The design of production facilities is the most important determinant of effective capacity. Design includes the size and also the provision for expansion of the facilities. Design facilities should be such that the employees should feel comfortable at their work place. Location factors such as distance from the market, supply of labour, transport costs, energy sources are also important. Layout of the work area determines how smoothly the work can be performed. Environmental factors such as lighting, ventilation, etc., influence the effectiveness with which employees can perform the assigned work.
2. Products or Services
Design of the company’s products or services exerts a significant influence on capacity utilization. When more uniform is the output, greater can be the standardization of materials and methods and greater can be the utilization of capacity. For instance, a restaurant that offers a limited menu, can prepare and serve meals at a faster rate. Product mix should also be considered because different products have different rates of output.
Quantity capacity of a process is the obvious determinant of effective capacity. But if quantity of output does not meet the quality standards, the rate of output is reduced due to the need for inspection and rework activities.
4. Human factors
Job design (tasks that comprise a job), nature of the job (variety of activities involved), training and experience required to perform the job, employee motivation, manager’s leadership style, rate of absenteeism and labour turnover are the main human factors influencing the rate of output.
5. Operational Factors
Materials management, scheduling, quality assurance, maintenance policies and equipment breakdowns are important determinants of effective capacity. Late delivery and low acceptability of materials will reduce effective capacity. Inventory problems are a major hurdle in a capacity utilization. Similarly, when the alternative equipment have different capabilities there may be scheduling problems.
6. External Factors
Product standards (minimum quality and performance standards), pollution control regulations, safety requirements and trade union attributes exercise tremendous influence on effective capacity. Generally, the external factors act as constraints in capacity utilization.