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Operations Management
Quick questions on Capacity management and utilisation explained: H2 Management of Business
5short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are managing demand-capacity mismatches?Show answer
When demand exceeds capacity, the firm can increase capacity (invest in new plant - costly, slow, raises fixed costs; add shifts or overtime - flexible but dearer per unit; outsource the excess - avoids capital outlay but cedes margin and control) or manage demand (raise price, ration, lengthen lead times). When capacity exceeds demand, it can raise demand (marketing, lower price, new markets) or reduce capacity (rationalisation - mothball, sublet or sell idle plant, redeploy or release staff).
What are evaluating capacity decisions?Show answer
Capacity decisions hinge on the reliability and durability of the demand forecast. If a demand rise is confident and sustained, capital investment is justified; if it is uncertain or temporary, flexible options (overtime, temporary shifts, outsourcing) are safer because over-investing leaves the firm with low utilisation and high unit costs. A strong answer sequences the response - use existing capacity first, then add flexibly, then invest - and conditions the verdict on forecast certainty.
What is q1?Show answer
A firm produces 18{,}000 units against a maximum capacity of 24{,}000. Calculate its capacity utilisation. [2 marks]
What is q2?Show answer
Explain one drawback of a firm consistently operating at 100% capacity utilisation. [4 marks]
What is q3?Show answer
Analyse why a firm facing rising demand might choose to outsource production rather than build new capacity. [6 marks]
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