All businesses strive for some level of efficiency within their company, whether that means ensuring that owners are not doing everything themselves or using the right technology to streamline processes. The leaner and more efficient your company is, the more likely it is to succeed over the long term.
While efficiency is a good overall goal, defining what that means for your company can be tricky. What is very efficient for one company may not work well at all for another business. Individual companies have to define what operational efficiency means for their unique company, industry, and goals. Once these metrics have been defined, business owners and operators can work toward creating operational efficiency.
The High-Level Overview: What is Operational Efficiency?
At the very basic level, operational efficiency is the relationship between an organization's input and output. Operational efficiency is the goal to produce a high-quality product with as few resources as possible. Operational efficiency generally leads to increasing revenue by cutting down on unnecessary costs.
Distinguishing Between Productivity and Efficiency
Productivity and efficiency are often used interchangeably in business. However, they are very different concepts. Productivity essentially means that you are doing more with the same resources. Efficiency, on the other hand, means doing more or achieving the same level of production with less or fewer resources.
Productivity really focuses on performance. It might mean increasing costs, such as by improving current equipment or asking employees to go through more training. Although there is some "upfront" investment, the cost is justified because the overall output increases.
Efficiency, on the other hand, generally does not make any upgrades. Instead, it focuses on producing at the same (or increased) level, but with fewer resources. The most common example is in the manufacturing context: producing the same amount of product with fewer machines.
The Importance of Focusing on Efficiency First
It can be tempting to try to focus your efforts on both productivity and efficiency at the same time. After all, they can both lead to increased revenues and a more attractive bottom line. However, if you want to improve the overall performance of your company, focusing on efficiency first will be a better use of your time and resources.
By creating as much as you can with the resources you have, you create an optimally efficient environment that can be improved upon later. Going extremely lean first will help you use resources effectively. Then, you can increase productivity by building upon an already highly efficient operation.
Start by Creating a Baseline of Operations
Your baseline of operations includes all of the functions that must be in place for your company to run. This requires an in-depth understanding of what each department does and how it contributes to the overall goals and functions of the company. In smaller businesses, the roles of each department may overlap quite a bit.
Creating the baseline of operations requires an understanding of:
- The purpose of each department (or person)
- Responsibilities of each department
- Steps that each person or department must carry out to fulfill their role within the company
Once you have this high-level overview of understanding, you can move on to actually calculating efficiencies.
Creating Metrics to Measure Efficiencies
All of the understanding of operations and cost-cutting in the world cannot do any good if companies do not have a meaningful way to measure relative efficiencies. This step is necessary to have the means to evaluate efficiency. Without some type of metric to assess efficiency, you cannot tell whether improvements are actually being made or measure the overall health of an organization.
To start, you must decide which input and output measures are the most relevant for your company. Every industry and individual company are different, and many efficiency measures will not make sense across more than one industry.
Key performance indicators might include things like:
- Cost of goods sold
- Hours necessary for production
- Average transaction values
- Overtime or labor hours generally
- Transportation costs for products
- Gross margins on investments
- Conversion rates
- Cost of raw materials or producing specific component parts
- Foot traffic and digital traffic
- Inventory turnover
Reviewing metrics from other comparable companies might be a helpful starting point. Review annual reports or quarterly updates to shareholders of companies in the same industry. Determine what they see as performance indicators and what kind of measurement they think is good or bad. There are also many resources available that provide industry-wide averages for various indicators that might be helpful for your company as well.
As you work through measurements like time and quality indicators, you can begin to spot bottlenecks that make processes slower.
Addressing Operational Bottlenecks
Bottlenecks in operations are critical points where efficiency can be improved. They might be unnecessary tasks or points in the product lifecycle that can be improved by altering current processes.
Consider an example. Imagine that workers have to have two quality approvals from different department managers before a final product can be shipped to a customer. Getting these approvals is time-consuming and delays getting products out the door by at least a day each time a batch is ready.
To address this bottleneck, you might be able to eliminate one of the approvals required. Alternatively, perhaps you could ensure that one approval happens as part of an earlier quality check and not as part of the final check. As a third option, you could incorporate a quality control worker at the end of the line whose job it is to instantly do a quality review, instead of moving the product from one location to another or waiting for specific people to come to the product.
Creativity is often very helpful in addressing bottlenecks that curtail operational efficiencies. You should also keep in mind that removing or reducing bottlenecks will generally require working closely with a particular department or employee to develop a new process or strategy to accomplish the same goal.
Once you have addressed a bottleneck, be sure to continue measuring key performance indicators to check for improvements. Continue communication with your team to make efficiencies even better as you work through implementing the new solution.
Implementing Technology to Increase Operational Efficiency in Employees
Technology can play a huge role in increasing efficiencies. Although implementing new technology may be seen as a move toward productivity rather than efficiency, it can actually increase both concepts. Using the right type of technology can not only help increased output, but it can cut down on costs as well.
Although operational efficiency is often viewed from the perspective of manufacturing or similar industries, the retail industry can benefit significantly from increasing efficiencies even at the tail-end of the product cycle. Increasing employee efficiencies is perhaps the easiest place to start improvements in retail.
Scheduling and Appointment Setting
Implementing technology that allows employees (and customers) to be more organized can have a profound impact on efficiency and productivity. A simple switch to a scheduling software or appointment setting technology allows employees to not only track their schedules better, but they can often communicate with customers better as well.
Curbside Pickup and BOPIS Services
Customers get a lot of value out of services like curbside pickup or BOPIS (Buy Online, Pickup In-Store) options. However, employees can also significantly increase efficiencies in serving customers when clients use this service as well. It allows them to coordinate services in a way that best fits the customer's needs. It also allows business owners to schedule more effectively to meet client demands.
People Counting Systems
People counting technology allows business owners to know exactly how many people are in their brick-and-mortar store at any given time. Over time, companies can spot trends, including situations where more workers are necessary to meet demand. The workforce can be decreased on slower days as well.
Real-time people counting technology can also help companies spot bottleneck customer service areas and address them immediately. Over time, you can see trends that create bottlenecks and stop them from occurring before they cause any additional waiting time for retail customers.
An effective queue management system will allow your team members to work much more efficiently. Instead of herding clients and dealing with angry customers who have had to wait, a good queue management system will stop bottlenecks before they happen and allow your team to address client needs proactively instead of reactively.
Using Ombori Technology to Increase Operational Efficiency
If you are looking for ways to make your company more efficient and productive, Ombori may have the solution for you. The team at Ombori will work with you to develop the personalized system you need to decrease costs and increase outputs. Learn more by contacting Ombori today.
Rui is COO of Ombori Grid. Before joining Ombori in 2017, he worked in Beijing, Tokyo, Silicon Valley and Zagreb before ending up in Stockholm. He previously spent nine years in R&D at Ericsson as Operative Product Owner, and is a highly skilled leader in IT and communications with a successful track record of working closely with both stakeholders and management.