F O U R T H E D I T I O N

The Role of Technology in Operations

© The McGraw-Hill Companies, Inc., 2003

chapter 4

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byCharlieCook

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–2

Chapter ObjectivesChapter ObjectivesChapter ObjectivesChapter Objectives

• Introduce the different ways in which technology can add value to the operations function within an organization.

• Identify the various ways in which technology can be used in a manufacturing company.

• Describe enterprise resource planning (ERP) systems and how they impact an organization.

• Demonstrate the different ways in which technology can be integrated into service operations.

• Present a framework for defining the different types of e-services that are currently being offered.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–3

Managerial IssuesManagerial IssuesManagerial IssuesManagerial Issues

• Advances in technology are changing the way in which both manufacturing and service operations are designed.

• Technology is a tool, not an end in itself.

• Importance of maintaining compatibility between technology and the organization’s other elements.

• The need for continuous training in the use of technology.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–4

How Technology Affects OperationsHow Technology Affects OperationsHow Technology Affects OperationsHow Technology Affects Operations

• Traditional Tradeoffs–Low costs–Speed of delivery–Quality of product/service–Customization

• Technology’s Impact on Traditional Tradeoffs–Tradeoffs are no longer valid—technology

allows firms compete on several dimensions at once.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–5

How Technology Impacts How Technology Impacts Operational PerformanceOperational Performance

How Technology Impacts How Technology Impacts Operational PerformanceOperational Performance

Exhibit 4.1Exhibit 4.1

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–6

Technology in ManufacturingTechnology in ManufacturingTechnology in ManufacturingTechnology in Manufacturing

Automation Development

Machining centers Operations where tools are change automatically as part of the process.

Numerically controlled (NC) machines

Manufacturing equipment that is directly controlled by a computer.

Industrial robots Programmable machines that can perform multiple functions.

Computer-aided (or –assisted) design

Designing a product using a specially equipped computer.

Computer-assisted design and manufacturing system (CAD/CAM)

Integration of design and production of a product through use of a computer.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–7

Technology in Manufacturing Technology in Manufacturing (cont’d)(cont’d)

Technology in Manufacturing Technology in Manufacturing (cont’d)(cont’d)

Automation Development

Flexible manufacturing system (FMS

Manufacturing facility that is automated to some extent and produces a wide variety of products.

Computer-integrated manufacturing (CIM)

Integration of all aspects of manufacturing through computers.

Islands of automation Automated factories or portions which include NC equipment, automated storage/retrieval systems, robots, and machining centers.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–8

Major Categories of Software SystemsMajor Categories of Software Systemsin Manufacturingin Manufacturing

Major Categories of Software SystemsMajor Categories of Software Systemsin Manufacturingin Manufacturing

Exhibit 4.2Exhibit 4.2

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–9

Information TechnologyInformation TechnologyInformation TechnologyInformation Technology

Software Systems

Enterprise Resource Planning (ERP)

Provides a common software infrastructure and database.

Supply Chain Management (SCM)

Controls interaction with suppliers in the overall supply chain.

New Product Development (NPD)

Links the engineering function with the operations function.

Customer Relationship Management (CRM)

Manages the interface between the firm and its customer.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–10

Functional Areas as Independent Functional Areas as Independent OperationsOperations

Functional Areas as Independent Functional Areas as Independent OperationsOperations

Exhibit 4.3aExhibit 4.3a

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–11

ERP Systems Link Functional Areas with a ERP Systems Link Functional Areas with a Common Software Platform and DatabaseCommon Software Platform and DatabaseERP Systems Link Functional Areas with a ERP Systems Link Functional Areas with a Common Software Platform and DatabaseCommon Software Platform and Database

Exhibit 4.3bExhibit 4.3b

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–12

Example of How Example of How SAP’s R/3 SystemSAP’s R/3 System

Integrates an Integrates an OrganizationOrganization

Example of How Example of How SAP’s R/3 SystemSAP’s R/3 System

Integrates an Integrates an OrganizationOrganization

Exhibit 4.4Exhibit 4.4

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–13

Leading ERP Software Companies and Leading ERP Software Companies and Respective Market SharesRespective Market Shares

Leading ERP Software Companies and Leading ERP Software Companies and Respective Market SharesRespective Market Shares

Exhibit 4.5Exhibit 4.5Source: AMR Research

Total ERP Software and Total ERP Software and

Services Revenue = Services Revenue = $18.2 billion$18.2 billion

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–14

Evolution of ERP SystemsEvolution of ERP SystemsEvolution of ERP SystemsEvolution of ERP Systems

• ERP Systems Origins–An outgrowth of Materials Requirements

Planning (MRP) systems in the 1960s–70s–Adoption of ERP systems updated the entire

information technology infrastructure of firms.

