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What is operational efficiency and why is it important?

All companies should seek to be efficient, but some of us still don’t really understand what it means to be efficient. Many entrepreneurs confuse efficiency with “achieving targets.” They believe that, if a company manages to fulfill its commitments, in terms of its finances as well as its customers, that makes it competent, but that isn’t true. In this post, we’ll teach you how to increase the operational efficiency of your company by listing a few actions and points to pay attention to.

What is operational efficiency? Why is paying attention to this so important to your company? Find out in this article!

What is operational efficiency?

The concept of operational efficiency encompasses the practice of improving all of your processes (all your company’s activities that lead to your final product or service). For example, a supermarket has various internal methods (of production, hiring, sales and communications, for example) and all of these processes help the company achieve a target, which may be in terms of product sales.

But even if the supermarket is hitting its sales targets, this doesn’t mean that it has achieved operational efficiency. Bad stock control can lead to the spoiling of products and losses for the company. If the purchasing department isn’t able to efficiently identify the ideal suppliers, the supermarket is missing out on a chance for big savings. Thus, these examples illustrate the importance of knowing your company well, because the bottom line is that each venture possesses its own reality in terms of its processes.

How can you achieve operational efficiency?

As a businessman you should list your company’s processes and follow them to discover whether they’re being performed in the correct manner (generating profit, offering quality and avoiding waste, for example). If you are able to identify failures in your processes, try to study alternatives to improve them.

Is your company experiencing losses due to employee performance?

It’s not unusual for businessmen to believe that seeking operational efficiency is directly linked to laying off workers. This isn’t true. Pay attention if you’re able to identify losses due to employee performance, because you may be running your hiring process in an incorrect manner, or in other words, your company may be hiring the wrong people for the functions you need to perform.

In addition, you may find that you need to create or improve your employee training processes. Seeking quick cost savings through layoffs is usually an inefficient solution – you’re removing the person but not the process or activity that he or she is performing (which frequently is not adding value to the company and then is performed by other employees – which frequently just overloads them). Also laying off employees is a temporary solution, which may not help in the medium or long term. The best strategy to improve operational competence depends on analyzing the results of each company department rather than careless cost cutting.

Businessmen should pay attention to all of the business’s results

First of all, seeking operational efficiency consists of knowing your own company. You should also pay attention to all of your business’s results and not just the final results. Don’t confuse efficiency with cutting costs, because it has other objectives besides savings, such as improving your company’s productivity. This is why associating it with layoffs is a mistake.

What are the advantages of investing in operational efficiency?

The quest for operational efficiency is to identify problems and create solutions. There is no point in knowing that a certain process is not happening in the best way possible and taking no action to reverse it.

The key is to understand that every challenge encountered is actually an opportunity to be better every day. Although some amounts need to be invested, they should never be considered as costs. These are investments that will surely bring returns.

When a company provides personnel training, for example, it is enabling people to perform the service in the best way. A team that has good communication tends to keep goals and expectations aligned, which makes everyone work for the same purpose.

Purchasing processes and the finance department can also be positively impacted by operational efficiency. With it, employees optimize their time and the company gains productivity.

Needless to say, from that point until increasing profits and raising your market levels is just one step.

How to achieve this efficiency?

While you may have already understood why you should deploy operational efficiency in your business, you may still feel a bit lost, not knowing exactly where to start.

To help you, we’ve listed some valuable tips below:

Study the business situation

In order to correct unsatisfactory processes, it is necessary, first of all, to discover what these processes are. Only then it will be possible to improve them.

To do this survey, the manager should talk to the people who head departments and evaluate the conditions of the company in the market in which it operates. It is only after a few reports and reflections that a conclusion can be drawn.

Pay attention to production costs

Every production generates a cost. However, it is important to know exactly how much resource, manpower and time each process requires. This way, it is easier to identify outlier expenses.

Once identified, one must find out the reason to seek a correction that allows the reduction of costs without losing quality.

Map process failures

Analyzing each process, piece by piece, also allows the identification of failures. They need to be measured and related so that it is clear where the changes should happen.

Of course, theoretically everything can be improved, but you need to know what to prioritize when fixing problems.

Discover the source of failures

There is no point in knowing the failures if you do not know where they come from. Whenever a failure is identified, it is important to find out its origin and why it has occurred.

This way, it is possible to correct the problem from its root, avoiding the creation of illusory solutions that only mask inefficiencies in the productive process.

Use technology

Nowadays, there is a technological tool for everything. You can store data, integrate departments, and create reports that allow for a broader analysis of the company’s situation.

Performing this whole process manually would certainly require a much longer time, in addition to leaving you susceptible to failures. That’s why we often say that technology is a great ally in achieving operational efficiency.

Did you understand what operational efficiency is? Did you like our tips for practicing it in your company? Then like our page on LinkedIn and keep up-to-date on other contents like this.

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