5 reasons consumers will embrace artificial intelligence

Christmas 2017 was a busy one for retailers. During peak season, Amazon reported records for holiday shipping as they handled deliveries to 185 countries. UPS, meanwhile, said it was breaking records on package returns, having processed more than a million daily in December. With a 23 percent global growth in the last year, e-commerce continues to post solid performances, but stress and confusion are routine for merchants, logistics companies and consumers. According to a UK survey, over half of Christmas parcels failed to turn up on time in the run-up to Christmas, and parents panicked as popular Christmas toys sold out at the UK’s biggest retailers.

Artificial intelligence can help bring order to this chaos. Here’s how:

On-time or faster deliveries through AI

Delivery delays and out-of-stock items cause consumer frustration. Wouldn’t it be ideal if companies knew who was likely to buy what and when? Supply chain professionals could then make sure they had the right manpower, warehouse and transport capacities, or even send goods to be stored close to delivery addresses before we buy them (a process known as “anticipatory shipping”). Amazon has been experimenting with AI for years – for example in its cashier-less store – but other companies are close behind. Otto, a German e-commerce merchant, has created a system that analyses around 3 billion transactions and 200 variables, including sales data, website searches and weather information. With 90 percent accuracy, it is able to predict sales behaviour in the next 30 days. Now, the company purchases around 200,000 items a month without human intervention. Surplus stock has declined by a fifth and product returns by more than two million items a year. While customers receive their orders more promptly and efficiently, the planet benefits too, as fewer shipped packages need to be sent back.

Consumers get what they wish for

A major challenge in the supply chain is predicting next season’s hit products. Merchants have to make choices early on, and accept the risk that their stockpiled goods may not be bought. On the other side, consumers also have to hope that retailers have in stock what they want to buy. Supply-demand uncertainties and mismatches are costly and inefficient for all participants. Brand reputation is at stake, and consumers pay a higher price to cover the risk. One AI-powered approach is dubbed optimised line planning, which integrates data such as internal sales and customer records, competitive intelligence, trend analysis and social media preferences to create a customer profile or persona. This customer segmentation allows retailers to determine the selection of products that will resonate best with each persona. Designers can create placeholders for next season, and even calculate expected revenues. This provides confidence that both sales targets and the needs of the consumer will be met.

Goods travel safely

When supply-chain professionals know what is happening, they can ensure packages will arrive despite any adverse conditions. The Tel Aviv maritime data provider Windward says it is able, through AI, to predict shipping safety worldwide. The Israeli startup signed a deal with London-based insurance market Lloyd’s in November 2017, with Windward providing Lloyd’s member companies software that forecasts maritime hostilities or accidents at sea. Flextronics International – which counts Apple, Microsoft and Ford Motor as customers – has pioneered software that generates real-time alerts of supply-chain disruptions throughout its 14,000-strong network of global suppliers. The AI-based system helps predict actual and potential problems, such as supplier delays, strikes, earthquakes or tsunamis, and allows the relevant teams to make informed decisions to keep inventory moving and consumers happy.

Fewer goods are stolen

Some orders don’t arrive due to crime. The FBI estimates that cargo theft costs US businesses more than $30 billion each year. Facial recognition and the detection of suspicious behaviour can help prevent this. At the Chinese AI research company Yitu Technology, the pass cards of staff and visitors taking the lifts to floors 23 and 25 are read automatically – no swipe required – and each passenger is deposited at their specified floor, and only there. Cameras record everyone entering the building, and track them once they are inside. “Our machines can very easily recognise you among at least 2 billion people in a matter of seconds,” says Yitu co-founder and chief executive Zhu Long. Yitu’s generic portrait platform already contains 1.8 billion photographs of those logged in the national database and everyone who visited China recently. 320 million of the photos have come from China’s borders, where pictures are taken of everyone who enters and leaves the country. This cutting-edge technology can be used to protect any kind of asset – from vehicles to shops, to warehouses and even entire cities. In Boston, intelligent security cameras are even anticipating crime. The security system monitors feeds in real time and alerts authorities the moment it identifies unusual activity.

