Virtual Reality: The Supply Chain's Next Stage of Evolution

Virtual reality technology has been around for decades in a variety of research applications. Virtual reality (VR) originally became commercially popularized through video games and movie media, but has since evolved for use in major urban development projects, to the point where it is being applied to manufacturing, retail, distribution, installation and healthcare supply chain operations.

What is a Virtual Reality Supply Chain?

A virtual reality supply chain allows organizations to design and architect in 3-D, evaluate designs and make critical decisions about new products and customer buying decisions. The value proposition of VR supply chains include:

Increased “on the spot” sales configurations and upselling opportunities;
A 3-D visual and high resolution 360^o 3-D rendering enable the customer a “walk-thru” experience prior to making buy decisions;
A complete 3-D visual of the parts list, components, quotes and pricing for the proposed design or purchase option;
Full supply chain integration from design, manufacturing, supplier management, distribution, customer delivery and installation;
Improved velocity, quality and simplification in the order fulfillment cycle;
Realization of significant revenue growth, profitability and a superior customer experience.

Manufacturers, retailers, distributors and healthcare organizations are beginning to assimilate this technology into their daily business models with immediate and impressive results.

How It Works

First an organization creates its complete digitalized product directory (i.e., every SKU that is sold). The directory includes all product manufacturing and/or supplier data, including pricing, lead times, availability and delivery dates. Customers have the option of in-home or in-store commerce (or both).

Customers are able to make design changes and visualize their changes and pricing in real time via an iPad, laptop, or other technology. They can also walk through their digitalized room and experience the VR look and feel of their choices. Once the final “on the spot” purchase decision is approved, the configured order is released immediately to the respective manufacturers, suppliers and distributors that provide the products. In real time the customer receives their delivery and installation schedule.

A Fully Integrated, Digitalized Interface Solution

The key to success with 3-D VR supply chains is that the customer and all supply chain stakeholders are fully integrated and synchronized at all times. The high-resolution 3-D rendering is really a visual of a quote, price lists, parts lists and other data that are instantly communicated to an organization’s ERP enterprise architecture. The customer also receives “on the spot” commitment to delivery and installation. In larger projects, the customer, architect, tradespeople, contractors, investors, banks and other stakeholders can all be connected in real time to view project plans. Hence, this is a fully integrated solution from 3-D concept/design to manufacturing, distribution, delivery and installation. This technology can help reduce supply chain costs, simplify and streamline the total order-to-cash cycle, and as a result help to significantly increase revenue growth and profitability.

A word of caution is in order. There are many design and rendering software companies in the marketplace. Many of their applications generate an isolated augmented reality picture that is totally disconnected from the organization’s core business processes. It is just a picture, period! This leaves a large margin of error in converting a picture into manufacturing ERP requirements, distributor and supplier purchase orders, pricing and due dates, and full configuration and shipment of the customer’s order. It is critical that organizations select a 3-D VR supply chain technology solution that is fully integrated with the correct digitalized interfaces to their entire enterprise architecture.

The best way to demonstrate VR supply chains is through a live example. The remainder of this article presents an example of how VR software can help to improve supply chain management.

Case Study: Medical Technology Manufacturers and Distributors

Every year the healthcare industry spends billions of dollars on new construction, additions, construction and renovation projects. For 2015 the construction forecast was over $43 billion for new hospital rooms and equipment. Medical technology manufacturers like Hill-Rom, Baxter, Stryker, and several other manufacturers and distributors begin supply chain management with a quote process and responding to RFQs (Request for Quote).

Formal quotes require an incredible volume of information, and a quote can change at any time based on the whims of the architectural firm, hospital administration and clinical management, flexing budget constraints and schedule changes. Most quotes require room-by-room project specifications, the bill of materials for all product included in the project, delivery and installation schedules, and a detailed price list. If this information was timely, accurate and complete it would be invaluable to Marketing, Operations and the Supply Chain. Unfortunately it’s not any of those things and there are severe inefficiencies and errors in the quoting process. Nevertheless, orders are often placed with a “take it with a grain of salt” level of confidence, with a quality mindset of making corrections as they surface down the road.

The quote process is incredibly inefficient, laborious, time- and resource-consuming, with a lot of institutionalized non-value-added content and rework. Most quotes are incorrect, incomplete, late, and may include discontinued products, or other integrity problems. Only 15% of quotes are converted into a firm sales order (the “hit rate”). And even though most signed quotes clearly stipulate a “shelf life” of 90 days or less, and even though prices have increased and supplier products and lead times have changed and the product engineering has changed, the quote the customer signed last year is still expected to be honored. Lead time is a real killer in this process.

Medical technology manufacturing organizations and distributors are constantly trying to integrate quote data into marketing forecasts, supply chain strategies, manufacturing capacity plans, inventory management and product lead times. But despite the unrelenting attempts to find a reliable quote formula that works, there are never-ending conference calls, meetings, engineering revisions and schedule allowances. Medical technology manufacturing and distribution companies still experience incredible pre- and post-award revisions, change orders, last-minute price concessions and schedule erosion. Any chance of managing the supply chain is replaced with a “survival of the fittest” strategy, wreaking havoc with pricing, customer/supplier relations, costs, cash flow, and even operating margin. But it doesn’t need to be that way.

The Digitalized VR Supply Chain Approach

3-D VR application software can create a digitalized image of the room. At the same time it can create the quote data in real time, at the project site at any time. A trained sales representative has online access to a complete directory of all available products and using the software’s simple click-and-design capabilities the sales representative can populate every hospital room with a complete list of furniture and equipment included in the scope of the project.

