Chapter 2

Information
Technology and
Operations
Management
 Introduction
The potential and risk of I.T on O.M must be
understood before adopting it because it
impacts:
• Productivity
• Costs
• Flexibility
• Speed
• Quality
• Customer satisfaction
• Competitiveness
• The making of operational decisions
 Technology
Defined generally: the application of scientific discoveries
to the development and improvement of goods and
services. It may encompass knowledge, materials,
methods and equipment.

‘High technology’ refers to the most advanced and

developed machines and methods.

OM is basically concerned with 3 kinds of technology

namely;
• product and service technology,
• process technology
• information technology. P. P. I
 Technology
Product and service technology - the discovery of and dev’t
of new products and services - by researchers and engineers
using the scientific approach to develop and translate new
knowledge into commercial applications.

Process technology - methods, procedures and equipment

used to produce goods and provide services - Includes
organizational and supply chain processes.

Information technology (IT) - the science and use of

computers and other electronic equipment to store, process,
and send information. – employed in: data processing, bar
codes to identify and track goods, obtaining point-of-sale
information, data transmission over internet, e-mail, e-
commerce and more.
 Technology
Business Intelligence
Applications and technologies used to gather (i.e. provide access
to) and analyse data and information to support decision making
efforts.

Electronic business or E-business

Involves the use of the internet to transact business with
customers and their suppliers. Examples:
• e-commerce - consumer to business transactions (buying online)
• e-procurement – business-to-business represent an increasing
portion of

- Owners and managers use it in developing strategies, planning

and decision making.
 Role of Technology in Operations

• Important enabler of business and

innovation – (not a substitute for
hardwork)
• Useful leveraging the talents of people.
i.e. right persons knowing and manage its
use effectively.
• IT facilitates the business function by
applying information, people,
technologies and procedures to solve
business problems.
 The Need for Technology

• Advances in technology are informing changes

in manufacturing and service designing.
• Increasing complexity of managerial and
operational
• It is an invaluable tool for achieving success.
• The need to maintain compatibility between
technology and the organization’s other
activities.
• For continuous training in the use of technology.
 How Technology Affects Operations

• Low costs
• Speed of delivery
• Quality of product/service
• Customization
• Enables firms compete on
several dimensions at once.
 Automation Development
• Machining Centers Operations where tools are
changed automatically during
production

• Numerically controlled Manufacturing equipment directly

(NC) machines controlled by a computer

• Industrial robots Programmable machines that can

perform multiple functions

• Computer aided or Designing products using specially

(Assisted) Design equipped computers
 Automation
Development
• Computer Assisted Design Integrated design and
production using
& Manufacturing System computers
(CAD / CAM)

• Flexible Manufacturing Mfg. Facility automated to

some extent
System and produces a wide variety of
products

• Computer-integrated Integration of all aspects of

mfg.
manufacturing (CIM) through computers
 Automation - Software
• Enterprise Resource Provides a common software,
Planning (ERP) infrastructure and database

• Supply Chain Controls interaction with suppliers

Management (SCM) and overall supply chain

• New Product Links the engineering and

operations
Development (NPD) functions

• Customer Relationship Manages the interface between

Management (CRM) the firm and its customers
 Materials Requirement Planning
(MRP)
A computer-based information system that
translates the finished product requirement
of the master schedule into time-phased
requirements for subassemblies,
components and raw materials. Basically
designed to answer three questions:

• What is needed?
• How much is needed?
• When it is needed?
 M.R.P
• Helps in meeting due dates by accurately time-
phasing acquisition and production of long lead-
time items needed to assemble the final output

• Automatically provides information concerning

capacity and financial requirement for upcoming
periods and updates this information when final
demand need changes

• Helps eliminate waste,

• Improve productivity
• Foster quality.
 M.R.P - Inputs
A management system for production and inventory . Its primary
inputs are:

1. Master production schedule: indicates time and quantity of

end items to be produced to meet firm and customers’
demand.

2. Bill of material file: Indicates all raw mat., component parts,

sub assemblies, assemblies and build-up of individual items,
component parts into finished items.

3. Inventory master file: contains detailed info on quantity of

each item on hand, on order and used in production at various
time periods.
 M.R.P - Benefits
Benefits of MRP
• A means of allocating production time
• Enables evaluation of capacity requirement to meet
estimated demands generated by master schedule
• Low levels of process inventories, due to exact matching of
supply to demand
• Enables easy determination of inventory usage by
‘backflushing’

