CHAPTER 3

TECHNOLOGY AND
OPERATIONS MANAGEMENT
Understanding Technology in Operations

We may categorize technology into two basic groups. Hard

technology refers to equipment and devices that perform a variety of
tasks in the creation and delivery of goods and services. Some
examples of hard technology are computers, microprocessors, optical
switches, satellites, sensors, robots, automated machines, bar-code
scanners, and radio-frequency identification (RFID) tags.
 RFID tags are the modern successor to bar codes. RFID tags are tiny
computer chips that can be placed on shipping containers, individual products,
credit cards, prescription medicines, passports, livestock, and even people.
They transmit radio signals to identify locations and track movements
throughout the supply chain. They have many applications in both
manufacturing and service industries. Retail, defense, transportation, and
health care have begun requiring their suppliers to implement this technology.
RFID can bring visibility and enhanced security to the handling and
transportation of materials, baggage, and other cargo RFID can help identify
genuine products from counterfeit knock-offs, thus helping to lower overall
product and operational costs. They have also been used to monitor residents in
assisted living buildings and track the movements of doctors, nurses, and
equipment in hospital emergency rooms.
 Soft technology refers to the application of the Internet, computer
software, and information systems to provide data, information, and analysis
and to facilitate the creation and delivery of goods and services.

Some examples are database systems, artificial intelligence programs,

and voice-recognition software. Both types are essential to modern
organizations (see the box about Amazon.com later in this chapter). As
described in the introduction to this chapter, the hybrid and ultimately the
electric vehicle are good examples of integrating hard and soft technology.
 Increasingly, both hard and soft technology are being integrated across
the organization, allowing managers to make better decisions and share
information across the value chain. Such systems, often called integrated
operating systems (IOSs), include computer-integrated manufacturing systems
(CIMs), enterprise resource planning (ERP) systems, and customer relationship
management (CRM) systems, all of which use technology to create better and
more customized goods and services and deliver them faster at lower prices.
We will discuss these systems in the following sections.
Manufacturing Technology

Although high-tech, automated manufacturing processes receive a lot of media attention,

much of the technology used in small- and medium-sized manufacturing enterprises
around the world is still quite basic. The box on making jigsaw puzzles illustrates simple,
low-tech, manufacturing technology Producing automobiles, jet engines, and other
sophisticated products requires far more advanced methods. However, from an operations
management stand- point, all organizations face common issues regarding 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.
Computer-Integrated Manufacturing Systems (CIMSs)

Much of the technology used in manufacturing today is automated and

linked with information technology. Computer-Integrated manufacturing
systems (CIMSs) represent the union of hardware, software, database
management, and communications to automate and control production
activities, from planning and design to manufacturing and distribution. CIMSs
include many hard and soft technologies with a wide variety of acronyms,
vendors, and applications and are essential to productivity and efficiency in
modern manufacturing
The roots of CIMSs began with numerical control (NC) machine tools,
which enable the machinist's skills to be duplicated by a programmable device
(originally punched paper tape) that controls the movements of a tool used to
make complex shapes Computer numerical control (CNC) machines are NC
machines whose operation are driven by a computer.
 Industrial robots were the nest major advance in manufacturing
automation. A robot a programmable machine designed to handle materials or
tool in the performance of a variety of tasks. Robots can be "taught" a large
number of sequences of motions and operations and even to make certain
logical decisions. Other typical applications are spray painting, machining,
inspection, and material handling. Robots are especially useful for working
with hazardous materials or heavy objects, for instance, in nuclear power plants
robots are used to do work in high radioactive areas. In service, robots help
doctors complete intricate brain surgery by drilling very precise holes into the
skull.
 Integrated manufacturing systems begin to emerge with computer-aided
design computer-aided engineering (CAD/CAE) and computer-aided
manufacturing (CAM) system. CAD/CAE enables engineers to design,
analyze test, simulate, and manufacture" products before they physically exist,
thus ensuring that a product can be manufactured to specifications when it is
released to the shop floor. For example. Nissan is cutting in half the time
needed to take new cars from design to showroom using computer-aided
design software. The Nissan Note subcompact was rolled out to the Japanese
market just 105 months after its design was finalized, in contrast to the 20.75
months that the process used to take. CAM involves computer control of the
manufacturing process, such as determining tool movements and cutting
speeds
 Flexible manufacturing systems (FMS) consist of two or more
computer-controlled machines or robots linked by automated handling devices
such as transiter machines, conveyors, and transport systems. 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
performed by the machine. More than one item can be machined or assembled
simultaneously, and many different items can be processed in random order.
Honda has been a pioneer in using FMS and robotic technology Its competitive
priorities are moving toward design and demand flexibility so it is changing
operating systems and technology to support these priorities Honda assembly
plants use flexible manufacturing cells where the robots can be reprogrammed
to build different models of cars Today, many companies have achieved
complete integration of CAD/CAE, CAM, and FMS into what we now call
computer-integrated manufacturing systems (CIMSs).
Advances in Manufacturing Technology

