OPERATIONS

MANAGEMENT
Goods, Services and Value Chains
CHAPTER 5

Technology and
Operations Management
DAVID A. COLLIER
AND
JAMES R. EVANS

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2007 Thomson South-Western

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Chapter 5 Learning Objectives

1.To gain a basic understanding of different types

of technology and their role in manufacturing
and service operations.
2.To understand how manufacturing and service
technology is changing the role of business
relationships and strengthening the value
chain.
3.To understand the nature of an integrated
operation system (IOS) and examine some
common examples of such systems that play
significant roles in operations management.
Operations Management, 2e/Ch. 5 Technology and Operations Management
2007 Thomson South-Western

Chapter 5 Learning Objectives

4.To understand the advantages that technology

offers in operations and its impact on
productivity.
5.To understand the processes of technology
development and adoption and the role of
operations in these processes.
6.To understand how scalability affects
technology decisions and to be able to apply
simple scoring and decision models to
technology decisions.
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2007 Thomson South-Western

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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2007 Thomson South-Western

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 Tours

Making jigsaw puzzles: consists of three
major steps: making puzzle pieces, making
puzzle boxes, and final assembly.
Manufacturing motorcycle transmission
gears: Mazak machining center can
operate unattended for hourshighly
automated production.
Many manufacturing industries used
specialized technology.
Operations Management, 2e/Ch. 5 Technology and Operations Management
2007 Thomson South-Western

Exhibit
5.1

Production Process for Jigsaw Puzzle Making

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Exhibit
5.2

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.
Operations Management, 2e/Ch. 5 Technology and Operations Management
2007 Thomson South-Western

Exhibit
5.3

Examples of Service Technology

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Chapter 5 Technology and Operations Management

Service Technology
Technology has been used extensively in
financial services to facilitate the large
number of transactions and processing
activities that must occur each day.
Many health care facilities are adopting
electronic medical record (EMR) systems
that can be easily integrated with medical
records, billing, patient scheduling, and
accounting.
Technology at UPS such as handheld
devices, UPSnet, UPS Mail, etc.
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Exhibit
5.4

The Electronic Check Process

Source: M. M. Anderson, The Electronic Check Architecture, Financial Services Technology Consortium, 1998 (http://www.echeck.org/library/wp/index.html).

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Exhibit
5.5

JP Morgan Chase Banks Cash Movement Process

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Chapter 5 Technology
and Operations
Technology
in Value
ChainsManagement

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

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Exhibit
5.6

E-Commerce View of the Value Chain

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Exhibit
5.7

Example e-Commerce Value Chain Players

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Chapter 5 Technology and Operations Management

Business Intelligence Systems in Value

Chains
Business intelligence systems (BIS)
consolidate data from across the
organization and allow companies to
integrate information into a common
database for easy access and analysis.

Many BIS incorporate data mining,

sophisticated statistical analysis tools and
automated search algorithms to sift through
large amounts of data to identify meaningful
relationships.
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Chapter 5 Technology and Operations Management

Business Intelligence Systems in Value

Chains
Benefits include increased revenues by
identifying customer interests, improving
customer satisfaction, and support for
strategic decision-making through data
analysis.

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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)
An IOS involves the collection,
storage, analysis, and
dissemination of data and
information via information
technology to improve decisionmaking within the organization.
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)
Supply chain management
(SCM) systems focuses on
producing the right product, in
the right quantity, at the right
time, in the right location, to the
right customer, at the right price.

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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, 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.
CAM involves computer control of the
manufacturing process.
Flexible manufacturing systems
(FMS) consist of two or more computercontrolled machines linked by automated
handling devices.

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Integrated
Operating
System
Chapter 5 Technology
and Operations
Management
(IOS)
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

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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 easily share
information and communicate with
each other.
ERP is not about software, but about
changing the way the organization and
its operations are managed.
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Exhibit
5.8

SAPs ERP Business Map

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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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Integrated
Operating System (IOS)
Chapter 5 Technology and Operations Management
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
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Integrated Operating System

Chapter
5 Technology and Operations Management
(IOS)
A revenue management system
(RMS)
consists of dynamic methods to
forecast
demand, allocate perishable assets
cross
Rate classes, 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 used to determine price for hotel rooms,
airline seats, rental car, sporting event or
concert seat, cruise line room, broadcast
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advertising, power generation, and so on.
Operations Management, 2e/Ch. 5 Technology and Operations Management
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Chapter 5 Technology and Operations Management

Benefits of Technology

Improves productivity and product

quality.
Creates new industries and job
opportunities.
Allows for unparalleled opportunities for
innovation.
Drives improvements in time, cost, and
quality.
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Chapter 5 Technology and Operations Management

Challenges of Technology
Customer concerns, such as online
security and privacy issues.
Logistical costs for manufactured
goods are expensive for online
businesses.
Logistical costs for information
intensive services are much
cheaper for online businesses.
Product returns to a virtual store.

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Exhibit
5.9

Example Benefits and Challenge

of Adopting Technology

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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:
Digital Revolution
U.S. Railroad Industry
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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. (Monster.com)
Low scalability implies that serving additional
customers requires high incremental variable
costs. (Webvan)
Many of the dot.coms that failed in the year
2000 had low scalability and unsustainable
demand.
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Chapter 5 Solved Problem #1

Sterling Equipment Corporation is

contemplating the purchase of an industrial
robot from four suppliers. The management
team needs this robot in a hurry and
requires rapid service from the supplier
when breakdowns occur. Therefore, the
company considers these factors far more
important than the others. Exhibits 5.10,
5.11, and 5.12 provide the necessary data
for decision-making.
Based on this information, what
decision do you think the company
should make?

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Exhibit 5.10 Economic Analysis for Equipment Selection

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Exhibit 5.11 Noneconomic Factor Evaluation for

Equipment Selection

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Exhibit 5.12 Numerical Scores for Noneconomic

Factors in Equipment Selection

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Answer:

Chapter 5 Solved Problem #1

Supplier 1 clearly has significant lower economic

costs.
If installation lead time and supplier service are the
most important factors, we might consider weighing
these factors to reflect the importance.
If these factors are weighed by a factor of 3,
Supplier 3 is the best on the non-economic factors.
The ultimate decision rests with the company
management; should the company spend an
additional net cost of $10,500 for faster
installation and better service or sacrifice
these attributes for a lower cost? The analysis
and scoring model provides information on
which to debate the issues and make a
Operations
Management, 2e/Ch.decision.
5 Technology and Operations Management
rational
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2007 Thomson South-Western

Exhibit 5.13

Basic Manufacturing Technology

Case: Contrasting Manufacturing

Technology

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Exhibit 5.14 D&C Car Wash ServicesInvestment Costs*

Case: D&C Car Wash Services

*Note that Drew and Caroline put down $400,000 of their own money to reduce the total net investment costs.
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Exhibit 5.15 D&C Car Wash ServicesOperating Costs

Case: D&C Car Wash Services

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