631: b
632: a
633: c
634: b
635 :d
636: c
637: d
638: b
639: b
Showing posts with label Capacity utilisation. Show all posts
Showing posts with label Capacity utilisation. Show all posts
Investment and capacity utilisation - 3
Capacity utilization is the extent to which the productive capacity of a business is being used.
Hmm this defines capacity utilisation but doesn't relate directly to the case study and neither does it tell me what capacity is...hmm....
Firstly, if someone were to invest in a business in order for them to increase their capacity utilization, then it may be a worthwhile cause as increased capacity utilization means that there is more output with the same amount of production.
This seems very odd. I produce the same amount but produce more...? I am pretty sure the writer meant the same amount of machines and other resources. I would feel so much better if capacity utilisation had been fully explained and then directly related to the case study. I think it is time to go and read this...
This comes with a decrease in the average fixed costs per unit in production, which therefore means that they are spending less of their profits on repaying their costs and so profit is larger.
Hmm this is odd too. So have fixed costs reduced? If not why are they spending less of their profits? Doesn't make sense to me. Also have profits changed? Hmmmm
With a larger profit, it promises a higher return on investment for the original investor and so would be more attractive to the investor to start with.
I wonder why profits have risen....
For example, the initial £230million invested by BMW to the Oxford Cowley plant did exactly this. It allowed a new mini to be designed and the firms cut their costs by having more efficient machinery.
I wonder which costs they cut as machinery is very expensive!
As more capacity was being utilized effectively the sales took off and the demand for the car increased dramatically,
I wonder why capacity utilisation affects demand...this response doesn't explain this
highlighting how increased capacity utilization from an investment can increase demand significantly.
However, the benefits of investment as a means of increasing capacity utilisation are limited. The success of the investment is dependent on the sort of business concerned and how it is coping in relation to its competitors and in the current economic environment ect. If the business is struggling in a financial crisis and the actual product they sell has a very low demand regardless of its price elasticity, then even an increase in capacity utilization would not give enough benefits for it to be worthwhile.
This looks like a clear attempt at evaluation - obviously a good student!
The costs would be cut but demand for the product will remain low in the short term, and the business runs the risk of now having a supply surplus of their own product which may lead to wasted resources.
Another good point - and always a good idea to bring short term/long term in. Clearly this person has an excellent teacher!
This then leads to an increase in costs, and leave the business at an overall bigger disadvantage than prior to the investment. For example, Silentnight was struggling in the financial crisis and had a fall in sales of 40%, highlighting a severe lack of demand for their mattresses. This lead to the closure of one of their factories and although it was severely underutilized, it is unlikely that an investment would have helped the business much further as even though they would be more efficient at producing the mattresses, there is still a lack of interest for the product itself and so little revenue would be earnt, and therefor little profit.
Referring back to the case study - great! Now I will go and read the judgement.
Oh...there isn't one
That teacher should lose his job...
Hmm this defines capacity utilisation but doesn't relate directly to the case study and neither does it tell me what capacity is...hmm....
Firstly, if someone were to invest in a business in order for them to increase their capacity utilization, then it may be a worthwhile cause as increased capacity utilization means that there is more output with the same amount of production.
This seems very odd. I produce the same amount but produce more...? I am pretty sure the writer meant the same amount of machines and other resources. I would feel so much better if capacity utilisation had been fully explained and then directly related to the case study. I think it is time to go and read this...
This comes with a decrease in the average fixed costs per unit in production, which therefore means that they are spending less of their profits on repaying their costs and so profit is larger.
Hmm this is odd too. So have fixed costs reduced? If not why are they spending less of their profits? Doesn't make sense to me. Also have profits changed? Hmmmm
With a larger profit, it promises a higher return on investment for the original investor and so would be more attractive to the investor to start with.
I wonder why profits have risen....
For example, the initial £230million invested by BMW to the Oxford Cowley plant did exactly this. It allowed a new mini to be designed and the firms cut their costs by having more efficient machinery.
I wonder which costs they cut as machinery is very expensive!
As more capacity was being utilized effectively the sales took off and the demand for the car increased dramatically,
I wonder why capacity utilisation affects demand...this response doesn't explain this
highlighting how increased capacity utilization from an investment can increase demand significantly.
However, the benefits of investment as a means of increasing capacity utilisation are limited. The success of the investment is dependent on the sort of business concerned and how it is coping in relation to its competitors and in the current economic environment ect. If the business is struggling in a financial crisis and the actual product they sell has a very low demand regardless of its price elasticity, then even an increase in capacity utilization would not give enough benefits for it to be worthwhile.