Innovations in technology have changed manufacturing in many industries.

You have undoubtedly heard of 3-D printing. technically called additive
manufacturing. This is the process of producing a three-dimensional solid
object from a digital model file. "Additive means that successive layers of
material such as plastics, ceramics, or glass are built up rather than attained by
traditional machining processes such as milling or drilling, which remove
materials
 Nanotechnology involves the manipulation of matter on atomic, molecular,
and supramolecular scales, thus bringing with it super-precision manufacturing
Currently applied mostly in space technology and biotechnology, it is going to play
an indispensable role in every manufacturing industry in the future. In many ways, it
has already changed the world. Examples of application in nanotechnology include:

• Faster computer processing

• Superconductive materials based on carbon nanotubes lifting magnetic cars and
trains.
• Smaller memory cards that have more memory space
• Clothes that last longer and keep the wearer cool in the summer Bandages that
heal wounds faster
• All of these advances and more that are on the horizon will continue to make OM
a challenging and exciting field.
Service Technology

You have undoubtedly encountered quite a bit of service technology in

your own daily life. Technology is used in many services, including
downloading music, banking automated car washes, voice recognition in
telephone menus, medical procedures, hotel and airline kiosks, and
entertainment such as the robots used in Disney World's Hall of Presidents and
Country Bear Jamboree attractions. One innovation that is being used by Stop
& Shop, a grocery chain serving New England, is a portable device called
EasyShop. EasyShop is a handheld terminal that allows loyalty card shoppers
to scan items as they shop and receive targeted offers. Shoppers can also place
an order the deli department, for example, and then be alerted when the order is
ready.
 Perhaps the most common service technology in use today involves the
Internet. 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. Many
individuals use airline, hotel, and rental car websites or "one-stop" e-services
like Microsoft Expedia in planning a vacation. The Internet of Things, digital
personal assistants, and virtual reality offer new experiences for customers.
Technology in Value Chains

Technology, especially the Internet and e-communications, is changing

the operation, speed, and efficiency of the value chain and presents many new
challenges to operations managers In many situations, electronic transaction
capability allows all parts of the value chain to immediately recognize and
react to changes in demand and supply. This requires tighter integration of
many of the components of the value chain. In some cases, technology
provides the capability to eliminate parts of the traditional value chain structure
and streamline operations
 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. CRM exploits the vast amount of data that can be collected from
consumers.

For example, using a cell phone to make a voice call leaves behind data
on whom you called, how long you talked, what time you called, whether your
call was successful or it was dropped, your location, the promotion you may be
responding to, and purchase histories. Similarly, supermarkets, drugstores, and
retail stores use "loyalty cards that leave behind a digital trail of data about
purchasing patterns. By better understanding these patterns and hidden
relationships in data, stores can customize advertisements, promotions,
coupons, and so on down to each individual customer and send targeted text
messages and e-mail offers.
 A typical CRM system includes market segmentation and analysis,
customer service and relationship building, effective complaint resolution,
cross-selling of goods and services, and pre- and postproduction processes
such as preproduction order processing and postproduction field service. Of
course, the value chain must be capable of delivering what the customer wants,
and that is where sound operational analysis is required.
CRM helps firms gain and maintain competitive advantage by:

