Operational Decisions (Cambridge (CIE) A Level Business)

Revision Note

Written by: Lisa Eades

Reviewed by: Steve Vorster

Resources & Operational Decisions

Operational decisions are impacted by, and have an impact on, business resources
Business resources include:
- Capital
- Employees, including contractors
- Property and land
- Machinery and equipment, including IT hardware
- Intellectual property such as patents
- Databases and key software and hardware
When operational decisions are made, care needs to be taken to ensure that the appropriate resources are in place or that adequate plans are made to ensure that they will be in place when needed
- This may involve
  - Purchasing new facilities, such as land or property
  - Investing in new production equipment or hardware
  - Hiring new workers or training existing staff
  - Obtaining legal protection for inventions
  - Updating systems to ensure information is up-to-date and complete
Without the appropriate resources, operations decisions may be delayed or require significant amendment
- This may impact on the operations function's ability to achieve its overall targets and limit its contribution to achieving business objectives

Information Technology & Operational Decisions

Businesses are increasingly using a range of technologies to automate production processes

Diagram: IT Technology used in Operations

Information technology can be applied to a range of operations processes, including design, manufacture, safety and logistics

Computer-aided design (CAD)

The process of digitally creating design simulations of products in 2D or 3D
It can also include the use of computer software to create mapping processes for industrial machinery, e.g. the movements required by a robotic arm in a television factory

Evaluation of CAD in operations

Advantages	Disadvantages
Lower product design costs as the need to produce expensive prototypes is eliminated High levels of accuracy reduce the chance of production errors and defects, leading to high quality output Quicker design development reduces the time taken to bring a product to market	Bespoke or complex design software is usually very expensive Design and production employees need extensive training to ensure designs are transformed into finished products effectively Computer processing and storage capacity may need upgrades

Advantages

Disadvantages

Lower product design costs as the need to produce expensive prototypes is eliminated
High levels of accuracy reduce the chance of production errors and defects, leading to high quality output
Quicker design development reduces the time taken to bring a product to market

Bespoke or complex design software is usually very expensive

Design and production employees need extensive training to ensure designs are transformed into finished products effectively
Computer processing and storage capacity may need upgrades

Computer-aided manufacturing (CAM)

The use of computers to assist in operations of a manufacturing plant, such as production processes, planning, management, transportation and storage

Computer-integrated manufacturing (CIM)

The complete automation of a manufacturing plant, with all processes functioning under computer control with digital information tying them together

Evaluation of CAM and CIM in operations

Advantages	Disadvantages
Production can take place with minimal human input, reducing labour costs Often linked directly to CAD systems, it allows for mass customisation as changes are be made to work in progress IT-controlled production systems are usually highly accurate, generating high quality output	High initial cost of hi-tech equipment that will need ongoing maintenance and upgrades Equipment failure and breakdowns can cause significant disruption to production Output is only as good as the system's programmer - if faulty code is not detected and corrected, product quality will be impacted

Advantages

Disadvantages

Production can take place with minimal human input, reducing labour costs
Often linked directly to CAD systems, it allows for mass customisation as changes are be made to work in progress
IT-controlled production systems are usually highly accurate, generating high quality output

High initial cost of hi-tech equipment that will need ongoing maintenance and upgrades
Equipment failure and breakdowns can cause significant disruption to production

Output is only as good as the system's programmer - if faulty code is not detected and corrected, product quality will be impacted

Drones

Unpiloted aircraft are being used to carry out an increasing range of business tasks, including package delivery, photography and security
- E.g. Large agriculture businesses use drones to spot failing crops and areas of concern in large fields, mapping boundaries and even applying pesticides

Evaluation of IT in Operations

The installation and maintenance of IT technology in production is likely to incur significant costs
- Purchasing IT hardware and software may require external finance, such as loans which will need to be repaid with interest
- Employees will need training in order to safely and effectively operate technology
- Down time as technology is installed and workers are trained, it impacts output levels
Businesses must be sure that this capital expenditure is outweighed by gains in productivity and improvements in quality and flexibility
- Higher levels of productivity may only be achieved with high levels of output
- Automation usually works best in the manufacture of standardised products
- Flexibility in production refers to how easy it is to install machinery and switch to different machinery which is required to manufacture different products (known as retooling)
  - The most flexible technology is also likely to be the most costly

Artificial Intelligence & Operational Decisions

Artificial intelligence can be used in a range of ways to enhance business operations
- In financial institutions such as banks and insurance companies, AI systems can identify customers' financial and behavioural patterns to identify potential instances of fraud
- In grocery retail, AI systems can be used to monitor and control storage environments, such as freezers, to ensure that products are kept in optimum conditions
- In manufacturing, AI can be used to schedule upgrades and maintenance to reduce the amount of production down time
Robots are programmed to collect information from their environment using sensors and use artificial intelligence (AI) to improve production performance
- E.g. Hotel chain Yotel employs ‘robotic staff’ that can move around anywhere in the hotels, carrying guests' luggage, delivering laundry, cleaning rooms and making coffee
Robots can perform various business tasks