Quicker and better customer service

According to a survey conducted by Genesys in 16 key economies, the cost of poor customer service is estimated at $338.5 billion per year. Consumers disappointed when drivers don’t show up or products are sold out can still be satisfied when they can act based on timely and correct information. AI tools can speedily provide proper information to customer service staff, and improve customer-agent conversations without replacing them (chatbots have been shown to thus far lack empathy and problem-solving capability). At the same time, digital voice-activated assistants could provide an opportunity for progress – just imagine you ask: “Contact DHL and find out when my order will arrive,” and your digital assistant connects to a chatbot, finds the information and gets it to you promptly. The assistant would soon even be able to use your voice, if required. A paper published by Google in December 2017 reveals details of a text-to-speech system called Tacotron 2, which claims to be able to replicate near-human accuracy when imitating a person speaking.

These developments don’t come without risks. Concerns about job losses and out-of-control machines that have the potential to teach themselves are daily topics in the news. As AI-enabled robots have started to work alongside humans as autonomous vehicles, security cameras and digital assistants, some experts have said they should be fitted with an “ethical black box” to keep track of their reasoning, and enable them to explain their actions when accidents happen – such as the fatal self-driving car crash of a Tesla Model S in May 2016. Others think the behaviour of robots should be viewed similarly to that of humans, which often remains a mystery. While there are many voices urging caution, there are also positive ones. Stephane Kasriel, the CEO of Upwork, predicts “that there will not be a shortage of jobs in the future, but rather a shortage of skills to fill the jobs“. History has taught us that, over time, concerns with respect to new technologies will be addressed so that consumers can reap the benefits.

AI is on the rise and is sure to enter into many parts of our lives. Considering the impact it can have on consumer satisfaction, it would not be surprising if consumers not only embraced the intelligent supply chain but demanded more AI solutions in the purchasing process. Meanwhile, investors soon may no longer fund businesses that aren’t planning to incorporate AI in some form.

Image: Andy Kelly/Unsplash

This article was originally published at the World Economic Forum Agenda.

3D-printing might not kill global trade after all. Here’s why

One of my biggest concerns are fears rooted in overhyped topics. Although I very much believe in the benefits of advanced technologies like 3D-printing, we need to be mindful about the risks we are taking by overstressing their impact on traditional sectors and in particular jobs. Of course 3D-printing will support – in combination with other technologies – distributed manufacturing and hence contribute to reshaping the supply chain but in a way which leaves clearly room for international trade and transport.

Last year Adidas has opened its first 3D-printing plant for sports shoes – its highly automated, so-called ‘speedfactory’ – in Ansbach, a small town in Bavaria in the south-eastern part of Germany.

The German sports-goods company announced similar plans for Atlanta in the US, as well as other Western European markets. In the mid-run these factories will each manufacture half a million pairs of shoes per year.

3D-printing based production – also known as additive manufacturing – helps to bring factories closer to customers and products faster to the markets.

Traditional production can require a one-year process for design, sampling and large-scale manufacturing.

The new way requires, at its best, only days – reducing lead times on average by 66%. The shorter the cycle, the more retailers can place orders based on actual sales instead of estimates. Suppliers deliver what is really needed. Finally, consumers get what they want.

Eventually, consumers will be able to have goods produced by a printer near to them, ready for pick up, or have goods delivered, or printed at home, if a printer is available there.

It’s not all about speed

Distributed manufacturing is the name of the concept, and it reduces inventories and carbon footprints. In addition, 3D-printing makes very different and new product designs possible.

Unsurprisingly, companies like Adidas and Nike want to turbocharge their supply chains. The goal is to be short and fast.

But Adidas says that, in parallel to its speedfactory-based, short and fast supply chain, it will also expand its traditional, longer and slower supply chain.

1. The economics for 3D-printing-based mass manufacturing don’t yet work out.

Many experts doubt that they will in the foreseeable future either.

The unit costs for thousands of mass-produced, identical parts, like industrial components are still simply much lower than those manufactured by any other means.

3D-printing also falls short where natural fabrics like leather, cotton, wood and stone, or marble, granite, and minerals, such as rare earths, are needed – either to ensure the functionality of a product, or because they are just demanded by the customer.

Therefore, it might well be a myth that 3D-printing will replace mass manufacturing by mass customization, even in the midterm.

