CHAPTER 5 TECHNOLOGY AND OPERATIONS MANAGEMENT

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1 OM CHAPTER 5 TECHNOLOGY AND OPERATIONS MANAGEMENT DAVID A. COLLIER AND JAMES R. EVANS 1

2 Chapter 5 Learning Outcomes l e a r n i n g o u t c o m e s LO1 LO2 LO3 LO4 LO5 Describe different types of technology and their role in manufacturing and service operations. Explain how manufacturing and service technology is strengthening the value chain. Describe different types of integrated operating systems (IOS). Explain the benefits and challenges of using technology. Describe the processes of technology development and adoption. 22

3 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. What do you think? In what ways has technology benefited your life and work as a student? 33

4 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. 44

5 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. 55

6 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 hours highly automated production (see diagram on slide 8). Many manufacturing industries use specialized technology. 66

7 Production Process for Jigsaw Puzzle Making 77

8 Examples of Machining Technology Photos courtesy of Andrews Products, Inc. 88

9 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. 99

10 Exhibit Extra Examples of Service Technology 10 10

11 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)

12 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

13 Exhibit 5.1 E-Commerce View of the Value Chain 13 13

14 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

15 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

16 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

17 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. 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

18 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

19 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

20 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

21 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 21 21

22 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

23 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

24 Exhibit 5.2 Example Benefits and Challenge of Adopting Technology 24 24

25 Making Technology Decisions Chapter 5 Technology and Operations Management 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

26 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 26 26

27 Exhibit 5.3 Basic Manufacturing Technology Case: Contrasting Manufacturing Technology 27 27