This looks like a clear attempt at evaluation - obviously a good student!
The costs would be cut but demand for the product will remain low in the short term, and the business runs the risk of now having a supply surplus of their own product which may lead to wasted resources.
Another good point - and always a good idea to bring short term/long term in. Clearly this person has an excellent teacher!
This then leads to an increase in costs, and leave the business at an overall bigger disadvantage than prior to the investment. For example, Silentnight was struggling in the financial crisis and had a fall in sales of 40%, highlighting a severe lack of demand for their mattresses. This lead to the closure of one of their factories and although it was severely underutilized, it is unlikely that an investment would have helped the business much further as even though they would be more efficient at producing the mattresses, there is still a lack of interest for the product itself and so little revenue would be earnt, and therefor little profit.
Referring back to the case study - great! Now I will go and read the judgement.
Oh...there isn't one
That teacher should lose his job...
Investment and capacity utilisation - 2
Evaluate the benefits of investment as a means of increasing capacity utilisation.
If capacity utilisation is low, the fixed costs per unit may become too high and force the business into bankruptcy.
Hmm I don't seem to have defined the key terms - not so good....
There are many inputs affecting productivity and if investment is made in any of them, there should be improved outputs or productivity which will increase capacity utilisation.
Yeah that sounds OK - but I haven't said what capacity utilisation is yet...hmmm but what would I do with these increased oututs - and what's this got to do with the case study?
Materials and design. A new mini was designed, creating new demand for the product.
Yes so I wonder...is this increasing capacity utilisation (whatever that is)?
Silentnight introduced new retro designs in colourful patterns thereby creating new market.
So this probably increased capacity utilisation...Ok.......
Tools and equipment. Mini invested in up to date equipment i.e. robots which cut the production costs significantly. This helped increase capacity utilisation but meant many employees lost their jobs.
I am not sure if I have explained HOW this increased capacity utilisation (whatever that is)
People and management. Although BMW made many people redundant, their investment in designing and developing a new Mini meant they employed trained workforce with the necessary skills to produce a new car.
I reckon that may be a benefit then...hmm...have I evaluated it?
Likewise, Silentnight invested in a good marketing team to develop the new strategies to advertise the bed, involve a fashion designer in developing new designs and linking with football and rugby clubs to stress the benefit of a good night’s sleep.
OK this refers to the case study, which is good. I am not sure whether this says the investment is successful though - and if not then I don't see how there's any evaluation...
Knowledge. Both BMW and Silentnight invested in a workforce with the right knowledge and expertise in the appropriate areas of the business in order to maximise productivity and help the companies reach their capacity utilisation.
As I STILL don't know what capacity utilisation is.....the benefits of the investment...hmmm...did it lead to an increase in profits? Not sure...
Processes and systems. BMW and Silentnight made investment in making sure procedures were put in place to guarantee the organisations effectiveness in managing the new initiatives and changes. There were many changes made to both companies and everyone working there had to adapt, co-operate, change and be motivated for the companies to succeed. Investment in all these areas meant that there would be an increased volume in output and quality, lower unit costs and more profit/sales. Both companies would have increased their capacity utilisation.
OK I see that they have increased capacity utilisation (whatever that is) but has the investment been evaluated? I wonder how significant the benefits were? I wonder if this was short term or long term? I wonder how this affected stakeholders...
Hmm I don't see much evaluation...
If capacity utilisation is low, the fixed costs per unit may become too high and force the business into bankruptcy.
Hmm I don't seem to have defined the key terms - not so good....
There are many inputs affecting productivity and if investment is made in any of them, there should be improved outputs or productivity which will increase capacity utilisation.
Yeah that sounds OK - but I haven't said what capacity utilisation is yet...hmmm but what would I do with these increased oututs - and what's this got to do with the case study?
Materials and design. A new mini was designed, creating new demand for the product.
Yes so I wonder...is this increasing capacity utilisation (whatever that is)?
Silentnight introduced new retro designs in colourful patterns thereby creating new market.
So this probably increased capacity utilisation...Ok.......
Tools and equipment. Mini invested in up to date equipment i.e. robots which cut the production costs significantly. This helped increase capacity utilisation but meant many employees lost their jobs.
I am not sure if I have explained HOW this increased capacity utilisation (whatever that is)
People and management. Although BMW made many people redundant, their investment in designing and developing a new Mini meant they employed trained workforce with the necessary skills to produce a new car.
