Business · 4 Operations management

4.2.1 The use of technology in the production of goods and services

Before you start

Labour productivity is output per period ÷ number of employees, in units per employee (4.1.1).
Efficiency means producing output with as few resources as possible, so that the cost of each unit is low (4.1.1).
Job, batch and flow production, and why flow production needs large, steady demand (4.1.2).
The service sector (tertiary sector) provides services — shops, banks, restaurants, transport — rather than making goods.
Cash flow: a large payment now, such as buying machinery, is a cash outflow that may need a loan.

Syllabus objectives covered (3)

how technology is changing production methods through automation and mechanisation, e.g. Computer-Aided Manufacture (CAM) and 3D Printing
how technology is improving productivity in the service sector, e.g. contactless payments
advantages and disadvantages of changes in technology for businesses and employees

Part 1 of 7

Mechanisation and automation are two different steps

Technology changes production in two stages, and the syllabus names both, so you must be able to tell them apart.
Mechanisation means using machines to do work that people used to do by hand, with people still operating and controlling the machines. A worker using an electric sewing machine instead of a needle, or a driver using a forklift truck instead of carrying boxes, is mechanised production.
Automation means machines or computers control the process themselves, with little or no human involvement. People set the machines up, watch them and fix them, but do not guide each task. A line where machines fill, cap and label bottles under computer control is automated.
The test is one question: who is controlling the task — a person, or the machine? Person operating the machine: mechanisation. Machine controlling itself: automation.
Both raise productivity, because machines work faster and for longer than people. Automation usually raises it further, because one employee can watch several machines, so output per employee rises sharply.

Part 2 of 7

Computer-Aided Manufacture (CAM)

Computer-Aided Manufacture (CAM) is using computers to control the machines that make products — machines that cut, drill, shape, weld or assemble. It is a form of automation.
Usually the product is designed on a computer first, and the design is sent straight to the machine, which follows it exactly. The syllabus names CAM, not design software, so the point to hold on to is that the computer, not a person's hand, controls the making.
How CAM changes production — accuracy. The machine follows the digital instructions exactly every time, so products are consistent and fewer are faulty. Less material is wasted.
How CAM changes production — speed and hours. Machines work faster than skilled workers and can run for long hours, even through the night, so output rises.
How CAM changes production — the workforce. Fewer workers are needed for manual tasks such as cutting and drilling, but the business needs skilled employees to program, monitor and maintain the machines.
Link it to what you already know: CAM makes flow production cheaper and more reliable, and it makes batch production quicker to switch, because changing the product can mean loading a different design file rather than resetting a machine by hand.

Part 3 of 7

3D printing

3D printing builds a solid object layer by layer from a digital design, adding material — often plastic, sometimes metal — only where it is needed.
Compare that with cutting a part out of a block, where everything cut away is waste. Because a 3D printer adds material only where the design needs it, very little material is wasted.
It makes customised products affordable. Each item can be printed to a different design with no new tools or skilled craft work, so a business can make one-off products for individual customers — the kind of product that used to need job production.
It makes prototypes quickly. A business can print a sample of a new product, test it and change the design before paying to set up full production.
It allows production on demand. Items such as spare parts can be printed when a customer orders them, so the business does not need to hold as much inventory.
The limit — speed and cost for large quantities. Printing an item can take hours, so 3D printing is slow and expensive per unit when thousands of identical products are needed. For large numbers of identical products, flow production is still cheaper.
So the right way to write about 3D printing is: good for customised items, prototypes and small quantities; poor for mass production. Saying 3D printing is ideal for making millions of identical products is a mistake.

