Capacity – Page 4 – The OM Blog by Heizer, Render, & Munson

OM in the News: Heinz Goes on a Diet

Heinz's Pocatello factory scheduled for closure — Heinz’s Pocatello factory scheduled for closure

For years, H.J. Heinz Co. managers considered their frozen-food plant in Pocatello, Idaho, the heart of potato country, a model factory, ranking it the best in the U.S. in 2009 and 2011 for safety, cleanliness and efficiency. But in November, 2013, Heinz said it would close the Idaho plant this year. It may have been a model factory, writes The Wall Street Journal (Feb.11, 2014), but it also was an example of the kind of dubious logistics that were costing Heinz money. Frozen enchiladas, for instance, were trucked nearly 1,000 miles from a factory in San Diego, packaged with rice and sauce by workers in Pocatello then shipped across the country to distribution centers on the East Coast.

The market for packaged frozen foods had been hit hard by a broad consumer shift to fresher foods. And Heinz had too much production capacity in that sector. It had built a new frozen-food factory in South Carolina in 2009. Moreover, Pocatello was situated far from Heinz’s other factories and from its main markets. Roughly 70% of all ingredients used in the factory are shipped in from east of the Mississippi, well over 1,000 miles away. Others came from Denver, nearly 600 miles to the south.

A similar announcement at another plant last November proved tumultuous. Managers at a century-old Heinz ketchup factory in Leamington, Ontario, told several hundred employees that their plant also was to be closed. Some started cursing, crying and knocking over chairs, and others stormed out. The company will consolidate its frozen-meal operations at its factory in Ohio, which, according to its spokesperson, is “the most central location to customers, distributors and the supplies we need.” He added that the decision to close the Idaho plant “is based primarily on factory location in relation to our customer/consumer base and the need to improve transportation efficiencies and the fact we have we have excess frozen manufacturing capacity.”

Classroom discussion questions:

1. Why is Heinz closing the two factories?

2. Which of the factors that affect location decisions (see Chapter 8) influenced Heinz?

OM in the News: Auto Makers Dare to Boost Capacity

Nissan's new Mexican plant will produce 1 million cars — Nissan’s new Mexican plant will produce 1 million cars

The auto industry’s recent fat profits from rising demand for new cars in North America is about to confront the law of supply and demand: A string of new factories in the region will start cranking out more than a million cars over the next few years. A large increase in production capacity poses a serious risk for auto makers, writes The Wall Street Journal (Jan.15, 2014). They reap strong profits if their factories are running near 100% of capacity, but their losses mount rapidly if the utilization rate falls below 80%.

VW said it would build a new North American plant as part of a near term plan to invest $7 billion in the region. That will be in addition to a factory already under construction in Mexico and its 2-year-old plant in Chattanooga, TN, which now operates at only 50% of capacity. Honda, Mazda, and Nissan are opening new plants in Mexico, while Ford, Toyota, and GM are all expanding capacity at their existing plants in the U.S. and Canada.

Some CEOs, like Fiat/Chrysler’s Sergio Marchionne, are already concerned about overcapacity. “The last thing we need is to get bricks-and-mortar capacity increased. Building new plants isn’t the only trend to watch, because increasing the use of automated production lines can boost output at existing factories,” he states. Marchionne knows the trouble that idle factories can cause. Excess production capacity and the use of heavy price discounting were two of the problems that contributed to Chrysler’s slide into bankruptcy in 2009. In Europe, where auto sales have fallen amid the continent’s prolonged economic slump, Fiat, Peugeot, and GM all have underused plants and are struggling to stem losses.

Classroom discussion questions:

1. Figure S7.6, in Supp. 7 (Capacity and Constraint Management), illustrates 4 approaches to expansion. Which approach are these firms taking?

2. What are the main considerations in capacity decisions?

OM in the News: The Capacity Dilemma at Apple Stores

Apple's store on London's Regent Street — Apple’s store on London’s Regent Street

“It’s only a 2-hour wait,” writes The Guardian (Oct.18, 2013). “An ordinary Thursday afternoon at Apple’s flagship London store and a long line of customers snakes across the first floor.” The technology brand is used to queues for the launch of its latest must-have product, but these people have come carrying faulty iPhones and malfunctioning laptops, desperate for help from one of Apple’s increasingly hard to reach “Genius” experts.