Adidas plans to grow its global athletic wear sales from $290 billion in 2017, to $355 billion in 2021. These additional sales will hardly be reached through the application of just one technology.

Reaching the target will require a mix of technologies and supply chains. Furthermore, moving the manufacture of all 301 million pairs of shoes Adidas produces each year to new sites – not even counting its double digit annual growth – would imply tremendous effort, cost and risk. The investment would be very high: just imagine the number of new speedfactories needed.

2. The technology works best for personalised goods

3D-printing generates significant value in the field of highly personalised goods and to meet demand for smaller quantities at affordable prices.

Parts can be printed on demand, obviating the need for storage.

Boeing deploys 3D-printed parts in jet engines and the technology could save the manufacturer $3 million in construction costs on each B787 jet it builds.

Deutsche Bahn has started to print spare parts to accelerate maintenanceprocesses.

Daimler uses 3D-printing to personalise parts and vehicles, and manufacture smaller batches for automotive customers.

In healthcare, 3D-printing applications range from brain and organ models, to personalised plaster casts and low-cost prosthetic parts. But an example for a global scale supply chain is lacking.

The opening of the speedfactory can be considered a Kitty Hawk moment in the history of additive manufacturing. It is an example of highly automated production in high labour cost countries.

But the most popular technologies currently used in 3D-printing were developed in the early eighties. We still might need to wait some time before we see the first mass-manufactured, 3D-printed jet plane taking off.

3. Personalisation changes the game – but not entirely

One in three consumers wants personalised products, a Deloitte study finds. And this trend will drive major change in global supply chains.

But Mark Zuckerberg still buys only one piece of cloth – a grey T-shirt, he wears every day – and so do millions of consumers.

One-colour sports shirts do not need to be manufactured at the place of consumption, as high-speed delivery is not a prerequisite for success. And this is valid for most long-lasting consumer goods, which represent the major part of today’s consumer demand.

Only designer goods and fashion require a high level of convenience, flexibility, speed and regularly changing models.

However, smart design enables personalisation by using mass-produced parts to produce a broad variety of different models. Different luxury bags of the same brand can be made of the same parts – just stitched together in different ways.

Postponement is another way to enable personalisation in mass-production: by dividing the manufacturing process into the two phases of manufacturing base products and then customising base products.

The base products are mass-manufactured, while finalisation happens in or close to the market.

Postponement pushes the finalisation of a product down to the end of the chain – for example, the colour and certain parts come last. This is a process commonly used in the automotive industry.

3D printing will complement this practice by enabling unique parts to be added at the end, while the base product will continue to be mass-manufactured in traditional ways.

4. Manufacturing technology and customer wants are not the only factors at play

Supply chains are shaped by many factors.

First, different supply chains – fast and slow, short and long – respond to different needs: from bringing resources to the factories near consumer markets, to moving parts through global value chains, to connecting the different players within industrial clusters.

Second, many external factors shape supply and value networks. Among these are geopolitical risks, the availability of skilled workers, the quality of infrastructure, tax considerations, the cost of land and energy, the time and effort to obtain licences.

Different locations have different capabilities, possibilities and brandings: ‘Made in Germany’, for example, is a unique feature, which can hardly be globalised.

These factors not only determine the design of global supply chains, but also the speed and magnitude at which technology-driven nearshoring can advance.

Third, the capacity to manage change and complexity is limited.

Changes can have huge implications – the workforce needs to be taken into account and assets might not have been written off or amortised yet.

Management needs time and energy to keep its focus on customers and markets and ensure the stability and smooth continuation of the business.

Fragmentation has its limits.

How many sites can a management team successfully manage in light of an increasingly complex and competitive business and operating environment?

Focus has major benefits; therefore, management will always seek a certain level of aggregation and concentration of activities and efforts at certain locations to ease the management burden.

Companies will continue to test new technologies and apply them where it makes sense.

3D-printing is one useful enabler to respond to customer needs and wants; an important tool for designers, operations and supply chain managers. The technology will surely further improve and so will other manufacturing technologies.

Long supply chains will still have their role to play. And so will international trade, which helps to keep diverse global production networks going.

In summary, 3D-printing holds high potential in those areas where it is a good fit. But, for now, its revolution has clearly not yet come.

This article was originally published at the World Economic Forum Agenda.