MIDLANDS STATE UNIVERSITY

PRODUCTION & OPERATIONS MANAGEMENT – BM403

GROUP 14

Name Surname Reg Number Course/Degree

1 DORINE GUNZVENZVE R1917316B Hons. Management
2. FADZAYI NYANGONI R1915136Y Hons. Management
3 JOB SUNHWA R1917299C Hons. Management
4 VIOLET MAKOWE R2012664B Hons. Management
5 INNOCENT KOMBE R1917300C Hons. Management
6 MARTIN MBIRIRI R1910051X Hons. Management
7 MEMORY GWAZE R199594E Hons. Management
8 NYASHA. 1. CHIPFAKACHA R1916831V Hons. Management
9 BLESSING CHIJAKA R199904R Hons. Management
10 TINASHE CHIUZINGO R1917301M Hons. Management
11 TINASHE.N MATAVIRE R1916588N Hons. Management
12 SAZINI SIBANDA R1913522W Hons. Management
13 MICHELLE CHAKUZIRA R1916963Q Hons. Management
ASSIGNMENT 2

QUESTION
DISCUSS FIVE STRATEGIES THAT CAN BE USED BY ORGANISATION TO
IMPROVE CAPACITY UTILIZATION
Introduction
An organization capacity is the ability of an organisation to perform work. It is the enabling
factors that allow an organisation to perform its functions and achieve goals. There are
several factors which affect the organisation capacity utilisation which include changes in
demand, changes in technology, changes in the environment (PESTLEG). Capacity
utilization may decline owing to several factors which may include poor quality and
inconsistent supply of raw materials. Akpan et al. (2013) state that prices of raw materials are
critical as far as fully utilizing capacity is concerned. Capacity utilisation of manufacturing
firms in Zimbabwe declined from 57.2% in 2011 to 36.3% in 2014. Capacity utilization may
also decline due to several factors which may include poor quality and inconsistent supply of
raw materials. Akpan et al. (2013) state that prices of raw materials are critical as far as fully
utilizing capacity is concerned. Underutilized capacity often results in reduced
competitiveness as local products end up being expensive. Organizations respond to capacity
utilization problems by adopting different strategies that include the development of new
markets, new product development, investing in new technological innovations, establishing
better production processes and increase working capital.

The organisation capacity can be influenced by seizing an opportunity or reacting to threats

such as new entrants. All these factors contribute to capacity utilisation. The gap between the
desired capacity, design capacity and the effective capacity can cause over and under capacity
utilisation of resources that may create shortages, resource underutilisation and loss of
customers. It is such an analysis that organisations come up with capacity utilization
strategies to gain a competitive advantage.in meeting demand, reduction in costs, increased
productivity, improved supply chain management and other competitive advantages.

Definition of key terms:

Capacity Utilization

Capacity utilization refers to the manufacturing and production capabilities that an

organization is utilizing at a given time. It is the relationship between the organization’s
output produced with the given resources and the potential output that can be produced if
capacity was fully used. Slack et al. in Mojekwu and Iwuji (2012) defined capacity utilization
as the relationship between actual output and design capacity. Capacity utilization is regarded
as one of the performance indicators in a given industry and it shows changes in inflation,
investment, and output growth in the long run among other things (Ray, 2013). Capacity
utilization is also a measure of how well an organisation uses its productive capacity. It is the
relationship between its theoretical and design capacity compared to desired and expected or
actual production capacities. McGraw defined capacity utilization as an attainable level of
output that can be reached under normal input conditions designed.

Maximum capacity
Maximum capacity is the maximum or theoretical level of output of goods or services that a
given system can potentially produce over a standard time. For example, machine maximum
capacity can be measured its capacity over time and yields expected to be produced.
Manufacturing companies set the maximum capacity in terms of standard yields or manhours
per batch process.as prescribed by the manufacturer.

