Operations
Capacity utilization
Actual output as a share of the most that could be produced.
Last reviewedWhat 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
- How healthcare systems work: patients, providers and payersLesson in Healthcare providers and payers
- How hospitals and insurers make money: costs, unit economics and operationsLesson in Healthcare providers and payers
- Service delivery, KPIs and public-private partnershipsLesson in Government, public sector and non-profits
- Order economics: last mile, dark stores, and returnsLesson in E-commerce, marketplaces, and quick commerce
- Operations and process improvementLesson
- Restaurant unit economics: turns, delivery, and franchisingLesson in Restaurants and food service
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.