• Benefits of ERP Systems–Reduction in database errors–Faster customer response–Faster order fulfillment–Better overall communication

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–15

Evolution of ERP Systems (cont’d)Evolution of ERP Systems (cont’d)Evolution of ERP Systems (cont’d)Evolution of ERP Systems (cont’d)

• Why ERP Systems Fail–Lack of top management commitment–Lack of adequate resources–Lack of proper training–Lack of communication

• Criticisms of ERP Systems–Constraints of a single ERP system versus a

mixture of Best of Breed software products–Inflexibility of the built-in business model of

ERP systems

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–16

Technology Trends in ServicesTechnology Trends in ServicesTechnology Trends in ServicesTechnology Trends in Services

• Increase in Self-Service–Reduces labor costs–Speeds up service

• Decrease in the Importance of Location–Lower costs for delivery of products and

services increases remote points of access and reduces the need for specific service locations

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–17

Methods of Pricing to Encourage Self-Methods of Pricing to Encourage Self-ServiceService

Methods of Pricing to Encourage Self-Methods of Pricing to Encourage Self-ServiceService

Exhibit 4.6Exhibit 4.6Source:

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–18

Technology Trends in Services Technology Trends in Services (cont’d)(cont’d)

Technology Trends in Services Technology Trends in Services (cont’d)(cont’d)

• Shift from Time-dependent (Synchronous) to Non-time Dependent (Asynchronous) Transactions–More economical (for the firm) and efficient (for

the customer) forms of service

• Increase in Disintermediation–Technology brings buyers and sellers closer

together, eliminating intermediate steps or organizations.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–19

Integrating Technology into ServicesIntegrating Technology into ServicesIntegrating Technology into ServicesIntegrating Technology into Services

• Integration Benefits–Efficiency in operations–Effectiveness in serving customers

• Areas for Integration–Strategic planning–Improved performance

• Faster service

• Improved customer knowledge

• Increased product customization

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–20

Integrating Technology into Services Integrating Technology into Services (cont’d)(cont’d)

Integrating Technology into Services Integrating Technology into Services (cont’d)(cont’d)

• Areas for Integration (cont’d)–Increased efficiency

• Economies of scale in consolidating operations.

• Reduced labor costs through replacement of manpower and increased labor productivity.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–21

Categories of E-ServicesCategories of E-ServicesCategories of E-ServicesCategories of E-Services

Category Function

Internet

World-wide web presence with open access to all.

Intranet Internal network providing limited access by individuals within an organization.

Extranet A resource-limited network open only to specified internal and external users

Electronic Data Interchange (EDI)

A network designed to support the exchange of data between the organization and its vendors and suppliers.

Value-added network (VAN) A third party service that is used in conjunction with EDI to provide the link to customers and suppliers.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–22

The Role of the Internet, Intranet,The Role of the Internet, Intranet,Extranet and EDI in an OrganizationExtranet and EDI in an OrganizationThe Role of the Internet, Intranet,The Role of the Internet, Intranet,

Extranet and EDI in an OrganizationExtranet and EDI in an Organization

Exhibit 4.7Exhibit 4.7

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–23

Types of E-ServicesTypes of E-ServicesTypes of E-ServicesTypes of E-Services

Broad Categories Specific Service Types

Business-to-Consumer (B2C)

E-tailers (Goods and Services)

Consumer-to-Consumer (C2C)

Customer Support

Business-to-Business (B2B)

Network Providers

Government-to-Business (G2B)

Information Providers

Government-to-Consumer (G2C)

Application Service Providers (ASPs)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–24

Challenges for E-TailersChallenges for E-TailersChallenges for E-TailersChallenges for E-Tailers

• Infrastructure–Developing the structure to efficiently and

quickly deliver goods to customers.

• Lack of tangibility–Having no physical presence to which

customers can turn with problems.

• Differentiation–Creating a unique on-line presence that sustains

growth.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 4–25

Technology IssuesTechnology IssuesTechnology IssuesTechnology Issues

• Overcoming Barriers to Entry (Customer) –“Fear of the unknown”–Lack of knowledge by the customer

• Training and Support–Worker skill development through hands-on

training in the new technology.–Customer familiarization with technology.