Businesses that seek to improve operational efficiency recognize its direct effect on revenue, profits, and satisfaction levels.
According to the Annual Global CEO study, 77% of 1,300 global CEOs say they focus and rely on operational efficiency to boost their revenue. When front and back-end processes, from distribution to marketing, have a smooth workflow, businesses can limit the time and resources needed to successfully run operations. This heightened efficiency improves customer and employee satisfaction while boosting the bottom line by reducing operational issues and promoting business process improvement.
However, companies seeking to improve their operational efficiency should understand what this entails as well as the recommended best practices.
What is Operational Efficiency?
Operational efficiency is the ratio of a business's input and output, which determines a system's overall performance. Operations can include front-office processes such as marketing, or supply chain systems such as inventory management.
An efficient service decreases unnecessary company expenses, such as labor and inventory costs, boosting revenue, and the bottom line. To create and maintain operational efficiency, operation managers must continuously monitor processes to determine what functions are ineffective or outdated. While productivity and efficiency are often used synonymously, they are very different. Operational efficiency refers to completing a task with fewer resources, be it time, effort, or capital. On the other hand, productivity is the ability to do more with an average amount of resources.
To improve productivity, businesses would need to focus on allocating set resources to optimize an operation's outcome. To enhance the efficiency of a process, managers would seek to reduce the resources required to execute a proficient function.
For example, to improve inventory control efficiency, warehouse managers would seek to decrease the amount of time it takes to make routine cycle counts and input stock quantities. With inventory software, warehouses can automate standard procedures, saving time and labor costs. The productivity and efficiency can then be further improved by an integration system that links the stock software with other processes, such as a point-of-sale (POS) system to perpetually track incoming and outgoing products.
10 Steps to Improve Operational Efficiency
When operations and workflow run smoothly, companies can focus on customer care and order fulfillment to guarantee they are providing the best service. Therefore, optimized operational efficiency can boost sales, satisfaction, revenue, and profit margins. Organizations actively seeking to increase efficiency can follow 10 simple steps-
1. Understand All Business Operations Although routine operation evaluations may appear to be mundane, these walkthroughs can help to quickly identify inefficient processes. In addition to scheduled check-ups, businesses should conduct frequent internal audits as well as metrics and key performance indicator (KPI) analyses to become better acquainted with their operations.
2. Train Employees on Systems If employees are not adequately trained on all relevant systems, efficiency can decrease significantly. Therefore, employees should attend regular cross-training on business processes. Other training best practices include publicly posting cheat sheets, standard operating procedures (SOPs), and methodology reports at every workstation for quick reference.
3. Prioritize Employees While it is easy to get lost in quantities and monetary values, companies should remember that strong relationships build a business. Prioritizing employees through training and incentives, increases worker retention and satisfaction. To keep labor focused on operational efficiency and productivity, companies can establish standard KPIs and recognize top performers.
4. Focus on Order Fulfillment As a company grows and receives increasing order volumes, its fulfillment operations must have the right tools to meet the changing demands. From routine maintenance to implementing advanced replenishment software, businesses should create an environment conducive for heightened productivity and efficiency.
5. Enhance Customer Service
In service-oriented businesses, the smallest failure or success can significantly impact customer service and satisfaction. By promoting back-end operations such as vendor relationship and compliance, enterprises can efficiently fulfill orders and handle customer concerns. Assuring supply chain phases are completed promptly and without discrepancies can improve customer service overall.
6. Eliminate Bottlenecks By applying reporting and analysis tools to internal operations, from marketing to customer relationship management, businesses can track bottlenecks that are lagging the overall process. For example, Pareto charts collaborate information from line and bar graphs to show the percentage makeup of a process and occurrence frequency. This sophisticated model can illustrate what functions within an operation contribute the most to successful completion and which damper the outcomes, allowing management to implement effective alterations.
7. Place a High Standard After improvements have been implemented, new standards should be placed to promote efficiency and productivity. However, companies should increase expectations incrementally to improve workflow rather than using extreme measures, which can overwhelm employees.
8. Document and Review Processes An in-person evaluation may not always provide enough insight into operations to allow management to pinpoint inefficiencies. Therefore, it is vital that detailed documents, such as reports or checklists, are used when reviewing processes to record observations and metrics. This information can be passed onto analysts who can conduct further research and suggest improvements.
9. Cross-Examine Operations with Peers Building relationships among peers and vendors allows businesses to cross-examine their operational performance against others within their industry. Through this process, companies can learn new strategies and insights that their peers have found to be impactful.
10. Assess Each System's Functionality When companies use technology such as advanced software to improve operational efficiency, they need to ensure the solution undergoes routine evaluations as well. Reviewing a service's functionality determines if it does, in fact, benefit the company or if it is just an added expense.
How Integration Optimizes Operational Efficiency
A more modern approach to increasing operational efficiency within business processes is to implement an integration solution. System integrators optimize workflow by automatically sharing operation functions and data from disparate processes. By eliminating manual consolidation methods, integration saves companies time, effort, and labor costs while reducing the risk of human error. Integration solutions also replace physical documentation, reducing paper waste, and improving communication through virtual data sharing.
Evolving from paper-intensive operations to analytical reports
For businesses to successfully improve operational efficiency, they must be willing to take a close look at the details hidden in their processes. Here, they can define the functions that lead to successes and failures, allowing management to make impactful changes to increase operational efficiency and productivity.