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Capacity Utilisation - Coggle Diagram
Capacity Utilisation
Spare Capacity (Underutilisation)
To measure spare capacity we look at output as a % of total capacity.
Capacity Utilisation = Production/Capable Production
Problems of Spare Capacity
Demotivation of staff.
Overtime is probably not available, bonuses will be limited and there may be a threat of redundancy.
Reduced profits.
This will limit capital for investment and research and development, causing a reduction in long-term competitiveness.
Increased costs to the business.
Businesses may be forced to make workers redundant and redundancy payments will have to be made.
Lack of return on investment capital.
Producer goods (A good that produces something else) will continue to depreciate and technology will move on, putting pressure on businesses to replace fixed assets
Resolving Underutilisation
Subcontracting of production
Getting someone else to produce the goods for you.
Problems
Lack of Control
There can be delays in delivery, leading to customer dissatisfaction.
If there are a limited number of potential subcontractors then prices of the goods can become high
Increase use of assets
Increase the utilisation of assets through methods like subletting shop floor space, expanding ranges etc
Rationalisation
This means concentrating on core products or services and disposing of those products or services that are not seen as profitable or necessary to the business’s long-term success.
Full Capacity Utilisation
Full capacity means that all employed factors of production are being used to their optimum level of efficiency
Problems
More breakdowns
Pressure on staff
Lack of flexibility
Full capacity problems
Possible fall in quality