Improving efficiency and productivity: Capacity Flashcards
What is capacity?
The maximum level of production possible using the resources available within the business
Why is capacity important?
A business must understand its capacity to ensure it doesn’t commit to more orders than it can fulfil within a certain time period
Why is productivity imporant?
Increasing the nuumber of/productivity levels of staff and investing in technology can help a business to increase its total capacity
What is capacity utilisation?
The proportion of total capacity being used by a business
Why do many businessews aim to increase their capacity utilisation?
It means their fixed costs can be spread out over a greater number of units
Disadvantage of 100% capacity utilisation
Business cannot respond to additional/special orders made at short notice as they don’t have any further capacity to produce these products
What is outsourcing and what are the + and -?
Hiring another business to perform services/create goods
+Allows a business to meet increasing demand
-Can lead to quality issues if outsources do not take quality as seriously as the business
