Lecture

1
Decision Support Systems

McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

• Identify the changes taking place in the form

and use of decision support in business
• Identify the role and reporting alternatives
of management information systems
• Describe how online analytical processing
can meet key information needs of managers
• Explain the decision support system concept
and how it differs from traditional management
information systems

10-2
 Learning Objectives

• Explain how the following information systems

can support the information needs of executives,
managers, and business professionals
• Executive information systems
• Enterprise information portals
• Knowledge management systems
• Identify how neural networks, fuzzy logic,
genetic algorithms, virtual reality, and
intelligent agents can be used in business

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 Learning Objectives

• Give examples of several ways expert systems

can be used in business decision-making
situations

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 Decision Support in Business

• Companies are investing in data-driven decision

support application frameworks to help them
respond to
• Changing market conditions
• Customer needs
• This is accomplished by several types of
• Management information
• Decision support
• Other information systems

10-5
 Case 1: Dashboards for Executives

• Web-based “dashboards”
• Displays critical information in graphic form
• Assembled from data pulled in real time from
corporate software and databases
• Managers see changes almost instantaneously
• Now available to smaller companies
• Potential problems
• Pressure on employees
• Divisions in the office
• Tendency to hoard information

10-6
 Case Study Questions

• What is the attraction of dashboards to CEOs and

other executives?
• What real business value do they provide
to executives?
• The case emphasizes that managers of small
businesses and many business professionals
now rely on dashboards.
• What business benefits do dashboards provide
to this business audience?

10-7
 Case Study Questions

• What are several reasons for criticism of

the use of dashboards by executives?
• Do you agree with any of this criticism?

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Levels of Managerial Decision Making

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 Information Quality

• Information products made more valuable by

their attributes, characteristics, or qualities
• Information that is outdated, inaccurate, or
hard to understand has much less value
• Information has three dimensions
• Time
• Content
• Form

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Attributes of Information Quality

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 Decision Structure

• Structured (operational)
• The procedures to follow when decision
is needed can be specified in advance
• Unstructured (strategic)
• It is not possible to specify in advance
most of the decision procedures to follow
• Semi-structured (tactical)
• Decision procedures can be pre-specified,
but not enough to lead to the correct decision

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 Decision Support Systems

Management Information Decision Support

Systems Systems

Decision Support Provide information about Provide information and

Provided the performance of the techniques to analyze
organization specific problems
Information Form Periodic, exception, Interactive inquiries and
and quality demand, and push responses
reports and responses
Information Pre-specified, fixed format Ad hoc, flexible, and
Format adaptable format

Information Information produced by Information produced by

Processing extraction and analytical modeling of
Methodology manipulation of business business data
data

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 Decision Support Trends

• The emerging class of applications focuses on

• Personalized decision support
• Modeling
• Information retrieval
• Data warehousing
• What-if scenarios
• Reporting

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Business Intelligence Applications

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 Decision Support Systems

• Decision support systems use the following to

support the making of semi-structured business
decisions
• Analytical models
• Specialized databases
• A decision-maker’s own insights and judgments
• An interactive, computer-based modeling process
• DSS systems are designed to be ad hoc,
quick-response systems that are initiated and
controlled by decision makers

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DSS Components

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 DSS Model Base

• Model Base
• A software component that consists of
models used in computational and analytical
routines that mathematically express relations
among variables
• Spreadsheet Examples
• Linear programming
• Multiple regression forecasting
• Capital budgeting present value

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Simple examples of Math Modeling

• Estimate the yield of wheat in India from the

standing crop (without cutting and weighing the
whole of it)
• Estimating the population of India in the year
2025 (without waiting till then).
• Estimate the average life span of a bulb
manufactured in a company (without lighting till
fused)
• Estimate the total amount of insurance claims a
company has to pay next year (without waiting
till the end of the year).
• Effect of Immigration and Emigration on
population size.
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 Technique of Math Modeling

Real Mathematical Mathematical

Problem Problem Solution

Interpretation

Mathematical Physics
Mathematical Medicine (blood
flow)
Mathematical Economics
Mathematical Psychology
Mathematical Sociology
Mathematical Engineering
…
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Applications of Statistics and Modeling

• Supply Chain: simulate and optimize supply

chain flows, reduce inventory, reduce stock-outs
• Pricing: identify the price that maximizes
yield or profit
• Product and Service Quality: detect quality
problems early in order to minimize them
• Research and Development: improve quality,
efficacy, and safety of products and services

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 Management Information Systems

• The original type of information system

that supported managerial decision making
• Produces information products that support
many day-to-day decision-making needs
• Produces reports, display, and responses
• Satisfies needs of operational and tactical
decision makers who face structured decisions

