Lecture Fundamentals of operations management (4/e): Chapter 5 - Davis, Aquilano, Chase

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

AQUILANO
CHASE

chapter 4

The Role of Technology 
in Operations

© The McGraw-Hill Companies, Inc., 2003

PowerPoint
Presentation
by
Charlie
Cook


Chapter Objectives
Chapter 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
© The McGraw­Hill 
e-services that are currently being
offered.
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
4–2


Managerial Issues
Managerial 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 McGraw­Hill 
Companies, Inc., 2003
4–3


How Technology Affects Operations

How 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–Tradeoffs are no longer valid—technology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 McGraw­Hill 
Companies, Inc., 2003
4–4


How Technology Impacts 
How Technology Impacts 
Operational Performance
Operational Performance

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.1

4–5


Technology in Manufacturing
Technology 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 McGraw­Hill 
Companies, Inc., 2003
4–6


Technology in Manufacturing (cont’d)
Technology in Manufacturing (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 McGraw­Hill 
Companies, Inc., 2003
4–7


Major Categories of Software Systems
Major Categories of Software Systems
in Manufacturing
in Manufacturing

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.2
4–8


Information Technology

Information 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 Manages the interface between the
Management (CRM)
firm and its customer.

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
4–9

Functional Areas as Independent Operations
Functional Areas as Independent Operations

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.3a
4–10


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

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.3b
4–11


Example of How SAP’s 
Example of How SAP’s 

R/3 System
R/3 System
Integrates an 
Integrates an 
Organization
Organization

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.4
4–12


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

Total ERP Software and
Services Revenue =
$18.2 billion

Fundamentals of Operations 
Management 4e 

Source: AMR Research

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.5
4–13


Evolution of ERP Systems
Evolution 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
© The McGraw­Hill 
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
4–14


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
© The McGraw­Hill 
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
4–15


Technology Trends in Services
Technology 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 McGraw­Hill 
Companies, Inc., 2003
4–16


Methods of Pricing to Encourage Self­Service
Methods of Pricing to Encourage Self­Service

Fundamentals of Operations 
Source:
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.6
4–17


Technology Trends in Services (cont’d)
Technology Trends in Services (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 McGraw­Hill 
Companies, Inc., 2003
4–18


Integrating Technology into Services
Integrating 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 McGraw­Hill 
Companies, Inc., 2003
4–19

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 McGraw­Hill 
Companies, Inc., 2003
4–20


Categories of E­Services
Categories of E­Services
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© The McGraw­Hill 
with EDI to provide the link to
customers and suppliers.

Fundamentals of Operations 
Management 4e 

Companies, Inc., 2003
4–21

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

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 4.7
4–22


Types of E­Services
Types of E­Services
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 McGraw­Hill 
Companies, Inc., 2003
4–23


Challenges for E­Tailers
Challenges for E­Tailers
• 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 McGraw­Hill 
Companies, Inc., 2003
4–24


Technology Issues
Technology 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.

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
4–25