Capacity Basics
Proportion of maximum output capacity currently being used
What is capacity utilisation?
Operating level with lowest unit fixed costs but no room for errors
What is maximum capacity?
Using another business to carry out part of production
What is outsourcing?
Materials and goods held for production or sale
What is inventory (or stock)?
Inventory system aiming for zero buffer stock
What is Just-in-Time (JIT)?
Formula to calculate capacity utilisation percentage
What is (current output ÷ maximum output) × 100?
Short-term action often needed to go beyond maximum capacity
What is overtime?
Major reason firms outsource to reduce these
What is operating costs?
One of the three main types of inventory
What is raw materials (or work-in-progress / finished goods)?
Inventory approach that keeps large buffers to avoid shortages
What is Just-in-Case (JIC)?
When capacity utilisation rises, average fixed costs per unit do this
What is decrease / fall / become lower?
Another name for output below full capacity
What is excess capacity (or spare capacity)?
Outsourcing entire support functions like HR or finance
What is Business Process Outsourcing (BPO)?
Cost from money tied up in unsold stock
What is opportunity cost?
Essential for JIT: suppliers must have short this
What is lead time?
When capacity utilisation is low, average fixed costs per unit do this
What is increase / rise / become higher?
Common short-term cause of excess / spare capacity
What is seasonal demand (or low / temporary demand)?
Employee-related negative effect of outsourcing
What is loss of jobs (or redundancy costs / bad publicity)?
Benefit of inventory that prevents lost sales
What is customer service (or availability / continuity)?
One key benefit of effective supply chain management
What is reduced costs (or improved customer service / profitability)?
Highest sustainable output level a business can achieve long-term
What is maximum (full) capacity?
One long-term solution to a capacity shortage using third parties
What is outsourcing (or subcontractors)?
Serious risk when outsourcing data or IT services
What is security risks (or data breaches)?
Problem caused by holding too much inventory
What is wastage (or obsolescence / high holding costs)?
Network of businesses from raw materials to final customer
What is supply chain?