Definition of Operational Efficiency and Main Approaches to It

Summary: Are your profits sliding? Discover ways you can increase your operational efficiency to boost revenues.

Why is operational efficiency so important? It seems like a big topic in business, and it is, for good reason. Business is all about profit-margins, and poor efficiency can begin whittling away at that revenue. Poor operational efficiency can increase your costs and prevent you from meeting your demand. Let’s look at ways to get your business on track.

Indicators

Declining profits are the biggest red flag. Being operationally inefficient can mean you are spending more on materials you don’t need, or paying a premium for the ones you do need. It can mean that the product is taking too long to manufacture, or where you are having it manufactured is problematic in some way. You could have redundancies in the manufacturing, transport or supply chain that are costing you time and money. A long hard look at your operation is a good way to identify where you can trim fat.

How to Fix Inefficiencies Step 1

Compare yourself to your competitors. This is called benchmarking. Look at how well they are doing based on key performance factors. If possible calculate their value creation, and look at the market share they hold. How are they meeting demands? Are their consumers happy? How do you stack up against them?

Step 2

Identify problems. As stated earlier, you are going to have to go through your business and production with a fine-tooth comb to figure out where you are losing money and how. Get involved on the ground floor of your business. Show-up and let people see that you are interested in the daily grind of the business. Surprise visits, or a regular occurrence can help curtail slack.

Step 3

Devise a plan for monitoring and maintaining your adjusted performance. Assuming you find and fix the issues you are having, you are going to need to prevent backsliding. Plan regular management meetings, enforce a new or revised reporting plan, and consider holding larger team meetings that allow you to address all employees directly. This can be a great way to increase morale and take the pulse of your business.

Focus on Improvement

You want your business to continually be improving, and part of that is motivating your employees to care about the business’ success. Encouraging initiative and rewarding efficiency increases is a good place to start.

To have a business you must have revenue. To have employees you must have revenue. At the end of the day fine-tuning your operational efficiency will benefit everyone, including your consumers.

Consumer Relations

We talk a lot about how we can improve our operational efficiency through manufacturing, production, transportation and streamlining other areas of the business, but sometimes your business’ mechanical aspects are just fine – but your consumer relations are not.

Putting out feelers to get feedback from the consumer is important. Read reviews on your products and services, if you have a social media page go and read what people are writing. Are people emailing your business? What are they saying?

If your consumer relations tank, so will your profits. You have to put just as much effort into your consumer as you do into operational efficiency, because without the consumer you have no revenue. No revenue, no business.

Engage the consumer through social media to get specific feedback, or hold promotional events to help draw new business. You can also offer some sort of appreciation gift for any long-standing customers you may have.

Get Advice

There are a lot of things that can go wrong in a business, especially if you aren’t paying attention. Always be on the lookout for ways you can cut costs, increase efficiency and even improve your products or services to better meet the needs of your consumers. Don’t lose touch and you won’t lose operational efficiency. Consult with The Burnie Group to learn more about operational efficiency.

Hi! I'm Stevie, and I'm interested in everything that surrounds the topic of personal finance. I hope my articles will be of some use to my readers!