When it opened in Virginia in 2001, the first Apple store was hailed as a retail revolution, allowing shoppers to play with expensive technology without any sales pressure. The emphasis on service, with blue shirted Geniuses on hand to answer queries and fix broken products, has become almost as important to the Apple brand as the aesthetic appeal of its products. But the whole experience is under pressure as a relatively small number of shops struggle to cope with rapidly growing customer numbers. Apple stores–there are only 415 worldwide–have a turnover of $19 billion and the highest sales per square foot of any retail chain.

The Regent Street outlet, for example, employs 120 Geniuses. Each sees up to 30 customers a day but it is impossible to book an appointment less than a week in advance. If the problem is urgent you can turn up and queue, but it could be a very long wait. The problem is not limited to London. In Apple’s Paris flagship store, there were no appointments available for 10 days. There are even reports of scalpers selling Genius Bar reservations in China. Some argue that Apple needs to take itself further upmarket, so it can serve fewer customers more effectively. Or, to cope with growing demand, should Apple open more shops and come up with clever ways of tackling overcrowding?

Classroom discussion questions:

1. What OM options does Apple have to deal with the capacity constraints?

2. To what extent should Apple handle walk-ins?

OM in the News: Trying to Shutter a French Auto Plant

peugeot plant At Peugeot’s soon-to-close car factory just north of Paris, writes Barron’s Business (Sept.9, 2013), management is grappling with an ambitious year-end production quota: finding jobs for the factory’s nearly 3,000 workers. This was the promise Peugeot made to win government and union approval for closing the largest French auto plant in 2 decades. The job placement effort, costing $749 million, underscores how expensive and time consuming it is to close even a single factory in Western Europe, when it is politically feasible at all.

Peugeot joins companies, including GM and Ford, that have begun the process of closing plants in Western Europe, where a glut of excess production capacity has made many factories unprofitable. But even though more shutdowns are necessary to adapt to depressed European sales, tough experiences for all 3 car makers may give others pause.

“It can cost a billion euros ($1.31 billion) or more to close a vehicle-assembly plant in Western Europe,” said one expert, who said companies have put off closing plants because of the cost. “That’s not an environment that encourages investment.” (U.S. factory shutdowns were quicker and cheaper to pull off. In the U.S., auto makers culled 24 factories during the 2008 economic meltdown.)

Peugeot has been through a year long wringer, with political obstacles followed by union protests that at times turned violent. In the end, the company agreed to give its workers a package of retraining, job placement and severance benefits that are generous even by French standards. As an example, a dozen auto workers were taking shifts driving a bus in a parking lot to train for future jobs Peugeot has lined up for them at Paris’s transit agency. Peugeot is paying for the $13,000-a-person training. “It is the least they can do,” said one worker.

“The alternative to shutting down capacity is being more flexible with capacity,” said Peugeot’s HR chief.

Discussion questions:

1. Why do European governments prevent plant shut downs?

2. What capacity options exist for an auto plant (see Supplement 7)?

OM in the News: US Auto Makers Shift to Full Capacity

Supplement 7 discusses a variety of tactics for matching capacity to demand. This Wall Street Journal (Aug. 17-18, 2013) article describing how more U.S. auto plants are cranking out cars around the clock provides a perfect example of these to use in class. After years of layoffs, plant closures and bankruptcies, U.S. auto makers are pushing factories to the limits. At GM, Ford, and Chrysler, more flexible union agreements now allow the companies to build cars for 120 hours a week or more while paying less in overtime pay.

Nearly 40% of car factories in North America now operate on work schedules that push production well past 80 hours a week, compared with 11% in 2008. “There has never been a time in the U.S. industry that we’ve had this high a level of capacity utilization,” says one industry expert. In 2005, the industry had 925,700 employees. In 2012, the workforce stood at 647,600.

Changes in union labor contracts have been critical to running auto factories harder. The Detroit Three now can schedule work at night and on weekends without paying as much in overtime as they would have in the past. Adding a third shift, as many plants have done, also reduces overtime. Overtime pay also starts after 40 hours a week, not after 8 hours a day as in the past. And a newly hired Detroit factory worker now earns about $15/hour versus $28/hour for veteran workers.

