4.2.1 The Use of Technology in the Production of Goods and Services
Learning Objective
Understand the advantages and disadvantages of changes in technology for both businesses and their employees, and be able to evaluate the impact on productivity, costs, quality and the workforce.
Key Definitions
Production: Combining inputs (labour, capital, materials, information) to create goods or services.
Productivity: Ratio of output to input. Productivity = Output ÷ Input (e.g., units produced per labour‑hour).
Technology: Equipment, processes, software and systems that improve the way goods or services are produced.
Automation: Use of machines or computers to perform tasks that were previously done by people.
Skill‑mix: The combination of skills required by a workforce after a technological change.
Lean production: Management approach that seeks to eliminate waste and improve efficiency.
Just‑in‑Time (JIT): Producing and delivering components exactly when they are needed, minimising stock.
Kaizen: Continuous improvement – small, incremental changes that increase efficiency.
Quality control (QC): Checking finished products to ensure they meet specifications.
Quality assurance (QA): Processes that prevent defects from occurring in the first place.
Types of Production
Type
Characteristics
Typical Use
Technology that Supports It
Job (or bespoke) production
One‑off items, high variety, low volume; skilled labour required.
Very high volume, low variety; production line operates continuously.
Automobiles, soft drinks, consumer electronics.
Robotics, conveyor systems, ERP for JIT scheduling.
Case‑Study Box – Choosing a Production Method
Scenario: A company wants to launch a new product. Choose the most suitable production method and justify your choice using the criteria in the syllabus (cost, volume, flexibility, skill‑mix).
Product A – Custom wooden dining tables Recommended method: Job production – high variety, low volume, skilled carpenters, need for flexibility.
Product B – 500 ml carbonated soft drink Recommended method: Flow (mass) production – very high volume, low variety, need for speed and low unit cost.
Product C – Seasonal fashion t‑shirts (four colour batches) Recommended method: Batch production – medium volume, periodic change‑over, moderate set‑up time.
Technology is the enabler of modern lean practices.
Just‑in‑Time (JIT): Real‑time inventory data from RFID tags and ERP software allows materials to arrive exactly when needed, reducing stock‑holding costs.
Cellular layout & flexible automation: Re‑configurable robots and modular workstations support quick changes in product mix without large set‑up times.
Cost Implications of Technological Change
Cost Category
Impact of New Technology
Capital outlay
High initial purchase price for machinery, software licences and installation.
Depreciation
Equipment loses value over its useful life; cost spread over several years.
Operating costs
Often lower (less labour, reduced waste, lower energy per unit) but may increase for maintenance and technical support.
Training costs
Expenditure on staff development, manuals and temporary loss of productive time.
Opportunity cost
Funds invested in technology cannot be used for alternative projects (e.g., marketing, expansion).
Worked Numerical Example – Automated Dough Mixer (Batch Production)
Background
Current process: Manual mixing – 2 hours of labour per batch (8 hours/day), labour cost £10 / hour.
New technology: Automated dough mixer – capital cost £20 000, useful life 5 years, no salvage value.
Expected labour saving: 2 hours/day (full shift), same output.
Operating cost of mixer: £0.50 / hour (electricity, maintenance).
Current batch output: 200 loaves per day.
Step 1 – Calculate depreciation (straight‑line)
Depreciation per year = £20 000 ÷ 5 = £4 000
Depreciation per day (250 working days) = £4 000 ÷ 250 = £16 per day
Step 2 – Compare daily costs before and after
Before (Manual)
After (Automated)
Labour cost
2 h × £10 = £20
0 h = £0
Operating cost
£0 (no machine)
£0.50 × 2 h = £1
Depreciation
£0
£16
Total daily cost
£20
£17
Step 3 – New unit cost
Unit cost before = £20 ÷ 200 = £0.10 per loaf
Unit cost after = £17 ÷ 200 = £0.085 per loaf
Step 4 – Break‑even analysis
Fixed cost increase = Depreciation (£16) + extra operating cost (£1) = £17 per day.
Daily saving on labour = £20.
Net daily saving = £20 – £17 = £3.
Break‑even period = Capital cost ÷ net daily saving = £20 000 ÷ £3 ≈ 6 667 days ≈ 27 years (illustrative – shows importance of scaling, e.g., using the machine for multiple shifts reduces the break‑even time).
Class activity: Using the data above, draw a simple break‑even chart showing total cost lines before and after the upgrade and indicate the break‑even point.
