Capacity Management - this is how a business uses its resources. Examples of the resources are factory space, raw materials, machinery and IT resources.

Reasons full capacity will be achieved:

• Increase in the demand for the products produced
• Produce different additional products with the same resources
• Reduce capacity

Reasons full capacity might not be achieved:

• The level of competition in the market, the more competitive the less likely it will be achieved
• The stage of the product life cycle, if demand is declining full capacity is unlikely
• If the product is seasonal
• Outsourcing
• Reduction in demand
• Increased capacity

Benefits of operating at full capacity:

• Less wastage of resources
• As capacity utilization increases, the average unit cost will fall
• The fixed costs are spread out over more goods
• Profits increase
• More competitive due to reduced costs
• Stakeholders will view the business in a more positive way

Disadvantages:

• There is little to no opportunity for maintenance which could result in downtime when something breaks
• Any additional orders will be impossible to meet
• Puts pressure on employees which could lead to stress
• There is a possibility that the level of quality suffers