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    Capacity Utilisation

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    Raniii
    The document discusses capacity utilisation in operations management, including how to measure capacity utilisation, the benefits of high capacity utilisation through spreading fixed costs over more units and the drawbacks of low capacity such as higher average costs. It also evaluates approaches to dealing with excess or insufficient capacity, such as rationalization, outsourcing, and investing in capital expansion.

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    Capacity Utilisation

    Uploaded by

    Raniii
    33 views17 pages
    The document discusses capacity utilisation in operations management, including how to measure capacity utilisation, the benefits of high capacity utilisation through spreading fixed costs over more units and the drawbacks of low capacity such as higher average costs. It also evaluates approaches to dealing with excess or insufficient capacity, such as rationalization, outsourcing, and investing in capital expansion.

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    4. Capacity Utilisation

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    The document discusses capacity utilisation in operations management, including how to measure capacity utilisation, the benefits of high capacity utilisation through spreading fixed costs over more units and the drawbacks of low capacity such as higher average costs. It also evaluates approaches to dealing with excess or insufficient capacity, such as rationalization, outsourcing, and investing in capital expansion.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    33 views17 pages

    Capacity Utilisation

    Uploaded by

    Raniii
    The document discusses capacity utilisation in operations management, including how to measure capacity utilisation, the benefits of high capacity utilisation through spreading fixed costs over more units and the drawbacks of low capacity such as higher average costs. It also evaluates approaches to dealing with excess or insufficient capacity, such as rationalization, outsourcing, and investing in capital expansion.

    Copyright:

    © All Rights Reserved
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    of 17

    OPERATIONS MANAGEMENT

    Capacity
    Utilisation
    Measurement
    Outsourcing

    AS LEVEL BUSINESS
    starter: take a look at these famous football stadiums, match
    the stadium and their capacity.

    90,000 81,044

    1.Wembley Stadium, London, England 2.Santiago Bernabeu, Madrid, Spain

    3.Al Janoub Stadium, Qatar 4. Gelora Bung Karno Stadium,


    Jakarta

    44,325 (2022 FIFA World Cup)


    77,193
    20,000 (post-World Cup)
    starter: take a look at these famous football stadiums, match
    the stadium and their capacity.

    Al Janoub Stadium, Qatar These stadiums work at a FIXED


    capacity (number of seats),
    Questions to think about (during
    this chapter):
    what are the disadvantages of
    operating at over capacity? (e.g.
    customer disatisfaction, queues)
    or what are the disadvantages?
    (what are the minimum tickets
    44,325 (2022 FIFA World Cup)
    20,000 (post-World Cup) to sell so they breakeven?)
    Lesson
    objectives:
    evaluate the benefits and drawbacks of high
    capacity utilisation
    analyse the impact of low capacity utilisation
    evaluate the different approaches to excess
    capacity or capacity shortage
    assess the reasons for the rapid growth of
    outsourcing
    evaluate the limitations of outsourcing
    Capacity Utilisation

    Capacity utilisation is a measure of the extent to which the


    productive capacity of a business is being used. It can be
    defined as:

    The percentage of total capacity that is


    actually being achieved in a given period
    Why it matters?
    How to measure it?
    Measurement of Capacity Utilisation

    You will be divided into groups, each group will assign


    members to be on JIT & JIC side. You will be assigned a
    business-type, you will research and give arguments why this
    business type should be JIC and JIT, then come up with a
    conclusion.
    then share to the class your thoughts on it.
    CAR REPAIR SHOP
    (GARAGE)
    RETAIL STORES
    (CLOTHES)
    FURNITURE SHOPS
    PHARMACY
    LAPTOP
    MANUFACTURER
    HOSPITALS
    MOTORBIKE
    MANUFACTURERS
    Measurement of Capacity Utilisation quick past paper look
    Measurement of Capacity Utilisation quick past paper look
    impact on
    fixed cost?
    When capacity utilisation is at a HIGH RATE, the fixed cost
    of rent, machinery depreciation are spread over a large
    number of units. Average cost will be relatively LOW.
    When capacity utilisation is LOW, fixed cost will be carried
    by fewer units and average cost will RISE.

    employees are pressured, operations managers cannot


    make mistakes
    regular customers who wish to increase order might be
    turned away (LOSS OF SALES)
    machines working continualy may not have time for
    maintenance
    Dangers of operating at low
    capacity:
    Dangers of operating at low capacity:

    this means there is excess capacity

    but, why most business operates


    below capacity? (Utilistion <100%)
    How to
    improve
    capacity
    utilisation?
    short-term excess capacity:
    maintaining a flexible operations and production system
    (needs flexible workforce and production resources) e.g.
    using machines to produce output seasonally - other
    products at certain times
    flexible contracts - workers work less during excess
    capacity to reduce cost
    long-term excess capacity:
    rationalisation (closing down factories)
    R&D
    How to
    improve
    capacity
    utilisation?
    how about shortages? (when business' demand exceeds capacity)
    use subcontractors, or outsourcing of
    supplies or even finished goods
    invest in capital expansion

    subcontractors: the practice of assigning, or outsourcing, part of the obligations


    and tasks under a contract to another party known as a subcontractor
    Group work capacity solution!
    You are given a business scenario, you need to come up with a
    capacity solution for, e.g.:
    • restaurant which has limited demand during the week and too
    much at the weekends (group 1&2)
    • hotel which is overbooked in the summer but not in the winter
    (group 3&4)
    • train service which is too crowded at peak times (group 5&6)
    • pumpkin farmer who only has one harvest each year. (group 7&8)

    As a group, mind-map ways in which a business could increase its


    capacity utilisation using:
    rationalisation
    sub-contracting
    OTHER METHODS.

    Find a local / regional example - EXPLAIN and JUSTIFY your solution.


    SUMMARY! this machine operates 1000 units
    per month.

    PROBLEMS OF PROBLEMS OF
    OPERATING UNDER OPERATING CLOSE to
    CAPACITY: CAPACITY:

    COST NEW ORDERS

    How to increase capacity utilisation? How to cope with HIGH capacity


    utilisation?

    MARKETING (price reduction, promotion, outsource


    distributions) reduce demand (increase price,
    RATIONALISATIONS (sell unused assets, waiting list)
    close down outlets, downsize) long term; EXPAND

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