Chapter 3: Technology and Operations Management

LEARNING OBJECTIVES
After studying this chapter, you will be able to:
1. Describe different types of technology and their roles in manufacturing and service operations
2. Explain how manufacturing and service technology and analytics strengthen the value chain.
3. Explain the benefits and challenges of using technology,
4. Describe key technology decisions.
You may have heard a newer buzzword the "Internet of Things (IoT)". This refers to physical products with
embedded sensors that are connected to the Internet. such as smart watches and fitness devices, thermostats,
lighting, security, and refrigerators, to name just a few IoT sensors on commercial appliances can delight
customers. A leaky refrigerator hose will immediately trigger a text message to your phone, encouraging you to
get the problem fixed before the house floods, IoT sensors will monitor your grocery supplies, and send a resupply
list as soon as you run short.
The Iot is changing operations management. Bar code scanners and RFID chips have been in use for years to
track products in the supply chain and improve customer response. Electronic screwdrivers with embedded
sensors help workers screw in fasteners with the right torque. Part bins have built-in scales that can alert workers
if they grab the wrong part. Sensors in manufacturing equipment can automatically adjust ingredients, temperature,
and pressure in chemical processes, thus improving product quality. They can be used to adjust the position of
physical objects as they move down an assembly line so that they are positioned correctly and accurately for
processing. Services will also be affected; tech experts make over 4 million house calls each year to help
customers install connected devices. Companies that sell lol products and have the expertise to support them will
have an advantage over their competitors such as Amazon and Walmart. The IoT will require companies to
overhaul their information technology (IT), supply chain, and logistics systems
Technology-both physical and information-has dramatically changed how work is accomplished in every industry,
from mining to manufacturing, to education, to health care. Technology is the enabler that makes today's service
and manufacturing systems operate productively and meet customer needs better than ever. Most of you probably
cannot imagine living in a world without personal computers, the Internet, or wireless communications. However,
new technology such as the electric car requires a rethinking of the customer benefit package, supply chain, and
operations. With a limited range, the practicality of electric vehicles requires the ability to quickly charge batteries
during longer trips. Tesla is building a nationwide network of 30-minute charging stations that will allow
individuals to drive across the entire United States. It is also developing battery-swapping stations that can change
the batteries faster than a typical gasoline fill-up. Tesla refuses to sell through independent dealers, it operates all
its own showrooms and service centers to avoid the middleman price inflation and to build and maintain customer
relationships. Its manufacturing plant has a high level of automation to manufacture body panels, and it uses an
army of industrial robots to assist workers in the assembly process and to transport the vehicle through the plant
Robots even insert seats and glue and set windshields. (Search YouTube for "How the Tesla Model S Is Made"
for a behind-the-scenes tour.)
Technological innovation in goods, services, manufacturing, and service delivery is a competitive necessity. In
the early days of the Internet, Jack Welch retired CEO of General Electric, for example, pushed GE to become a
leader among traditional, old-economy companies in embracing the Internet after noticing his wife Christmas
shopping on the Web. "I realized that if didn't watch it. I would retire as a Neanderthal," he was reported as saying,
"So I just started reading everything I could about it." He began by pairing 1,000 Web-savvy mentors with senior
people to get his top teams up to Internet speed quickly.

1
3-1 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) tag
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, prescriptions medicines, passports, livestock, and even people. They
transmit radio signals to identify locations and track movements throughout the supply chain. They have many
applications both manufacturing and service industries. Retail, defense, transportation, and health ca 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 lower overall product and operational costs. They have also been used to
monitor resident in assisted living buildings and truck the movements of doctors, nurses, and equipment hospital
emergency rooms.
Soft technology refers to the application of the Internet, computer software, and information system 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
Information technology (IT) provides the ability to integrate all parts of the value chain through better
management of data and information. This leads to more effective strategic and operational decisions to design
better customer benefit packages that support customers wants and needs, achieve competitive priorities, and
improve the design and operation of all processes in the value chain.
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.
RFID tags such as this one are attached to objects and used to track and manage inventory and assets.

3-1a 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:

2
 1. The right technology must be selected for the goods that are produced.
2. Process resources, such as machines and employees, must be set up and configured in a logical fashion to
support production efficiency.
3. Labor must be trained to operate the equipment.
4. Process performance must be continually improved.
5. Work must be scheduled to meet shipping commitments/customer promise dates.
6. Quality must be ensured.

