Capacity Utilisation Flashcards
What is capacity?
The amount a form can produce/sell in a certain amount of time with the resources they have.
What is capacity utilisation?
The proportion of maximum output capacity currently being achieved.
What is maximum capacity?
The highest level of output a process can achieve within a given period of time.
What is full capacity?
When a business produces at maximum output.
What is over capacity?
A firm is operating above full capacity
What is under capacity?
When a business isn’t making full use of its available capacity and is not working at 100%.
What is increasing capacity?
When a firm is experiencing an increase in demand so they need to increase their capacity.
What is decreasing capacity?
When a firm is experiencing a decline in orders so they need to decrease the capacity they are working at.
What are the advantages of higher capacity utilisation?
-lead to improved motivation as employees feel more secure
-good company image because it is quick
What are disadvantages of high capacity utilisation?
-can be difficult for business to take on new orders
-less time for routine maintenance and training
What are the ads of low capacity utilisation?
-time for routine maintenance and training
-more flexibility to change level of output and take on new orders
What are disadvantages of low capacity utilisation?
-profitability decreases
-lower motivation as employees may feel less secure
How to improve capacity over-utilisation?
-reduce the amount of products being made
-rely on historical data to predict demand
How to improve under-capacity utilisation?
-use promotions to increase demand
-less employees
