How AI can improve value chain across sectors?
The promises and perils of AI have for long been the focus of discussion in media and business circles. While the adoption of AI is growing, it is currently limited mainly to the tech world. The largest technology companies are at the frontier of the AI revolution. Tech leaders like Google and Baidu have invested significant sums (in billions) in AI. Robotics and AI are driving the performance and productivity of the Amazon warehouses and powering Google’s data centers. The benefits of AI are big and the early adopters are already reaping the benefits. The advantages of AI cut across sectors and can help improve the efficiency of value chains.
The retail industry has already started adopting machine learning as well as data and analytics for higher productivity. Acros other industries too including healthcare and education, the efficiency of the value chain can be improved using machine learning, robotics and other AI based technologies. Automobile industry is investing in autonomous driving. Major auto brands are investing in research and development in this area and development of AI platforms to accelerate the pace of AI research and autonomous driving. Experiments are going on outside the tech industry too. Early evidence shows that AI has disruptive potential and can deliver real value including financial. However, while on the one hand it brings opportunities, on the other there are challenges like reskilling the workforce, attracting skilled talent and the legal and regulatory challenges.
In 2016, companies invested around 26 to 39 Billions together in AI, of which 20 to 30 billion dollars were invested by the tech giants like Google and Baidu. Startups invested around 6 to 9 billions. External investment in AI had grown by around 300% between 2013 and 2016. The level of AI adoption varies across sectors and it is the highest among the tech firms that were the earliest adopters of digital technology as well. Among the leading adopters of the AI technology are the players in the hightech, telecom, automotive and the financial industry. These are the players whose level of AI adoption is the highest. The industries with medium level of AI adoption include retail, media and entertainment industry as well as the consumer packaged goods industry. The healthcare and education industry are still lagging behind in terms of adoption. Their level of AI adoption is minimal. The early AI adopters are the digitally mature and large businesses. They have adopted multiple AI technologies like machine learning and robotics plus made AI a part of their core activities. These companies are focusing over growth rather than savings and also have C suite support for AI.
The main areas across value chains where AI has the potential to bring major and meaningful changes. First it can help improve R&D and forecasting in project management. Next, it can also help with optimizing production and maintenance. In the area of marketing, it can help with targeted sales and marketing. Apart from these, it can help provide a better customer experience. These are the four leading areas where businesses and their value chains can benefit from AI. However, bringing about a successful AI transformation is difficult and several things need to be aligned in order to bring about a successful transition. First of all, there is the culture, then the necessary data ecosystem as well as techniques and tools. Apart from them, workflow integration of AI is also essential.
Artificial Intelligence in the retail value chain
In the retail industry, AI can make it easier to anticipate demand trends. On the other hand, it makes it possible to automate and optimize supplier negotiation and contracting. Automating warehouse and store operations will also help increase productivity as well as reduce wastage and operational costs. Not just this, AI also makes it possible to better optimize merchandise and the product assortment. In terms of marketing, it is easier to deliver personalized promotions as well as optimize your pricing strategy better with the help of AI. Moreover, you can tailor your website displays in real time.
There are major advantages in terms of customer service as well. One can provide more effective service with the help of AI. Many ecommerce websites use AI for offering personalized tips and suggestions. In retail, virtual assistants can offer immediate assistance to customers. AI can also be used for automated in-store checkouts and drones can help with last mile delivery. So, overall from projects to production as well as marketing and customer service, AI can make the retail value chain more efficient in several areas.
Current use cases, researched by McKinsey showed that there were significant benefits in all these areas to be achieved through the use of AI. These cases showed that EBIT could be improved by 1 to 2% through the use of machine learning to anticipate fruit and vegetable sales. The use of deep learning to predict e-commerce purchases have helped reduce stock by up to 20%. Not just this AI has helped reduce the number of products returned by up to 2 millions. Use of autonomous vehicles in the warehouses has reduced stocking time by up to 30%. Dynamic pricing and higher personalization have been found to be effective in several cases and resulted in up to 30% increase in online sales.
Artificial Intelligence in Manufacturing:-
In the area of manufacturing, AI use has the potential to improve product, design yield and efficiency. It can help automate supplier assessment as well as anticipate parts requirements. AI can also help improve task processes, automate assembly lines as well as reduce chances of errors. It can also reduce material delivery time. Apart from these things, AI can help with predicting the sales of maintenance services, optimize prices as well as refine the process of prioritizing sales leads. In the airlines industry too, AI can help with flight planning and route optimization. Several cases have shown that AI has helped businesses obtain significant gains in all these areas.
Current use cases researched by McKinsey showed that using AI to fully automate procurement helped reduce the need for IT staff by upto 39%. The use of machine learning to determine the timing of goods transfer helped increase material delivery time by 30%. Product yield also improved by 3 to 5%. Using machine learning for predicting source of servicing revenue and optimizing sales efforts helped improve EBIT by up to 13%. Airlines experienced up to 12% fuel savings through the use of machine learning for optimizing flight planning and fight routes.
Artificial Intelligence in Healthcare:
In the field of Healthcare, major cost savings are possible through the use of AI apart from increased efficiency of existing processes. The use of AI can help predict diseases as well as identify high risk patient groups plus launching preventions. Automating and optimizing hospital operations can also help increase efficiency as well as reduce costs. AI can also help automate diagnostic tests and increase their accuracy and speed. It can help at predicting costs more precisely as well as reducing patients’ risk. In the healthcare industry too a higher degree of service personalization can be achieved through the use of AI. It becomes easier to adapt therapies and medicines to the patients. Virtual assistants can help the patients navigate through their hospital journey with higher convenience.
As per research by McKinsey the use of machine learning tools for forecasting population health in USA could save more than 300 billion dollars. UK too could save approximately 3.3 billion pounds by the use of machine learning for the provision of preventive care and for reducing non-elective hospital admissions. AI tools can help improve the productivity of nurses by 30 to 50%. In the developed countries, use of AI in healthcare could translate into up to 2% of GDP savings. Using machine learning to tailor the treatments to specific patients and to keep them engaged could easily help reduce healthcare expenditure by 5 to 9%. Globally, the use of AI to tailor drugs and treatments to patients could mean savings of 2 to 20 trillions as well as increase in average life expectancy by 0.2 to 1.3 years.
Artificial Intelligence in Education:
In the field of education also AI holds immense potential and can solve several problems. It can help anticipate job market demands better and help graduates highlight their strengths. It could also help automate teachers’ routine tasks as well as identify signs of disengagement early. Personalized learning as well as building student self awareness can also be made possible with the help of Artificial Intelligence. Virtual teaching assistant can answer around 40% of the questions routinely asked by the students. Use of virtual assistants to follow up with the applicants has been found to drive enrollment higher by 1%.
In this way, AI has been found to improve value chain efficiency in several fields from education and healthcare to manufacturing and retail. It does not just improve efficiency but also reduce operational costs. In the retail industry, the bigger players like Walmart and Amazon are among the early adopters. However, Amazon is also a leading technology player. The tech industry is leading the way in AI. For the other industries and smaller players while there are no shortcuts there are many challenges too. The advantages of AI are many and those who are hesitating from adopting AI may tomorrow find it difficult to overcome the competitive pressures. AI is expected to bring the next wave of disruption in the digital industry.