Chapter 4 Lecture Notes: Technology and Operations Management

Understanding Technology in Operations

• Hard Technology:
  • Refers to equipment and devices performing tasks in creating and delivering goods/services.
  • Examples: computers, microprocessors, optical switches, satellites, sensors, robots, automated machines, bar-code scanners, and RFID tags.
• Soft Technology:
  • Application of the Internet, computer software, and information systems.
  • Used to provide data, information, and analysis, and to facilitate the creation and delivery of goods/services.
  • Examples: database systems, artificial intelligence programs, and voice-recognition software.

Issues in Manufacturing Technology

• Common issues organizations face from an operations management perspective:
  • Process performance must be continually improved.
  • Work must be scheduled to meet shipping commitments/customer promise dates.
  • Quality must be ensured.

Integrated Manufacturing Systems

• Computer-Integrated Manufacturing Systems (CIMSs):
  • Integration of hardware, software, database management, and communications.
  • Automates and controls production activities.
• Numerical Control (NC):
  • A programmable device that controls tool movements to duplicate a machinist’s skills for making complex shapes.
• Computer Numerical Control (CNC) Machines:
  • NC machines driven by a computer.

Computer-Aided Design and Manufacturing

• Integrated manufacturing systems emerged with:
  • Computer-Aided Design/Computer-Aided Engineering (CAD/CAE): Enables engineers to design, analyze, test, simulate, and "manufacture" products before they are physically made.
    • Ensures a product can be manufactured to specifications when released to the shop floor.
  • Computer-Aided Manufacturing (CAM): Computer control of the manufacturing process.
    • Determines machine tool movements and optimizes cutting speeds.

Flexible Manufacturing Systems

• Flexible Manufacturing Systems (FMSs):
  • Two or more computer-controlled machines or robots linked by automated handling devices (e.g., transfer machines, conveyors, transport systems).
  • Computers:
    • Direct the overall sequence of operations.
    • Route work to appropriate machines.
    • Select and load proper tools.
    • Control machine operations.
• Integration:
  • Many companies have successfully integrated CAD/CAE, CAM, and FMSs into CIMSs.

CIMS Facts and Advances in OM Technology

• According to the National Research Council (NRC), companies with CIMS experience have been able to:
  • Decrease engineering design costs by up to 30%.
  • Increase productivity by 40 to 70%.
  • Increase equipment utilization by a factor of 2 to 3.
  • Reduce work-in-process and lead times by 30 to 60%.
  • Improve quality by a factor of 3 to 4.
• Advances of technology in OM also include:
  • Three-dimensional printing, technically called additive manufacturing.
  • Nanotechnology applications in computer processing and memory cards.

Robotics and Smart Factories

• Robot:
  • A programmable machine designed to handle materials or tools in performing various tasks.
  • Industrial robots can be "taught" many sequences of motions and operations and can even learn to make certain logical decisions.
  • Autonomous robots (including drones) have sensors that allow them to perform their tasks while staying out of the way of people or equipment.
• Smart Factory:
  • A digitized manufacturing facility that uses connected devices, machinery, and production systems to collect and share data continuously.
  • Smart factories improve productivity by providing more flexibility and agility to manufacturing.

Service Technology

• Technology in Services:
  • Used in downloading music, banking, automated car washes, voice recognition in telephone menus, medical procedures, hotel and airline kiosks, and entertainment.
  • Used behind the scenes in hotels, airlines, hospitals, and retail stores to facilitate service experiences.
• E-service:
  • 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.

Technology in Value Chains

• Business analytics:
  • Plays a critical role in managing value chains.
  • Integrates and analyzes data throughout the value chain within an information systems framework.
• Customer Relationship Management (CRM):
  • A business strategy to learn more about customers’ wants, needs, and behaviors.
  • Aims to build customer relationships and loyalty; and ultimately enhance revenues and profit.
  • Includes: market segmentation and analysis, customer service, customer relationship building, effective complaint resolution, cross-selling of goods and services, preproduction order processing, postproduction field service.

