O Level Business: Production of goods and services (Cambridge 7115) – Revision Notes

These notes condense section 4.1, Production of goods and services, from the Cambridge O Level Business Studies 7115 syllabus for examination in 2026 (Topic 4, Operations management). They cover points 4.1.1, 4.1.2 and 4.1.3. For full explanations and worked examples, read the study guide first, then test yourself on the practice set. The earlier operations management practice page covers location and break-even. See the course hub, the checklist and the free 10-minute diagnostics.

Key definitions

Term	Meaning
Production	Managing resources effectively to make goods and services; the total output of a business
Productivity	Output compared with the resources used to make it
Labour productivity	Standard form: output in a period divided by the number of workers
Efficiency	Getting more output from the same inputs, or the same output from fewer inputs
Inventories	Stocks of materials, work in progress and finished goods
Lean production	Producing with as little waste as possible
Just-in-time (JIT)	Inventory control where materials arrive as they are needed
Kaizen	Continuous improvement through many small changes, usually suggested by workers
Job production	One item made at a time to a customer’s order
Batch production	Identical items made in groups, then the process is reset
Flow production	Continuous production of standard items along a line
CAD	Computer-aided design
CAM	Computer-aided manufacturing

Production versus productivity

Production is how much. Productivity is how much per input.

• Output up and workers up by the same percentage: productivity unchanged.
• Output up by a greater percentage than workers: productivity up.

Method in steps for a labour productivity question:

1. Write the standard form: output / workers.
2. Substitute both figures and divide.
3. Add units, for example loaves per worker per day.
4. For a percentage change, use (new - old) / old x 100.

Small reminder: a bakery that baked 1,800 loaves with 9 workers and later 2,200 loaves with 10 workers moved from 200 to 220 loaves per worker, a rise of 10%.

Efficiency

Benefits of increasing efficiency

• lower average cost per unit
• higher profit or room for lower prices
• less waste
• faster delivery to customers
• better competitiveness

Ways to increase it

Method	Effect	Drawback
Automation and technology	Faster, steadier output with fewer errors	High cost; job losses; breakdowns
Improved labour skills (training)	Fewer mistakes, quicker work	Training cost; trained staff may leave

Why businesses hold inventories

• buffer against late supplies
• meet unexpected demand
• supply customers immediately
• bulk-buying discounts
• build up for seasonal peaks

Cost of holding inventories: storage, insurance, damage or going out of date, money tied up. Cost of holding too little: production stops; lost sales; unhappy customers.

Lean production

Aim: less waste of materials, time and space, while still meeting customer needs.

Technique	Key idea	Needs
Just-in-time	Very low inventories; delivery as needed	Reliable suppliers; accurate demand forecasts; few breakdowns
Kaizen	Continuous small improvements	Workers who are trained, listened to and willing to suggest changes

Benefits of lean production: lower holding costs; less waste; fewer defects; faster response to customers; less cash tied up; involved workers.

Risk to mention in a judgement: JIT depends on suppliers, so a late delivery can stop production. This risk is a general point rather than a syllabus listing.

Methods of production: comparison

Feature	Job	Batch	Flow
Quantity	One	Group of identical items	Very large
Variety	Very high	Medium	Very low
Unit cost	High	Medium	Low
Flexibility	Very flexible	Fairly flexible	Inflexible
Skill of labour	High	Mixed	Often low; machines do much
Set-up cost	Low	Medium	High
Typical example	Bridge, wedding dress	Bread, trainers in one size run	Canned drinks, car components

Main benefit and limitation of each

• Job: matches the order exactly, but high cost per unit.
• Batch: variety at moderate cost, but time lost between batches.
• Flow: lowest unit cost, but expensive and hard to change.

Recommending and justifying a method

Method in steps:

1. Underline the facts in the case: order size, variety, demand, funds, quality.
2. Name the method these facts point to.
3. Give two reasons using the facts.
4. Explain why the nearest alternative is weaker.
5. Mention one drawback of your choice and judge how serious it is.

Small reminder: a firm with changing orders and little money would be wrongly steered to flow production even if its demand grows. Flow suits steady, high volumes of one standard product. Where demand is unproven, batch is often a safer fit.

Note the command words:

• Recommend means choose and say what should be done.
• Justify means support the choice with reasons, ideally weighed against the alternatives.
• Evaluate means weigh both sides and reach a judgement.

