Over and under-utilisation

  • Created by: noe
  • Created on: 21-03-20 16:12

Capacity under-utilisation

  • Reducing capacity:
    • Reducing staff by making people redundant or employing more part-time and temporary staff.
    • Sell unused fixes assets, such as machinery or vehicles.
    • Lease unused floor space in stores or factories - space may be returned if demand increases.
    • Move to smaller premises where costs are lower.
    • Leave machines, equipment or building space unused but maintained so they could be brought back if necessary.
  • Increase sales: if a business sells more ouput it will have to produce more so capacity utilisation will rise. This can be done by spending more on promotion, for example. However, costs should be covered by the extra revenue generated.
  • Increase usage: dealing with peak demand by offering incentives during off-peak hours such as discounts or loyalty cards.
  • Outsourcing: where capital equipment has low utilisation rates it might be more efficient for a business to outsource the work. This will lower costs (staff, equipment...) for the business and will allow it to specialise more on a specific area. A business can also take on outsourcing contracts from other companies to increase their capacity utilisation.
  • Redeployment: Deploying resources of one part of the business to another part.
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Capacity over-utilisation

  • Increase inventories: if a business knows there is likely to be a future growth in demand, it can prepare itself by building up stocks of finished goods. However, only possible if the busines has spare capacity during normal operating periods.
  • Raising prices: higher prices might reduce demand so that pressure on production is reduced and raise profit margins. However, it is risky as too many customers might find alternatives and never return.
  • Outsourcing: when working at full capacity a business can outsource their work to other businesses to keep up with demand and not let customers down.
  • Redeployment: redeploying resources from an area with over-utilisation to another where they are needed due to fixed deadlines or other factors.
  • Acquiring the temporary use of resources: a business may take on temporary staff to help out if they cannot encourage its own employees to work overtime. However, this is difficult for business where production is capital intensive if they don't have any capacity left.
  • Expansion: in a business is confident that demand will continue in the long term it can expand the scale of its operations by extending current premises or relocating to larger buildings to increase capacity.
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