1. An Integrated Goods and Services Approach
OPERATIONS MANAGEMENT
An Integrated Goods and Services Approach
CHAPTER 5
Technology and Integrated Operating Systems
JAMES R. EVANS
AND
DAVID A. COLLIER
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western 1

2. Chapter 5 Learning Objectives
To gain a basic understanding of different types of technology and their role in manufacturing and service operations.
To understand how manufacturing and service technology is changing the role of business relationships and strengthening the value chain.
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/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

3. Chapter 5 Learning Objectives
To understand the advantages that technology offers in operations and its impact on productivity.
To understand the processes of technology development and adoption and the role of operations in these processes.
To understand how scalability affects technology decisions and to be able to apply simple scoring and decision models to technology decisions.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

4. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

5. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

6. Chapter 5 Technology and Integrated Operating Systems
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 hours—highly automated production.
Many manufacturing industries used specialized technology.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

7. Production Process for Jigsaw Puzzle Making
Exhibit 5.1
Production Process for Jigsaw Puzzle Making
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

8. Examples of Machining Technology
Exhibit 5.2
Examples of Machining Technology
Photos courtesy of Andrews Products, Inc.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

9. Chapter 5 Technology and Integrated Operating Systems
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/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

10. Examples of Service Technology
Exhibit 5.3
Examples of Service Technology
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

11. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

12. The Electronic Check Process
Exhibit 5.4
The Electronic Check Process
Source: M. M. Anderson, “The Electronic Check Architecture,” Financial Services Technology Consortium, 1998 (
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

13. JP Morgan Chase Bank’s Cash Movement Process
Exhibit 5.5
JP Morgan Chase Bank’s Cash Movement Process
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

14. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

15. E-Commerce View of the Value Chain
Exhibit 5.6
E-Commerce View of the Value Chain
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

16. Example e-Commerce Value Chain Players
Exhibit 5.7
Example e-Commerce Value Chain Players
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

17. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

18. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

19. Chapter 5 Technology and Integrated Operating Systems
Integrated Operating System (IOS)
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.
An IOS addresses key decisions that need to be made to serve the customer in the best possible way.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

20. Chapter 5 Technology and Integrated Operating Systems
Integrated Operating System (IOS)
An IOS involves the collection, storage, analysis, and dissemination of data and information via information technology to improve decision-making within the organization.
An IOS is capable of making key decisions in a synchronous and timely way anywhere along the value chain.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

21. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

22. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

23. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

24. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

25. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

26. Exhibit 5.8 SAPs ERP Business Map
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

27. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

28. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

29. Chapter 5 Technology and Integrated Operating Systems
Integrated Operating System (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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

30. Chapter 5 Technology and Integrated Operating Systems
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 advertising, power generation, and so on.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

31. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

32. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

33. Example Benefits and Challenge of Adopting Technology
Exhibit 5.9
Example Benefits and Challenge of Adopting Technology
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

34. Chapter 5 Technology and Integrated Operating Systems
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
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

35. Chapter 5 Technology and Integrated Operating Systems
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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

36. 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?
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

37. Economic Analysis for Equipment Selection
Exhibit 5.10
Economic Analysis for Equipment Selection
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

38. Noneconomic Factor Evaluation for Equipment Selection
Exhibit 5.11
Noneconomic Factor Evaluation for Equipment Selection
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

39. Numerical Scores for Noneconomic Factors in Equipment Selection
Exhibit 5.12
Numerical Scores for Noneconomic Factors in Equipment Selection
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

40. Chapter 5 Solved Problem #1
Answer:
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 rational decision.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

41. Case: Contrasting Manufacturing Technology
Exhibit 5.13
Basic Manufacturing Technology
Case: Contrasting Manufacturing Technology
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

42. Case: D&C Car Wash Services
Exhibit 5.14
D&C Car Wash Services—Investment 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.
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western

43. Case: D&C Car Wash Services
Exhibit 5.15
D&C Car Wash Services—Operating Costs
Case: D&C Car Wash Services
Operations Management/Ch. 5 Technology and Integrated Operating Systems
©2007 Thomson South-Western