Capacity utilization rate is a KPI used to measure the rate at which potential output levels are being met or used. It is also known as the operating rate. It is calculated by dividing the actual output by the potential output and then multiplying by 100 to get a percentage. The potential output could be the number of units the company can actually produce in a given amount of time, or it could be the number of units at which the cost per unit increases. It is best used by companies that produce physical goods, which can be easily quantified and outputs can be expressed in units.
The capacity utilization rate can be an indicator of how the company is utilizing its resources. If this rate is low or it is decreasing over a period of time and the plant is in full operations, then this indicates the plant could be lacking in efficiencies. The equipment may need to be better maintained or the processes reviewed to determine why the expected capacity levels are not being met. The capacity utilization rate could also be low due to a low demand for the product. With lower demand, fewer units need to be made even though the plant has the potential and ability to produce a greater volume.
Higher utilization rates can indicate the plant is running efficiently by meeting expectations. It could also indicate that the plant is reaching its optimum capacity. The company then needs to determine if demand for the product warrants the added cost to increase production either through upgrading equipment or expanding the business.
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Capacity utilization rate is a KPI used to measure the rate at which potential output levels are being met or used. It is also known as the operating rate. It is calculated by dividing the actual output by the potential output and then multiplying by 100 to get a percentage.
Capacity utilization rate measures the percentage of an organization's potential output that is actually being realized. The capacity utilization rate of a company or a national economy may be measured in order to provide insight into how well it is reaching its potential.
Utilization Rate KPI (or Billability) is a project key performance indicator that measures the percentage of billable hours the employees work over particular period of time. Billable hours are the number of hours within time period when the employees are working at the client's expense and bring profit to the company.
A rate of 85% is considered the optimal rate for most companies. The capacity utilization rate is used by companies that manufacture physical products and not services because it is easier to quantify goods than services.
Capacity utilization is measured by dividing the total capacity utilized over a specific period by the total production capacity or optimal levels and multiplying by 100.
While it varies by industry, most companies and economies strive for capacity utilization of 85% to 100%. Headcount or employee utilization rates should be around 85% to 90%, according to HubSpot.
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