‘Backflushing’: a periodical explosion of an end item’s bill of

material to determine usage of various components in
production thereby eliminating the need to collect detailed
usage information on the manufacturing floor.
ENTERPRISE RESOURCE PLANNING
(ERP)
• Latest innovative system for coordinating
production decisions among functions within
the firm and across functions outside the firm
such as suppliers and customers.
• ERP attempts to integrate or harmonize
activities of all functions and departments
across an organisation into a single computer
system using an integrated software
programme that runs off a single database, to
facilitate the sharing of information across all
sections
• Critical - organizations must assess all their
business processes to determine if they fit into
 E.R.P - Purpose
Three major reasons why organizations undertake ERP
project
• To integrate financial data – Single reliable source
for all information required for financial decision
making and evaluation of financial performance etc
• To standardize production process -
Standardizing production decision-making methods
using a single integrated computer system can save
time, money, increase productivity and reduce cost.
• To standardized human resources (HR)
information – ERP tracks and communicates with
employees of organizations with multiple business
units.
 E.R.P –Hidden Costs
Commonly overlooked /underestimated costs likely to
result in budget overrun.
• Training – Elusive (indefinable) training costs to teach
workers both a new set of processes and use of
software interface
• Integration and testing –the complexity of existing
applications skyrocket the costs of integrating, testing,
and maintaining a customized the system to skyrocket.
– Not dummy but real tests, e.g. from order placement,
through shipping to receipt of payment.
• Data conversion –Costs of Even cleaning and
overhauling data to match process modifications
necessitated by the ERP implementation.
 E.R.P –Hidden Costs

• Data analysis –Cost of setting up, maintenance and

continual analysis of combined data from ERP system
and external systems such as suppliers and customers.
• Consultants ad infinitum – Consultants’ cost of
training internal staff on ERP usage with ‘no specific
area of concentration’ coupled with the lack of a
disengagement plan for consultants, hikes consulting
fees.
• Replacing your best and brightest –The complexity
of the ERP system and the attendant dramatic changes
to business processes require engaging the best and
brightest employees available and that comes at a cost.
 ERP Service & Mfg.
Packages
ERP’s service industry applications include:
• Professional services Postal services
• Logistics services Security services
• Real estate management.

In a manufacturing environment, ERP applications

cover:
• Production planning and scheduling
• Inventory management
• Product costing and
• Sales and distribution
 ERP – Approaches to
Implementation
• “Big Bang” approach. All-at-once ERP implementation -
scrap all existing systems - most ambitious & difficult
approach – originally most frequently used - now rarely used.

• The “United federation” approach. Maintain independent

systems – use ERP for common processes such as
Management, Audit, financial reporting - currently most
commonly used approach.

• The “Test the Waters”. A subset of available ERP system

introduced to few key processes – no drastic change in overall
business processes – limits risks with ERP implementation –
commonly adopted by smaller business units.
 ERP systems in Universities
ERP may be used to integrate and
access:
• Student data and information
• Course prerequisites
• Course outlines and schedules.
• Time tables and room allocation
• Human resources management
• Accounting and financial information
 E.R.P - Benefits
• Reduction in database
errors
• Faster customer response
• Faster order fulfillment
• Better overall
communication
 E.R.P Systems – Why they Fail
Why ERP Systems Fail
• Lack of top management commitment to its full
implementation
• 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
 Technology & Services
Technology Trends in Services
• Increase in self-service, reduces labor costs and
speeds up service
• Decrease in the importance of location (i.e. lower
delivery costs increases remote points of access
thereby reducing the need for specific service
locations)

Integrating Technology into Services - Benefits

• Efficiency in operations
• Effectiveness in serving customers
Technology & Services
Areas for Integration
• Strategic planning
• Increased efficiency from economies of scale
after consolidating operations.
• Reduction in labour costs through
replacement of manpower and increased
labour productivity.
• Improved performance in terms of faster
service n’ enhanced customer knowledge
• Increased product customization
 Categories of E- Services
Category Function
• Internet World-wide web presence with open
access to all
• Intranet Internal network providing limited
access to employees.
• Extranet A resource limited network open to
specified internal and external users
• Electronic Data A network designed to support data
Interchange (EDI) exchange with suppliers and vendors.
• Value Added Network A third party service used with EDI
(V.A.N) to connect customers & suppliers
 Types of E-Service
Broad Categories Specific Service Types
• Business-to-Consumer E-tailors (Goods n’ Services)
B2C
• Consumer-to-Consumer Customer
C2C
• Business-to-Business Network Providers
B2B
• Government-to-Business Information Providers
G2B
• Government-to-Consumer Application Service
Providers (ASPs)
G2C
 Challenges for E-tailers

• Infrastructure - developing a structure to

efficiently and quickly deliver goods to
customers
• Lack of tangibility - having no physical
presence to which customers can turn
with problems
• Differentiation - difficulty in creating a
unique on-line presence that sustains
growth
• Overcoming Barriers to Entry (Customer)
 Challenges for E-tailers

• “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.
 Self Assessment Questions

[Link] how ERP improves a company’s

business performance
2. State and explain four unforeseen costs of
enterprise ERP.
3. Explain how companies implement their ERP
projects
4. Write short notes on the following
i. Bill of material file
ii. Master production schedule
iii. Business intelligence
iv. Inventory material file
 Self Assessment Questions

5. E- commerce has been supplanted by e-

business. What is the basic difference
between the two.
6. In what ways can an ERP system enhance an
organisation’s competitive position?
7. In what ways might an ERP erode an
organisation’s competitive position.
8. Discuss why the choice of an ERP system is
best viewed as a strategic decision as
opposed to a technology or information
systems decisions.