Advantages of Technological Change
Increased productivity: Machines work faster and for longer periods, raising output per employee.
Lower unit costs: Higher output spreads fixed costs, reducing the cost of each unit produced.
Greater flexibility: Modern software allows rapid changes to product design or service delivery (e.g., re‑programming a CNC machine).
Enhanced competitiveness: Firms that adopt new technology can respond quicker to market demand and price pressure.
Opportunities for skill development: Employees can acquire higher‑level technical skills, increasing employability and potential wages.
Safer working conditions: Repetitive or hazardous tasks can be automated, reducing workplace injuries.
Disadvantages of Technological Change
High initial investment: Purchasing equipment, software and installing systems require substantial capital.
Risk of redundancy: Automation can make certain jobs obsolete, leading to layoffs or reduced hours.
Training costs and time: Staff need time away from production to learn new systems, temporarily reducing output.
Dependence on technology: Breakdowns, cyber‑attacks or software glitches can halt production.
Potential skill mismatch: Existing staff may lack the qualifications needed for new roles, creating a skills gap.
Resistance to change: Employees may fear job loss or feel uncomfortable with new methods, affecting morale and productivity.
Obsolescence risk: Rapid technological change can render recent investments outdated within a few years.
Impact on Stakeholders
Stakeholder
Advantages
Disadvantages
Business
Higher productivity and output
Reduced unit costs and higher profit margins
Improved quality and consistency
Greater market responsiveness & competitive edge
Ability to implement lean/JIT practices
Large capital outlay and depreciation
Risk of equipment becoming obsolete
Potential downtime from technical failures or cyber‑incidents
Ongoing training, maintenance and support costs
Employees
Opportunities to learn higher‑skill, better‑paid tasks
Safer, less physically demanding work
More predictable work patterns (e.g., automated scheduling)
Enhanced employability in a technology‑driven economy
Risk of job loss or reduced hours
Need for retraining; possible temporary unemployment
Increased performance pressure with new systems
Stress from rapid change and fear of redundancy
Quality Control vs. Quality Assurance
Aspect
Quality Control (QC)
Quality Assurance (QA)
Focus
Detecting defects in finished products.
Preventing defects from occurring.
Method
Inspection, testing, statistical sampling.
Standardised procedures, training, process design, automation.
Timing
After production (or at key checkpoints).
Throughout the production process.
Technology role
Vision‑system inspection, handheld scanners.
Process‑control software, IoT sensors, SOPs embedded in ERP.
Legal & Health‑and‑Safety Considerations
Before installing new machinery a risk assessment must be carried out (Health and Safety at Work Act).
Employers have a duty to provide adequate training and personal protective equipment (PPE) for any new processes.
Automation can introduce new hazards (e.g., moving robot arms) – safety interlocks and emergency stop buttons are mandatory.
Data‑driven systems must comply with data‑protection legislation (e.g., GDPR) when employee monitoring is involved.
Legal implications of redundancy: proper consultation, notice periods and possible severance payments.
Typical Stages of Technological Adoption
Identification of need – Analyse bottlenecks, quality problems or market pressure.
Research & selection – Compare available technologies, calculate expected cost‑benefit and consider fit with the type of production (job, batch, flow).
Implementation – Install equipment, integrate software with existing systems and test for reliability.
Training & up‑skilling – Provide formal training, on‑the‑job practice and support resources.
Evaluation & review – Monitor output, unit costs, quality, break‑even status and employee feedback; adjust processes or provide further training as required.
Suggested diagram: Flowchart illustrating the six stages of technological adoption from “Identify need” to “Evaluation & review”.
Key Points to Remember
Technology can boost efficiency, but a careful cost‑benefit and break‑even analysis is essential before investment.
The impact on employees is mixed – new skilled roles are created while some existing jobs may disappear.
Successful adoption relies on effective training, clear communication, robust safety procedures and ongoing technical support.
Lean production, JIT and Kaizen are modern management approaches that depend heavily on up‑to‑date technology.
Quality assurance, not just quality control, is vital for maintaining standards when production becomes highly automated.
Legal and health‑and‑safety obligations must be met whenever new equipment or monitoring systems are introduced.
Your generous donation helps us continue providing free Cambridge IGCSE & A-Level resources,
past papers, syllabus notes, revision questions, and high-quality online tutoring to students across Kenya.