Effective Capacity
Effective capacity measures the realities of time, performance and the bottlenecks on which
the real capacity of the system is forecasted or determined. Design capacity less productive
allowances gives a provision that affect the design capacity and this what is called effective
capacity. Examples include 2% provision for label losses, 5% change over time between
production of different product mixes, manhours production shifts affect the design capacity
to come up with effective capacity

Actual capacity
Actual capacity is the demonstrated rate and actual yield of a process. The actual yield is
usually below effective capacity. Actual capacity is usually compared to theoretical yields to
measure efficiency. The variance can either be positive or negative in terms of effectiveness.
For example, in a manufacturing set up, actual time is affected by availability of inventory
resources, machine scheduling, work instructions production scheduling, task changeovers,
competency of staff, quality of input raw materials, technology efficiencies, electricity
outages, water shortages, poor suppliers of raw materials, strikes, lack of market forecasting
techniques to plan market demand and demotivated staff. It is essential to come up with
capacity utilisation strategies through analysis of these detriments.
STRATEGIES TO IMPROVE CAPACITY UTILIZATION
Development of new markets

Organizations can manage their production capacity by developing new markets for both new
their existing products. This entails taking current products and finding new markets achieved
through opening up previously excluded market segments, new marketing, and distribution
channels, and entering new geographic markets, (Ansoff 1987). New market development is a
market-driven phenomenon that helps stimulate demand for the organization’s products
subsequently leading to an increase in the product’s output. This ensures improvement in
capacity utilization. McCarthy (1960) developed two possible methods of implementing
market development strategy as moving the present product into new geographical areas and
expanding sales of existing products by attracting new markets. It is also a growth strategy
that identifies and develops new market segments for current products. Both Ansoff and
McCarthy insinuate that new markets are predominantly defined by locating a new
geographical area to distribute existing products.

Market positioning

Increase in product demand improves capacity utilisation. It is such strategies such as Porter’s
growth matrix that promotes market growth and product demand. A product rightly
positioned for the market improves capacity utilisation. For example, Promise cologne with
focus on mass market, positioned itself quite well in the perfume industry. The growth in
terms of production output at Prochem grew from one metric tonne in 2000 to ten metric
tonnes per month in 2010.

Capacity Planning and improvements

Planning is essential especially in manufacturing companies. Use of Computer aided
manufacturing (CAM) is useful to design, plan and control the manufacturing processes. It is
such technological tools that can link sales demand and forecast to procurement, materials
requirements, production scheduling and planning finance cashflows to support operations
and working capital. An Example is at Unilver where production is planned based on
historical sales trends and forecasted demand. This technique of planning ensures
uninterrupted production, minimising changeover times which makes production resources
idle on shifts of tasks and batches. Planning improves capacity utilisation by ensuring the
right resources such as labour, and materials are available and fully utilised which leads to
efficiency.

Capacity Sharing
Some organisation may have acquired machinery with excess capacity than demand. Some
supermarkets such as Spar Lebombo have excess space than required. Texas Butcheries are
subcontracted on shop space. Colgate Palmolive Zimbabwe used to manufacture close up
products for Unilever using its Colgate manufacturing plant. By contract manufacturing,
Colgate Palmolive managed to increase capacity of its machinery and plant, labour and
facilities absorbing fixed costs and overheads. This did not only improve capacity utilisation,
but also increased profitability and cashflow situations. It created an ecosystem of capacity
utilisation.
Human capacities
The organisation can improve its capacity utilisation by employing skilled employees with
competencies on their tasks and jobs. Recruiting skilled manpower and training of staff
facilitate capacity utilisation in terms of manhours efficiency, material usage efficiencies,
improved processes and the quality outcome of products. Incentives motivates staff and
increase capacity utilisation. Job design and job rotations creates diversity in workforce and
increase capacity utilisation as a result. Intrapreneurship promotions in firms increase
capacity utilisation.

Capacity control through standardisation of operations systems

Operational factors such as shortage of materials, Production and materials scheduling, work
instructions, procedures and control affect capacity utilisation and effectiveness. Companies
such as Caps Pharmaceuticals have high degree of control through procedures as they
manufacture medicinal products which requires high degree of quality expectations. Such
companies may hinder corporate entrepreneurial innovations to increase capacity utilisation.
It is essential that standardisation improves quality which is a key component of capacity
utilisation. At the same time innovation outside the standards should be encouraged through
monitoring of variances between design capacity and actual capacities and encourage
continuous improvements and corrective measures.