Business uses of Robots

In manufacturing and assembly lines, robots can increase productivity and accuracy	Warehouses and logistics businesses can use robots to move and transport goods E.g. Quiet Logistics uses robots that ‘do all the walking’ in its distribution hubs	In agriculture, tasks such as planting, harvesting and spraying crops can be carried out by robots E.g. Japanese food producer Spread’s robotic farm harvests 30,000 heads of lettuce every day
In medicine robots can be used in surgical procedures to increase precision and reduce the risk of errors	Robots can be sold as toys or used in amusement parks to provide entertainment	Remote-controlled robots can be programmed to carry out hazardous testing and R&D processes

The use of robots in particular presents a range of advantages and disadvantages related to productivity, quality and flexibility

Advantages & Disadvantages of Using Robots in Business

Advantages	Disadvantages
Increased productivity as robots can work continuously without breaks or fatigue Improved consistency and accuracy as robots can perform tasks with a high level of precision and accuracy Robots can perform tasks that are dangerous or hazardous for humans, improving safety Robots can help reduce labour costs in the long run	High initial investment of purchasing and setting up robotic systems Maintenance costs as robots require regular maintenance and repairs, which can add to the overall cost Lack of flexibility as robots are programmed for specific tasks and cannot adapt easily to new situations or tasks Increased use of robots can lead to job losses in some industries

The Need for Flexibility

Businesses should have the flexibility to change output volumes, timescales and product specifications for several reasons
- The level of demand can change with little warning
- Supplies may become unavailable
- Customers may delay orders or require rapid delivery of orders
- Customers may demand variations to products
Flexibility can be improved in a number of ways
- Outsourcing some production to trusted manufacturers
- Employing multi-skilled workers and investing in their training and development
- Holding buffer stock to ensure increased demand can be met
- Investing in advanced machinery that is capable of mass customisation
- Investing in buildings and land to extend production premises

Examiner Tips and Tricks

You may be asked to analyse the impact of IT and AI on a business. Their contribution to improving flexibility should be one of your key arguments - the case study may give you some ideas on how the business in question could apply them.

Process Innovation

Process innovation involves identifying new ways to organise and carry out production processes
- In recent years, organisations have made some notable improvements production processes that have had a significant impact on productive efficiency

Examples of Process Innovation

Amazon	IKEA	UK Passport Agency & Borders Agency
Amazon provides detailed package tracking, allowing its online customers to provide details such as a safe place to leave deliveries, reducing the need to return undelivered items to warehouses	IKEA's EPOS system provides accurate stock availability information on its website, ensuring customers are not disappointed when they travel significant distances to purchase items	In the public sector, the decision by the UK Passport Agency and Borders Agency to introduce biometric passports has allowed fast-track lanes at airports to be introduced, reducing queue times for travellers

Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) uses bespoke software platforms to manage and integrate the essential parts of the business operations
- ERP solutions have evolved over the years, and many are now web-based applications that users can access remotely
ERP can help a business plan resources by integrating planning, the purchasing of inventory, sales, marketing, finance, design and production, and human resources
- It collects information about the activity and state of different production stages, allowing the different functional areas to communicate and share information easily

Evaluation of ERP Systems

Benefits	Limitations
Improved accuracy and productivity due to better synchronisation between functional areas Improved planning of budgets and resources with real-time data, from a single system that contains all relevant data Greater efficiency as information can be accessed and used quickly to improve processes Functional areas collaborate and share knowledge, which can improve productivity and employee satisfaction	Bespoke ERP systems are expensive to install and maintain, and will involve significant short-term upheaval to a businesses operations ERP systems do not always eliminate inefficiencies within a business and rarely improve every aspect of production - they are not a panacea A company's reluctance to abandon old working processes will limit the effectiveness of ERP systems ERP systems cannot be successfully implemented during a period of significant business change

Benefits

Limitations

Improved accuracy and productivity due to better synchronisation between functional areas
Improved planning of budgets and resources with real-time data, from a single system that contains all relevant data
Greater efficiency as information can be accessed and used quickly to improve processes
Functional areas collaborate and share knowledge, which can improve productivity and employee satisfaction

Bespoke ERP systems are expensive to install and maintain, and will involve significant short-term upheaval to a businesses operations
ERP systems do not always eliminate inefficiencies within a business and rarely improve every aspect of production - they are not a panacea
A company's reluctance to abandon old working processes will limit the effectiveness of ERP systems
ERP systems cannot be successfully implemented during a period of significant business change

Last updated: 12 October 2024

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