Chapter 5Technology and Operations Management

TRUE/FALSE
1. Computer chips and microprocessors are examples of hard technology.
ANS: T

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2. Bar code scanners are examples of soft-technology.

ANS: F

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3. A company such as eBay relies more on soft technology than hard technology.
ANS: T

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4. From the perspective of operations management, all manufacturing organizations, regardless of their
size or type of product, face similar issues regarding technology.
ANS: T

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5. Without the internet, there would be little application of technology in services.

ANS: F

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6. 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.
ANS: T

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7. Electronic medical records in health care are designed to improve patient satisfaction more than
operational efficiency.
ANS: F

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8. Technology has helped United Parcel Service (UPS) to become an enabler of global commerce beyond
simply moving goods.
ANS: T

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9. Because of the Internet and e-commerce, all parts of the value chain can immediately know and react
to changes in demand and supply. Thus, tight integration of the components of the value chain is no
longer required.
ANS: F

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10. Technology provides the capability of eliminating many of the traditional components of value chains.
ANS: T

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11. An intermediary specializes in handling all aspects of customers' returning a manufactured good or
invoking service guarantees.
ANS: F

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12. Information technology has been equally important to business-to-business, business-to-customer, and
customer-to-customer interactions.
ANS: T

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13. Amazon.com would be an example of a customer-to-customer value chain.

ANS: F

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14. Data warehouses and data mining are typical components of an integrated operating system.
ANS: T

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15. An integrated operating system can readily be transferred among different industries.
ANS: F

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16. A principal advantage of numerical control (NC) is that an operator has only to load and unload parts
and push a button to begin processing, and thus can tend several NC machines at one work center.
ANS: T

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17. Industrial robots automate the skills that most humans can readily perform.
ANS: F

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18. Computer integrated manufacturing systems combine hardware, software, database management and
communications to automate and control a broad range of production activities.
ANS: T

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19. CAD/CAE systems are broader in scope than CIM systems.

ANS: F

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20. Flexible manufacturing systems integrate machines or robots with automated handling devices to route
work, load tools, and control operations.
ANS: T

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21. One problem with Enterprise Resource Planning Systems (ERP) is that each entity in the value chain,
such as sales, inventory, accounting, and so on, must communicate information among each other from
their own individual databases.
ANS: F

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22. Enterprise Resource Planning systems are designed to build customer relationships and loyalty.
ANS: F
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23. Customer Relationship Management (CRM) systems use segmentation data to help focus marketing
initiatives and provide data for tracing sales trends and advertising effectiveness.
ANS: T

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24. Scalability is a phenomenon by which the same or an increased quality and quantity of goods and/or
services are created using fewer natural resources.
ANS: F

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25. The acronym ICT stands for Information and Communication Technology.
ANS: T

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26. A sociotechnical system integrates technology, people, and processes.

ANS: T

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27. High scalability is the capability to serve additional customers at high incremental variable costs.
ANS: F

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28. Low scalability was one of the reasons for failure of many early Internet-based companies.
ANS: T

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29. Technology development and adoption generally has three stages birth, turbulence, and
obsolescence.
ANS: F

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30. Return facilitators specialize to getting reusable packaging/shipping material (containers, crates, and
pallets) back to manufacturers.
ANS: F

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31. Bar codes are the modern successor to RFID tags.

ANS: F

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MULTIPLE CHOICE
1. Database systems, artificial intelligence programs and voice-recognition software are examples of
a. hard technology
b. soft technology
c. computer numerical control
d. integrated operating systems
ANS: B

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2. All organizations face common issues regarding technology. Which item below does not belong on
the list of issues?
a. The right technology must be selected for the goods that are produced.

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b. Robots must be programmed to operate the equipment.

c. Work must be scheduled to meet shipping commitments/customer promise dates.
d. Quality must be ensured..
ANS: B

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3. Information technology has significantly affected health care. Which of the following is not an
outcome?
a. Cost reduction
b. Revenue enhancement
c. Faster exchange of handwritten charts between physicians and nurses
d. Improved clinical efficiency and patient care
ANS: C

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4. Which of the following would not be an activity a return facilitator handles?

a. recommending a new supplier
b. repairing the manufactured good
c. requesting money back for a customer
d. invoking the service guarantee
ANS: A

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5. Apple computer would best be described as what type of company?

a. B2B
b. B2C
c. C2C
d. All of these choices
ANS: B

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6. Dell Computer would best be described as what type of company?

a. B2B
b. B2C
c. C2C
d. Both a and b
ANS: D

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7. Which of the following is not a major characteristic of a customer relationship management system
(CRM)?
a. segmenting markets
b. identifying possible fraudulent transactions
c. monitoring the quality levels of products
d. forecasting customer retention
ANS: C

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8. ____ consist of two or more computer-controlled machines or robots linked by automated handling
devices such as transfer machines, conveyors and transport systems.
a. Computer-Aided Design/Computer-Aided Engineering (CAD/CAE)
b. Computer-Aided Manufacturing (CAM)
c. Enterprise Resource Planning (ERP)
d. Flexible Manufacturing Systems (FMS)
ANS: D

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9.

