EMR has calculated that it operated at an average of 70% capacity throughout the 2009/10 ski season. Discuss the advantages and disadvantages to EMR of this level of capacity utilisation. (18 marks)
Acting at 70% capacity utilisation is regarded as the best way for a business to work at, as EMR are still making use of its equipment, whilst at the same time, not having any problems that come with 100% utilisation, with regard to reduced customer service and productivity. However, in EMR’s case, they are acting at an average of 70% meaning that the capacity utilisation varies with demand which, being a restaurant, is what you would expect due to its peak times being lunch and dinner. To work out their capacity utilisation, EMR will have had to use the equation (capacity used x 100/maximum capacity), with their capacity used being the number of seats in the restaurant used and the maximum capacity being the amount of seats available to dine at. At an average of 70% utilisation, the employees of EMR will be able to have rest time during the off-peak periods, allowing them to become more motivated when they have to work again. This will mean that it is likely that EMR will be able to benefit from more sales, when the demand is high, due to the employees being more efficient at their job. Also, during these off-peak periods, EMR may look at training their employees to improve their efficiency and sales once more. However, during the off-peak periods, EMR will be adding extra costs to their cash flow due to paying the employees for completing no work. This is regarded as an unnecessary cost, which could lead to EMR’s profits decreasing. Their costs will also be greater if they decide to train all their employees on a regular basis as training is costly. Realistically speaking, by training their employees, EMR should be able to receive long term benefits as they will be able to become more efficient at serving customers at peak times. This is because at peak times,...
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