Capacity Utilisation
- Created by: sophieolivia1999
- Created on: 24-01-18 09:53
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- current output / maximum possible output X 100
- Capacity Utilisation
- measures what proportion or percentage of the theoretical maximum possible output is actually produced
- Under Utilisation of capacity
- some resources are not being used and production is not as high as it should be
- inefficient - business not getting full use or maximum output from resources
- average total costs increase = total fixed costs are spread over a lower level of output
- gives business flexibility
- useful if last minute orders arrive - new customers not kept waiting
- machinery sometimes breaks down - spare machine means production can continue until replaced
- Over Utilisation of capacity
- the business is trying to produce more than its capital equipment is designed for
- cant take on potentially lucrative new orders, new customers not prepared to wait
- no 'down time' to service machinery
- staff absence slow production - higher absenteeism
- quality can suffer
- 90 - 95% ideal
- depends on business concerned
- this makes good use of most of capacity whilst still allowing for unexpected orders, problems or increases in demand
- depends on business concerned
- Increase capacity Utilisation
- improving marketing to increase sales
- diversifying into new markets
- adding new product line to the range
- take on production from other business that have over Utilised capacity
- ways a business can increase output even if they are working at 100% capacity
- temporary
- staff could work more shifts
- some production could be sub contracted out
- temporary or part time staff taken on
- long term
- invest in more capacity
- extend premises / buy more machinery
- sub contract or outsource some production
- recruit full time staff
- work on improving productivity
- staff motivation
- rationalization
- invest in more capacity
- temporary
- Capacity Utilisation
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