_______ involves computer control of a manufacturing process, such as determining tool movements
and cutting speeds.
a. Computer-Aided Design/Computer-Aided Engineering (CAD/CAE)
b. Computer-Aided Manufacturing (CAM)
c. Enterprise Resource Planning (ERP)
d. Flexible Manufacturing Systems (FMS)
ANS: B

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10. Regarding industrial robots, which choice is not correct?

a. ability to test manufacturing products before they physically exist
b. can be taught
c. can be used with hazardous material
d. can be used in brain surgery
ANS: A

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11. Which of the following enables engineers to design, analyze, test, simulate, and manufacture
products before they physically exist?
a. CNC
b. CAD/CAE
c. CIM
d. CAM
ANS: B

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12. Computer-Aided Manufacturing (CAM) has advantages over conventional manufacturing

approaches under many conditions. Which of the following is not such a condition?
a. when homogeneous parts are manufactured
b. when frequent design changes are made
c. when the manufacturing process is complex
d. when expert operator skills and close control are required
ANS: A

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13. Enterprise Resource Planning Systems (ERP)

a. are a subset of supply chain management
b. give each function the ability to set up its own databases
c. handle customer ordering, inventory management and production scheduling on a
real-time basis.
d. are easy to implement
ANS: C

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14. Computer integrated manufacturing systems result in

a. decreased engineering design costs
b. decreased equipment utilization
c. reduced work-in-process
d. improved quality
ANS: B

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15. Which of the following would not be included in a typical Customer Relationship Management
System (CRM)?
a. market segmentation and analysis
b. effective complaint resolution
c. cross-selling goods and services
d. supply chain inventory management
ANS: D

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16. CRM helps firms gain competitive advantage by all of the following except
a. providing real-time transaction processing
b. segmenting markets
c. tracking sales trends and advertising effectiveness
d. identifying which customers should be the focus of targeted marketing initiatives
ANS: A

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17. The dot.com company WebVan focused on

a. grooming pets in customers driveways
b. customers ordering their groceries on-line.
c. installing/repairing residential wireless networks
d. providing door-to-door medical diagnoses
ANS: B

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18. According to the National Research Council, companies with computer-integrated manufacturing
system experience have been able to
a. improve quality by a factor of ten
b. increase equipment utilization to 100 percent
c. decrease engineering design costs by up to 30 percent
d. reduce finished goods inventory by five percent
ANS: C

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19. Breakeven analysis can be used to

a. evaluate quality levels
b. help make technology adoption decisions
c. determine if ERP is economical
d. determine the breakeven quantity for infinite scalability
ANS: B

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20. All of the following are benefits of adopting technology except

a. improve/increase productivity and quality
b. integrate supply and value chain players
c. raise world standard of living
d. easier to protect employees' and customers' privacy
ANS: D

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21. Which of the following is not a stage in technology development and adoption?
a. Birth
b. Turbulence
c. Build-out
d. Decline
ANS: D

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22. During which stage of technology development and adoption is design and demand flexibility most
critical?
a. Birth
b. Turbulence
c. Build-out
d. Decline
ANS: A

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23. Infinite scalability is most related to

a. high variable cost
b. high fixed cost
c. high scalability
d. low scalability
ANS: C

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24. Filing your individual federal tax returns would best be described as what type of value chain?
a. B2B
b. C2G
c. C2C
d. G2G
ANS: B

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SHORT ANSWER
1. Differentiate between hard technology and soft technology.
ANS:
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, satellites,
sensors, robots, automated machines and bar code scanners.
Soft technology refers to the application of the Internet, computer software and information
systems to provide data, information and analysis and to facilitate the accomplishment for
creating and delivering goods and services. Some examples are database systems, artificial
intelligence programs and voice-recognition software.
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2. List some of the key issues that organizations face in using technology.
ANS:
The right technology must be selected for the goods that are produced.

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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.