CRM Benefits

• CRM helps firms gain and maintain a competitive advantage by:
  • Segmenting markets.
  • Tracking sales trends and advertising effectiveness.
  • Identifying the focus of targeted marketing initiatives.
  • Forecasting customer retention (and defection) rates.
  • Identifying which transactions are likely to be fraudulent.
  • Studying the optimal bundling of goods and services.
  • Studying and predicting the most attractive Web characteristics.
  • Linking the previous information to competitive priorities by market segment and process.

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.
  • Lowers cost.
  • Raises world's standard of living.
  • Monitors environment and health of the planet.
• Challenges:
  • Higher employee skill levels required (information technology and service management skills).
  • Integration of old 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.
  • Information overload.
  • Global outsourcing and impact on domestic job opportunities.
  • Enforcement of regulations and laws to support sustainability goals.

Technology Decisions and Implementation

• Sociotechnical System:
  • The interaction of technology, people, and processes.
• Scalability:
  • Related to the contribution margin (unit revenue – unit variable cost) required to deliver a good or service as the business volume increases.
  • High scalability: Capability to serve additional customers at zero or extremely low incremental costs.
  • Low scalability: Serving additional customers requires high incremental variable costs.

Analytical Methods for Technology Decisions

• Analytical methods based on data can provide more informed decisions, particularly when economics plays a key role.
• Decision Analysis for Technology Decisions:
  • The formal study of how people make decisions, particularly when faced with uncertain information, and a collection of techniques to support the analysis of decision problems.
• Break-Even Analysis for Technology Decisions:
  • Used to analyze profit or loss or to make an economical choice between two options that vary with volume.

Making a Technology Choice Decision

• Problem 4.1 Example:
  • Maling Manufacturing must choose between purchasing a conventional machine or an automated machine.
  • Profitability depends on demand (Low vs. High).
• Solution:
  • Maximax decision: Choose the option with the maximum possible profit (d2).
  • Maximin decision: Choose the option with the maximum minimum profit (d1).
  • Minimax regret decision: Choose the option that minimizes the maximum opportunity loss (d2).

Making a Technology Choice Decision with Event Probabilities

• Problem 4.2 Example:
  • Maling Manufacturing estimated a 0.6 probability of low demand and a 0.4 probability of high demand.
• Solution:
  • The expected profits for the individual choices of machines are (1) = 0.6($15) + 0.4($21) = $17,400 and (2) = 0.6($9) + 0.4($35) = $19,400.
  • Because EV(d2) is higher, the best decision based on EV is the automated machine.
• EVPI (Expected Value of Perfect Information):
  • = (2) = 0.6($6,000) + 0.4(0) = $3,600

Decisions Using Break-Even Analysis

• Problem 4.3 Example:
  • Maling Manufacturing can purchase an automated machine from either vendor A or vendor B.
  • Vendor A: Fixed cost (FCA) = 85,000, Unit Cost (CA) = 3.50
  • Vendor B: Fixed cost (FCB) = 60,000, Unit Cost (CB) = 5.00
• Solution:
  • The total cost of the machine over its life is represented by the equation: Total\, cost\,(TC) = Fixed\, cost\,(FC) + Unit\, cost\,(C) \times Quantity\,(Q)
  • Vendor A: TC_A = $85,000 + $3.50 \times Q
  • Vendor B: TC_B = $60,000 + $5.00 \times Q
• Break even point is the Quantity, Q, such that TCA = TCB . Thus:
  TCA(Q^) = TCB(Q^) 85,000 + $3.50Q^ = $60,000 + $5.00Q^ 85,000 - $60,000 = ($5.00 - $3.50)Q^
  25,000 = $1.50Q^ Q^ = \frac{25000}{1.5} = 16,667
  Because 20,000 units exceeds Q*, Maling should purchase from vendor A.

Check Your Knowledge

• 4.1 Nanotechnology can be used to:
  • a. develop faster computer processing.
• A typical customer relationship management (CRM) system includes all of the following EXCEPT:
  • g. the use of numerical control (NC) machine tools.
• 4.2 Which of the following is a challenge of adopting technology?
  • a. It leads to information overload.
• For an operations manager, the process of designing the sociotechnical system includes
  • e. making decisions about job specialization versus enlargement.