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 Management Reporting Alternatives

• Periodic Scheduled Reports

• Prespecified format on a regular basis
• Exception Reports
• Reports about exceptional conditions
• May be produced regularly or when an
exception occurs
• Demand Reports and Responses
• Information is available on demand
• Push Reporting
• Information is pushed to a networked computer

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Example of Push Reporting

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 Online Analytical Processing

• OLAP
• Enables managers and analysts to examine
and manipulate large amounts of detailed and
consolidated data from many perspectives
• Done interactively, in real time, with rapid
response to queries

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 Online Analytical Operations

• Consolidation
• Aggregation of data
• Example: data about sales offices rolled up
to the district level
• Drill-Down
• Display underlying detail data
• Example: sales figures by individual product
• Slicing and Dicing
• Viewing database from different viewpoints
• Often performed along a time axis
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 Geographic Information Systems

• GIS
• DSS uses geographic databases to construct
and display maps and other graphic displays
• Supports decisions affecting the geographic
distribution of people and other resources
• Often used with Global Positioning Systems
(GPS) devices

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 Data Visualization Systems

• DVS
• Represents complex data using interactive,
three-dimensional graphical forms
(charts, graphs, maps)
• Helps users interactively sort, subdivide,
combine, and organize data while it is in its
graphical form

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 Using Decision Support Systems

• Using a decision support system involves

an interactive analytical modeling process
• Decision makers are not demanding
pre-specified information
• They are exploring possible alternatives
• What-If Analysis
• Observing how changes to selected variables
affect other variables

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 Using Decision Support Systems

• Sensitivity Analysis
• Observing how repeated changes to a single
variable affect other variables
• Goal-seeking Analysis
• Making repeated changes to selected variables
until a chosen variable reaches a target value
• Optimization Analysis
• Finding an optimum value for selected variables,
given certain constraints

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 Data Mining

• Provides decision support through knowledge

discovery
• Analyzes vast stores of historical business data
• Looks for patterns, trends, and correlations
• Goal is to improve business performance
• Types of analysis
• Regression
• Decision tree
• Neural network
• Cluster detection
• Market basket analysis
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Analysis of Customer Demographics

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 Market Basket Analysis

• One of the most common uses for data mining

• Determines what products customers purchase
together with other products
• Results affect how companies
• Market products
• Place merchandise in the store
• Lay out catalogs and order forms
• Determine what new products to offer
• Customize solicitation phone calls

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 Executive Information Systems

• EIS
• Combines many features of MIS and DSS
• Provide top executives with immediate and
easy access to information
• Identify factors that are critical to accomplishing
strategic objectives (critical success factors)
• So popular that it has been expanded to managers,
analysis, and other knowledge workers

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 Features of an EIS

• Information presented in forms tailored to the

preferences of the executives using the system
• Customizable graphical user interfaces
• Exception reports
• Trend analysis
• Drill down capability

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 Enterprise Information Portals

• An EIP is a Web-based interface and integration

of MIS, DSS, EIS, and other technologies
• Available to all intranet users and select
extranet users
• Provides access to a variety of internal and
external business applications and services
• Typically tailored or personalized to the user
or groups of users
• Often has a digital dashboard
• Also called enterprise knowledge portals

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Dashboard Example

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Enterprise Information Portal Components

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Enterprise Knowledge Portal

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 Case 2: Automated Decision Making

• Automated decision making has been slow

to materialize
• Early applications were just solutions looking
for problems, contributing little to improved
organizational performance
• A new generation of AI applications
• Easier to create and manage
• Decision making triggered without human
intervention
• Can translate decisions into action quickly,
accurately, and efficiently
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 Case 2: Automated Decision Making

• AI is best suited for

• Decisions that must be made quickly and
frequently, using electronic data
• Highly structured decision criteria
• High-quality data
• Common users of AI
• Transportation industry
• Hotels
• Investment firms and lenders

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 Case Study Questions

• Why did some previous attempts to use artificial

intelligence technologies fail?
• What key differences of the new AI-based
applications versus the old cause the authors
to declare that automated decision making is
coming of age?
• What types of decisions are best suited for
automated decision making?

10-42
 Case Study Questions

• What role do humans plan in automated

decision-making applications?
• What are some of the challenges faced by
managers where automated decision-making
systems are being used?
• What solutions are needed to meet such
challenges?