I reckon that may be a benefit then...hmm...have I evaluated it?
Likewise, Silentnight invested in a good marketing team to develop the new strategies to advertise the bed, involve a fashion designer in developing new designs and linking with football and rugby clubs to stress the benefit of a good night’s sleep.
OK this refers to the case study, which is good. I am not sure whether this says the investment is successful though - and if not then I don't see how there's any evaluation...
Knowledge. Both BMW and Silentnight invested in a workforce with the right knowledge and expertise in the appropriate areas of the business in order to maximise productivity and help the companies reach their capacity utilisation.
As I STILL don't know what capacity utilisation is.....the benefits of the investment...hmmm...did it lead to an increase in profits? Not sure...
Processes and systems. BMW and Silentnight made investment in making sure procedures were put in place to guarantee the organisations effectiveness in managing the new initiatives and changes. There were many changes made to both companies and everyone working there had to adapt, co-operate, change and be motivated for the companies to succeed. Investment in all these areas meant that there would be an increased volume in output and quality, lower unit costs and more profit/sales. Both companies would have increased their capacity utilisation.
OK I see that they have increased capacity utilisation (whatever that is) but has the investment been evaluated? I wonder how significant the benefits were? I wonder if this was short term or long term? I wonder how this affected stakeholders...
Hmm I don't see much evaluation...
Investment and capacity utilisation - 1
Note to self: is there other information included? (Yes) so should I refer to it? (yes) in this case it is Sunlight and BMW (so I must make sure I refer to it as this is APPLICATION)
Evaluate
the benefits of investment as a means of increasing capacity utilisation.
(12 marks)
Note to self: are there any terms in the title I should define? (yes) if so which ones? (capacity utilisation)
(So I define capacity utilisation....then I continue......) Investment is often aimed at increasing capacity rather than increasing the utilisation of existing capacity. When, for example, BMW invested in robots, this increased the capacity of the plant. When investment is used to increase capacity utilisation there are various benefits which will now be assessed.
Note to self: I have referred to the case study and also made it clear I am writing about capacity utilisation not increasing capacity. That's pretty good - I am on the right track!
(So I define capacity utilisation....then I continue......) Investment is often aimed at increasing capacity rather than increasing the utilisation of existing capacity. When, for example, BMW invested in robots, this increased the capacity of the plant. When investment is used to increase capacity utilisation there are various benefits which will now be assessed.
Note to self: I have referred to the case study and also made it clear I am writing about capacity utilisation not increasing capacity. That's pretty good - I am on the right track!
The ‘bottleneck’ concept is
useful here. When technology and investment offer improvements in any factor
which limits capacity, the capacity of the business can be increased and other
factors can realise more of their potential. To take a simple example,
Silentnight could have identified a hold-up in bed manufacture which could be
removed by automating a process. If this allows workers to use the time in
other productive ways, there is a sense in which this increases the capacity of
the Barnoldswick factory. It also allows increased labour productivity.
Note to self: an alternative to using the workers I could make them redundant. Thus I would be increasing capacity utliisation without increasing capacity. I am continuing to refer to the case study.
Note to self: an alternative to using the workers I could make them redundant. Thus I would be increasing capacity utliisation without increasing capacity. I am continuing to refer to the case study.
There is a possible distinction
between small scale investment to address ‘bottlenecks’ and more fundamental
large scale investment to reconstruct entire production processes in more
capital intensive ways. Large scale investment will normally set out to raise
both labour productivity and capacity. This would happen, for example, when a
car production line is speeded up by introducing robots. The capacity of the
production line is clearly increased.
Note to self: I seem to be drifting off capacity utilisation here...that's not so good...of course what I should have done is read more about capacity utilisation itself for example here then I would have realised that I can increase capacity utilisation by increasing sales, building up stock or subcontracting. If I had thought of that then I could have dealt more with investment in marketing etc.
Oh well, I had better move on to the evaluation bit....
Note to self: I seem to be drifting off capacity utilisation here...that's not so good...of course what I should have done is read more about capacity utilisation itself for example here then I would have realised that I can increase capacity utilisation by increasing sales, building up stock or subcontracting. If I had thought of that then I could have dealt more with investment in marketing etc.
Oh well, I had better move on to the evaluation bit....
Investment has no guarantee of
success as there are always business risks. Less than half of the businesses
offered investment on ‘Dragons’ Den’ go on to succeed, for example.
