Capacity Utilization and Outsourcing Concepts

These flashcards capture essential vocabulary and concepts related to capacity utilization and outsourcing from the provided lecture notes.

Capacity Utilization

A measure of how much of a business's potential output is actually being achieved, typically expressed as a percentage.

Full Capacity

The maximum output that a business can produce with its available resources.

Excess Capacity

A situation where a firm produces below its maximum capacity, often due to decreased demand.

Rationalisation

The process of reducing a firm's size or operations by closing facilities, often leading to employee redundancies.

Outsourcing

The practice of hiring a third party to perform certain functions or production processes instead of using in-house resources.

Operating Above Maximum Capacity

Occurs when demand for products exceeds the ability to supply, leading to increased costs and reduced product quality.

Advantages of Full Capacity

Lower average costs, signs of business success, and employee job security.

Disadvantages of Full Capacity

Increased pressure on staff, inflexibility to take new orders, and potential machine malfunctions.

Short Term Excess Capacity Solutions

Measures like maintaining high output and introducing flexibility to manage temporary lower demand.

Long Term Excess Capacity Solutions

Strategies like rationalisation and creating new products to address persistent low demand.

Business Process Outsourcing

Using a third party to take responsibility for specific business functions such as HR and finance.