Operations
Capacity utilization
Actual output as a share of the most that could be produced.
Facts checked against sources onWhat does Capacity utilization mean?
Capacity utilization is actual output divided by maximum possible output. A plant that can make 1,000 units a day and makes 800 runs at 80% utilization. Very high utilization leaves no room for demand peaks or breakdowns, and waiting times grow quickly as it approaches 100%.
Where does it come up in case interview prep?
- Supply chains explainedLesson in How industries work: the toolkit
- Industry primers: airlines, pharma, software, energyLesson in Business basics for non-business learners
- Capacity and bottlenecks: the slowest step sets outputLesson in Making operations better, and planning for what can go wrong
- Productivity and utilization: how much you get from what you haveLesson in Making operations better, and planning for what can go wrong
- The business case for automation: payback, utilization risk, and peopleLesson in Making operations better, and planning for what can go wrong
- Scenario planning: base, upside, downside, and deciding when you cannot knowLesson in Making operations better, and planning for what can go wrong
- Using this in a case: operations and cost casesLesson in Making operations better, and planning for what can go wrong
- Workforce planning: headcount maths, attrition and hiring lead timesLesson in People, rules and responsibility: organisation, regulation and sustainability
Related terms
- BottleneckThe slowest step, which limits the output of the whole process.
- Step costA cost that is flat over a range, then jumps.
- Little's lawItems in a system = arrival rate × time each item spends in it.
- Inventory turnoverHow many times stock is sold and replaced in a year.
- Landed costThe full cost of getting a product to your door, not just its purchase price.
- Cash conversion cycle (CCC)How many days cash is tied up between paying suppliers and collecting from customers.
- Service level (fill rate and OTIF)How reliably a supplier delivers what was ordered, measured by fill rate and on time in full.
- Bullwhip effectSmall changes in shopper demand grow into large swings in orders further up the supply chain.
Learn it in context
See Capacity utilization at work in a lesson from How industries work: the toolkit, with checks as you go.
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