I thought that was pretty good, bringing in Dragons Den but on the other hand...is this directly relevant to the details in the Case Study? Hmmmm I should have dealt with capacity utilisation for BMW etc. Drat! I thought I was being clever!
Failure can follow investment if the technology or the equipment involved fails to deliver the anticipated outcomes, or if consumers are not attracted to the product. For example, Google Glass (in 2011) brought computer power to ‘high-tech spectacles’. Google’s investment in this product was scrapped after extensive problems in both production and use. Silentnight still faces ‘major challenges’ after reorganisation. Addressing bottlenecks has limited value if sales are too low to keep capacity occupied.
Well, I went back to the case study AND brought in a real world example, but I haven't really done much evaluation. I think I need to read more about evaluation...
I thought that was pretty good, bringing in Dragons Den but on the other hand...is this directly relevant to the details in the Case Study? Hmmmm I should have dealt with capacity utilisation for BMW etc. Drat! I thought I was being clever!
Failure can follow investment if the technology or the equipment involved fails to deliver the anticipated outcomes, or if consumers are not attracted to the product. For example, Google Glass (in 2011) brought computer power to ‘high-tech spectacles’. Google’s investment in this product was scrapped after extensive problems in both production and use. Silentnight still faces ‘major challenges’ after reorganisation. Addressing bottlenecks has limited value if sales are too low to keep capacity occupied.
Well, I went back to the case study AND brought in a real world example, but I haven't really done much evaluation. I think I need to read more about evaluation...
Successful, large scale,
innovative investment will generally increase capacity rather than increase the
utilisation of existing capacity. Smaller scale investment to tackle
‘bottlenecks’ can be seen as targetting increased capacity utilisation.
However, there is no hard and fast guarantee that investment will succeed in
increasing capacity utilisation.
I thought that was good when it was written but looking gain, that first sentence doesn't seem very relevant, the second sentence adds nothing and the third one just says it may not succeed. Not very impressive....
I thought that was good when it was written but looking gain, that first sentence doesn't seem very relevant, the second sentence adds nothing and the third one just says it may not succeed. Not very impressive....
Capacity overload?
The number of patients on hospital wards in England has been at unsafe levels at nine out of 10 NHS trusts this winter, BBC analysis shows.
To minimise the risk of infections and delays in getting treatment, hospitals are meant to have no more than 85% of beds occupied.
But the analysis showed 137 out of 152 hospital trusts have been above that level since the start of December.
NHS bosses said hospitals had major problems discharging frail patients.
One experienced hospital boss described some of the weeks this winter as the "worst" he had seen in his career.
Meanwhile, patients have been contacting the BBC to report the chaos they have experienced in overcrowded hospitals, including long waits for treatment and operations being cancelled at the last minute.
Capacity Utilisation
Capacity Utilisation
Capacity utilisation expresses output as a % of total potential output. For example, if a car factory could produce 1,000 cars a week and output was 740, then capacity utilisation would be 74%
Capacity utilisation is important for determining the elasticity of supply. If firms are near 100% of capacity utilisation then supply will be very inelastic, at least in the short term.
In the long term firms can increase productive capacity and increase the amount of capital.
Capacity utilisation formula. In practise firms will not want to produce at 100% utilisation as this allows no scope for fluctuations. They will prefer to target a certain % say 85% of capacity utilisation. If the % varies significantly from this amount then firms will either try to expand capacity or deal with oversupply.
Capacity utilisation is an important concept:
- It is often used as a measure of productive efficiency
- Average production costs tend to fall as output rises – so higher utilisation can reduce unit costs, making a business more competitive
- So firms usually aim to produce as close to full capacity (100% utilisation) as possible
Is there an ideal level of capacity utilisation? The answer is – it depends!
There are several reasons why businesses operate at less than 100% capacity utilisation:
Lower demand:
- General reduction in overall market demand
- Loss of market share
- Seasonal variation in demand
Increase in capacity not yet matched by increased demand:
- Possibly new technology introduced
- Provide some "slack"
Inefficiency (a problem = less competitive unit costs)
- Poor maintenance, quality, employee disruption
When a business is operating at less than 100% capacity, it is said to have "spare capacity".
