Capacity Utilisation AS Business Lesson Objectives l Define

Capacity Utilisation AS Business

Lesson Objectives l Define and utilise formula for capacity utilisation l Analyse at what level of capacity usage is ideal l Explain how firms match demand with their production

Capacity Utilisation Is the maximum output that an organisation can produce given its existing resources

Capacity Utilisation l Formula l Ford Motors can produce 3, 500 units but is only producing 2, 800. l l What spare capacity is there? 20%

Causes of Spare capacity l l New competitors entering the market Falling demand for product ¡ Guitar Hero l Unsuccessful marketing l Seasonal demand ¡ Alton Towers

Alton Towers l How does Alton Towers maximise its capacity? l Are there advantages for Alton towers NOT working at full capacity? l What capacity is ideal for a business like Alton Towers?

Matching Production and Demand l To maximise efficiency a business will try to achieve full capacity utilisation by balancing demand with supply l DEMAND ¡ ¡ l l SUPPLY Rationalisation aims to reduce capacity and save costs ¡ ¡ l Hotel off peak offers High priced concert tickets Lay off workers Shut factories Or Sub-contract ¡ Produce products for other firms.

Working at Full Capacity Adv Disadv

Full Capacity Advantages l Low fixed costs per unit l Firm is assumed to be using fixed assets effectively l Perceived as a successful firm both internally and externally Disadvantages l Maybe Turning away potential customers l Competitors may take up excess demand l Stressful– no time for mistakes l No down time available

Non standard orders l Businesses contract sometimes take a one off Kellogg's may decide to produce Tesco cornflakes l Things to consider; ¡ The effect on production ¡ Impact on costs and staff ¡ Is it profitable?

Stock control l Another means to match demand supply l Def: Management of stock to minimise cost whilst also meeting demand l Level of stock depends on location and product. Firm in prime location would keep stock levels low to save space. l What if product is l ¡ ¡ Perishable Unpredictable demand

Implications of Higher Stock Levels l Advantages ¡ ¡ ¡ l Can meet sudden changes in demand Less chance of loss of production time because of stock outs Can take advantage of bulk buying economies of scale Disadvantages ¡ ¡ ¡ Costs of storage Money tied up in stocks not being used elsewhere in business Large stocks subject to deterioration and theft

Lesson Objectives l Define and utilise formula for capacity utilisation l Analyse at what level of capacity usage is ideal l Explain how firms match demand with their production