Question

Discuss the differences between utilization and efficiency as measures of system performance. Which (if any) is the most useful measure for an operations manager? Why?

Answer 1

Efficiency and utilization have a high degree of correlation among each other. If the organization is able to have efficient utilization of resources efficiency of the organization increases.

Efficiency = Actual Output/Effective capacity

Utilization = Actual Output/Design capacity

As we can see it will be both efficiency and utilization which if focused on can lead to higher organization profitability. By increasing utilization, we increase the amount of resources involved to achieve organizational goals. By increasing efficiency, we improve output from existing resources. So having higher utilization and higher efficiency can lead to higher profitability for the organization.