Capacity Utilisation
- Created by: lewis.mackk05
- Created on: 29-10-22 11:29
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- Capacity Utilisation
- What is it and How is it Calculated?
- The Capacity of an organisation is the maximum output that it can produce in a given period without buying anymore fixed assets- machinery, factory, space etc.
- Capacity depends on; number of employees and their skill level, the technology the business has and the production process the business uses
- Capacity Utilisation is how much capacity a business is using.
- Capacity Utilisation (%)= Current Output/ Maximum possible Output x 100
- Capacity needs will change due to demand changes, short/long term changes such as decline in product lifecycle of a good or lack or market research
- The Capacity of an organisation is the maximum output that it can produce in a given period without buying anymore fixed assets- machinery, factory, space etc.
- Over-Utilisation
- Increase capacity utilisation can lead to over utilisation
- High capacity utilisation is better than low, however 100% capacity utilisation has drawbacks and can be know as over-utilisation
- The business can't temporarily increase output for seasonal demand
- There is no margin for error
- There is no down time and machines are operating 24/7
- Business may need to consider turning away potential customers because it cannot increase output anymore
- How can firms with over-utilisation increase their capacity?
- Increase productivity; reallocate staff to busier areas, and increase employee motivation
- Buy more machines
- Utilitise outsourcing, by getting foreign businesses to complete work on its behalf, this can be done primariliy in busier periods, and they don't need to increase thie rown capacity
- Increase capacity utilisation can lead to over utilisation
- Under-Utilisation
- This is insufficient and increases unit costs, because businesses are not getting good use out of machinery and facilities that they've payed for
- There may however be benefits, for example its easy for the business to take new orders from seasonal demand changes
- Easier to organise maintenance and staff training
- How can firms deal with under utilisation?
- Change marketing mix to stimulate demand and deter competitors
- Reduce capacity long term e.g. sell of equipment and don't replace retiring staff
- Reduce short term capacity e.g. make redundancies
- What is it and How is it Calculated?
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