Capacity
Utilisation
● Capacity utilisation is the proportion of maximum output capacity currently being
achieved
● Capacity utilisation = current output level/max output level * 100
● This helps determine the operational efficiency of a business
● A firm working at full capacity is said to achieve 100% capacity utilisation, with 0
spare capacity
Impact on average fixed costs
● Higher the capacity utilisation, lower the average fixed costs
● 100% capacity utilisation –
○ Lowest unit cost possible
○ Gives employees a sense of security
○ Maybe used to advertise 0 spare capacity, indicating their high success
rates
○ High workload, pressured
○ No time for errors, accidents
○ Customers may have to be turned away
○ Long waiting
○ No time accounted for machinery breakdown, maintenance
Excess capacity – options
● Low capacity utilisation = excess (spare) capacity
● Excess capacity exists when the current levels of demand are less than the full
capacity output of a business
● When deciding how to reduce spare capacity, time factor must be considered
● Short term problem?
○ High levels of stock
○ More flexible production system
○ Offer flexible employment contracts
● Long term?
○ Rationalisation
Excess capacity – evaluating the
options
1. Short term
2. Long term
Working at full capacity
● Full capacity is when the business produces the maximum output
● Decisions about whether or not to expand the scale of operations must be taken
● This decision depends on the cost, time factor, economic conditions, etc
Capacity shortage
● When demand for a firm’s product is greater than production capacity
● Cause of excess demand must be analysed
Outsourcing
● It involves using another business to undertake a part of the production process
rather than doing it within the business using the firm’s own employees
● It leads to reducing and control of operating costs
○ No need to employee specialists
○ Cheaper to buy in specialist services
● Increased flexibility
○ Fixed costs converted to variable
○ Sub-contractors can be used
● Improved company focus
○ The business can focus of their main, core products instead of diverting
attention to peripheral goods and services
● Access to quality service or resources
● Freed-up internal resources
● Loss of jobs
○ Negative impact on job security, motivation, productivity
○ Bad publicity
○ Pressure group action
● Quality issues
○ Internal processes can be monitors using quality control
○ Don’t have that option with outside contractors
● Customer resistance
○ Customers may not want to deal with overseas outsourced operations
○ Increased doubts about quality and reliability
● Security
○ Sending important information to outside businesses is risky
Outsourcing evaluation
● Increased outsourcing as operational efficiency becomes important due to
increased globalisation, and increased opportunities
● A cost benefit analysis must be done
● It depends on whether it’s a core or peripheral activity
Globalisation and International Marketing
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Business Structure
Size of Business
External Influences on Business Activity
External Economic Influences on Business Behaviour
Further Human Resource Management
Organisation Structure
Business Communication
Marketing Planning
Globalisation and International Marketing
Capacity Utilisation
Lean Production and Quality Management
Project Management
Costs
Budgets
Contents of Published Accounts
Analysis of Published Accounts
Investment Appraisal
What is Strategic Management?
Strategic Analysis
Strategic Choice
Strategic Implementation
Enterprise Resource Planning (ERP)
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