3-1b 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
operations are driven by a computer.
Industrial robots were the next major advance in manufacturing automation. A robot is a programmable machine
designed to handle materials or tools 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 highly radioactive areas. In services, robots help doctors complete intricate brain surgery by drilling very
precise holes into the skull.
Integrated manufacturing systems began to emerge with computer-aided design/computer-aided CAD/CAE) and
computer aided manu engineering computer-aided facturing (CAM) systems. 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 mar ket just 10.5 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 (FMSs) consist of two or more computer-controlled machines or robots linked
by automated handling devices such as transfer 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
simultane- ously, and many different items can be processed in random order. Honda has been a pioneer in using
FMSS 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 curs. Today, many
companies have achieved complete integration of CAD/CAE, CAM, and FMSs into what we now call computer-
integrated manufacturing systems (CIMSS).

3-1c Advances in Manufacturing Technology

Kroger: Leveraging Two Seconds of Savings
3
Bar code scanners have been used in grocery stores for many years, requiring associates to scan items manually
in the checkout lanes. Using a patented technology, the national grocery chain Kroger has been testing a new
innovation called Advantage Checkout, designed to save customers time as well as to save the company operating
costs and labor. Customers place items on a quick moving conveyor belt. The items enter a tunnel lined with high-
powered cameras to capture images of the products and scan the bar codes, then leave the tunnel on another
conveyor to be bagged. The scanner can perform the function of several traditional or self-checkout lanes, takes
up less floor space, and requires fewer workers. For a process that is done thousands of times in 2,400 stores,
Kroger's CFO noted, "You can really leverage two seconds of savings that way."
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.
3-D printing technology has numerous applications. For example, industrial designers can quickly produce a
physical model from a digital computer-aided design drawing: this is often called rapid prototyping and is used
extensively in architecture, industrial design. and automotive, aerospace, and other manufacturing industries. It is
used in the dental and medical industries for implants and prosthetics, and even in the fashion industry a recent
contestant on the TV show "Project Runway" used it to create wearable fashion accessories! The technology is
expanding the customer benefit package, allowing consumers to create custom products. For instance, Nokia
introduced 3-D printing to make custom cases for mobile phones. DI
New types of industrial robots are being developed. Baxter developed one that can be trained like a human being
and costs about half as much as the least expensive industrial robots cur- rently on the market. With no coding
whatsoever, the robot can be taught, and afterwards it will use common sense-if it drops something, it will pick it
up. Robots like Baxter let smaller manufacturers work more efficiently, allowing real workers to put in work
where it's actually needed instead of spending time on menial sorting tasks?
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
1. Faster computer processing
2. Superconductive materials based on carbon nanotubes lifting magnetic cars and trains
3. Smaller memory cards that have more memory space.
4. Clothes that last longer and keep the wearer cool in the summer
5. 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.
Alcoa: 3-D Printing for Jet Engine Parts
Alcoa makes parts for gas turbines used in commercial jets that have to handle temperatures of up to 2,000°F and
the stresses of aviation. Between tooling, development, and casting, it used to take Alcoa upward of a year to
manufacture one of the nickel-alloy parts that go into an engine. With additive manufacturing, Alcoa has managed
to cut in half the time required to develop the process and manufacture the part and cut the cost of the process by
about 25 percent. Alcoa pairs computer-aided design, or CAD, with 3-D printing to construct the die from a
computer file, layer by layer. A process that once took half a year could be completed in two to eight weeks,
allowing the company to dramatically increase its output."

4
3-1d 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 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 at the deli
department, for example, and then be alerted when the order is ready.10
Other service technologies are used behind the scenes in hotels, airlines, hospitals, and retail stores to facilitate
service experiences. To speed order entry for pizza delivery, for instance, many firms use a touch-sensitive
computer screen that is linked to a customer database. When a repeat customer calls, the employee need only ask
for the customer's phone number to bring up the customer's name, address, and delivery directions (for a new
customer, the information need only be entered once). The employee is able to address the customer immediately
by name, enhancing the perception of service quality, and then enter the order quickly on the touch-sensitive
screen to print for the kitchen, eliminating errors due to misreading of handwritten orders."
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.
CIMS Facts
According to the National Research Council, companies with computer- integrated manufacturing system
experience have been able to:
1. decrease engineering design costs by up to 30 percent;
2. Increase productivity by 40 to 70 percent:
3. increase equipment utilization by a factor of 2 to 3;
4. reduce work-in-process and lead times by 30 to 60 percent; and
5. improve quality by a factor of 3 to 4.