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 Artificial Intelligence (AI)

• AI is a field of science and technology based on

• Computer science
• Biology
• Psychology
• Linguistics
• Mathematics
• Engineering
• The goal is to develop computers than can
simulate the ability to think
• And see, hear, walk, talk, and feel as well

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 Attributes of Intelligent Behavior

• Some of the attributes of intelligent behavior

• Think and reason
• Use reason to solve problems
• Learn or understand from experience
• Acquire and apply knowledge
• Exhibit creativity and imagination
• Deal with complex or perplexing situations

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 Attributes of Intelligent Behavior

• Attributes of intelligent behavior (continued)

• Respond quickly and successfully to new
situations
• Recognize the relative importance of
elements in a situation
• Handle ambiguous, incomplete, or
erroneous information

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Domains of Artificial Intelligence

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 Cognitive Science

• Applications in the cognitive science of AI

• Expert systems
• Knowledge-based systems
• Adaptive learning systems
• Fuzzy logic systems
• Neural networks
• Genetic algorithm software
• Intelligent agents
• Focuses on how the human brain works
and how humans think and learn

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 Robotics

• AI, engineering, and physiology are the basic

disciplines of robotics
• Produces robot machines with computer
intelligence and humanlike physical capabilities
• This area include applications designed to
give robots the powers of
• Sight or visual perception
• Touch
• Dexterity
• Locomotion
• Navigation
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 Natural Interfaces

• Major thrusts in the area of AI and the

development of natural interfaces
• Natural languages
• Speech recognition
• Virtual reality
• Involves research and development in
• Linguistics
• Psychology
• Computer science
• Other disciplines

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 Latest Commercial Applications of AI

• Decision Support
• Helps capture the why as well as the what of
engineered design and decision making
• Information Retrieval
• Distills tidal waves of information into simple
presentations
• Natural language technology
• Database mining

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 Latest Commercial Applications of AI

• Virtual Reality
• X-ray-like vision enabled by enhanced-reality
visualization helps surgeons
• Automated animation and haptic interfaces
allow users to interact with virtual objects
• Robotics
• Machine-vision inspections systems
• Cutting-edge robotics systems
• From micro robots and hands and legs, to cognitive
and trainable modular vision systems

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 Expert Systems

• An Expert System (ES)

• A knowledge-based information system
• Contain knowledge about a specific, complex
application area
• Acts as an expert consultant to end users

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 Components of an Expert System

• Knowledge Base
• Facts about a specific subject area
• Heuristics that express the reasoning procedures
of an expert (rules of thumb)
• Software Resources
• An inference engine processes the knowledge
and recommends a course of action
• User interface programs communicate with
the end user
• Explanation programs explain the reasoning
process to the end user
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Components of an Expert System

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Methods of Knowledge Representation

• Case-Based
• Knowledge organized in the form of cases
• Cases are examples of past performance,
occurrences, and experiences
• Frame-Based
• Knowledge organized in a hierarchy or
network of frames
• A frame is a collection of knowledge about
an entity, consisting of a complex package
of data values describing its attributes

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Methods of Knowledge Representation

• Object-Based
• Knowledge represented as a network of objects
• An object is a data element that includes both
data and the methods or processes that act on
those data
• Rule-Based
• Knowledge represented in the form of rules
and statements of fact
• Rules are statements that typically take the
form of a premise and a conclusion (If, Then)

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 Expert System Application Categories

• Decision Management
• Loan portfolio analysis
• Employee performance evaluation
• Insurance underwriting
• Diagnostic/Troubleshooting
• Equipment calibration
• Help desk operations
• Medical diagnosis
• Software debugging

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 Expert System Application Categories

• Design/Configuration
• Computer option installation
• Manufacturability studies
• Communications networks
• Selection/Classification
• Material selection
• Delinquent account identification
• Information classification
• Suspect identification
• Process Monitoring/Control
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 Expert System Application Categories

• Process Monitoring/Control
• Machine control (including robotics)
• Inventory control
• Production monitoring
• Chemical testing

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 Benefits of Expert Systems

• Captures the expertise of an expert or group of

experts in a computer-based information system
• Faster and more consistent than an expert
• Can contain knowledge of multiple experts
• Does not get tired or distracted
• Cannot be overworked or stressed
• Helps preserve and reproduce the knowledge
of human experts

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 Limitations of Expert Systems

• The major limitations of expert systems

• Limited focus
• Inability to learn
• Maintenance problems
• Development cost
• Can only solve specific types of problems
in a limited domain of knowledge

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 Developing Expert Systems

• Suitability Criteria for Expert Systems

• Domain: the domain or subject area of
the problem is small and well-defined
• Expertise: a body of knowledge, techniques,
and intuition is needed that only a few people
possess
• Complexity: solving the problem is a complex
task that requires logical inference processing

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 Developing Expert Systems

• Suitability Criteria for Expert Systems

• Structure: the solution process must be able
to cope with ill-structured, uncertain, missing,
and conflicting data and a changing problem
situation
• Availability: an expert exists who is articulate,
cooperative, and supported by the management
and end users involved in the development
process

