2.4.2 Capacity utilisation

• What is capacity utilisation?

  A measure of the level to which a businesses assets are being used to produce output.

  • Current output / maximum possible output x100
• What are the impacts of under-utilisation?

  • The business won't be making the most of its resources and it will likely have increased costs.
  • Workers may be under-deployed leading to fears of redundancy.
  • However it does provide businesses with flexibility, so they are able to respond to sudden increases in demand.
• What are the impacts of over-utilisation?

  • It may not have the flexibility to respond to new orders from customers.
  • Staff will be under a lot of pressure, which could increase staff turnover.
  • Machinery may be pushed to its limits and prone to breakdowns which disrupts production and increased costs.
  • However, it will minimise average total costs and increase competitiveness.
• How can a business increase its capacity utilisation?

  • Increase sales
  • Increase usage
  • Outsourcing
  • Reduce capacity
  • Redeployment