What is operational efficiency and why it is so vital?
Have you ever analysed where your business stand in the
pool of other business where there are huge challenges to grow?
Do you think that it is just enough being owning a business
and running it with the standard normal procedures to build a long term
business?
According to a recent research, in coming years businesses must
have a clear defined approach to maintain their business in today’s highly fast
pace changing markets.
“Every business should strive to deliver the best products
at the lowest cost with paying highest wage possible” as per Henry Ford.
So, what can the entrepreneurs do to run their business
effectively?
The answer to this is implementing operational efficiency
into your business.
Operational efficiency, why this new concern is to be
considered when the business is running normally under standard procedures?
The reason why the importance is laid on small and medium
business to operate efficiently is because they are often procured with limited
resources.
And to maintain that resources, it is essential for the
businesses to leverage operational efficiency in their every commercial
activity.
So, What is this operational efficiency all about?
In business terms, operational efficiency can be defined as
the ratio between whatever the result gained from the business to the efforts
implemented to run the business.
The effort implemented will be counted as money, manpower
and time.
While the result gained are the revenue, new prospects,
production and
innovation.
There is often a misconception that operational efficiency means achieving targets.
If a business fulfils the targets in terms of revenue and customers, then that will make it stable in terms of finance.
But the abstract of operational efficiency includes the
practice of making better of all your business activities that is every
activity of your business that march towards and has contribution in your final
product or service.
To better understand, let’s consider the example of Jack
running a multi super store and selling different varieties of products to the
customers.
Jack store has various processes like sales communication,
recruiting, purchase and a few more to list.
All of these processes help the store to achieve the target
which may be considered as product sales.
But the twist here is that even though the store is
touching their sales targets, it does not mean that store has achieved the
operational efficiency.
Let’s see the reasons why the store did not achieve
operational efficiency.
Since, Jack store did not pay attention to the control of
bad stock,that lead to decay of products resulting in loss for the company.
Another thing to highlight in jack store is that the while
purchasing products, it failed to identify the good suppliers and that resulted
in missing out the chance heavy savings with discount offers.
This illustrates that to consider for operational
efficiency, it is essential of knowing each single process or activity of your
business.
How to compare and measure operational efficiency?
To improve operational efficiency, the first step is to
measure out at which stage it is.
To measure the operational efficiency, the business should
define and track number of performance indicators on both the input and output
side.
The inputs includes indicators like Operational
expenditure, capital expenditure and manpower.
While the output includes revenue, Number of customers,
growth.
If there is a need of comparing the operational efficiency
with other businesses, it is then essential to define other performance
indicators.
There is high chance of possibility that the factors like
customer experience might be significantly different between two markets or two
demographics which results in assigning more resources and cost by the other
business.
Also, while comparing operational efficiency, it is
essential to consider the other business working flow.
By instance, for one company it is essential to have low
unit production costs with high efficiency in distribution.
While for the other company, it is essential to have good
customer experience and customer satisfaction.
What are the benefits of operational efficiency?
The advantage in investing out in operational efficiency is
that the problems are identified and thus, solution can be devised.
If your business come across certain process that is not
happening in correct way, it is better to find and design solutions for it.
And these investments must never be considered as cost,
since it will bring returns for sure in long term.
For instance, when the business invest into training of the
manpower, it is making way for employees to perform better.
Also, if the business wants to reduce the expenditure with
less effort and get the same revenue, it should focus on automation and
optimization of the working processes.
If the business wants more revenue for same efforts, it
should remove the faulty processes while devising quality management systems.
Big question – How to achieve this operational efficiency?
To achieve operational efficiency, the first step is to study
deeply about the business.
Discover each of the minute process and find out that are
not performing well.
Paying close attention to the purchase cost is important
since it requires resources and time to get best results.
Analyse each of the process that are underperforming and
make necessary changes to foster better outputs.
Finding the source of the process failures is must and
action must be taken to remove it from roots.
For such purposes, technology must be used to the fullest
as for every task tools are available that help in accurate and wider analysis
of the process.
So to put a quick action plan for operational efficiency into
the business is that to check out your business performance with other similar
businesses in the market.
This can be done by evaluating key performance indicators .
The next step is to identify and eliminate issues by
detailed analysis with help of technological tools.
Final step is monitor and manage business performance to
create a flow of continuous improvement in your business.
This was a short guide on operational efficiency and how to
implement it in your business in easy steps.
Check out this other article which might be useful to your
business.