In Toledo, Chrysler is building all the hot-selling Jeep Wranglers it can. The plant has been running nearly round the clock, churning out about 800 Jeeps a day and using overtime to staff production lines 20 hours a day, 6 days a week for the past 2 years. Temporary workers fill in when regular employees aren’t available. Ford has gone a step further, adding a 4th crew of workers at some plants to keep those factories running 152 hours out of the 168 hours in a week.

Discussion questions:

1. How are automakers increasing capacity with fewer workers?

2. Why is capacity adjustment such an important OM issue?

OM in the News: Cutting Auto Overcapacity in Europe Isn’t Easy

With auto makers’ collective losses of $6.5 billion in Europe last year, companies are fighting tough union regulations to cut capacity, reports Businessweek (March 11-17, 2013). But Europe’s long history of worker protections means carmakers can’t simply fire employees or close plants when business sours. Workers in France, for example, must be extensively consulted beforehand. The process can take years and often results in political pressure to delay any job curbs—as has been the case with Peugeot’s proposed reductions. German labor law grants union representatives half the seats on companies’ supervisory boards—giving them considerable power to slow job cuts. Even when an automaker stops production at a plant in Europe, shutting it can take years because of worker protection laws. Fiat, which closed its factory in Sicily in 2011, still has some 850 people on temporary layoff arrangements on its payroll.

Peugeot is struggling to push through plans to eliminate about 20% of its workers in France. Ford aims to shutter two factories. Peugeot is fighting unions in court in Paris to shut a factory and cut 11,200 jobs. Labor is also fighting GM’s plans to close a German plant. Even if automakers succeed with the 5 factory shutdowns they’ve announced, their efforts may fall short of what’s needed. With sales and capacity utilization continuing to drop, they need to close 10 factories to restore profitability. Currently, 20 European automakers are running at less than 50% of capacity.

That’s in stark contrast to what happened in the U.S. after the government rescued GM and Chrysler in 2008 with an $80 billion bailout. The American industry’s recovery was made possible by job cuts, plant closings, and a UAW union agreement to half wages for new workers and eliminate traditional pensions and retiree health care. Today the 3 American automakers run 28 assembly plants in the U.S., vs. 36 in 2007. Employment at all U.S. auto factories fell to 524,200 in 2009 from a peak of 1.16 million in 2000, but by 2013, it had recovered to 662,300.

Discussion questions:

1. Why are automakers losing money in Europe?

2. What options do operations managers have when facing overcapacity at their plants?

OM in the News: How to Keep Planes Flying 24 Hours a Day

Airplanes don’t make money sitting on the ground, so airlines do everything they can to keep planes in the air on as many as flights as they can, writes Conde Nast Traveler (March 4, 2013). If they can cut the turnaround time between flights throughout the day, they can probably add an extra flight at the end of that day. But into the late-night hours, things change. Overnight flights are routine for long-haul distances. But not many people want to fly at night for domestic or regional travel. Airlines also use overnight hours to perform maintenance, but not all planes that sit overnight need work. So airlines have been getting creative in order to increase their aircraft utilization. Here’s what some are trying:

Going Cheap Spirit is known for extremely cheap fares. But to keep those fares low, it has to run its airplanes more frequently. That has resulted in some brutal red-eyes, including the Phoenix to Dallas flight leaves at 1:55 a.m. and arrives at 5:05 a.m. If people want cheap flights, they’ll put up with the pain.

Following the Family JetBlue is known for great service, but is also earning a reputation among Caribbean families who travel back and forth between their homes in the northeast U.S. and their relatives in the islands. It is increasing its service this summer to include 16 daily flights from NY to the Dominican Republic– effectively a 24-hour operation, with flights arriving at 12:50 a.m., 2:15 a.m., and 3:30 a.m., with similarly painful departure times. Seeing family means flying whenever you can get an affordable fare.

Venturing North Demand to Alaska explodes during the summer, and fares are high. So Jet Blue and Virgin America are adding flights there and still making good money. What’s more, people generally expect to fly at night in this market. You can leave the Continental U.S. when the sun is shining, see the sun set, and then see it un-set as you reach Alaska and its 24-hour daylight.

Discussion questions:

1. Why is capacity such an important OM issue for airlines?

2. What other strategies can the industry use to increase utilization of aircraft?

OM in the News: Where To Park All The Boeing 787s?

