The degree of utilization / capacity utilization

The degree of capacity utilization describes the proportion of utilized capacity of resources/operating resources (facilities, machines, employees, energy) measured against the total available capacity – always in relation to the fulfillment of a work step. The degree of capacity utilization can also affect individual processes.

The degree of capacity utilization as a key figure for warehousing is one of the most important identifiers of resource management for many companies. Depending on the objective, different approaches apply to optimizing the degree of capacity utilization. However, these are exclusively of a commercial nature.

  • Increasing sales volumes through price reduction or discounts
  • Increasing sales volumes through clever sales promotion
  • Increasing sales volume through price discrimination/price differentiation

Capacity utilization in the ideal case:

The following applies: a high level of employment, i.e. a high level of utilization of the machinery, leads to lower manufacturing/productivity costs. As a rule, these lower costs also correspond to higher profits for the respective company. The utilization rate therefore indicates how much of the available capacity or storage capacity is used. Whether sufficient output is actually achieved through this utilization is not yet apparent. In individual cases, the productivity key figure is used for this purpose.

In project planning/order inquiries, we speak of the possible output or possible capacity output. It usually differs from the actual output. The more the theoretical value approaches the real value, the better the actual capacity utilization rate during the real project phase.

Criticism of the utilization ratio

Dr. Lukas Rieder and Markus Berger-Vogel from the CZSG Controller Zentrum St. Gallen AG have some criticism: “In many companies, a lack of planning and control systems means that a lot of energy is put into calculating and tracking capacity utilization. Just as there are companies that are poorly utilized but still profitable, there are also companies that are well utilized but unprofitable. Using capacity utilization as a basis for decision-making leads to wrong decisions.” The term lean is mentioned here as a counterexample, where the aim is to avoid wasteful production and to conserve resources.

According to the two experts from CZSG Controller Zentrum St. Gallen AG, bottlenecks with different effects are relevant. In addition to commercial backgrounds, they also have industrial problems. These can include, among other things:

  • production capacity
  • raw materials
  • liquidity problems
  • pricing policy
  • customer demand

For more information on this topic, see also storage location management and process-oriented warehouse planning.

Image rights: Author – Maxim_Kazmin – Fotolia.com