Part 4 of 7

Technology and productivity in services

Services do not produce physical units, so productivity in a service business is measured in things like customers served, transactions completed or orders handled per employee in a period. The idea is the same as in a factory: more output from each employee.
Contactless payments let a customer pay by tapping a card or phone on a reader, with no cash to hand over and no change to give.
How contactless payments raise productivity — faster transactions. Each payment takes a few seconds, with no counting of cash or giving change, so each cashier serves more customers per hour.
How — shorter queues. Faster service means fewer customers give up and leave the queue, so more sales are made with the same number of staff.
How — less cash handling. Staff spend less time counting cash at the end of the day, taking it to the bank, and checking for mistakes in change, so that time can be spent serving customers. There is also less cash on the premises to be stolen.
Contactless payments are the syllabus's example, so other technologies are valid too: self-service checkouts and ordering kiosks, online ordering and booking systems, and apps. Each works the same way — the customer or the computer does part of the task an employee used to do.
The trap is writing 'contactless payments increase sales' and stopping. The question is about productivity, so the chain must pass through it: faster payments, so each employee serves more customers per hour.

Part 5 of 7

What changing technology means for the business

Read every question for whose point of view it wants — the business, or its employees. The same change can be good for one and bad for the other.
Advantage — higher productivity and lower cost per unit. More output per employee means lower costs, so the business can lower its prices to compete, or keep prices and earn a higher profit margin.
Advantage — consistent quality and less waste. Machines make fewer mistakes, so fewer faulty products are thrown away or returned, which protects the business's reputation.
Advantage — fewer employees needed. Wage costs fall, and machines can work long hours without overtime pay.
Advantage — new products and services. Technology such as 3D printing or online ordering lets a business offer things rivals cannot, which can win customers.
Disadvantage — high cost to buy and install. It is a large cash outflow before any saving is made, and may need a loan, which adds interest costs.
Disadvantage — maintenance and breakdowns. Machines must be serviced, and a breakdown can stop production or leave customers unable to pay.
Disadvantage — technology goes out of date. Newer technology appears, so the business may have to replace equipment again to stay competitive.
Disadvantage — training and resistance. Employees must be trained, which costs money and time, and employees who fear for their jobs may resist the change, lowering motivation.
Disadvantage — some customers may not like it. Customers who prefer cash or talking to a person may go elsewhere.

Part 6 of 7

What changing technology means for employees

Advantage — safer, less tiring work. Machines take over dangerous, heavy or repetitive tasks, so fewer employees are injured.
Advantage — new skills. Employees who are trained to program, operate or maintain the technology gain skills that are valued, which can lead to better-paid jobs.
Advantage — more interesting work. When machines do the repetitive tasks, employees can spend more time on work that needs judgement, such as helping customers or checking quality.
Disadvantage — job losses. Employees whose tasks are taken over by machines may be made redundant and lose their income.
Disadvantage — pressure to retrain. Employees must learn new skills, which can be stressful, and those who cannot adapt may lose their jobs.
Disadvantage — deskilling. A craft skill that took years to learn, such as hand-welding, may no longer be needed, and the job may become simply watching a machine, which can be less satisfying.
Disadvantage — insecurity. Even employees who keep their jobs may worry they will be next, which reduces motivation.
Watch the direction of your analysis. 'Fewer employees needed' is an advantage for the business (lower wage costs) but a disadvantage for employees (job losses). Put the point on the side the question asks about, and write the consequence for that group.

Part 7 of 7

Turning technology points into marks

The most common mark-loser in this topic is a correct point with nothing after it. 'Technology is expensive' is 1 knowledge mark. It needs a link to the business and a consequence.
Build it like this: 'The robot welding system is expensive [k] at $600 000 [app], so it may need a larger bank loan, and the interest payments would reduce profit [an].' Each bracket is a separate mark.
Numbers in the stem are gifts. If a business will make more output with fewer employees, you can calculate labour productivity before and after and use the result as analysis — that shows the change rather than just claiming it.
In an 8-mark decision about introducing technology, useful ways to evaluate are: short term against long term (a cost now, a saving later); what it depends on (can the business afford it, will demand be high enough to use it, are rivals already using it); and who wins and who loses (the business saves wages, but demotivated employees could undo the gain).
Then decide, and give the reason that tips the balance for this business — not a repeat of a point you already made.