Supply Chain Strategies

Supply chain strategies such as lean and hybrid have an effect on capacity utilization
especially in manufacturing firms. Lean strategies use JIT systems based on demand such as
one used on Toyota Model and is most applicable in flexible production (Towill and
Christopher), which reduces costs and wastages. Hybrid strategies is most applicable where
shortages of materials are imminent such as the current wheat shortages. Minimum buffer
stocks have to be kept. This improves capacity utilisation of machines and resources. Most
bakeries in Zimbabwe have reduced capacities now due to wheat shortage caused by Russia
Ukraine war. The supply chain should ensure the right materials are acquired at the right time
with correct specified quality and right quantities to meet demand so that capacity utilisation
is improved. Capacity to store materials such as Grain Marketing Board and National food
silos facilitate capacity utilisation as strategic inventory is kept in store to meet any flexible
demand.

Shortage of forex in Zimbabwe has affected manufacturing firms to increase production

capacity. Forex is costly and scarce in Zimbabwe to import essential raw materials. Some
companies are now rationing working hours thereby reducing capacity utilisation. It is
essential for manufacturing firms such as the bakery industry to do collaboration with farmers
on contract farming of wheat. Bakeries can also do vertical integration strategies such as
Innscor Bakers inn and National foods which supplies the flour under one parent company to
improve capacity utilisation.

Technology Process capability strategy

Technology innovation is a key driver for improved capacities (Kehinde et al., 2013).
Investment in technology is key or vital in all organizations in different industries particularly
the manufacturing industry since this can assist in reducing production costs as well as
improving capacity utilization (Mutopa & Ndlovu, 2013). Process capability improves
capacity utilisation through automation, quality control and monitoring, and standardisation
of methods and procedures to enable evaluation of tasks and measurement systems. ISO
standardisation has helped a lot of companies to improve capacities in production. Capacity
utilisation in Zimbabwe, is caused by obsolete machinery still in operations bought during
UDI and consistent breakdowns of machinery. For example, non-value-added steps and
procedures should be reduced on cost such as preferring process manufacturing than batch
manufacturing.

New product development

Organizations can improve their capacity utilization through new product development. The
introduction of new products as a strategy, allows firms to take up excess spaces that are left
by declining products or the void that is left by seasonal fluctuations in demand allowing
them to utilize their capacity. Coker and Hello, (2016) state that Product development refers
to actions such as new product introductions, adjusting modular variations in functionality, or
re-aiming the price-point for products to cover more customers. A new product can be an
original product, an improvement of an existing product, a modification of a product, or a
new brand that the firm develops through innovations and its own research and development
effort. All this will be in an effort to stimulate demand by virtue of the consumer perceiving
the product as different from any existing product. Therefore, new product development can
be used as a strategy to improve capacity utilization. Product diversification improves
capacity utilisation of resources as more products can be produced using same resources.
(Porter, 1990) It is essential to increase production, reduce costs, reduce prices and improve
capacity utilisation.
References
Mapetere, D (2018) Improving capacity utilization of furniture manufacturing SMEs through
market-based view: a case of Gweru, Zimbabwe, International Journal of Economics,
Commerce and Management, 6(10)

Mutopa, C. T., & Ndlovu, G. (2013). Improving capacity utilization in the Zimbabwean
textile industry: A review of strategies that can be adopted. Prime Journal of Business
Administration and Management, 3(1), 858-866

Nyamwanza, T, Mavhiki, S, Nyamwanza, L and Chagwesha, M, (2015). Capacity utilization

strategies in the milk processing industry in Zimbabwe, Journal of Management

Ali K. J. (1978). Labour Productivity in Iraq economy, Unpublished Master’s thesis,

University of Manchester Institute of Science and Technology, UK.
Porter, M.E. (1990) The Competitive advantage of Nations. New York Free Press
Stevenson William J., “Productions and Operations Management”, Boston, MA: Irwin
McGraw=Hill, 1999.
Sumanth David J. (1990). Productivity engineering and Management. Delhi India: Tata
McGraw-Hill Edition.