Room specifications and dimensions are preloaded into the system, and 3-D VR room design ensures the fit and finish meets architectural specs and the needs of the customer. The output is a high-resolution 360^o rendering complete with a quote with drawings, high-definition renderings (room, products, color, location, orientation), a detailed price list with installation estimates and proposed delivery schedule. This is referred to as a 3-D visual estimate where a trained sales representative completes this in one visit, not through visit after visit over weeks. And because projects can be accessed on a cloud, everyone with an authorized user name and password can access and make changes and experience the 3-D results.

The high resolution 360^o rendering enables authorized users to take a virtual tour through the room and experience the “look and feel” and functionality from multiple directions. Since the virtual supply chain is fully integrated, the quote process is updated in real time every time a change is made to the room design. The process is efficient and makes better use of sales and engineering resources because it is completed within a day or less. Below is an illustration of how this totally integrated process works.

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This particular 3-D VR supply chain software solution is fully integrated upstream and downstream with all other core business processes such as ERP, marketing, sales, operations, supply chain, distributor and/or supplier management, order fulfillment, and installation in real time as well.

With click-and-design capabilities anyone trained and authorized can add, move, remove, increase design features and equipment for any or all rooms. Changes and updates are done by sales representatives at the site and in real time. Today design changes are typically waiting in the product engineering queue, sometimes for weeks. Medical technology manufacturers and distributors sell “product systems” and there are many options and opportunities to upsell or modify the quote.

Using 3-D VR supply chain software the chance of design and quote errors are near zero. It’s a lot like completing an online form that does not allow you to make an error. This is referred to as “pre-approved product engineering.” If the product is not included in the application directory, it will not allow a user to choose a discontinued table, bed, or particular configuration of equipment.

Another benefit is that the sales representative can provide multiple versions based on adding or deleting floors, rooms, features, equipment, pricing and even discounts—again in real time. Changes in the quote are also instantly translated into sales, operations, manufacturing, and supplier and/or distributor requirements. In effect, much of the traditional guess work in the typical sales and operations planning (S&OP) process is replaced by real-time firm hard orders.

Of course, the longer lead time items still must be planned. Medical technology managers can visualize the room design from many different 360^o angles, and on a variety of media (e.g., iPads, iPhones, laptops, etc.) based on real-time data. Overall decision-making is better since more quality and up-to-date data is available.

Back to the Future

Why does VR supply chain software represent the future for medical technology producers and distributors? Here are several key reasons:

Quote time is measured in hours, not days, weeks or months.
Customers participate in the design, review high-definition 3-D renderings and make changes in real time.
All products a medical technology manufacturer or distributor can provide to populate a hospital room are the most current and provided in a preapproved product directory.
Changes are mistake-proof—the software doesn’t allow room configurations that are not possible, or with equipment that is obsolete or no longer available.
Qualified quotes provide both a visual representation and real-time data for more accurate, timely and precise marketing forecasts, supply chain strategy and operations plans.
Quote “shelf life” is updated in real time as product engineering makes changes.
A fully integrated 3-D VR solution eliminates much of the daily non-value-added supply chain activities of expediting, resolving supplier quality issues, trying to manage changing schedules, the hot-list meetings, and many other non-value-added daily supply chain transactional activities.
Customers are provided continuous updates so they understand the cost and/or installation impact of delaying their projects.

Innovations in Supply Chain Management

More and more retailers, manufacturers, distributors, suppliers and healthcare organizations are evaluating 3-D VR supply chain strategies. Again, it requires much more than an application that creates a 3-D picture that is totally isolated from the organization’s core business processes. Keep in mind that in the above example we have created an “on the spot visual” of the customer’s order data, specifications, quote, and supply chain requirements. Think about the implications of this business model on the S&OP process. Much of the planning data is replaced by firm planned orders… it doesn’t get any better than that. Of course the S&OP process must either plan for the longer lead-time components, equipment, etc., or maintain hedge inventories (or both).

VR supply chain management can be a powerful online technology used at the “point of the spear,” by manufacturers, retailers, distributors, healthcare, and other organizations. Using VR supply chain software allows users to make more precise decisions on how much to buy, when to buy, if to buy more, or if to buy less, pull in orders, push them out or cancel altogether. What’s at stake? Higher revenue and profit margins, improved cash flow and inventory performance, significant reductions in fulfillment lead times, and improved customer relations, supplier relations and administration cost optimization (sales, engineering, marketing, operations).

VR supply chain management offers a look at the future for organizations that wish to achieve a competitive edge with their customers and markets. This technology could very well be just as impactful as the transformation from minicomputers to laptops a few decades ago. It is the way that commerce will be conducted by organizations in the future, and a few innovators are already there. We believe that those who choose to ignore this technology will be left in the dust of great supply chain organizations.

The case study referenced in this article was developed by The Center for Excellence in Operations Inc. (CEO) and Teowin USA.

Terence T. Burton is president and CEO of The Center for Excellence in Operations, Inc. (CEO), a management consulting firm specializing in strategic and operational improvement with headquarters in Bedford, NH, and offices in Munich, Germany. He is the author of Global KATA: Success Through the Lean Business System Reference Model.

Paula Martin is the owner and CEO of Teowin USA, a provider of 3-D-rendering and data integration for sales and supply chain management software solutions. She has experience as a 3-D designer and developer of 360-degree renderings, large scale program integration and virtual reality project management, and global supply chain sourcing and management. She has been actively involved in many commercial and residential 3-D virtual reality technology projects in Washington, DC, and Virginia area, and a lead design resource in the large scale development of the National Harbor, MD, waterfront.