5.3.2 Strategies to improve capacity utilization

• Capacity utilization is the percentage of maximum capacity a business is currently using.
• What is the formula for calculating capacity utilization?

  $Capacity Utilization =$$\frac{Actual Output}{Maximum Output} \times 100\%$
• High capacity utilization reduces unit costs and maximizes profitability.
• Low capacity utilization suggests inefficiencies, unused resources, and potential losses.
• What is an advantage of low capacity utilization?

  Allows for flexibility
• What is a disadvantage of high capacity utilization?

  Less flexibility
• Demand-side factors affecting capacity utilization relate to customer requirements.
• Marketing effectiveness is a demand-side factor affecting capacity utilization.
• What is a supply-side strategy to improve capacity utilization?

  Inventory management
• Capacity utilization is calculated as \frac{Actual Output}{Maximum Output} \times 100\%</latex>, which measures the percentage of maximum capacity a business is using.
• Order the strategies to improve capacity utilization from lowest to highest cost:

  1️⃣ Manage Maintenance

  2️⃣ Increase Demand

  3️⃣ Optimize Resources

  4️⃣ Enhance Capacity
• Why is it important to manage maintenance to improve capacity utilization?

  To minimize downtime
• What is a disadvantage of improved capacity utilization on profitability?

  Reduced flexibility
• Increasing capacity utilization from 60% to 80% can lower unit production costs by 15%.
• Capacity utilization is the percentage of maximum capacity a business is currently using.
• What is the formula for calculating capacity utilization?

  $Capacity Utilization =$$\frac{Actual Output}{Maximum Output} \times 100\%$
• High capacity utilization means the business is operating close to its full potential
• Low capacity utilization suggests inefficiencies and unused resources.
• Match the type of capacity utilization with its characteristic:

  High Capacity Utilization ↔️ Reduces unit costs

  Low Capacity Utilization ↔️ Allows for flexibility
• What are the two categories of factors affecting capacity utilization?

  Demand-side and supply-side
• Demand-side factors relate to customer requirements
• Order the strategies to improve capacity utilization by cost from lowest to highest:

  1️⃣ Manage Maintenance

  2️⃣ Increase Demand

  3️⃣ Optimize Resources

  4️⃣ Enhance Capacity
• What are the advantages of improved capacity utilization?

  Reduced unit costs and profits
• Improved capacity utilization can lead to increased profits for a business.
• Improved cost efficiency in capacity utilization reduces unit costs
• What are the advantages of increased profitability in capacity utilization?

  Reduces flexibility and costs
• A manufacturing plant that increases capacity utilization from 60% to 80% can lower unit costs by 15%.
• Match the case study with its key strategy:

  Toyota ↔️ Lean production system

  Amazon ↔️ Automated warehouses

  Starbucks ↔️ Optimized staffing