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3. Discuss the role of technology on productivity.
ANS:
Modern technology can improve productivity and quality dramatically, increase the flexibility
needed to respond rapidly to changing customer demands, enhance working conditions and
improve wages because of higher skill levels required. Technology can also free workers from
onerous and dangerous jobs such as sanding and painting automobile bodies, and enable them to
engage in more creative and knowledge-intensive tasks. Technology leads to entirely new
products and even new industries.
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4. Discuss the components, hardware and software of a Computer-Integrated Manufacturing System
(CIMS).
ANS:
1.
Numerical Control (NC) machine tools enable the machinist's skills to be duplicated by a
programmable device that controls the movement of a tool used to make complex
shapes.
2.
Computer Numerical Control (CNC) machines are those to which operations are driven
by computer.
3.
Robots are programmable machines designed to handle materials or tools in the
performance of a variety of tasks.
4.
Computer-Aided Design (CAD) and Computer-Aided Engineering (CAE) enable
engineers to design, analyze, test, simulate and "manufacture" products before they
physically exist, thus ensuring that a product can be manufactured to specification when
it is released to the shop floor.
5.
Computer-Aided Manufacturing (CAM) involves computer control of a manufacturing
process such as determining tool movements and cutting speeds.
6.
Flexible Manufacturing Systems (FMS) consist of two or more computer-controlled
machines or robots linked by automated handling devices such as transfer machines,
conveyors and transport systems.
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5. Explain the concept of ERP Enterprise Resource Planning Systems.
ANS:

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ERP systems integrate all aspects of a business - accounting, customer relationship management,
supply chain management, manufacturing, sales, human resources - into a unified information system
and provide more timely analysis and reporting of sales, customer, inventory, manufacturing, human
resource, and accounting data. ERP combines each department's information into a single, integrated
system with a common database so that departments can easily share information and communicate
with each other. ERP systems usually consist of different modules that can be implemented
individually so that each department still has a level of autonomy, but they are combined into an
integrated operating system. For example, when a customer's order is entered by sales, all information
necessary to fulfill the order is built into the ERP system.
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6. How does customer relationship management (CRM) help a firm gain competitive advantage?
ANS:
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 candidates to be fraudulent;

studying which goods and services are purchased together, and what might be good ways

to bundle them (that is, the customer benefit package);

studying and predicting what Web characteristics are most attractive to customers and how

the Web site might be improved; and

linking the information above to competitive priorities by market segment and process and

value chain performance.

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7. What are some of the benefits and challenges of technology?
ANS:
Benefits
Creates new industries and job opportunities
Restructures old and less productive
industries
Integrates supply and value chain players
Increase marketplace competitiveness and
maintain the survival of the firm
Provides the capability to focus on smaller
target market segments (customize)
Improves/increases productivity, quality,
customer satisfaction, speed, safety, and
flexibility/customization - does more with
less
Lower cost
Raise world's standard of living

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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

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Monitors the environment and health of the

planet

opportunities
Enforcement of regulations and laws to
support sustainability goals

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8. A key factor that affects technology decisions is scalability. Define scalability. Explain the difference
between high scalability, infinite scalability, and low scalability.
ANS:
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.
High scalability is the capability to serve additional customers at extremely low incremental
costs. Infinite scalability exists where the incremental cost (or variable cost) to serve more
customers is zero. Low scalability implies that serving additional customers requires high
incremental (variable) costs.
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9. Describe the three stages of the technology development and adoption process.
ANS:
State I, Birth: At the beginning of a major technological era, enabling technologies emerge and are
eagerly welcomed as revolutionary. Excitement builds as technological pioneers crowd into the field
and innovations flourish. In some cases, early investors make extraordinary profits, fueling
speculation, chaos and investment mania, even "irrational exuberance."
Stage II, Turbulence: Over investment and over capacity burst the bubble of the new technology's
progress. Sometimes linked to a slowing economy, stock prices drop and even crash. Some investors
lose everything; some companies fold. Investment halts as financiers retrench. Observers may declare
the technology dead but the story is by no means over.
Stage III, Build-out: Confidence returns. Real value emerges. Missing components of the technology
are put in place, leading to full implementation. The technology penetrates the economy as other
industries organize around it and businesses adjust to take full advantage of it. Sustained investment
yields robust returns. The technology becomes the driving engine of the economy.
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PROBLEM
1. Allied Inc. is considering the purchase of a new piece of equipment. Relevant data are shown below.
Annual Fixed Cost
Variable Cost per Unit
Revenue per Unit
a.
b.

$700,000
$75
$200

Using this information, determine the break-even volume.

If the anticipated demand for the product is 5,000 units, should Allied purchase the new
equipment?

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ANS:
a.
Let X = number of units produced.
Total cost = 700,000 + 75X
Total revenue = 200X
700,000 + 75X = 200X
700,000 = 125X
X = 5,600.00 units
b.

No, because the demand is smaller than the breakeven point.