Worked examples

Example 1. State whether each is an example of mechanisation or automation, and explain your choice. (a) Bakers use electric mixers, switching them on, adding ingredients and deciding when the dough is ready. (b) A furniture maker sends a design from a computer to a machine that cuts table legs without anyone guiding the blade. (c) A drinks factory's line fills, caps and labels bottles, controlled by computers, while two employees watch screens.

Show the working

Ask the one question for each: who controls the task — a person or the machine?
(a) The mixer does the physical work, but the bakers control it: they switch it on, add ingredients and judge when to stop. People operating machines is mechanisation.
(b) The computer sends the design and the machine cuts without a person guiding it. The machine controls the task, so this is automation — and because a computer controls the making, it is Computer-Aided Manufacture (CAM).
(c) Computers control filling, capping and labelling. The two employees watch but do not guide each task. That is automation.
Notice that employees are present in all three. Their presence does not make something mechanisation; what matters is whether they control each task.

Answer: (a) Mechanisation — machines do the work but bakers control them. (b) Automation, specifically CAM — a computer controls the cutting with no person guiding it. (c) Automation — computers control each stage and employees only monitor.

Example 2. Brewster's is a busy café with 4 employees serving at the counter. At breakfast time long queues form and some customers leave without buying. At present customers can pay only with cash, and staff spend 40 minutes counting cash each evening. Outline two ways contactless payments could improve productivity at Brewster's. (4 marks)

Show the working

Outline, 4 marks: two points, each with a link to Brewster's. No analysis marks, but each point must be about productivity.
Find the facts: 4 counter staff; long breakfast queues; customers leaving; cash only; 40 minutes counting cash each evening.
Way one. Contactless payments are faster than cash, so each employee can serve more customers per hour [k]. Application: at breakfast time, when long queues form at the counter [app].
Way two. Less time is spent handling cash [k]. Application: staff currently spend 40 minutes counting cash each evening, time that could be spent on other work [app].
Check the test for application: could either sentence have been written without the stem? The breakfast queues and the 40 minutes make both specific to Brewster's.

Answer: Contactless payments are quicker than cash, so each employee can serve more customers per hour [k], reducing the long breakfast-time queues at the counter [app]. Staff would also handle less cash [k], saving much of the 40 minutes they spend counting it each evening [app].

Example 3. Delta Components makes brake parts and employs 200 factory workers. It is installing computer-controlled robot arms (CAM) to drill parts. The 40 workers who drill parts by hand will no longer be needed. Workers have complained for years about noise and injuries from hand drilling. Explain one advantage and one disadvantage for Delta Components' employees of introducing the robot arms. (6 marks)

Show the working

The question asks about employees, not the business. So 'lower wage costs' is off the table — it answers a different question.
Six marks, one advantage and one disadvantage: each needs [k] + [app] + [an], and the analysis must be a consequence for employees.
Advantage. Safer working conditions [k]: robots take over hand drilling, which workers say causes noise and injuries [app], so fewer employees are hurt or have to take time off in pain, and work becomes less tiring [an].
Disadvantage. Job losses [k]: the 40 workers who drill by hand will no longer be needed [app], so they may be made redundant and lose their income, and the remaining workers may worry they will be next, lowering their motivation [an].
Read each consequence back and ask: is this what happens to an employee? Yes for both, so the analysis is pointed the right way.

Answer: Advantage: working conditions become safer [k], because the robots take over the hand drilling that workers say causes noise and injuries [app], so fewer employees are injured and work is less tiring [an]. Disadvantage: some employees lose their jobs [k] — the 40 hand-drilling workers will no longer be needed [app] — so they lose their income, and others may fear for their jobs, which reduces their motivation [an].