Technology in production

Technology	What it does	Benefit	Limitation
CAD	Designs and tests products on screen	Quick changes; cheaper prototypes; designs are easy to store and share	Software and training costs
CAM	Computers control machines and robots	Accurate, repeatable, runs for long periods	High capital cost; faults can stop output
CAD linked to CAM	Design goes straight to production	Faster launches; customised items at lower cost	Needs skilled staff

Technology changes the choice of method: it can make batch changes faster and make flow production workable at lower volumes.

Worked reminders

Choosing a method. A firm makes 1,000 identical sports bottles each week in two colours, switching colour twice a week. Orders are steady and modest, and funds are limited. Batch production fits: each colour is a batch and the machine is reset between them. Job production would be too costly per bottle, and flow production needs a large, dedicated line.

Inventory cover. A workshop holds 900 components and uses 150 a day. Cover is 900 / 150 = 6 days. A supplier delay longer than six days would stop production. JIT would reduce this cover, so supplier reliability becomes the key risk.

Technology and waste. CAD and CAM can reduce errors and scrap. If a firm cuts material waste from 10% to 4% of 2,000 sheets a month, it saves 120 sheets a month (200 - 80).

Quick self-test

1. State the difference between production and productivity.
2. A workshop made 1,200 units with 10 workers. Calculate labour productivity.
3. The workshop then made 1,500 units with 12 workers. Calculate the new productivity and the percentage change.
4. Give two reasons why a business holds inventories.
5. State what JIT inventory control means.
6. Explain what Kaizen is.
7. Name the method of production in which one item is made at a time to a customer’s order.
8. Give one limitation of batch production.
9. Give one benefit and one limitation of flow production.
10. A firm sells 300 different custom signs a year, each ordered by one customer. Which method suits, and why?
11. State what CAD and CAM stand for.
12. Name one benefit and one drawback of introducing automation.

Answers

1. Production is total output; productivity is output compared with each unit of input, such as per worker.
2. 1,200 / 10 = 120 units per worker.
3. 1,500 / 12 = 125 units per worker. Change = (125 - 120) / 120 x 100 = 4.2% increase (to 1 decimal place).
4. Any two: buffer against late deliveries, meeting sudden demand, supplying customers immediately, bulk buying, seasonal demand.
5. Materials arrive just as they are needed so inventories stay very low.
6. Continuous improvement made up of many small changes, usually suggested by workers.
7. Job production.
8. Time and money are lost when equipment is reset between batches (or work in progress waits between stages).
9. Benefit: lowest unit cost or high output. Limitation: inflexible or expensive to set up.
10. Job production, because each sign is made to one customer’s order.
11. Computer-aided design; computer-aided manufacturing.
12. Benefit: faster, more consistent output. Drawback: high purchase cost or job losses.

Where marks are usually lost

• Giving productivity as a total rather than per worker, or leaving out units.
• Dividing by the wrong figure in a percentage change; the base is the starting value.
• Confusing batch with flow production because both use identical products.
• Saying JIT removes all inventories.
• Describing Kaizen as a single big change or a one-off project.
• Listing lean production benefits without tying them to the firm described.
• Recommending a method with no comparison and no use of facts from the case.
• Stating that technology is simply “better” without a cost or limitation to weigh against the gain.
• Forgetting that evaluate and justify answers need a reasoned judgement.
• Mixing up inventories held as raw materials with finished goods when explaining why they are held.
• Treating lean production as only cutting costs, and forgetting quality and speed of response.

Frequently asked questions

What is the difference between production and productivity? Production is the total amount a business makes in a period. Productivity compares output with the resources used, usually as output per worker, so production can rise while productivity stays the same.

Does just-in-time mean holding no inventories? No. JIT keeps inventories very low, with materials arriving just as they are needed, and it depends on reliable suppliers, accurate demand forecasts and few breakdowns.

What are the costs of holding too much inventory? Storage space, insurance, the risk of damage or going out of date, and money tied up that could be used elsewhere. Holding too little risks stopping production or disappointing customers.

What is the difference between CAD and CAM? Computer-aided design (CAD) uses software to draw and test products on screen. Computer-aided manufacturing (CAM) uses computers to control machines and robots that cut, weld or assemble.

Official syllabus

Cambridge O Level Business Studies 7115, syllabus for examination in 2026, published by Cambridge International. Section 4.1: Production of goods and services.