Please enable JavaScript.
Coggle requires JavaScript to display documents.
2.4.2 Capacity Utilisation - Coggle Diagram
2.4.2 Capacity Utilisation
% = Current output / Maximum possible output x 100
Over-Utilisation
When businesses are operating at close to 100% capacity.
This is costly and may mean that quality levels drop off.
The business may have to turn down potential customers.
The is no downtime, so if a machine breaks major delays are caused, and no time for maintenance so the life of the machine can be shorter.
No margin of error, everything has to be perfect first time, causing stress to managers, mistakes are more likely when everyone is working flat out.
The business cannot temporarily increase output for seasonal demand or one off orders.
If output is greater than demand there will be surplus stock sitting in the warehouse.
Increasing capacity for Over-utilised firms
Buying more machines.
Using the machines for more of the week.
Increasing staff.
Increasing productivity by increasing employee motivation.
If rise in demand is temporary then the business can outsource the work.
Under-Utilisation
Inefficient because it means the business isn't getting good use out of machines and facilities that have been paid for.
Fixed costs have to be spread over fewer units of output, so higher unit costs may means they need to increase prices.
May give a negative brand image, eg supermarkets having empty shelves.
Can reduce employees motivation, as they may be long periods with not enough work.
However, they firm will be able to accept new orders and machine maintenance could be easier.
Dealing with Under-utilisation
Stimulating demand by changing there marketing mix.
Accepting outsourced work from other firms to fill spare capacity.
Downsizing - reducing capacity.