3-2 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 t immediately recognize and react to changes 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.
Business analytics plays a critical role in managing value chains, particularly for integrating and analyzing data
throughout the value chain within an information systems framework. Net- flix, for example, uses analytics
everywhere, from marketing to operations to customer service. Netflix collects extensive data using surveys,
website user testing, brand-awareness studies, and segmentation research. It uses analytics to help decide what
price to pay for the rights to distribute new DVDs. Using data on customer preferences, film ratings, and
comparisons with people who have similar viewing and preference histories, Netflix predicts movies that a
customer is likely to enjoy and creates personalized recommendations. This information also helps manage its
film inventory by recommending older movies to balance demand for newer releases.

5
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 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.

be collected from consumers.

Technology, especially the Internet and e-communications, is changing the operation, of the value chain location,
the promotion you may and presents many new challenges to operations
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:
1. segmenting markets based on demographic and behavioral characteristics:
2. tracking sales trends and advertising effectiveness by customer and market segment;
3. identifying which customers should be the focus of targeted marketing initiatives with predicted high
customer response rates;
4. forecasting customer retention (and defection) rates and providing feedback as to why customers leave
the company:
5. identifying which transactions are likely to be fraudulent;
6. studying which goods and services are purchased together, and what might be good ways to bundle them
(ie., the customer benefit package);
7. studying and predicting what Web characteristics are most attractive to customers and how the website
might be improved; and
8. linking the previous information to competitive priorities by market segment and process and value chain
performance.
In recent years, cloud computing has improved the efficiency, productivity, and cost for organizations using
information technology and CRM. Many now outsource CRM and other IT services; for instance, Netflix
outsourced most of its Web technology work to Amazon.

3-3 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?
One major benefit of technology has been its impact on sustainability. In Florida, for example, Card Sound Golf
Club in Key Largo had an underground sensor system installed that allowed the club to cut in half the amount of
fresh water it used to flush salt out of water used to irrigate the golf course. Many other golf courses are using
this advanced sensor technology to reduce water consumption and keep their golf courses green-and not just in
color.15

6
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.

3-4 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
EXHIBIT 3.1: Example Benefits and Challenges of Adopting Technology
Benefits
1. Creates new industries and job opportunities
2. Restructures old and less productive industries
3. integrates supply and value chain players
4. Increases marketplace competitiveness and maintains the survival of the firm
5. Provides the capability to focus on smaller target market segments through mass customization
6. Improves increases productivity, quality customer satisfaction, speed, safety, and flexibility/customization
does more with less
7. Lowers cost
8. Raises world's standard of living
9. Monitors the environment and health of the planet
Challenges
1. Higher employee skill levels required, such as information technology and service management skills
2. Integration of old (legacy) and new technology and systems
3. Job shift and displacement
4. Less opportunity for employee creativity and empowerment
5. Protecting the employee's and customer's privacy and security
6. 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
7. Information overload
8. Global outsourcing and impact on domestic job opportunities
9. Enforcement of regulations and laws to support sustainability goals
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.
7
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 opportunities 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.
Many companies do not really understand how to implement technology effectively. The risk of a technology
adoption failure is high. For instance, one major candy company installed three software packages just as retailers
placed orders for Halloween candy. The
Process Innovations in Restaurants
Letting customers order food, pay their bills, and provide feedback through tableside tablets is a quickly evolving
trend in large chain restaurants such as Chili's, Applebee's, Olive Garden, Panera, and Pizzeria Uno. This
technology is improving efficiency and customer satisfaction, and helps the organizations to better hear the voice
of their customers. Each of the restaurant chains reported more efficient operations and more dollars spent per
order. Tablets reduced the average time customers spent at tables by 10 minutes. Receipts printed at tables or sent
via e-mail significantly reduce the time servers spend bouncing among tables. The faster a restaurant can turn its
tables-move customers in and out higher its profits. In addition to the time factor, Panera's table-side tablets
resulted in fewer order errors, and customer orders were 55 higher than average. The tablets are providing
restaurants with customer feedback, ordering patterns, and other date that can be used to streamline service
operations."
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.

software was incompatible with other systems, and candy piled up in warehouses because of missed or delayed
deliveries. Such experiences are reminiscent of comparable failures of automated manufacturing technology
encountered by the automobile and other industries during the 1970s. Reasons include rushing to the wrong
technology, buying too much and not implementing it properly, and underestimating the time needed to make it
work.