Capacity Utilisation

Capacity - maximum output achievable if all resources are being fully used

• Increases by acquiring bigger premises or machinery

• Decreases by downsizing or making employees redundant

Capacity utilisation - percentage of potential output being achieved in comparison to capacity

• e.g. percentage of seats occupied at a concert

= current output/maximum output x 100

Why is it important to achieve capacity?

• Ability to match supply and demand

• Decreases unit costs - spread over more units

• Workforce motivation - sees that the business is successful, not bored

• Ability to achieve business objectives - more produced

What is wrong with holding excess stock?

• Cramming making it difficult to move around

• Increase costs

• Some stock may be difficult to locate or reach

• Inevitable delays - damage reputation

• Can lead to more chance of things becoming obsolete (out of date) before sold, meaning prices will have to be reduced to get rid of the stock