2.4.2 Capacity Utillisation

Question 1

Capacity utilisation formula

Answer 1

(Current output/ maximum possible output ) x100

Question 2

Advantages and disadvantages of reduced capacity of utilisation

Answer 2

Advantages of Reduced Capacity Utilization:

1. Cost Reduction: Reduced capacity utilization can help companies reduce their operating costs by eliminating excess capacity and focusing on high-priority activities. This can lead to increased profitability and financial stability.
2. Improved Efficiency: Reduced capacity utilization can help companies become more efficient by focusing on high-value activities and eliminating low-value or unnecessary tasks. This can lead to increased productivity and reduced waste.
3. Flexibility: Reduced capacity utilization can make companies more flexible and responsive to changing market conditions. By maintaining a lean and agile organization, companies can quickly adapt to new demands and opportunities.

Disadvantages of Reduced Capacity Utilization:

1. Reduced Sales: Reduced capacity utilization can result in reduced sales if the company is not able to meet customer demand. This can lead to lost revenue and reduced profitability.
2. Reduced Innovation: Reduced capacity utilization can lead to a reduction in innovation and creativity as companies focus on short-term cost-cutting measures rather than long-term strategic objectives.
3. Reduced Employee Morale: Reduced capacity utilization can lead to job insecurity and reduced employee morale. This can lead to increased turnover, reduced productivity, and a negative impact on company culture.

Question 3

Advantages and disadvantages of over capacity of utilisation

Answer 3

Advantages of Over Capacity Utilization:

1. Increased Production: Over capacity utilization can lead to increased production and output, allowing companies to meet high levels of demand and take advantage of growth opportunities.
2. Improved Economies of Scale: Over capacity utilization can help companies achieve economies of scale by spreading fixed costs over a larger volume of output. This can lead to lower per-unit costs and increased profitability.
3. Competitive Advantage: Over capacity utilization can give companies a competitive advantage by enabling them to respond quickly to market changes and customer demand, and to offer faster delivery times and better quality products or services.

Disadvantages of Over Capacity Utilization:

1. Increased Costs: Over capacity utilization can lead to increased costs, including higher maintenance costs, increased energy costs, and increased labor costs.
2. Reduced Quality: Over capacity utilization can lead to a reduction in product or service quality as companies focus on meeting high levels of demand rather than maintaining quality standards.
3. Higher Risk: Over capacity utilization can lead to higher risk, including the risk of overproduction, excess inventory, and supply chain disruptions. This can be particularly problematic in volatile or uncertain market conditions.

Question 4

Ways to improving capacity utilisation

Answer 4

• Reduce capacity
• Increase sales
• Increase usage
• outsourcing
  -redeployment

Question 5

Why is reduce capacity a way of improving capacity

Answer 5

Reduce capacity: Reducing capacity may seem counterintuitive to improving capacity utilization, but it can help companies optimize their operations by eliminating excess capacity and focusing on high-priority activities. This can lead to increased efficiency, reduced costs, and improved profitability.

Question 6

Why is increased sales a way of improving capacity

Answer 6

Increase sales: Increasing sales can help companies improve capacity utilization by generating more demand for their products or services. This can lead to increased production and output, and can help companies achieve economies of scale, resulting in lower per-unit costs and increased profitability.

Question 7

Why is increased usages a way of improving capacity

Answer 7

Increase usage: Increasing usage can help companies improve capacity utilization by encouraging customers to use their products or services more frequently or for longer periods of time. This can help companies optimize their production processes and achieve greater efficiency and productivity.

Question 8

Why is outsourcing a way of improving capacity

Answer 8

Outsourcing: Outsourcing can help companies improve capacity utilization by allowing them to focus on their core competencies while outsourcing non-core activities to third-party providers. This can free up resources and enable companies to optimize their operations and achieve greater efficiency.

Question 9

Why is redeployment a way of improving capacity

Answer 9

redeploying resources from underutilized areas of the business to areas where capacity is needed can also help to improve utilization. This might involve moving personnel, equipment, or other resources to areas of the business where demand is higher or where capacity is currently underutilized. By reallocating resources in this way, the company can improve overall efficiency and productivity, and avoid wasting resources on areas of the business that are not performing well.