What Is Operational Efficiency In Business?
At the heart of every business is a core operation that delivers the company’s products and services. In most businesses, operations account for a significant proportion of the company’s overall costs including expenses like buildings, materials, machinery, vehicles, IT and staff. It is therefore essential to optimise your operational efficiency to keep costs to a minimum and generate greater profit. This can be achieved by improving:
labour skills
co-ordination and communication between individuals, teams and departments
planning & scheduling
process design
automation
use of IT
How Do Efficient Operations Add Value?
It’s important not to make the mistake of simply thinking of your business operations as a cost when in fact they are a centre for generating sales and profits. Once optimised your business operations add significant value by putting you one step ahead of your competitors. Efficient operations allow you to provide a superior service meaning that customers are more likely select your business which will increase your sales and create a loyal client base. With a better service you will also be able to charge a premium which will improve your profitability.
Why You Should Focus On Operational Efficiency:
1. It Unlocks Success.
Businesses that streamline their processes and achieve cost savings are more likely to succeed, so a continued focus on improving operational efficiency can help you to compete in your market more effectively. All businesses should target efficiency improvements. In a tough economic climate, operational efficiency will reduce waste and save precious cash. But is it also important during periods of growth; efficiency is often neglected when a company expands, leading to wasteful processes that drain productivity. Poor efficiency leads to your products or services being lower quality, slower to produce and more expensive.
2. It Reduces Waste.
According to research, inefficiency in business costs companies between 20 to 30 per cent of their annual revenue. By improving your operational efficiency you can significantly reduce waste on non-value-added processes that consume time and money but fail to make your business more competitive. Consequently, your employees will work on tasks that contribute to the growth of your business rather than time-consuming, repetitive processes meaning you can produce more with less resources. You will also reduce material waste because you’ll plan your purchasing more efficiently and your processes will produce less scrap.
3. It Reduces Errors And Misunderstandings.
Inefficient operations lead to costly errors. Mistakes can occur in both the production and delivery of your product or service, but they can also feature in the administration that surrounds the operation. Common problems caused by operational inefficiency include:
poor planning and scheduling of work;
bad purchasing decisions resulting in too much or too little stock;
misunderstandings and miscommunication both internally and with customers & suppliers;
failure to process orders or raise invoices;
slow response times to sales enquiries;
non-conforming or poor quality products and services.
Errors such as these hit your bottom line and can cause the breakdown of customer relationships. Monitor error rates and identify & implement corrective actions. By placing a greater emphasis on preventing mistakes, the less likely they are to occur.
Continuous Improvement
Improving operational efficiency is a continuous cycle. Delegate responsibility for improving operational efficiency to your management team. This will empower them and free up your time to focus on strategic matters. Put in place a dashboard of Key Performance Indicators (KPIs) that reveal how efficiently your operations are performing. Regularly discuss operational performance with your top team and set them actions to continually improve.
How Secantor Can Help Improve Your Business Efficiency
At Secantor, our outsourced operations directors offer unrivalled expertise in implementing efficiency improvements, thereby reducing needless waste, improving accuracy, and making your organisation more competitive. You can read one of our recent case studies here. If you’d like to find out more, please book a meeting with us.
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