Capacity Management
- Created by: Olivia Letts
- Created on: 29-10-18 14:42
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- Capacity Management
- Capacity can change...
- If a machine needs maintenance
- If there are more/less people working shifts
- Capacity
- Capacity of a business is a measure of how much output it can achieve in a given period
- Capacity utilisation is percentage of a businesses capacity that is actually being used over specific period of time
- Formula: actual level output / maximum possible output x 100
- Why capacity utilisation matters?
- Useful measure of productive efficiency - measures idle resources
- Higher utilisation can reduce unit costs
- Aim to produce full capacity to minimise costs
- If business has high break even point it is required
- Costs of capacity
- Equipment e.g. production line
- Labour e.g. wages, salaries
- Facilities e.g. building rent
- Why do business operate below capacity?
- Lower than expected market demand e.g. change in customer taste
- Loss of market share e.g. competitors gain customers
- Seasonal variation demand e.g. weather changes lead to lower demand
- Recent increase in capacity e.g. new production line added
- Dangers operating at low capacity
- Higher unit costs - impact on competition
- Less likely to reach break even output
- Capital tied up in under-utilised assets
- Can a business work more than 100% utilisation?
- Can in short term
- Increase workforce hours e.g. extra shifts, overtime
- Sub-contract production activities e.g. assembly of components - quality, ethical, brand image
- Reduce time spent maintaining production equipment e.g. healthy and safety, replacement
- Problems working at high capacity
- Negative effects on quality - rushed production, quality control
- Employees suffer - added workload, de-motivation
- Loss of sales - unable to meet sudden increases in demand, equipment may require repair
- Capacity can change...
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