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2. A company is considering two alternative technologies for manufacturing a product. The cost data are
shown below.
A
$10,000
$30/unit

Fixed Cost
Variable Cost

B
$25,000
$5/unit

What is the breakeven volume, and under what circumstances should A be chosen?
ANS:
Let X = number of units produced
For A: total cost = 10000 + 30X
For B: total cost = 25000 + 5X
10000 + 30X = 25000 + 5X
25X = 15000
X = 600 units
Technology A should be chosen if the anticipated volume is less than 600 units.
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3. A firm must make a choice between a manual and a semi-automatic production process for a
new product line. Following are the costs for each process:

Alternative
Manual
Semi-Automatic

Fixed Cost
$100,000
$300,000

Variable Cost
$75.00
$50.00

a. Above what break-even production quantity would the semi-automatic alternative be

preferred?
b. Which process is more economical for an annual production volume of 5,000 units?
c. Which process is more economical for an annual production volume of 10,000 units?
ANS:
a. $100,000 + ($75)X = $300,000 + ($50)X => ($25)X = $200,000 => X = 8,000
b. Manual:
TC=$100,000 + ($75)(5,000) = $475,000
Semi-auto: TC=300,000 + ($50)(5,000) = $550,000
Manual is more economical by $75,000
c. Manual:

TC=$10,000 + ($75)(10,000)=$850,000

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Semi-auto: TC=300,000 + ($50)(10,000)=$800,000

Semi-automatic is more economical by $50,000
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4. A company is investigating two automated approaches for its production process. It has
collected the following cost information about each:

Alternative
CNC
FMS

Fixed Cost
$80,000
$190,000

Variable Cost
$2.75
$1.25

a. At what point of production will the firm be indifferent to which process it wants?
b. Which process is more economical for an annual production volume of 50,000 units?
c. Which process is more economical for an annual production volume of 100,000 units?
ANS:
a. $80,000 + ($2.75)X = $190,000 + ($1.25)X => ($1.50)X = $110,000 => X = 73,333
b. CNC: TC = $ 80,000 + ($2.75)(50,000) = $217,000
FMS: TC = $190,000 + ($1.25)(50,000) = $252,000
CNC is more economical by $35,000
c. CNC: TC = $ 80,000 + ($2.75)(100,000) = $355,000
FMS: TC = $190,000 + ($1.25)(100,000) = $315,000
FMS is more economical by $40,000
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5. A manufacturing firm is considering three alternatives for automation. They anticipate annual
production volume to be 75,000 units. The costs for each alternative are as shown:

Annual Fixed
Costs
Variable Cost/Unit

1
60,000

Alternative
2
$180,000

3
$300,000

$0.65

$0.55

$0.40

a. What sales price must be charged for Alternative 1 to breakeven?

b. What sales price must be charged for Alternative 2 to breakeven?
c. What sales price must be charged for Alternative 3 to breakeven?
ANS:
a. $60,000 + ($.65)(75,000) = 75000S => S = $1.45
b. $180,000 + ($.55)(75,000) = 75000S => S = $2.95
c. $300, 000 + ($. 40)(75,000) = 75000S => S = $4.40
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6. Rogers Manufacturing Company makes high quality canvas tents. Their production manager is
considering a change from its manual system of stitching to an automated system. The
following are the costs for the two systems:

System
Manual
Automat
ed

Fixed Cost
$35,00
0
$80,00
0

Variable Cost
$12.50
$ 8.50

a. What would the savings be if demand is 70,000 tents and the automated system is used?
b. What would the savings (loss) be if demand is 20,000 tents and the automated system is
used?
ANS:
a. Manual:
TC = $35,000 + ($12.50)(70,000) = $910,000
Automated: TC = $80,000 + ($8.50)(70,000) = $675,000
Automated will save $235,000
b. Manual:
TC=$35,000 + ($12.50)(20,000) = $285,000
Automated: TC=$80,000 + ($ 8.50)(20,000) = $250,000
Automated will save $35,000
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7. Janice Smith is an expert at calligraphy. However, it is found that a specialized robot can
imitate Janice's work perfectly. Variable costs are 75% of selling price and fixed costs are
$190,000 for the robot system.
a. How many pieces must be produced to break even assuming she sells each piece for $200?
b. How many pieces must be produced to break even if she sells them for $250 and variable
costs drop to 70% of selling price?
ANS:
a. $200X = $190,000 + (.75)($200)X => ($50)X = $190,000 => X = 3,800
b. $250X = $190,000 + (.70)($250)X => ($75)X = $190,000 => X = 2, 533
PTS:

8. Highgrove Industries must decide which process technology to adopt given the information below.
Cost
Price per unit
Fixed costs per year
Variable costs per unit

Technology A
$3
$80,000
$2.20

Technology B
$3
$120,000
$1.85

Technology C
$3
$130,000
$1.65

Which one of the process technologies would you recommend they adopt based on breakeven
analysis if they wish to minimize demand risks?
ANS:
Breakeven quantity for Technology A: 3X = 80,000 + 2.20X => X = 100,000.00
Breakeven quantity for Technology B: 3X = 120,000 + 1.85X => X = 104,347.83
Breakeven quantity for Technology C: 3X = 130,000 + 1.65X => X = 96,296.30

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Recommend process technology C. It has the lowest breakeven quantity.

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