Grounded 787s parked nose-to-tail in Seattle

The New York Times (Feb. 20, 2013) article titled “New Dreamliner Headache: Parking Space”, makes for a great classroom discussion about a wide variety of operations issues: capacity, supply chains, production scheduling, strategy, quality. With the FAAs grounding of the 787 fleet in its 6th week, Boeing faces a problem of where to store the airplanes that continue to roll off the assembly lines at its giant Seattle and Charleston factories. Reluctant to shut down its production lines, Boeing is producing 787s at a rate of more than one a week. At the time the fleet was grounded, 50 Dreamliners were in service. Since the 787 needs special F.A.A. permission to fly, Boeing is trying to make room for the Dreamliners by clearing out all the other models awaiting delivery. A consensus suggests, though, that it will be many months before the plane will fly again.

One reporter counted 15 Dreamliners in Seattle and noted that all the spaces on the flight line were taken. Some of those planes are positioned on a runway previously used for general aviation. Last week, a pilot calling Paine Field was reminded to heed the runway closure notice because “all the 787s are piled up there, they just keep stacking them up.”

Still, production of the 787 is continuing at the same pace at both plants. Stopping or even slowing the assembly lines would be very difficult and costly because the aircraft’s attenuated supply chain draws on parts manufactured all over the world. The engines are built in the U.K., the fuselage in Italy, and various parts of the wing are constructed in Korea, Australia and Japan. “You cannot stop factories all over the world from production,” says an MIT prof. “But everything in the end has capacity. The next step is to keep the suppliers manufacturing but not send the parts, but how many wings can Mitsubishi keep in its factory?”

Discussion questions:

1. Why is the 787 grounded?

2. What are Boeing’s options if the plane is not certified to fly for 2 more months?

OM in the News: How Delta Manages Airline Capacity

The Wall Street Journal’s (Oct.25, 2012) two articles describing how Delta Air Lines is effectively addressing capacity issues are useful classroom tools as you cover Capacity Planning in Supplement 7. In the first, Delta describes its plan to cut $1 billion from its costs through a revamp of its domestic fleet, maintenance savings and productivity initiatives–with no layoffs. Delta has been one of the most aggressive in the U.S. industry at cutting capacity to retain pricing power. In the 3rd quarter, it offered 1.5% less capacity than a year earlier, and it expects its capacity to fall by 1% -3% in this quarter.

Delta is also the first U.S. carrier to buy its own jet fuel refinery to reduce the volatility of its largest expense. And as part of its realignment, Delta will begin taking delivery of used Boeing 717s next year, along with new Boeing 737-900s. It will reduce the number of unprofitable 50-seat regional jets.

The second article describes how Delta uses sports charters to help keep planes occupied in the winter, when regular passenger travel slows. The planes fly regular service in the busy summer months, then convert to charter planes. This year, Delta has been flying 21 of the 30 NBA teams, 15 of the 30 Major League Baseball teams and 15 of the 32 NFL teams. The airline also carries 2 NHL teams, 35 college football teams and 40 college basketball teams. “We wanted planes for only four months a year. It was a perfect fit,” says Delta. Delta takes 8 of its Airbus A319 jets out of regular passenger service in October and installs special interiors. Instead of 126 seats, there are only 54. The plane is segregated into three cabins—the front for players, with seats that fold out into beds, seats in the middle for coaches, and the rest in the rear for team staff, security and reporters.

Discussion questions:

1. Why is capacity a critical OM decision for airlines?

2. What are the dangers of vertically integrating, such as buying a refinery?

OM in the News: Overcapacity Hits the European Auto Makers

About 3 years behind the crash of the US auto industry, Europe is now facing the same dramatic issue of too much manufacturing capacity, our topic in Supplement 7. Europe’s auto industry has suffered declining passenger-car sales in each year since 2008, and is on track to absorb an at least 7% drop this year. All told, auto makers there are selling about 20% fewer cars than they were in 2007, leaving many with mounting losses and far more plants, workers and production equipment than they can keep busy. “Europe is a mess,” says a leading industry consultant in yesterday’s Wall Street Journal (June 22, 2012)

european auto manufacture capacity — please click on the graphic to enlarge

Powerful labor unions and most European governments have been fighting efforts to close plants because of the jobs that are lost. As a result, auto makers keep their factories open but cut their hours and assembly-line speeds to reduce production. About 30 of the 98 European auto-assembly plants are operating below 70% of their capacity, levels that typically cause plants to run up significant losses.

