Capacity Utilisation

• Capacity utilisation


  The use a business makes of its resources
• Full capacity


  The point where a business can't produce anymore output
• Calculating capacity utilisation


  Current output / Maximum output x 100
• Working at high capacity


  • Unit cost will be lower = more competitive = more profits
  • Workers secure in their jobs
  • Higher efficiency as more resources are being used = less waste = lower unit cost = lower prices = more demand
• Drawbacks of working at high capacity

  • Can't meet surges in demand
  • Production may be rushed = defects = high cost for refunds and waste
  • Strain on resources = more absenteeism and staff turnover
  • Machinery could break
• Working under capacity


  • Flexible
  • Able to cope with increased demand
  • Less work related stress = low absenteeism
  • Improved quality of products as more time for training
• Drawbacks of working under capacity

  • Not making most of resources = not efficient = higher cost per unit
  • Employee morale affected – get used to light workload = may resist more work
• How to improve capacity utilisation

  1. Reduce capacity

  2. Relocate

  3. Make staff redundant

  4. Rationalisation – selling off fixed assets

  5. Mothballing – putting fixed assets away

  6. Increase sales – marketing distribution = more to produce = sell more = capacity utilisation rises

  7. Increase usage – discounts on certain days, promotions

  8. Outsourcing

  9. Redeployment