TECHNOLOGY AND

OPERATIONS MANAGEMENT
CHAPTER 5

DAVID A. COLLIER AND JAMES R. EVANS

OM3 Chapter 5 Technology and Operations Management

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

LO1 Describe different types of technology and

their
role in manufacturing and service
operations.

LO2 Explain how manufacturing and service

technology
chain.

is strengthening the value

LO3 Explain the benefits and challenges of using

technology.

LO4 Describe key technology decisions and the

processes of technology adoption.

OM3 Chapter 5 Technology and Operations Management

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

taples is a large, well-known, distributor of

office products in the United States, often

recognized for its easy
button commercials. But managing and working in
their distributions is not always easy, especially
when
they have a goal of next-day delivery. Most
warehouses and distribution centers rely on people
to locate and
retrieve items. People get fatigued and can make
errors reading product numbers or pulling the wrong
item
3

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Staples uses small, 2-foot high by 3-foot long

machines that travel along the aisles of a
warehouse by reading special bar-code stickers on
the floor. A computer sends stock location
information to the robots, which slide under the
storage racks that contain the goods, lift them up,
and bring them to stations where real people pull
the products and pack them for shipping. Then
they return the racks back to their original
locations. Theyre even programmed to travel to
recharging stations when
their batteries run low. As a result, Staples
improved productivity by 60%, making it much
easier to meet its customer service promises.

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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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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Importance of Technology
Technologyboth physical and
informationhas dramatically changed
how work is accomplished in every
industry, from mining to manufacturing to
education to health care.
Technological innovation in goods,
services, manufacturing, and service
delivery is a competitive necessity.

OM3 Chapter 5 Technology and Operations Management

2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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.
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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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Manufacturing Technology
The right technology must be selected for the
goods that are produced.
Process resources, such as machines and
employees, must be set up and configured in
a logical fashion to support production
efficiency.
Labor must be trained to operate the
equipment.
Process performance must be continually
improved.
Work must be scheduled to meet shipping
commitments/customer promise dates.
Quality must be ensured.

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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Computer-Integrated Manufacturing Systems

Computer-integrated manufacturing
systems (CIMS) represent the union of
hardware, software, database management,
and communications to automate and control
production activities.
Numerical control (NC) machine tools
enable the machinists skills to be duplicated
by a programmable device (originally punched
paper tape) that controls the movements of a
tool used to make complex shapes.
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

Computer-Integrated Manufacturing Systems

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. Computers direct the overall
sequence of operations and route the work to
the appropriate machine, select and load the
proper tools, and control the operations
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performed by the machine.

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

CIMS Facts
According to the National Research Council,
companies with computer-integrated
manufacturing system experience have been able
to:
decrease engineering design costs by up to 30
percent;
increase productivity by 40 to 70 percent;
increase equipment utilization by a factor of 2
to 3;
reduce work-in-process and lead times by 30
to 60 percent; and
improve quality by a factor of 3 to 4.
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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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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Exhibit 5.1 E-Commerce View of the Value Chain

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Technology in Value Chains

An intermediary is any entityreal or
virtualthat coordinates and shares
information between buyers and sellers.
Return facilitators specialize in handling
all aspects of customers returning a
manufactured good or delivered service
and requesting their money back, repairing
the manufactured good and returning it to
the customer, and/or invoking the service
guarantee.
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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Enterprise Resource Planning

Enterprise Resource Planning (ERP)
systems integrate all aspects of a
businessaccounting, 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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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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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 combines each departments
information into a single, integrated
system with a common database so that
departments can easily share information
and communicate with each other.

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Customer Relationship Management Systems

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

Benefits of CRM
Segmenting markets based on
demographic and behavioral
characteristics.
Tracking sales trends and advertising
effectiveness by customer and market
segment.
Identifying which customers should be the
focus of targeted marketing initiatives with
predicted high customer response rates.
Forecasting customer retention (and
defection) rates and providing feedback as
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to why customers leave the company.

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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Benefits of CRM
Identifying which transactions are likely
candidates to be fraudulent.
Studying which goods and services are
purchased together, and what might be good
ways to bundle them (that is, the customer
benefit package).
Studying and predicting what Web
characteristics are most attractive to
customers and how the Web site might be
improved.
Linking the information above to competitive
priorities by market segment and process and
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value chain performance.

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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Exhibit 5.2 Example Benefits and Challenges of Adopting Technology

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Technology Decisions and Implementation

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
(e.g., see WebVan).
Many of the dot.coms that failed in the year 2000
had low scalability and unsustainable demand
(see WebVan, for example).
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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

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2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Technology Adoption
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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CHAPTER 5

TECHNOLOGY AND OPERATIONS MANAGEMENT

Bracket InternationalThe RFID Decision Case

Study
1. How does RFID compare to bar-coding?
2. What is the economic payback in years for this
possible RFID adoption?
3. What are the risks of adopting a new
technology too early? Too late?
4. What do you recommend Mr. Bracket do in the
short and long terms? Explain your reasoning.
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