For years, supply chain has been the ‘working man’s’ function in most organisations. Physically moving products from supplier to customer was a hard slog of partner negotiations and incremental gains.

The core competency was managing the trade-offs between the often competing interests of customer needs and profitability. The combination of the internet of things (IoT) and the digitisation of information is providing the momentum for the next wave of operating improvements and new operating models as organisations (and supply chains) seek breakthrough efficiencies and increasingly focus on the customer.

Leading supply chains have been implementing innovations – robots and co-bots to work beside humans to complete repetitive tasks (Sawyer); autonomous vehicles to both operate independently within a warehouse (Keeva) as well on public roadways (OTTO); unmanned and autonomous ships (Rolls Royce); exo-skeletons to support human movement and lifting (Boston Dynamics); and quad-copters for deliveries, inspections and inventory counting.

 

The arrival of VR and AR

Virtual Reality (VR) and Augmented Reality (AR) have both emerged from the world of gaming and novelty to provide point solutions to improve supply chain operating efficiencies and offer better integration.

VR has the power to provide an immersive experience for users, drawing them into a digital, 3D world. AR enhances the everyday – superimposing digital assets or images into the real world – think Google Glass or Pokemon Go. The technology is primarily visual but has the potential to include audio and perhaps other sensory information, like touch, in the future.

While Google Glass came tantalisingly close to merging the real world with technology it fell short due to concerns with privacy and no clear idea behind its function, amongst others. AR in a similar form has now re-emerged in the warehouse.

Organisations, such as DHL, drive warehouse efficiencies through scene recognition during the order picking process. Vision picking enables hands free order picking at a faster pace with reduced errors.

In service management, Volkswagen has developed MARTA, a service manual AR application replacing paper manuals with a Mobile Augmented Reality Technical Assistance app showing in 3D how to complete a repair job.

Microsoft HoloLens links reality and technology by integrating VR with AR. Instead of creating a virtual reality in an enclosed computer animated space, HoloLens takes the actual surroundings and augments it. JAL is using HoloLens to train mechanics on parts and pilots on panel instrumentation using a blend of 3D holographics with the real world, navigated through voice commands. HoloLens details components and devices in 3D as if the component was in front of the user in the physical world.

 

Increasing focus on the customer

While many VR and AR innovations for supply chain are focused on cost and efficiency, being responsive to the needs of customers at every point of the buying journey and improving the customer experience is also becoming more important.

It is particularly useful for customer engagement – providing instant information in a more easily understood and flexible format; and greater emotional resonance to objects and topics through an immersive, more compelling hypothetical experience in real time without the need for prototyping.

IKEA for example, allows customers to visualise their products to see how the colour and form matches with other items. They have created an AR catalogue allowing customers to view an image of their furniture and other products as it would appear in their environment. Similarly, retailer Uniqlo’s Magic Mirror offers shoppers the ability to imagine their colour choices on a single silhouette without having to change their garments, and Converse Sampler allows customers to imagine what a product would look like on their feet by pointing the smart phone camera at their legs and receiving a visual reference.

One of China’s largest online grocery businesses, Yihaodian, built over one thousand virtual shops in several public places using AR. Customers with the Yihaodian app can browse and shop in the virtual store before purchasing and having the item delivered. Used with smart analytics, insights provided by AR and VR into a customer’s buying interests and likelihood of purchase makes it possible to pre-empt a sale and mobilise the supply chain accordingly. 

Amazon’s success stems partially from using information from an individual customer’s page views and buying history to predict future purchase decisions. Stock in their supply chain is then repositioned to respond quickly when the customer makes the purchasing decision.

 

Strategic implications

Successful organisations who align with the customer fundamentally change how they operate in their own ecosystem. They:

• move towards hyper customer centricity, sensing real time market shifts at a far more granular level;
• create a seamless cross channel customer experience integrated at the front and back end;
• provide agile, demand driven supply chains that pivot around customer needs;
• provide a fully integrated online and offline digital experience; and
• pervasively use smart technologies and analytics to bring it all together.

However, it is not all good news. A recent KPMG study estimates that the risks stemming from AR and VR technologies could generate potential losses to the value of US$20 billion by 2020. For example, consumers may suffer accidents whilst playing AR games and companies will increasingly become responsible for securely storing ever more sensitive information, such as location data.

As the technologies evolve, companies using them will need insurance for personal accidents, business reputation damage or enhanced data security cover. Whilst insurers are unlikely to cover the entirety of this US$20 billion risk, there is a huge new market at stake.


A game changer?

VR and AR is a nascent business technology and it is not a game changer – yet. There is a clear first mover advantage to be had both in terms of customer differentiation and unlocking early operational performance benefits.

Getting to this stage will take time, but with the increasing pace of platform development and integration, this may be sooner than many will expect.
 

The writer is Craig Rawlings, Head of Supply Chain Consulting, KPMG in Singapore

The views and opinions are the author’s and do not necessarily represent the views and opinions of KPMG in Singapore.