• 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 to why customers leave the company.
• identifying which transactions are likely to be fraudulent,
• studying which goods and services are purchased together, and what might be
good
• ways to bundle them (i.e., the customer benefit package), studying and
predicting what Web characteristics are most attractive to customers and
• how the website might be improved; and
• linking the previous information to competitive priorities by market segment
and process and value chain performance
Benefits and Challenges of Technology
Technology provides many benefits but at the same time poses some key
challenges. A summary of the benefits and challenges of technology is given in
Exhibit 3.1. Can you think of others?
Intel suggests that the microprocessor is the "ultimate invention for
achieving sustain- ability Microprocessor-based information and communication
technology (ICT) provides sustainable economic, environmental, and social
benefits on a national and global basis, often contributing to substantial
economic gains through better productivity. These gains have significantly offset
carbon usage, enabling more productivity, fewer miles traveled, and greater
operational and material efficiencies. ICT is responsible for a phenomenon
known as dematerialization, by which the same or an increased quality and
quantity of goods and/ or services are created using fewer natural resources, ICT
has also enabled flexible work options such as telecommuting, which not only
yields environmental benefits but social benefits as well.
Exhibit 3.1 Example Benefits and Challenges of adopting Technology
Benefits
• Creates new industries and job opportunities
• Restructures old and less productive industries
• Integrates supply and value chain players
• Increases marketplace competitiveness and maintains the survival of the
firm
• Provides the capability to focus on smaller target market segments through
mass customization
• Improves/increases productivity, quality, customer satisfaction, speed,
safety, and flexibility/customization-does more with less
• Lowers cost
• Raises world's standard of living
• Monitors the environment and health of the planet
Challenges

• Higher employee skill levels required, such as information technology and

service management skills
• Integration of old (legacy) and new technology and systems
• Job shift and displacement
• Less opportunity for employee creativity and empowerment
• Protecting the employee's and customer's privacy and security
• Fewer human service providers, resulting in customer ownership not being
assigned, nonhuman service encounters, and inability of the customer to
change decisions and return goods easily Information overload
• Global outsourcing and impact on domestic job opportunities Enforcement
of regulations and laws to support sustainability goals
Technology Decisions and Implementation
Managers must make good decisions about introducing and using new
technology. They must understand the relative advantages and disadvantages of
using technologies and their impact on the workforce. Although technology has
proven quite useful in eliminating monotony and hazardous work, and can help
people develop new skills and talents, it can also rob them of empowerment
and creativity. The goal of the operations manager is to provide the best syn-
thesis of technology, people, and processes, this interaction is often called the
sociotechnical system. Designing the sociotechnical system includes making
decisions about job specialization versus enlargement, employee
empowerment, training, decision support systems, teams and work groups, job
design, recognition and reward, career advancement, and facility and
equipment layout.
 A key factor that affects technology decisions is scalability. Scalability
is a measure of the contribution margin (revenue minus variable costs)
required to deliver a good or service as the business grows and volumes
increase. Scalability is a key issue in e-commerce. High scalability is the
capability to serve additional customers at zero or extremely low incremental
costs. For example, Monster.com is an online job posting and placement
service that is largely information intensive. Customers can post their resumes
on the Monster.com website and print out job advertisements and oppotunities
from their office or home computers at their expense. This service is highly
scalable because its fixed costs are approximately 80 to 85 percent of total
costs.
 The incremental cost to serve an additional customer is very small, yet
the revenue obtained from this customer remains high. If an organization
establishes a business where the incremental cost (or variable cost) to serve
more customers is zero, then the firm is said to be infinitely scalable. Online
newspapers, magazines, and encyclopedias; e-banking services, and other
information-intensive businesses have the potential to be infinitely scalable.

On the other hand, low scalability implies that serving additional

customers requires high incremental variable costs. Many of the dot com
companies that failed around the year 2000 had low scalability and
unsustainable demand (volumes) created by extraordinary advertising expenses
and artificially low prices.