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 Development Tool

• Expert System Shell

• The easiest way to develop an expert system
• A software package consisting of an expert
system without its knowledge base
• Has an inference engine and user interface
programs

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 Knowledge Engineering

• A knowledge engineer
• Works with experts to capture the knowledge
(facts and rules of thumb) they possess
• Builds the knowledge base, and if necessary,
the rest of the expert system
• Performs a role similar to that of systems
analysts in conventional information systems
development

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 Neural Networks

• Computing systems modeled after the brain’s

mesh-like network of interconnected processing
elements (neurons)
• Interconnected processors operate in parallel
and interact with each other
• Allows the network to learn from the data it
processes

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 Fuzzy Logic

• Fuzzy logic
• Resembles human reasoning
• Allows for approximate values and
inferences and incomplete or ambiguous data
• Uses terms such as “very high” instead of
precise measures
• Used more often in Japan than in the U.S.
• Used in fuzzy process controllers used in
subway trains, elevators, and cars

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Example of Fuzzy Logic Rules and Query

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 Genetic Algorithms

• Genetic algorithm software

• Uses Darwinian, randomizing, and other
mathematical functions
• Simulates an evolutionary process, yielding
increasingly better solutions to a problem
• Being uses to model a variety of scientific,
technical, and business processes
• Especially useful for situations in which
thousands of solutions are possible

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 Virtual Reality (VR)

• Virtual reality is a computer-simulated reality

• Fast-growing area of artificial intelligence
• Originated from efforts to build natural, realistic,
multi-sensory human-computer interfaces
• Relies on multi-sensory input/output devices
• Creates a three-dimensional world through
sight, sound, and touch
• Also called telepresence

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 Typical VR Applications

• Current applications of virtual reality

• Computer-aided design
• Medical diagnostics and treatment
• Scientific experimentation
• Flight simulation
• Product demonstrations
• Employee training
• Entertainment

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 Intelligent Agents

• A software surrogate for an end user or a

process that fulfills a stated need or activity
• Uses built-in and learned knowledge base
to make decisions and accomplish tasks in
a way that fulfills the intentions of a user
• Also call software robots or bots

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 User Interface Agents

• Interface Tutors – observe user computer

operations, correct user mistakes, provide
hints/advice on efficient software use
• Presentation Agents – show information in a
variety of forms/media based on user preferences
• Network Navigation Agents – discover paths
to information, provide ways to view it based
on user preferences
• Role-Playing – play what-if games and other
roles to help users understand information and
make better decisions
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 Information Management Agents

• Search Agents – help users find files and

databases, search for information, and suggest
and find new types of information products,
media, resources
• Information Brokers – provide commercial
services to discover and develop information
resources that fit business or personal needs
• Information Filters – Receive, find, filter,
discard, save, forward, and notify users about
products received or desired, including e-mail,
voice mail, and other information media

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Case 3: Centralized Business Intelligence

• A reinventing-the-wheel approach to business

intelligence implementations can result in
• High development costs
• High support costs
• Incompatible business intelligence systems
• A more strategic approach
• Standardize on fewer business intelligence tools
• Make them available throughout the organization,
even before projects are planned

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Case 3: Centralized Business Intelligence

• About 10 percent of the 2,000 largest companies

have a business intelligence competency center
• Centralized or virtual
• Part of the IT department or independent
• Cost reduction is often the driving force behind
creating competency centers and consolidating
business intelligence systems
• Despite the potential savings, funding for
creating and running a BI center can be an issue

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 Case Study Questions

• What is business intelligence?

• Why are business intelligence systems such
a popular business application of IT?
• What is the business value of the various
BI applications discussed in the case?
• Is the business intelligence system an MIS
or a DSS?

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Case 4: Robots, the Common Denominator

• In early 2004, 22 patients underwent complex

laparoscopic operations
• The operations included colon cancer
procedures and hernia repairs
• The primary surgeon was 250 miles away
• A three-armed robot was used to perform the
procedures
• Left arm, right arm, camera arm

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Case 4: Robots, the Common Denominator

• Automakers heavily use robotics

• Ford has a completely wireless assembly factory
• It also have a completely automated body shop
• BMW has two wireless plants in Europe and
is setting one up in the U.S.
• Vehicle tracking and material replenishment
are automated as well

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 Case Study Questions

• What is the current and future business value

of robotics?
• Would you be comfortable with a robot
performing surgery on you?
• The robotics being used by Ford Motor Co. are
contributing to a streamlining of its supply chain
• What other applications of robots can you
envision to improve supply chain management
beyond those described in the case?

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McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc. All rights reserved.