Example 4. PrintCraft Gifts has 4 employees and sells personalised phone cases and keyrings online. It buys each item from a supplier for $9, which takes 3 weeks to deliver, and sells it for $20. Customers often complain about the wait. It sells about 300 items a month. A 3D printer would cost $12 000 and make each item for $4 of materials, taking about 1 hour per item. PrintCraft has $15 000 in the bank. Do you think PrintCraft Gifts should buy the 3D printer? Justify your answer. (8 marks)

Show the working

Eight marks: k2, app2, an2, eval2. Plan one advantage and one disadvantage, each developed, then a decision.
Do the arithmetic the stem invites, because it turns a claim into evidence. Saving per item: $9 − $4 = $5. Monthly saving: 300 × $5 = $1 500. Months for the saving to cover the printer: $12 000 ÷ $1 500 = 8 months.
Advantage. 3D printing lets a business make customised items itself [k]. PrintCraft could print each personalised case for $4 instead of buying it for $9 [app], saving about $1 500 a month, so its profit would rise and the printer would pay for itself in about 8 months [an].
Disadvantage. The technology is expensive [k]. The $12 000 printer would use most of PrintCraft's $15 000 in the bank [app], leaving only $3 000 to cover other payments, so it could run short of cash if the printer breaks down or sales fall [an].
Now find something the points have not said. Two useful observations: printing 300 items at 1 hour each is 300 hours a month — about 10 hours every day — so one printer is near its limit; and faster delivery tackles the customer complaints, which the saving calculation does not include.
Decide, and let those new observations carry the justification.

Answer: Advantage: 3D printing lets PrintCraft make customised items itself [k] for $4 each instead of buying them for $9 [app]. On 300 items a month that saves about $1 500, so profit rises and the printer pays for itself in about 8 months [an]. Disadvantage: the printer is expensive [k] and would use $12 000 of the $15 000 PrintCraft has in the bank [app], leaving little cash for other payments if sales fall or the printer breaks down [an]. Justification: I think PrintCraft should buy the printer, because it would also end the 3-week wait customers complain about, which could win repeat orders the saving figure does not include [eval]. However, 300 hours of printing a month means one printer is almost at full use, so if sales grow it will need a second printer or longer printing hours, and it should plan for that before relying on growth [eval].

Where people go wrong

Mistake: Using 'mechanisation' and 'automation' as if they mean the same thing.

Instead: Mechanisation: people operate and control machines. Automation: machines or computers control the process with little human involvement.

The syllabus names both. A question that asks about one is testing whether you know who controls the task.

Mistake: Giving an advantage for the business when the question asks about employees, or the other way round.

Instead: Check whose point of view the question wants, and write the consequence for that group.

'Fewer workers needed' is lower wage costs for the business but job losses for employees. The same fact on the wrong side earns nothing.

Mistake: Saying 3D printing is the best way to make large quantities of identical products.

Instead: 3D printing suits customised items, prototypes and small quantities; flow production is cheaper for large numbers of identical products.

Each printed item can take hours, so the cost per unit stays high however many are made.

Mistake: Explaining contactless payments only as 'customers like it, so sales rise'.

Instead: Link it to productivity: payments are faster, so each employee serves more customers in the same time.

The objective is about productivity in services. A chain that never mentions output per employee or time saved does not answer the question asked.

Mistake: Writing 'technology is expensive' or 'technology is efficient' as a complete point.

Instead: Add the stem's figure and the consequence: expensive at $600 000, so a loan is needed and interest reduces profit.

The bare point earns only the knowledge mark; application and analysis each need their own words.

