Operational decisions — common mistakes

When analysing capacity utilisation, always consider the context. A luxury car manufacturer might deliberately operate at lower capacity to maintain quality and exclusivity, whereas a budget airline needs very high utilisation to be profitable. Use this context to justify your evaluation.

No, this is a common misconception. While high utilisation is often desirable for spreading fixed costs, operating at 100% capacity leaves no room for error, unexpected new orders, or essential maintenance. It can lead to employee burnout, a decline in quality control, and an inability to respond flexibly to market opportunities. Most businesses aim for an optimal level, typically around 85-95%, which balances efficiency with flexibility.

Not necessarily. While cost reduction is a major driver for outsourcing, it is not guaranteed. Hidden costs can arise, such as managing the supplier relationship (contract management), monitoring quality, and rectifying errors. Furthermore, if the chosen supplier is inefficient or increases their prices, the expected savings may not materialise. The decision should also weigh qualitative factors like loss of control and potential damage to the brand's reputation if the supplier underperforms.

This is an oversimplification. JIT aims to minimise inventory to the lowest possible level, not necessarily eliminate it entirely. The goal is for materials to arrive 'just in time' for them to be used in production, and for finished goods to be produced 'just in time' to be dispatched to customers. There may still be very small amounts of buffer stock or work-in-progress within the system. The core principle is the relentless pursuit of waste reduction, which includes the waste of holding excessive inventory.