Capacity Utilisation Tuesday, 18 January 2022

LO: To calculate capacity utilisation

Consumer goods giant Unilever has signalled it will continue pursuing a blockbuster deal
to buy GlaxoSmithKline's (GSK) healthcare arm.
Unilever has already had a £50bn offer rejected, but said on Monday a deal would be a
"strong strategic fit". GSK's health products business owns brands such as Sensodyne
toothpaste, Panadol and Centrum vitamins. Unilever, maker of Marmite, PG Tips and Dove
soap, says it wants a bigger slice of the health and hygiene sectors.
"The acquisition would create scale and a growth platform for the combined portfolio in
the US, China and India, with further opportunities in other emerging markets," Unilever
said, pointing to synergies in the oral care and vitamin supplements business.
Unilever has not said if it will sweeten its rejected offer, but according to the Bloomberg
news agency the company has held talks with its banks about additional financing for a
increased bid.
Success criteria: What type of growth is this?
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

Capacity utilisation is the extent to which the maximum capacity for

output is being used – it is normally expressed as a % of maximum
output e.g. 80%

It is calculated using the formula:

Current output x 100

Maximum output

Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

Operations managers will need to make daily decisions about how best to turn
inputs such as machinery, labour and capital into outputs such as products and
services. Capacity utilisation is how best to use these resources for the
benefit of the business - if a business cannot increase its output it is at full
capacity.

Capacity utilisation is important as it has a bearing on average cost per unit

and therefore economies of scale:
• High capacity utilisation: fixed costs are spread over more units
• Low capacity utilisation: the fixed costs can be too high to stay in business
or keep producing that product
Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

How can capacity utilisation be improved in these examples?

Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

How to improve capacity utilisation?

• A business could increase demand for the product through a price
cut sale or through promotion
• Special deals to increase usage at off peak times
• Make staff (resources) redundant
• Sell assets (resources)such as machinery
• Lease capacity out to other businesses
• Move to smaller premises
• Balance seasonal demand production
Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

Capacity is the maximum possible

output of a business
Wembley stadium has 90,000 seats
Capacity Under-utilisation would mean
that not all the tickets had been sold for
a match
Capacity Over-utilisation would mean
they had sold too many seats and some
fans would not have anywhere to sit
Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
Implications of under utilisation
Capacity Utilisation Implications
Tuesday,of
18over utilisation
January 2022
-LO:
Higher fixed costs
To calculate per utilisation
capacity unit • Can damage reputation of the
- Unmotivated staff standing around, not busy business
- Impact on brand image (empty restaurant) • In manufacturing it can put too
- Business may need to rationalise much strain on resources
• Can mean redundancies • Staff may do too much
• Sale of assets overtime and so have
• Hiring temporary staff instead of full time accidents when tired
permanent • Means there is no time to
• Reduction in overtime hours for workers maintain machinery or train
• Partial shutdown (see article) staff
- Increases flexibility of business • Quality suffers as mistakes are
• Able to accept a non-standard order made in production
• Have time to maintain the machinery or
update technology
Success criteria:
Assess•the implications
Have time toand
of under- train staff of capacity
over-utilisation
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation
 Capacity Utilisation Tuesday, 18 January 2022
LO: To calculate capacity utilisation

Analyse two possible ways Ryanair could increase its aircraft capacity utilisation. (6)
Success criteria:
Assess the implications of under- and over-utilisation of capacity
Evaluate ways of improving capacity utilisation