Capacity Utilisation and Outsourcing

Question 1

Capacity utilisation

Answer 1

The proportion of maximum output capacity currently being achieved

Rate of capacity utilisation=

current output level
________________________ X 100
Maximum output level

Question 2

Outsourcing

Answer 2

Using another business to undertake a part in the production process

Question 3

Maximum capacity

Answer 3

Highest level of sustained output that can be achieved

Question 4

Drawbacks of working at full capacity for longer period of time

Answer 4

-Employees may feel pressure due to the workload
-Regular customers maybe turned away or kept waiting for long periods
-Machinery will be working continuously and there may be insufficient time for maintenance

Question 5

Excess capacity

Answer 5

AKA Spare capacity, less than full capacity

Question 6

Improving short term spare
capacity

Answer 6

-Maintaining high output levels
-Adopting a more flexible production system
-Insisting on flexible employment contracts

Question 7

Improving long term spare capacity

Answer 7

-Rationalisation
Benefits
-Reduces overheads
-Higher capacity utilisation from other units
Limitations
-Workers worry about job security
-Industrial action may be a risk

-Research and development
Benefits
-New products replace existing
-May prevent rationalisation
Limitations
-Maybe expensive
-May take long to prevent cutback

Question 8

Capacity shortage

Answer 8

When demand for a product exceeds production capacity

Question 9

Reducing long term capacity shortages

Answer 9

-Outsourcing
Benefits
-No major capital investment
-Quick to arrange
-Offers greater flexibility
Limitations
-Less control over quality
-Added admin and transport costs
-Uncertainty about delivery

-Investing capital in expansion of production
Benefits
-Increases capacity long term
-Business controls quality
-Economies of scale is possible
Limitations
-Capital cost maybe too high
-Problems with raising capital
-Increases total capacity

Question 10

Benefits of outsourcing

Answer 10

-Reduction and control of costs
-Increased flexibility
-Improved company focus
-Access to quality resources
-Freeing up internal resources

Question 11

Limitations of outsourcing

Answer 11

-Loss of jobs within the business
-Quality issues
-Customer resistance
-Security
-CSR

Question 12

Business process outsourcing (BPO)

Answer 12

Form of outsourcing where it uses specialist contractors to take responsibility for certain business functions