2.4.2 capacity utilisation Flashcards
define capacity utilisation
- how much of the businesses capacity is being used
- measure of the level to which assets are being used to produce output
formula for capacity utilisation
current output / maximum output X100
what are assests
- resources used to generate output
- employees, machinery, storage, factories etc.
what are the implications of over-utilisation
+ reduces average costs per unit
- may have to turn down customers
- no downtime for maintenance, machine breakdowns causing disruptions
- staff become overworked, labour turnover rises
- no flexibility for delays, no margin of error
- can’t increase output during fluctuations in demand
what are the implications of capacity under-utilisation
+ flexibility can adapt to surges in demand
- higher average costs
- employees may fear redundancy
- employees are less motivated as there is nothing to do
- can affect brand image, empty shelves and empty shelves convey an image that would put off customers
what are the 4 ways to improve capacity utilisation
1 increase sales
2 outsourcing
3 reducing capacity
4 redeployment
how can a business increase sales to improve capacity utilisation
- by stimulating demand more units need to be made and capacity utilisation will rise
- demand could be stimulated by changing an aspect of the design mix or if competitors fail
how can outsourcing be used to improve capacity utilisation
- they can accept outsourced work from other firms
- essentially making goods for another business
how can a business reduce capacity to improve capacity utilisation
- in the short term, reduce hrs allocated, allocate staff to other areas in the business, not renewing temporary contracts
- in the long term, assets can be sold, make staff redundant
how can a business use redeployment
- moving resources to other parts of the business
- retraining staff etc.
