OM

CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

DAVID A. COLLIER AND JAMES R. EVANS

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Chapter 5 Learning Outcomes

learning outcomes
LO1 Describe different types of technology and their
role in manufacturing and service operations.
is strengthening the value chain. systems (IOS). technology.

LO2 Explain how manufacturing and service technology LO3 Describe different types of integrated operating LO4 Explain the benefits and challenges of using

LO5 Describe the processes of technology development

and adoption.

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Chapter 5 Technology and Operations Management

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 1900sthe height of steam-powered tractor useexplosions 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.

What do you think? In what ways has technology benefited your life and work as a student?
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Chapter 5 Technology and Operations Management

Understanding technology in operations is critical for 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 a competitive necessity.
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Chapter 5 Technology and Operations Management

Hard technology refers to equipment and

devices that perform a variety of tasks in the creation and delivery of goods and services. Internet, computer software, and information systems to provide data, information, and analysis and to facilitate the accomplishment of creating and delivering goods and services.

Soft technology is the application of the

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Chapter 5 Technology and Operations Management

Manufacturing Technology Tours

Making jigsaw puzzles consists of three major steps: making puzzle pieces, making puzzle boxes, and final assembly (see diagram on next slide).
Manufacturing motorcycle transmission gears: Mazak machining center can operate unattended for hourshighly automated production (see diagram on slide 8). Many manufacturing industries use specialized technology.
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Production Process for Jigsaw Puzzle Making

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Examples of Machining Technology

Photos courtesy of Andrews Products, Inc.

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Chapter 5 Technology and Operations Management

Service Technology
Service technologies are used behind the scenes to facilitate your experience as a customer. 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.

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Exhibit Extra

Examples of Service Technology

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Chapter 5 Technology and Operations Management

Service Technology
Many health care facilities are adopting electronic medical record (EMR) systems that can be easily integrated with medical records, billing, patient scheduling, and accounting (see text box). Technology at UPS such as handheld devices, UPSnet, UPS Mail, etc. (see text box).

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Chapter 5 Technology and Operations Management

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 to changes in demand and supply.
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Exhibit 5.1

E-Commerce View of the Value Chain

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Chapter 5 Technology and Operations Management

Integrated Operating System (IOS)

1. An IOS focus is on the main problem structure and processes of a specific industry, such as home insurance, airlines, family practice medical doctors, or automobile manufacturers.

2. An IOS addresses key decisions that need to be made to serve the customer in the best possible way.
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Chapter 5 Technology and Operations Management

Integrated Operating System (IOS)

3. An IOS involves the collection, storage, analysis, and dissemination of data and information via information technology to improve decision-making within the organization. 4. An IOS is capable of making key decisions in a synchronous and timely way anywhere along the value chain.
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Chapter 5 Technology and Operations Management

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.

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Chapter 5 Technology and Operations Management

Integrated Operating System (IOS)

Computer-Integrated Manufacturing Systems (CIMS) (continued)
CAD/CAE enables engineers to design, analyze,

test, simulate, and manufacture products before they physically exist. manufacturing process.

CAM involves computer control of the Flexible manufacturing systems (FMS)

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

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Chapter 5 Technology and Operations Management

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 resourcesinto a unified information system and provide more timely analysis and reporting of sales, customer, inventory, manufacturing, human resource, and accounting data.

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Chapter 5 Technology and Operations Management

Enterprise Resource Planning (ERP)

Two prominent vendors of ERP software are SAP and Oracle.

ERP allows departments to share information and communicate with each other easily. ERP is not about software, but about changing the way the organization and its operations are managed.
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Chapter 5 Technology and Operations Management

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.

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Chapter 5 Technology and Operations Management

Integrated Operating System (IOS)

CRM helps firms gain and maintain a competitive advantage 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 chain performance
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Chapter 5 Technology and Operations Management

Integrated Operating System (IOS)

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.

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Chapter 5 Technology and Operations Management

Four Components of RMS: Forecasting Allocation Overbooking Pricing

Modern RMS software simultaneously makes changes in these decisions in a real-time operating system. RMS is used to determine price for hotel rooms, airline seats, rental cars, sporting events or concert seats, cruise line rooms, broadcast advertising, power generation, and so on.
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Exhibit 5.2

Example Benefits and Challenge of Adopting Technology

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Chapter 5 Technology and Operations Management

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 2000 had low scalability and unsustainable demand.
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Chapter 5 Technology and Operations Management

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
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Exhibit 5.3

Basic Manufacturing Technology

Case: Contrasting Manufacturing Technology

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