OM Chapter 05

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1OM, Ch. 5 Technology and Operations Management

©2009 South-Western, a part of Cengage Learning

TECHNOLOGY AND

OPERATIONS MANAGEMENT

CHAPTER 5

DAVID A. COLLIERAND

JAMES R. EVANS

OM



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LO1 Describe different types of technology and their

role in manufacturing and service operations.

LO2 Explain how manufacturing and service technology

is strengthening the value chain.

LO3 Describe different types of integrated operating

systems (IOS).

LO4 Explain the benefits and challenges of using

technology.

LO5 Describe the processes of technology development

and adoption.

l e a r n i n g o u t c o m e s

Chapter 5 Learning Outcomes



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man had his head blown off,” said John Brodbeck, who was 5 years old in 1930 when the steam engine blew up at his farm in Michigan. In the early 1900s — the height of steam-powered

tractor use — explosions were common, averaging two a day in the United States in 1911, according to Diotima Booraem of the Smithsonian Institution in Washington D.C. The new technology of the 1910s was not safe and few people knew how to truly operate steam engines. The first

agricultural steam engines arrived in the 1850s and were pulled by horses.By the 1890s, a steam-engine tractor could plow up to 75 acres per day,more than 20 times the productivity of pulling a plow using horses. By the 1920s, production of steam engines dwindled and none were sold by the end of the decade, replaced by gas-powered engines and tractors.

Chapter 5 Technology and Operations Management

What do you think? In what ways has technology benefited your life and work as a student?



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Understanding technology in operations is criticalfor several reasons:

• Virtually everything that is done in a business

depends on some type of technology.• Technology is evolving at an extremely rapid

pace.

• Technological innovation in goods, services,manufacturing, and service delivery is acompetitive necessity.




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•

Hard technology refers to equipment and devices that perform a variety of tasks in the creation and delivery of goods and services.

•

Soft technology is the application of the Internet, computer software, and information systems to provide data, information, and analysis and to facilitate the accomplishment of

creating and delivering goods and services.




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Manufacturing Technology Tours

• Making jigsaw puzzles consists of three majorsteps: making puzzle pieces, making puzzle boxes,and final assembly (see diagram on next slide).

• Manufacturing motorcycle transmission gears:Mazak machining center can operate unattendedfor hours — highly automated production (see

diagram on slide 8).• Many manufacturing industries use specialized

technology.



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Production Process for Jigsaw Puzzle Making



OM, Ch. 5 Technology and Operations Management


Photos courtesy of Andrews Products, Inc.

Examples of Machining Technology





Service Technology

• Service technologies are used behind thescenes to facilitate your experience as acustomer.

• E-service refers to using the Internet and technology to provide services that create and deliver time, place, information,

entertainment, and exchange value to customers and/or support the sale of goods.






Examples of Service TechnologyExhibit Extra





Service Technology

• Many health care facilities are adoptingelectronic medical record (EMR) systemsthat can be easily integrated with medical

records, billing, patient scheduling, andaccounting (see text box).

• Technology at UPS such as handheld devices,

UPSnet, UPS Mail, etc. (see text box).






Technology in Value Chains

Three major types of business relationships:

B2B: Business to Business

B2C: Business to Customer

C2C: Customer to Customer

Electronic transaction capability allows all parts of the value chain to immediately know and react tochanges in demand and supply.






E-Commerce View of the Value ChainExhibit 5.1





Integrated Operating System (IOS)

1. An IOS focus is on the main problemstructure and processes of a specificindustry, such as home insurance, airlines,

family practice medical doctors, orautomobile manufacturers.

2. An IOS addresses key decisions that needto be made to serve the customer in thebest possible way.







3. An IOS involves the collection, storage,analysis, and dissemination of data andinformation via information technology to

improve decision-making within theorganization.

4. An IOS is capable of making key decisionsin a synchronous and timely way anywherealong the value chain.






Integrated Operating System (IOS) • Computer-integrated manufacturing

systems (CIMS) represent the union of hardware, software, database management,

and communications to automate and control production activities.

A robot is a programmable machine

designed to handle materials or tools in the performance of a variety of tasks.







Computer-Integrated Manufacturing Systems (CIMS) (continued)

• CAD/CAE enables engineers to design, analyze,

test, simulate, and “manufacture” products before they physically exist.

• CAM involves computer control of the

manufacturing process. • Flexible manufacturing systems (FMS)

consist of two or more computer-controlled machines linked by automated handling devices.






Integrated Operating System (IOS) • Enterprise Resource Planning (ERP)

systems integrate all aspects of a business — accounting, customer relationship

management, supply chain management,manufacturing, sales, human resources — into a unified information system and provide more timely analysis and reporting of sales,

customer, inventory, manufacturing, human resource, and accounting data.






Enterprise Resource Planning (ERP)

Two prominent vendors of ERP software areSAP and Oracle.

•

ERP allows departments to shareinformation and communicate with eachother easily.

•

ERP is not about software, but aboutchanging the way the organization and itsoperations are managed.






Integrated Operating System (IOS) • Customer relationship management

(CRM) is a business strategy designed to learn more about customers’ wants, needs,

and behaviors in order to build customer relationships and loyalty, and ultimately enhance revenues and profits.







CRM helps firms gain and maintain a competitiveadvantage by:

• Segmenting markets based on characteristics

• Tracking sales trends and advertising effectiveness• Forecasting customer retention rates and providing

feedback as to why customers leave the company• Studying which goods and services are purchased

together• Linking the information to competitive priorities by

market segment, and process and value chainperformance







A revenue management system (RMS) consists of dynamic methods to forecast demand, allocate perishable assets across

market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes.






• Four Components of RMS:

Forecasting Allocation Overbooking Pricing

• Modern RMS software simultaneously makes changesin these decisions in a real-time operating system.

• RMS is used to determine price for hotel rooms,airline seats, rental cars, sporting events or concertseats, cruise line rooms, broadcast advertising, powergeneration, and so on.






Example Benefits and Challenge of Adopting TechnologyExhibit 5.2





Making Technology Decisions

• Scalability is a measure of the contribution margin required to deliver a good or service as the business grows and volumes increase.

• High scalability is the capability to serve additional customers at zero or extremely low incremental costs (e.g., Monster.com).

• Low scalability implies that serving additional

customers requires high incremental variable costs (see WebVan).

• Many of the dot.coms that failed in the year 2000had low scalability and unsustainable demand.






How Intel describes the history of technology

revolutions:

Stage I. Birth

Stage II. Turbulence

Stage III. Build-out

Examples:

Global Digital Revolution (see text box)

U.S. Railroad Industry


E hibi 3




Case: Contrasting Manufacturing Technology

Basic Manufacturing TechnologyExhibit 5.3

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