Business Capacity and Utilisation

Flashcards covering key terms and concepts related to business capacity, utilisation, and management strategies.

What does the term 'capacity' mean in a business context?

Capacity measures the maximum a business can produce given its existing resources.

Why is it important for businesses to consider their capacity?

It helps them meet demand, control costs, allow flexibility in production, manage seasonal fluctuations, and stay competitive in the market.

What are the two main types of capacity utilisation situations a business needs to be aware of?

Spare capacity and capacity shortage.

What is spare capacity?

Spare capacity occurs when a firm's output is below its maximum potential production.

Why might a business experience spare capacity?

Possible reasons include a fall in demand, seasonality, or increased competition.

How can spare capacity negatively affect a business?

It can lead to increased fixed costs per unit and negatively impact profit levels.

What is the key term for the process by which a firm improves its efficiency by cutting the scale of its operations?

Rationalisation.

What actions can a business take to reduce its capacity?

Actions include reducing stock/orders of resources, decreasing the number of staff/machinery, shutting branches, or changing staff working patterns (e.g., reducing the working week).

What are capacity shortages?

Capacity shortages occur when an increase in demand outpaces a business's ability to produce.

How can a business increase its capacity?

A business can increase capacity by investing in more machinery, employing more staff, increasing resource orders, outsourcing, or transferring resources from other areas of the business.