Augmented reality an opportunity for car manufacturers
Nowadays digital technology is affecting supply chains and specifically innovative digital solutions. For example, augmented reality is becoming a significant concern (and opportunity) for the management of companies such as German car manufacturing company BMW.
Overall the automotive industry is delivering poor shareholder returns in the last 5 years. For instance, the average auto maker TSR was only 5.5 percent vs S&P 500 14.8 percent . Thus, companies need to look for new ways to cut costs and to attract new customers. More than 15% of car costs usually goes to distribution, thus auto makers are looking into redesigning the distribution models by using technology to improve inventory control and by minimizing the number and expense of retail outlets. To boost the revenue side, car manufacturers are consistently investing into R&D and M&A, trying to keep up with the global trends. For example, the Top 10 OEM players invested into R&D and M&A at 4% CAGR over the last 10 years .
According to Strategy&, digitization of supply chain can bring down discrete, siloed steps from idea creation through manufacturing to product’s delivery to the customer. Having a completely integrated ecosystem, companies will be able to reduce costs and improve profitability .
Empty displays or “real” cars in augmented reality?
BMW is piloting the use of augmented reality to enable people to see and experience 3D models of their cars via smartphone app and by using Google’s new Tango technology. Tango technology is using the cameras and sensors in the smartphone to detect the environment around it and then show a realistic perception of particular objects . In the BMW example, technology allows to move, navigate and look inside a life-size virtual car. Customers can for example virtually open the door, switch on the lights in the car and choose interior and exterior colors. This allows potential customers to explore and interact with various customization options of BMW cars before buying one .
BMW released the app for broader use and allows customers to use the technology and then share the data with BMW sales outlets. Currently, there are two BMW models available in the app – BMW i3 and i8, but the car manufacturer acknowledges the possibility to develop a broader library of models to be available in the app . As for the medium term, BMW believes that majority of the smartphones will be Tango-enabled  (prerequisite to use the app, currently only selected smartphones are compatible with the technology) in the next couple of years and that this integration allows customer seamless buying experience and very high level of customization, thus potential to generate more sales. It is believed that car dealerships specifically will be some of the more profitable use cases of this technology in the long term .
Augmented reality gives additional potential
Other steps that BMW should take into consideration are potential of using the data to better forecast demand and control inventory and potential to limit the number of sales outlets in the long term.
The augmented reality technology enables to get the data on car order from customer in real time and I see this having potential to be directly communicated to the manufacturing plant, which would be able to see the current demand for particular variations of the given model and use it for production capacity forecasting. This can then be used to communicate with suppliers and better predict the necessary levels of inventory.
Moreover, this technology enables the sales outlets to significantly limit inventory of different models in stock, as the customer can see them on the app and there is limited need to have the same car in different colors. Thus, in the long-term, I see this technology enabling BMW to significantly limit the number of retails stores overall. Given the customer can “experience” the car virtually this can lead to simplification of the supply chain. For example, it would be worth exploring the option of delivering the car directly to customer.
How far can this technology push customer to virtually interact with car without physically seeing it? Can BMW become online company shipping directly to customer in 5-10 years, without any sales outlet presence?
. Strategy&, “2017 Automotive Industry Trends”. [Online]. Available: https://www.strategyand.pwc.com/trend/2017-automotive-industry-trends
. Business Insider, “BMW hopes Google’s augmented reality Tango technology will help it to sell cars”. [Online]. Available: http://www.businessinsider.com/bmw-google-augmented-reality-tango-2017-1
. Accenture, “Take it for a test swipe”. [Online]. Available: https://www.accenture.com/us-en/success-bmw-digital-transformation-augmented-reality
. Bloomberg, “Google Moves Into Augmented Reality Shopping With BMW and Gap”. [Online]. Available: https://www.bloomberg.com/news/articles/2017-01-04/google-moves-into-augmented-reality-shopping-with-bmw-gap
. BMW Blog, “BMW i Augmented Reality Visualizer launches on Google Play”. [Online]. Available: http://www.bmwblog.com/2017/02/21/bmw-augmented-reality-visualiser-launches-google-play/
. Strategy&, “Industry 4.0 how digitization makes the supply chain more efficient, agile, and customer-focused”. [Online]. Available: https://www.strategyand.pwc.com/media/file/Industry4.0.pdf