Hyundai, an exception, is gaining share because of its low-cost production in the Czech Republic. Manufacturing labor costs in the Czech Republic, at an average €9.90 ($12.50) an hour, are below Italy’s €26.10, €35.60 in France and €34.30 in Germany. Hyundai’s CEO for Europe says some of his regional rivals are struggling because they either lack the scale or “make cars in countries with expensive and inflexible labor conditions.” Renault, Peugeot and Fiat each have a glut of factory capacity. When the Wall Street financial crisis hit in 2008, the two French auto makers took government aid packages that required them to keep plants in France open. Now they have some of the least used plants in Europe, at a difficult time. Renault’s small-car plant in Valladolid, Spain, is operating at just 38% of its capacity.

Discussion questions:

1. At what capacity should an auto plant operate? What are typical US rates?

2. Why is capacity such an important OM topic?

OM in the News: How Airlines Match Capacity to Demand

When we think of capacity issues at airlines, it is often in the context of buying enough planes to meet forecast demand. But the Wall Street Journal (Feb.29, 2012) makes the important point that “many fewer people fly in the winter than during school breaks, major holidays and summer vacations.” In fact, US airlines filled just 77% of their seats last January, compared to 87% in July. Basically, for decades, airlines have earned a lot of money in summer and then lost it in winter when they had too many planes, gates, and employees.

What OM strategies can airlines use to break the cycle? Here are 4 ideas: (1) Schedule more airplanes for maintenance and renovations during winter months; (2) Offer workers voluntary leaves; (3) Fly the planes fewer hours; and (4) Trim the number of daily flights to many destinations.

With fuel prices hitting record highs ( fuel is more than 1/3 of operating expenses), “it becomes more and more important not to fly that airplane if there’s no demand,” says Alaska Air’s VP-Revenue Management. Delta has made a goal of providing 20-25% less capacity in winter than in summer–a big oscillation by industry standards. But seasonal downsizing is tricky. Airlines can’t afford to park their planes in low season, and union contracts don’t allow them to impose staff cuts.

Alaska Air smoothed out it schedule recently when it added flights to Hawaii from its Seattle hub in winter. Delta loads up on sports charter flights and adds more flights to the Caribbean, Mexico, and Australia in the slow season. US Airways offers red-eye flights from its Phoenix hub in summer, squeezing more hours a day out of its planes, then discontinues the flights in winter. Ryanair, Europe’s big discount carrier, simply parks 80 of its 280 planes from November to March. It still bears the ownership costs, but doesn’t have to fuel up.

Discussion questions:

1. Discuss each of these capacity strategies. Which is best?

2. What other cost-saving ideas can students suggest to deal with seasonality?

OM in the News: What Happens When Disney, Universal, and Legoland Reach Capacity

While the rest of the country is enjoying the brief holiday respite, here in Orlando–with temperatures in the 70’s– the theme parks are jammed. So much so that most reached capacity this week as crowds crushed into the parks. The Orlando Sentinel (Dec.29, 2011) reported that Legoland Florida (our newest park), Universal Studios, and 3 of Disney’s 4 theme parks (Magic Kingdom, Hollywood Studios, and Animal Kingdom) all reached capacity this week and had to temporarily shut their gates. Traffic was so heavy that drivers were warned it would take an extra 45-60 min. just to exit Interstate I-4.

How do the companies handle the surge–and losses from turning away customers willing to pay the $85 a day admission fees? Legoland simply closed its parking lot at 12:30 pm. It also extended its operating hours by 1.5 hours to 8:30pm. Universal similarly hit capacity at 12:30 pm and stopped admitting guests. But it set up a queue for customers to wait outside the park and allowed them to enter as early arrivals fizzled out and went back to their hotels. Universal also delayed closing, from 11 pm till midnight.

Disney’s tactic was different. It limited access to guests staying at hotels that it owns, to people with high-priced tickets (like park-hoppers or annual passes), and to those who had made dining reservations inside one of the parks. At 2:30 pm, Disney then resumed normal admission.

This can provide an interesting example of how different companies deal with capacity when you teach Supp.7. The theme parks also bring in extra workers, open more food and drink stations, add more parades and street entertainment–anything to keep the visitors happy once they enter.

Discussion questions:

1. How does this differ from issues other service firms (like hospitals, restaurants, etc.) face when they are at capacity?