Sometimes spare capacity is not the problem – a business finds itself with excess demand (i.e. it cannot produce enough to meet demand). In such circumstances, what can it do to operate at higher than 100% normal capacity? It can often:
- Increase workforce hours (e.g. extra shifts; encourage overtime; employ temporary staff)
- Sub-contract some production activities (e.g. assembly of components)
- Reduce time spent maintaining production equipment
However, there are some potential pitfalls with operating at very high capacity (i.e. around 100%):
Negative effect on quality (possibly)
- Production is rushed
- Less time for quality control
Employees suffer
- Added workloads & stress
- De-motivating if sust Fix ained for too long
Loss of sales
- Less able to meet sudden or unexpected increases in demand
- Production equipment may require repair
But there are also advantages:
Advantages of working at Full Capacity
- Lower average costs (the fixed costs are spread over more output).
- Improves image amongst customers (business looks successful, busy customers).
- Increases Staff Motivation and Job Security.
Capacity Utilisation
Capacity utilisation is an important concept:
There are several reasons why businesses operate at less than 100% capacity utilisation:
Lower demand:
Sometimes spare capacity is not the problem – a business finds itself with excess demand (i.e. it cannot produce enough to meet demand). In such circumstances, what can it do to operate at higher than 100% normal capacity? It can often:
Negative effect on quality (possibly)
The Capacity Utilization figure can vary among different industries,inventory/production models, stock building cycles, seasonal demand cycles, and warehousing practices. It is important to set the aim capacity utilization rate with consideration to customer demands first and the other factors mentioned above. It may be that several aim rates will be set for different times in a year or business cycle. When Capacity utilization is at a high level it is important that most gross production is actually saleable production. This means the production process must produce minimal waste, monitor its safety stock levels and be efficient. Lean manufacturing principles are valuable in achieving these required efficiencies, as a lean well run production process will maximize revenue for the business and also cut down customer lead times.
(CHECK ALL THE UNDERLINED TERMS BY CLICKING THIS LINK)
- It is often used as a measure of productive efficiency
- Average production costs tend to fall as output rises – so higher utilisation can reduce unit costs, making a business more competitive
- So firms usually aim to produce as close to full capacity (100% utilisation) as possible
There are several reasons why businesses operate at less than 100% capacity utilisation:
Lower demand:
- General reduction in overall market demand
- Loss of market share
- Seasonal variation in demand
- Possibly new technology introduced
- Provide some "slack"
- Poor maintenance, quality, employee disruption
Sometimes spare capacity is not the problem – a business finds itself with excess demand (i.e. it cannot produce enough to meet demand). In such circumstances, what can it do to operate at higher than 100% normal capacity? It can often:
- Increase workforce hours (e.g. extra shifts; encourage overtime; employ temporary staff)
- Sub-contract some production activities (e.g. assembly of components)
- Reduce time spent maintaining production equipment
Negative effect on quality (possibly)
- Production is rushed
- Less time for quality control
- Added workloads & stress
- De-motivating if sustained for too long
- Less able to meet sudden or unexpected increases in demand
- Production equipment may require repair
Operating At Near Full Capacity
Operating at near full capacity
can have a number of advantages:
·
Its fixed costs per unit are at their lowest possible level.
·
The firm is assumed to be using all of its fixed assets
effectively, therefore profits should be high.
·
It will be perceived as a successful country both internally
and externally leading to positive effects.
Internally, employees will feel a sense of pride working for such a
successful organisation. Externally, if customers know that a firm is working at full
capacity it will assume that it is offering a good product.
Firm’s operating at or near
full capacity may wish to increase their total capacity, this can be done in
a number of ways:
·
Employing more workers.
·
Building larger buildings for manufacture or providing service.
·
Purchasing more raw materials/stock.
The use of capacity utilization as a KPI
Capacity utilization is a widely used KPI and operational measure in many industries in the strategic capacity and business planning functions of many organizations. It can be used as a measure which helps determine optimum timing of capacity expansions, entry into new markets, market exits, cost curves for different manufacturers and profitability. Capacity utilization, along with other information, can also be used in operations and production management to calculate the average marginal cost of production, the split between fixed and variable costs, inventory , manning, overtime costs, and engineering/maintenance costs.The Capacity Utilization figure can vary among different industries,inventory/production models, stock building cycles, seasonal demand cycles, and warehousing practices. It is important to set the aim capacity utilization rate with consideration to customer demands first and the other factors mentioned above. It may be that several aim rates will be set for different times in a year or business cycle. When Capacity utilization is at a high level it is important that most gross production is actually saleable production. This means the production process must produce minimal waste, monitor its safety stock levels and be efficient. Lean manufacturing principles are valuable in achieving these required efficiencies, as a lean well run production process will maximize revenue for the business and also cut down customer lead times.
(CHECK ALL THE UNDERLINED TERMS BY CLICKING THIS LINK)
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