Check yourself

A worker uses a power drill to make holes in shelves. Is that mechanisation or automation? What would make it automation?
Answer
Mechanisation — a machine does the work but a person controls it. It would become automation if a computer-controlled machine drilled the holes itself without a person guiding each one (for example, CAM).
Define Computer-Aided Manufacture, and outline two ways it changes production.
Answer
CAM is using computers to control the machines that make products. It makes products more accurate and consistent, so fewer are faulty; it lets machines work faster and for longer, raising output; and it reduces the number of workers needed for manual tasks while needing skilled employees to program and maintain machines. Any two.
Explain how 3D printing makes a product, and identify one situation where it is a good choice and one where it is not.
Answer
It builds a solid object layer by layer from a digital design, adding material only where needed. Good choice: customised one-off products, prototypes, or spare parts made on demand. Poor choice: making large quantities of identical products, where it is too slow and costly per unit compared with flow production.
How is productivity measured in a service business, and how do contactless payments increase it?
Answer
By output per employee such as customers served or transactions completed per employee in a period. Contactless payments are faster than cash, so each employee serves more customers per hour, and staff spend less time counting and banking cash.
State two advantages and two disadvantages for a business of introducing new technology.
Answer
Advantages: higher productivity and lower cost per unit; consistent quality and less waste; fewer employees and lower wage costs; new products or services. Disadvantages: high cost to buy and install; maintenance and breakdowns; it goes out of date and must be replaced; training costs and employee resistance. Any two of each.
Explain one advantage and one disadvantage of new technology for employees, each with its consequence.
Answer
Advantage: machines take over dangerous or repetitive tasks, so work is safer and less tiring (or: employees gain new skills, which can lead to better-paid jobs). Disadvantage: some jobs are lost, so those employees lose their income (or: employees must retrain, which is stressful, or skills they had are no longer valued).
A factory will produce 3 600 units a month with 25 employees after installing robots, instead of 2 400 units with 40 employees. Calculate labour productivity before and after, and explain what it shows.
Answer
Before: 2 400 ÷ 40 = 60 units per employee per month. After: 3 600 ÷ 25 = 144 units per employee per month. Each employee produces more than twice as much, so cost per unit should fall — but 15 fewer employees are needed.

Exam questions

Try each part first. Open the mark scheme after you have written your answer.

Question 1. Castello Bikes makes bicycle frames. Its 40 skilled welders join frames by hand and produce 2 400 frames a month. A robot welding system controlled by computers (CAM) would cost $600 000. With it, 25 employees could produce 3 600 frames a month, and the other 15 welders would no longer be needed. A competitor already uses robots and sells its frames at a lower price. Castello Bikes is already repaying a bank loan.

(a) Define 'automation'. 2 marks

Mark scheme

pt2 Award 2 marks for clear understanding, e.g. machines / computers controlling production processes with little or no human involvement (2). Award 1 mark for some understanding, e.g. using machines instead of people (1). Do not award examples such as robots on their own.

(b) Outline two ways robot welding could change production at Castello Bikes. 4 marks

Mark scheme

k1 First way identified, e.g. higher output / faster production; more consistent / accurate welds, fewer faulty products; fewer employees needed; higher labour productivity; employees monitor and maintain machines rather than weld by hand; can work longer hours.
app1 Relevant application, e.g. output rises from 2 400 to 3 600 frames a month; 25 employees instead of 40; bicycle frames; welding by hand; labour productivity rises from 60 to 144 frames per employee per month. The reference must make sense in relation to the point.
k1 Second, different way identified (as above).
app1 Relevant application of the second way to Castello Bikes (as above). Accept all valid responses.

(c) Do you think Castello Bikes should introduce the robot welding system? Justify your answer. 8 marks

Mark scheme

k2 Identification of relevant points, up to 2 marks. Advantages, e.g. higher productivity / lower cost per unit; higher output; consistent quality; lower wage costs; stay competitive. Disadvantages, e.g. high cost / cash outflow; more borrowing; maintenance / breakdowns; becomes outdated; training needed; redundancies lower motivation of remaining staff; loss of skilled welders.
app2 Relevant application, up to 2 marks, e.g. $600 000 cost; already repaying a bank loan; 2 400 rising to 3 600 frames a month; 40 falling to 25 employees / 15 welders not needed; competitor uses robots and sells at a lower price; bicycle frames; skilled welders. The reference must make sense in relation to the point.
an2 Relevant development, up to 2 marks, e.g. lower cost per frame means it can match the competitor's lower price and protect its sales; productivity rises from 60 to 144 frames per employee per month, reducing wage cost per frame; a further loan increases interest payments and reduces profit; remaining employees may fear for their jobs, reducing motivation and productivity; redundancy costs increase short-term expenses.
eval2 A justified decision about whether Castello Bikes should introduce robot welding, up to 2 marks, not repeating earlier points. E.g. yes, because the competitor already sells at a lower price, so without robots Castello may lose sales whatever it saves by not borrowing / no, not yet, because adding a large loan to an existing one is risky if extra output of 1 200 frames a month cannot be sold. Justification will depend on the points discussed. Accept all valid responses.

