access these provinces
  • 100 routes to other rural areas in China are expected by the end of 2018
  • 150,000 employees at JD.com, 50% of which work in logistics
  • 200 employees work on the drone programme
  • $55.7 billion JD.com made in revenues in 2017
  • 1,000 drones have been ordered by undisclosed retailer which will be completed by 2021
  • 2,000 is the number of large-scale drones JD.com wants to have built within the next three years

The programme is part of JD.com’s wider efforts on developing autonomous logistics. Logistics itself is the largest part of JD.com’s business – employing nearly half of its 150,000 strong workforce – so it makes sense for the company to try and automate as much of the supply chain as possible. It already has warehouse operations which are completely unmanned, which it intends to scale up as much as it possibly can. But instead of a proportion of those jobs being lost to robotics, JD.com claims automation is needed to keep up with the relentless eCommerce growth, so it is training staff in other areas of the business, including a drone school to teach employees how to pilot and operator unmanned aircraft.

It now has a fleet of 40 drones which can fly as far as 15km. There are seven different types of drone, with the largest having a capacity of 100kg. The aircraft fly to a central square in the village to deposit their cargo with a JD.com representative who is there to teach rural customers about eCommerce and to hand deliver the packages.

“Within the next couple of months we will have at least 100 more routes,” explains Cui. “It is growing quickly and based on where we see the need.”

Cui says rather than fearful of the new technology and its potential disturbance, villagers were excited to see something “fresh and new” and it has become a normal part of life very quickly.

“Because these models are electronic, don’t make much noise and land in a fixed area, so they’re not flying all over the villages.”

A local village promoter collects a package delivered to the countryside by JD.com's drone
A local village promoter collects a package delivered to the countryside by JD.com's drone

Retail-as-a-service

While Cui refused to reveal the cost of building one drone, he admitted the aim was to start mass producing the aircraft in order to bring the cost down.

At that point, JD.com can start to commercialise its drone programme, as part of its overall strategy to white-label its proprietary technology providing third-party retailers with a platform they can utilise in their own businesses. In fact, Cui says one unnamed retailer already put a substantial order of 1,000 smaller last-mile drones, with plans to deliver the fleet to the mystery retailer within three years.

“JD is a technology company which sees technology as a solution for everything,” says Cui. “But when we’re looking at technology, we’re not looking at innovation for innovation’s sake.”

And it is not just the cost of building the machines which hits the company’s bottom line, in fact rural deliveries are five times more expensive due to lower order density, but as JD.com creates more drones and scales up the programme it hopes to reduce this cost by 70%.

Large-scale drones

The next stage of the programme is to launch larger unmanned aircraft which can fly between cities, with a capacity of up to five tonnes. Within three years, JD.com expects to have 2,000 of these drones which will be between 10-20m sq and fly at a maximum of 300km per hour.

These large-scale drones will run on gasoline as opposed to electric and will have to take-off and land from commercial airports. Cui explains that because of the scale they will not be suitable for last-mile delivery, but will be used to move products between warehouses.

While other drones endeavours around the world have been held back by flight regulations, JD.com has received certification from Airforce China, who has actively encouraged JD.com’s work on drones, with the understanding that a scaled programme would help to develop standards for the country. Meanwhile Cui says because the drones can also help with rural rescue missions, it receives support from the government which off-sets some of the costs.

If JD.com’s ambitions to third-party its drones to other retailers goes to plan, unmanned aircraft flying through the Snowdonia National Park may be a more accurate picture of the future than drones zipping past The Shard and St Paul's to deliver a package to an urban customer’s high-rise balcony.


Take a read of the other articles from Essential Retail's trip to China to visit JD.com:

#ERinChina with JD.com

JD.com on taking luxury retail online in China

Blog: Inside JD.com’s 7Fresh grocery store

Retail Ramble podcast: #ERinChina with JD.com

How will JD.com’s ambitions to outsource its technology impact global retail?

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