Capacity Utilization Flashcards
Define max capacity
Total possible level of sustained output BST can achieve in a given time period
What is capacity utilization
Measures the proportion of that capacity currently being used
Unit are the disadvantages of working at full capacity
Employees feel underpressured→ due to workload increasing stress levels
Operations managers cannot afford to mare production scheduling mistakes as there is no slack time to make up for lost output
Regular customers wishing to increase order → maybe turned away or kept waiting for long period → fish of loosing potential customers turning towards competitors
Continuous working machines →have insufficient time for maintenance + repairs
Lack of servicing s brew trouble →in form of high inreliability in future
How can we improve short term excess capacity caused by fall in seasonal demand
Maintaining high level of output
This strategy applies inventories → but expensive + risky if sales do not recover
Adapt more flexible production system
Allowing other products Tu be made that could be sold at other times of year
Needs more flexible workforce+ production resources
Flexible employee contracts
In case of fall in demand + excess capacity → workers can work few hours which will →↓ capacity +costs → but have a -ve impact on employee moral+ motivation
How can we fix longtime exes capacity caused by economic recession + tech changes.
Mention them
Rationalization
Research + develop new products
Define rationalisation and its advantages + disadvantages
Rationalistion → Doris factories or other production units
(Adv)
Reduces overheads
A capacity retilization from remaining production units
(Disadv)
Redundancy payments may have to be made
Industrial action risk
Workers may worry about job security
Capacity may be needed later if eco becomes better or BST develops new products
BST may be critisized for→ not fulfilling social responsibilities
Define research + develop new products and its advantages and -disadvantages
(Adv)
New products replace existing products → making BST more competitive
If introduced quickly → new products might prevent rationalization + other problems
( disadv)
May take long Tu prevent cutbacks in capacity + rationalization
Without long term planning + new products produced to quickly + no clear marketing strategy → new products maybe unsuccessful
What are the options to correct more demand than capacity to produce
Use subcontractors or outsourcing of supplies
Invest capital in expansion of production facilities
Mention advantages disadvantages of using subcontractors or outsourcing of supplies to fix capacity storage
( Adv)
No major capital investment needed
Quick to arrange
Greater flexibility than expansion of facilities → if demand ↓ them they can end contracts with other firms
(Disadv)
No Connor over quality of output
Uncertainly over delivery time reliability of delivery
Adds to administrative + transportation cost
Î unit cost due to supplier profit margin
Mention the adv e disadv of investing capital in expansion of production facilities
( Adv)
Control over quality + final delivery times
Increases capacity for longterm
New facilities → able to use latest equipement+methods
Eco of scale
( disadv)
Capital cost ↑
Difficulty in raising capital
↑ total capacity but problems occur if there is a fall in demand
Takes time to build equip new facilities → customers may not wait
What are the advantages of outsourcing (5)
↓ and control of operating costs
Instead St employing expensive specialists that are not oven required at all times → cheaper to buy specialist services when needed
This service providers → are cheaper because benefit from eco of scale + they provide similar services to other BST aswell
↑ flexibility
Removing departments → buying services when needed → converts fixed costs suchas factory and rent → turn into variable costs
Additional capacity → can be obtained from outsourcing when needed
If demand ↓→ contracts can be cancelled quicker than rationalization
Improve company focus
Management can concentrate on main objectives + tasks by → outsourcing secondary activities.
(Small hotel may use management time to improve customer sense completely outsourcing accounting functions completely. )
Access to quality service and resources not available internally
Many outsourcing firms employ quality specialists that small and medium size bsts are not able to afford to employ directly
Freeing up internal resources for use in other areas
Previously used departments can be made available to improve other aspects
Mention the disadvantages of outsourcing
Loss of jobs within business
-Ve impact on employee motivation
Directly employed workers → experience loss of job security
Bad publicity as result of redundancy
Firms ethical standards being questioned
Customer resistance
Customers may object to deal with overseas outsourcing operations
Bought in components + functions → raise doubts in the minds of customers about quality and reliability
Quality issues
Quality level of goods services being outs sourced → difficult to be checked on
Thus clear contract 06 product quality standards needed
Security
Security risk of using outside BST to perform important functions
CSR
Using outsourced contracts → BST less able to ensure CSR policy towards workers +environment is being followed or not
What can we evaluate regarding the global trend towards outsourcing
Global rend towards outsourcing continues → as BST lookforfurther ways of improving operational efficiency →as more opportunities arise due to globalization’s
Company must take a substantial cost benefit analysis of the decision →before any stage of production is outsourced
As it is consuming + expensive to re-istablish and reopen departments →if outsourcing fails to deliver
Which comm