2. How does Disney’s policy differ from its competitors?

Good OM Reading: RX for the Emergency Room

If you want to read an excellent article about issues of quality, capacity, and bottlenecks in hospitals, see OR/MS Today (Oct., 2011), for “RX for the ER”. The authors (one of whom is head of the ER at New Orleans’ Ochsner Hospital), write: “As an industry, hospitals exhibit technologic excellence in terms of diagnostic and therapeutic innovations. However, service delivery has been absent. The economic incentives to develop and sustain service delivery models that are viewed by the patient as efficient, useful, and valuable have been to a large degree nonexistent in a hospital environment”.

But things may be changing. Patients are demanding relevant information, more choice and better services. As a result, healthcare in the US is beginning to embrace the OM techniques that have made other sectors of American industry competitive. ERs are the perfect place to begin. And Ocshner Hospital had no choice but to reengineer its ER after Hurricane Katrina wiped out 70% of New Orleans’ healthcare services in 2005. ER volumes ramped up overnight to 180% of pre-hurricane averages and wait times tripled. Annual revenue loss, estimated to be $500,000 for every 1% of patients who leave prior to examination, is one factor in hospitals wishing to invest in a more efficient system.

Some of the highlights of the article: (1) ER arrivals tend to follow a known demand curve at different hours (contrary to what many administrators think), making staffing much more efficient; (2) the ER bed is the major resource in the department and it runs at more than 100% capacity a large part of the day– but 75% of patients do not need a bed and are discharged that day; (3) low risk patients do not need the services of a highly trained ER physician, and physician assistants can provide good care at 25% of the cost; and (4) registration and triage time can be reduced by 80% with lean workflow models.

This article is full of excellent graphics (10 of them) that you can use in class to make points about lean, waiting line costs and distributions, workflow, and metrics.

OM in the News: Adding Capacity at Lufthansa Airlines

Every airline needs to manage capacity constraints (Supp.7) and there are a variety of ways to do so. Southwest, for example, squeezes seven flight segments out of its average plane schedule per day–one more than most competitors. Quick ground turnaround has long been its strength. Delta, with excess seats since its recent merger, has cut flights to keep existing planes full. And now The Wall Street Journal (Oct.6,2011) describes how the German carrier Lufthansa has come up with a financially attractive option of adding 5-10 more seats –and fare paying passengers– per flight. How did it squeeze 8% more seats into planes without creating a rebellion among already sardined passengers?

It did so by squashing rows of new seats 2 inches closer together. But with a new generation of ultra-thin seats, passengers find even more leg room available. Using a strong mesh, similar to that in fancy office chairs (instead of inches of foam padding), and moving magazine pockets to the top of seat backs, there is actually more space for knees than with the old chairs. The new seats look ultra-skimpy–worse than almost anything flying in the US or Europe–with a seat pitch of 30 inches. The thinner seats, though, mean the pitch is better than the traditional 32 inches. (AirTran has 30 inches, while Delta, Continental, US Air, and American have a 31 inch pitch. Jet Blue has a 34 inch pitch.)

The new configuration saves Lufthansa hundreds of millions of dollars in new-jet purchases. On the A320, for example, the carrier added two rows of seats, giving the plane 174 seats, instead of 162. For its European fleet, this is the equivalent of having 12 more Airbus A320 jets.

The Journal article also has a 5 minute video clip on the strategy embedded in it.

Discussion questions:

1. Why don’t US and other carriers follow suit immediately?

2. What was the role of operations management in this change?

OM in the News: Capacity Slack is Tightening in US Firms

The Wall Street Journal (May 18,2011) just reported that US companies are putting the production capacity they idled during the recession back to work. Some, like DuPont and GM, have reached the point where they need to invest in new plants and equipment and hire new workers. But The Journal warns that the rising use of capacity can make it easier for companies to raise prices (creating inflation) and can lead to production bottlenecks.

The newest reading shows capacity utilization at around 77%, still well below the 81% reached before the recession hit. But it is up from a low of 67% in June ,2009. During the recession, companies held off replacing old equipment, dismantled some plants–and some, of course, went out of business. The result was a 3% drop in US industrial capacity, only the 2nd time a net reduction has been seen since 1948.

The rise in capacity utilization may prompt companies to expand capacity by investing in new equipment, hiring, and adding new shifts, as GM is doing.

Discussion questions:

1.Why is capacity utilization an important factor in business?

2. Which industries are recovering faster than others?