Question 2. MetroMunch is a chain of 12 sandwich shops. Each shop has 3 employees at the tills. At lunchtime queues are long and some customers leave without buying. About half of customers pay with cash, and at the end of each day the manager of each shop spends 45 minutes counting cash. MetroMunch plans to accept contactless payments in every shop.

(a) Identify two examples of technology that can improve productivity in the service sector. 2 marks

Mark scheme

pt1 First valid example, e.g. contactless payments; self-service checkouts / ordering kiosks; online ordering / booking systems; apps; online banking.
pt1 Second, different valid example (as above). Only award the first two answers given. Accept all valid responses.

(b) Explain two ways contactless payments could improve productivity at MetroMunch. 6 marks

Mark scheme

k1 First way identified, e.g. faster transactions / quicker payments; less time handling / counting / banking cash; fewer errors giving change; shorter queues.
app1 Relevant application, e.g. long lunchtime queues; 3 employees at the tills; about half of customers pay with cash; manager spends 45 minutes counting cash; 12 shops; sandwiches. The reference must make sense in relation to the point.
an1 Relevant development, e.g. each employee serves more customers per hour / more sales with the same number of staff; fewer customers leave the queue so more sales are made; time saved can be used on other tasks such as preparing sandwiches.
k1 Second, different way identified (as above). Do not credit the same point twice.
app1 Relevant application of the second way to MetroMunch (as above).
an1 Relevant development of the second way (as above). Accept all valid responses.

How this is examined

Deciding whether a business should introduce a new technology.: The long final part of a data-response question, ending 'Justify your answer', with the technology's cost, the money available, output figures and effects on employees in the stem. A developed advantage and disadvantage using the stem's figures — 'the system costs $600 000 [app], so a bigger loan is needed and interest reduces profit [an]' — then a decision whose reason weighs short-term cost against long-term saving, or what the decision depends on, without repeating earlier points.
What a technology change means for the employees rather than the business.: A 6-mark Explain of one advantage and one disadvantage, or two disadvantages, for employees. Consequences that happen to employees: 'safer work, so fewer injuries'; 'job losses for the 40 hand-drilling workers, so they lose income and others' motivation falls'; 'need to retrain, which is stressful'. 'Lower wage costs' is a business point and does not answer an employee question.
How technology such as contactless payments makes a service business more productive.: A 4-mark Outline or 6-mark Explain set in a shop, café, bank or restaurant with queues or slow service described in the stem. Chains that go through productivity: 'faster payments [k], so each cashier serves more customers per hour [an], cutting the lunchtime queues [app]'; 'less time counting cash [k], 40 minutes each evening [app], which can be used serving customers [an]'.
Knowing precisely what automation, mechanisation, CAM and 3D printing are.: A 2-mark Define, or an Outline of two ways a named technology could change production at a business. Automation: 'machines or computers control production with little or no human involvement'. Mechanisation: 'machines used in production, operated by people'. CAM: 'computers controlling the machines that make products'. 3D printing: 'building an object layer by layer from a digital design', suited to customised items and prototypes.

Words to know

Mechanisation: Using machines to do work previously done by hand, with people operating and controlling the machines.
Automation: Machines or computers controlling a production process with little or no human involvement.
Computer-Aided Manufacture (CAM): Using computers to control the machines that make products.
3D printing: Building a solid object layer by layer from a digital design, adding material only where it is needed.
Prototype: A first sample of a new product, made to test the design before full production.
Contactless payment: Paying by tapping a card or phone on a reader, without cash.
Deskilling: When technology removes the need for a skill employees had, so their work needs less skill than before.
Redundancy: Losing a job because the job is no longer needed, for example when a machine takes it over.

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