Capacity Utilisation Flashcards
Capacity Utilisation
The proportion of maximum output capacity currently being achieved
The current level of output in a situation compared with the maximum possible with existing resources.
Capacity utilisation Formula
(Current level of output/max. level of output) x 100
What does Capacity utilisation show
The operational efficiency of a firm.
Excess/Spare capacity
When the current levels of demand are less than the full capacity of a business
Capacity shortage
When the business cannot meet the demands of customers as a result of insufficient capacity.
When the demand for a business’s products excess production capacity.
Rationalisation
Reducing capacity by cutting overheads to increase efficiency of operations, such as closing a factory or production line, often involving redundancies.
Full capacity
When a business produces at maximum output.
Top Tip
when making decisions about how to deal with excess capacity it is important to consider both the length of time that the spare capacity might exist for and the causes of the problem.
Reasons to Outsource
Increased flexibility
Improve company focus
Access to quality service or resources
Freed-up internal resources
Drawbacks of outsourcing (4)
Loss of Jobs within the business
Quality issues
Customer resiste,ce
Security risk
Subcontracting
Involves paying another business to undertake part of the functions required to produce a product or service
Business-Process outsourcing (BPO)
A form of outsourcing that uses a third party to take responsibility for certain business functions, such as HR and finance.
Offshoring
A type of of outsourcing where the relocation of functions is to a business in a different country (usually a country with cheaper labour).
What must the business do before finalising whether or not they want to outsource?
Cost-Benefit Analysis.
Outsourcing
Using another business (a third party) to undertake a part of the production process rather than doing it within the business using the firm’s own employees
