Capacity Utilization

What Does It Mean?

Capacity utilization refers to how much of a factory’s production capacity is currently being utilized. The KPI tracks how much of a manufacturing operation’s potential output is being met and includes everything from machinery capacity to available resource utilization.

Warehouse Optimization - Manufacturing Dashboard

Why Does it Matter?

The capacity utilization measure is vital both for measuring a company’s efficiency in terms of using its resources, and in planning for the future.

On one hand, using capacity utilization in your manufacturing analytics can pinpoint areas where your production line is being wasteful or inefficient by not maximizing the potential output. On the other side, low levels of capacity utilization can also indicate that resources may be over- or under-allocated, leading to better decision-making regarding ordering and long-term utilization strategy.

You can also use capacity utilization in diverse areas such as determining overtime, staffing needs, and even assessing maintenance costs.

How Do you Measure the KPI?

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.

What Sources Would You Use to Measure the KPI?

To track your capacity utilization rate, you need to measure data from a few different sources. The first place is capturing data related to your resource capacity—purchase reports, inventory inflows and outflows, cycle times, and output capacity. Additionally, you should also measure data related to your actual output, including gross production numbers, resource use, and total materials input against output.

Give me an Example…

Let’s imagine your factory has been underperforming recently, even though your readings indicate you should be operating at or near full capacity. There may be several underlying causes for the problem, stemming from long cycle times to poor use or allocation of raw materials and resources.

The first step towards resolving the matter involves understanding the optimal level at which your factory should be operating and measuring that result against current output levels. Determining how efficient you are will point you in the right direction. From there, you can combine this KPI with others such as cycle times and production costs to determine where waste is occurring, and how you can overcome it as expediently as possible.

What Benchmark/Indicators Should I Use?

Some useful indicators include:

  • Cycle times
  • Resource utilization
  • Productivity
  • Total output