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capacity utilization
the extent to which a firm uses its available productive capacity
current output / maximum capacity possible x 100
under-utilization
producing less than maximum capacity
over-utilization
producing at maximum capacity but stretching resources to uncomfortable levels
adv lim of under utilization
+can handle increase in demand so customers don't go to other competitors
+less work related stress for workers
-increase average unit cost per item
-might make workers feel insecure in their jobs leading to turnover
-might be difficult to get workers to work harder in future
adv. and lim over -utilization
adv.
-average costs are lower which can lead to lower prices or higher profits
-lead to happy and motivated workers especially if more money is involved
lim.
-high worker stress
-stress on machines so they break-down quicker
-may not be able to respond to an increase in demand
how to handle under-utilization
-reduce capacity, get rid of resources not needed e.g. staff, selling fixed assets, move to smaller office
-increase sales
-outsourcing, e.g. many restaurants dont have their own delivery people so outsource Uber or Glovo
how to handle over-utilization
-raising prices
-outsourcing
-temporary resources
-expansion