Capacity utilization is an important concept in determining industrial performance. It can be used to ascertain if your business is underperforming or outperforming. Utilizing industrial capacity to the full extent is critical to the successful existence of your business.

So why don’t we look at what capacity utilization implies real quick?

What is Capacity Utilization?

Capacity utilization is basically the extent to which a business or an economy uses its productive capacity.

It is the relationship between the output derived using a business’s production equipment and the potential output which could be derived using the same production equipment if capacity was fully utilized. Does this make your head spin? If yes, all you need to understand is that capacity utilization is the extent to which a business uses its productive capacity.

Productive capacity is the maximum possible output a business can produce.

Capacity is not fully utilized if a business can increase unit of production without increasing production cost. Hence, until production can’t be increased without incurring additional production cost, capacity is not fully utilized.

What is the Ideal Capacity Utilization Rate?

Capacity utilization rate cannot exceed 100%, but the reasonable or ideal expected capacity utilization can be said to be 90% because issues could arise with production machinery and workers. The machinery used for production could develop issues that would prevent it from working at its optimum. And if you agree with me, no worker could work at full capacity always. Putting these in mind, 90% could be said to be an ideal capacity utilization rate.

What is the Importance of Fully Utilizing Capacity?

Considering the fact that increasing capacity could prove expensive. It is wise for a business to make full use of its existing capacity.

The importance of fully utilizing capacity include:

It ensures productivity – Fully utilizing capacity ensures productivity because output produced increases without a rise in production cost. In simpler terms, you increase production without incurring additional expenses.

It reduces cost- A rise in output produced is usually accompanied by a fall in production cost. Hence, working to increase capacity utilization would reduce cost since increased capacity utilization is associated with a rise in output production.

It could Increase Profitability- A rise in output and a reduction in production cost, would result in increased profits for your business. However, if there is a reduction in demand and a loss in market share, it would not translate to an increase in profits.

How can you Increase Capacity Utilization in your Industry?

Proper planning

If you ever want to increase capacity utilization in your business, you have to plan properly and ahead. Planning ahead would help you employ your business resources in the best possible way. It would also help you easily adjust to the ever-changing business climate; making you react in the best possible way to the changes in demand, market share, manufacturing etc. Plan ahead to boost manufacturing, market share, and your product demand.

Structured approach

Your approach should be balancing your capacity with your product demand and market share to ensure profitability. Never increase capacity without an increase in your product demand or market share. Make sure the existing capacity in your business is fully used, before opting for a greater one.

Strategic decision making

In business, the strategy is everything. Your strategy should be to expand your business, maximize capital benefits with low production costs and increase market share. Your strategic decisions would go a long way in determining your level of capacity utilization.

Information and communication technology comprises diverse set tools and resources typically exploited to create, communicate, disseminate, store and manage information. ICT tools can be classified as follows.

Informative tools

These are tools of information that afford profound information in several formats such as sound, text, video or graphics. These tools can be considered as an inert source of information. They include tools and info resources of existing encyclopedia of the entire internet.  The internet is an enormous electronic database and scholars consider the internet as the most important ICT tools in the e-learning environs.

Students and researchers rely on the internet profoundly to carry out research and also do their homework. The Internet is considered as the virtual textbook, reference archive, and cybernetic tutor.

Situating tools

Situating tools describes a system that renders students in an environment where it comprises a context and the incidence of a situation. Examples include simulation, multi-user domain, and virtual reality. Software tools in this category such as CD-ROM, offer a multimedia application that gives enhanced opportunities to boost learning environments.

Hypermedia applications encompass multiple formats such as audio, graphic images, text, animation and video clips. These applications are well incorporated through the learning environment to ensure student independence and thinking. Students are also able to conceptualize ideas to the real world by integrating theories into the practical application of modern world situations.

Constructive tools

Constructive tools are all-purpose tools used in the manipulation of information, knowledge construction and visualization of understanding. Constructive tools, for instance, Microsoft Word, or PowerPoint, have a strong bearing in the in the education sector and is widely utilized in organizations. Mostly in the form of memos, presentations, reports, and letters.

In the learning environment, Microsoft word effectively assists students to correct texts and sentences; word processors include dictionaries, grammar checkers. Power point is a presentation graphics platform used for developing presentations through slides. Microsoft excel is another essential software where students learn design and statistical data that can be automated via formula.

Communicative tools

Communicative tools allow efficient communication between two parties, say, teachers and students. For instance using e-mail, chat, electronic whiteboard, teleconference and electronic bulletin boards. Communication tools such as video conference and chat enable instantaneous communication using communicative asynchronous, e.g., e-mail and electronic whiteboard.

A system whereby an exchange of information between people is not ‘live’ but delayed somehow. Electronic mail utilization is on the increase day after another. It is most commonly used on the internet.

Collaborative tools

Collaborative tools constitute the emphasis of much interest and evolving as the development of tools that ensure online collaborative schemes bring out a genuine opinion for disseminated group work. The Internet is commonly used for collaborative undertakings such as meetings, information dissemination, and other jobs.

These technologies also enhance spontaneous information sharing, personal growth simulation, and knowledge construction. Other collaborative tools, e.g., Wireless Application Protocol (WAP), E-mail messaging and General Packet Radio Services (GPRS) equipped with mobile phones or GPRS facilitated handheld computers are also ICT tools able to link scholars to different geographical locations. Mobile phones and PDA enable learners to pass information in a short time concurrently and asynchronously.