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capacity utilization

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capacity utilization

  1. 1. capacity utilization Presented By B.SAI KIRAN (12NA1E0036)
  2. 2. WHAT ISTHE CAPACITY UTILIZATION? Capacity utilization is an economics concept which refers to the extent to which an enterprise or a nation actually uses its installed productive capacity. Thus, it refers to the relationship between actual output produced and potential output that could be produced with installed equipment, if capacity was fully used.
  3. 3. PRODUCTION CAPACITY Production capacity is usually defined in terms of the following three factors:  Factors of production that is used in production activities of company,  Product which is obtained as result of utilization of production factors,  Being of the whole occupations and efforts of production within a certain period of time, Consequently, the production capacity is said that business will bring about the amount of production by using the factors of production in a rational manner in a certain period of time.
  4. 4. TYPES OF CAPACITY Three types of capacity are often referred to: Potential Capacity Immediate Capacity Effective Capacity
  5. 5. The capacity that can be made available to influence the planning of senior management (e.g. in helping them to make decisions about overall business growth, investment etc). This is essentially a long-term decision that does not influence day-to-day production management
  6. 6. The amount of production capacity that can be made available in the short-term. This is the maximum potential capacity - assuming that it is used productively.
  7. 7. An important concept. Not all productive capacity is actually used or usable. It is important for production managers to understand what capacity is actually achievable.
  8. 8. CAPACITY UTILIZATION RATE The capacity utilization rate, also known as the capacity utilization ratio, is a percentage-based ratio that applies to the actual productivity of a business or country. It specifically references the ratio between true output – what is actually produced, and potential output – what could be produced.
  9. 9. In general, maximum actual output of a company is always going to be less than 100% due to the actual resources. it possesses, human factors including employee output, machinery limitations and maintenance  Capacity utilization rate reveals how close a firm is to its best operating point.  Capacity used rate of output actually achieved  Best operating level capacity for which the process was designed
  10. 10. Example of Capacity Utilization Rate  During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate?
  11. 11. DETERMINATION OF CAPACITY Capacity determination is a strategic decision in plant planning or factory planning. Capacity decisions are important because: I. They have a long-term impact. II. Capacity determines the selection of appropriate technology, type of labor and equipments, etc. III. Right capacity ensures commercial viability of the business venture. IV. Capacity influences the competitiveness of a firm.
  12. 12. Factors affecting determination of Plant Capacity: a) Market demand for a product/service. b) The amount of capital that can be invested. c) Dynamic nature of all factors affecting determination of plant capacity changes in the product design, process technology, market conditions and product life cycle, etc. . . D) Type of technology selected. E) Difficulty in forecasting future demand and future technology.
  13. 13. Factors which will be cared while a capacity of plant is being estimated:  Growth opportunities of the facility in future,  the development plans of the facility for the future,  Scale value of the facility that took place in the economic sector,  Efficiency, productivity and profitability are targets which is anticipated by the facility  Funding opportunities which can be benefited by the facility,  Technological level and production methods,  Production Types  Production quality assurance / security,  Demand / sales level
  14. 14. Conclusion: Capacity utilization is the long term strategic decision that enables the firm’s overall resources.It is focused on the level of capacity that we provide the each stage of production system.