How to Increase or Reduce Capacity to Save Costs

In the last article I wrote about Capacity utilisation, I went on about the advantages and disadvantages of having spare capacity. By now you should have decided which one you would rather have and this should have lead you to thinking about how it can actually be achieved. This is where this post comes in. Today I would like to present ways of reducing your capacity so that you can save some money and also increasing capacity so that you can keep up with demand.

3 Ways to Reduce Capacity

Lay of staff or make them work shorter hours – This will save money by reducing costs. However, it could lead to lower motivated workers, who have been kept and this could lead to lower productivity. As well as this, if a sudden increase in demand happens, then it may be hard to keep up with it and take on the work. This could cause a loss in revenue, which if you are in the situation of cutting costs, could be a massive blow.

Sell of capacity – Selling off a part of the company will help to raise cash in the short-term, as well as this it will save money on fixed costs. However, in the long-term if demand increase, you may not be able to cope and this could lead to what we discussed above with the loss in revenue.

Transfer some of the business – If there is a high demand at another section of the business, then it is possible to transfer people there. For example, if a new shop opens, you could send the staff from the smaller one to the bigger one, as this would make sure staff and equipment are being used and not wasting away.

3 Ways to Increase Capacity

Build or buy new capacity – If you need more space, purchasing it can be the easiest and quickest way of getting it. However, if the demand increase is only temporary, this could be a long-term financial disaster, as fixed costs will rise.

Hire new staff or make current ones work more – Asking employees to work overtime can help meet a sudden increase in demand. Hiring new staff can also do this, but as above, if the demand increase is only temporary then overtime would probably be the bets option, so that the costs only go up for that short period.

Subcontracting – Asking another business to take some work away from you is a great idea for short-term demand increases. However, it means that your product/service quality is out of your control and this in turn could affect your brand image, so if you do chose to do this, and then be careful.

Hopefully this will give you a few tips on what to do when you need to meet demand, or when you haven’t got much demand and want to reduce your costs.