Operational efficiency: what is it, its importance and how to calculate it?
In search of better resources and results, companies invest in operational efficiency to consolidate their position in the market. After all, with an organized internal structure, the delivery of services or products reaches customers with greater quality.
In this way, businesses seek to create more efficient processes, using lower-cost solutions to make high-standard deliveries.
The task is challenging, and the search for efficiency does not end when the index shows that the company has achieved this status.
This is because maintenance depends on the continuous improvement of processes, which allows the business to adapt to the present moment, especially during market and economic fluctuations.
Therefore, managers need to be aware of optimizations in their respective areas to improve work execution and implement solutions that help reduce production costs or service provision.
Is this your company’s current goal? Then continue reading the article to better understand the concept of operational efficiency, its importance for business, how to calculate the index and tips to apply in management.
Happy reading!
What is operational efficiency?
Operational efficiency is a concept related to the ability of companies to measure and continuously improve their processes to provide high-quality products and services, at the lowest cost and in the shortest possible time to customers .
In other words, the objective is to use resources strategically to achieve growth goals with little or no waste in terms of people, efforts or capital.
In this way, companies move from a static position and the mindset of “I am at a high level, I don’t need to change” to focusing on the evolution of performance indicators that signal points for improvement.
Furthermore, the search for operational efficiency helps to find opportunities to make better use of available resources, reducing costs with new purchases.
This change in management conduct occurs in a structured manner and represents a constant, long-term commitment to organizational improvement.
How important is operational efficiency?
The effort employed to obtain greater operational efficiency is important because it provides a broad view of the company’s current performance, in addition to pointing out new paths to achieve greater goals.
Nowadays, every business, regardless of the market niche , faces strong competition and, therefore, needs to create an operation that applies resources strategically to maximize the return on investment.
Another point that reinforces the importance of operational efficiency is making assertive decisions, prioritizing investments that increase productivity and internal organization.
Technology, for example, is a great ally in the digital transformation of companies, as it helps in complex analyses that guide changes in work processes.
How to calculate operational efficiency?
The calculation of the operational efficiency index involves two variables: total expenses (inputs) and revenues (outputs) obtained in the period analyzed.
Before calculating the result, the team needs to calculate all the operating expenses , such as production costs, labor, raw materials, general services, among others. The total corresponds to the inputs in the formula.
Then, add up the revenue obtained in the period from product sales or service provision, which represent the outputs in the calculation.
With the data gathered, the basic formula for calculating the operational efficiency index is as follows:
- Operational efficiency ratio = Expenses (outputs) ÷ Revenues (inputs)
The result can be multiplied by 100 to obtain the percentage value.
The scenario that indicates operational efficiency is when the company invests in inputs and obtains higher returns from the marketing of production or services.
Applied example
A company invested R$15,000 (income) to carry out marketing campaigns aiming to close more orders. The investment of this amount generated revenue of R$30,000 (outgoings). Therefore, the operational efficiency index is:
Operational efficiency ratio = R$ 30,000 ÷ R$ 15,000
Efficiency index = 2
In other words, the company obtained twice the return on the investment made, which means that operational efficiency was positive in carrying out this task.
11 tips to improve operational efficiency
Now that you know the concept and importance of seeking operational efficiency, we have gathered tips to improve the performance of processes in your company and improve the results achieved. Check it out!
1. Know the company’s processes
The starting point for achieving operational efficiency is in-depth knowledge of the company’s processes . Each area must have its activities mapped and the execution processes detailed.
In this way, teams identify bottlenecks and opportunities for improvement that can be corrected and implemented to optimize employee performance and results.
2. Digitize and automate tasks
Digitizing operations is a way to improve company efficiency, as it helps integrate data, allowing for more complex and accurate analyses in each sector.
Automation solutions complement the process, speeding up task execution and increasing team productivity, completing more activities in less time.
These solutions create a consistent working pattern for internal processes that can evolve further as new tools are implemented.
3. Provide training for the team
The more capable teams are to perform their functions, the greater the chance of maintaining a high level of operational efficiency.
Promoting training cycles in each area of the business reinforces the desired quality standard, in addition to being a moment of valuable exchange between professionals.
Another benefit is the improved connection between team members, who enhance their group skills by learning to use new methods, tools and systems to optimize operations.
4. Promote continuous improvement as a value
Continuous process improvement is a value that needs to be communicated to all teams. In this way, the company establishes a culture based on the search for better results and the efficient use of all resources.
Furthermore, with the concept disseminated, employees may feel more open to pointing out problems and suggesting improvements based on previous work experiences, for example, or inspired by their own training.
In this way, the company creates an efficient and lean operation, eliminating the main waste that affects the result of the work.
5. Invest in changes to inventory management
Inventory management is essential for operational efficiency, as purchasing and storage processes need to be well aligned for the supply cycle to flow naturally.
This way, the company avoids waste in purchasing by placing orders at the right time. With this care, the team also avoids a crucial problem: the high costs of excessive storage.
Investing in inventory management software is a strategic solution to facilitate the team’s work and identify improvements to optimize the use of raw materials.
6. Perform data analysis periodically
Automated processes generate data that serves to analyze the performance of procedures, identify patterns and trends, and verify the need for corrections and improvements.
So, if your company invests in software, extract reports monthly, for example, through the system, to monitor progress in results at each turn of the cycle.
This information guides decision-making related to resource distribution, demand forecasting, cost reduction , among other resolutions.
7. Encourage communication within teams
Teamwork is essential for operational efficiency, as exchanges between employees are valuable for work progress.
Therefore, encourage communication within teams , whether through internal tools, such as chats, or by holding quick alignment meetings at the beginning of the workday to review the day’s activities.
Employees can give their opinion or raise any questions related to the tasks for the entire group, and thus the solution is defined more quickly.
8. Reduce waste in the company
Waste makes it difficult to create a lean operation. The Lean Manufacturing methodology defines seven types of waste that should be avoided in operations:
- overproduction;
- high waiting time;
- excessive transportation of resources;
- over-processing;
- excessive inventory;
- unnecessary movement;
- defects.
Identifying and eliminating everything that does not add value to the activities carried out is essential to reducing the costs that these problems generate for the company.
Managers can be responsible for analyzing and proposing ways to reduce occurrences with their teams.
9. Evaluate the relationship with suppliers
The company’s supply chain helps with operational efficiency, as external resources and tools need to be available for the team to work with. Therefore, this investment should generate a positive return.
To check whether this actually happens, the purchasing management team must analyze whether current suppliers meet the company’s demands, meeting delivery deadlines, negotiating advantageous prices and providing the necessary support.
Therefore, partners that frequently generate problems in service provision and in relation to quality can be replaced by more reliable ones.
10. Maintain good quality control
Strict quality control of processes helps create more efficient and well-executed work standards. This monitoring must exist at all stages of the production chain.
This care ensures that the team responsible for the next step in production receives the products correctly, following all specifications. To monitor compliance with quality processes, the company can monitor two indicators:
- OEE (Overall Equipment Efficiency): measures the efficiency of equipment based on its availability, productivity and quality. These criteria indicate whether the machine operates at its maximum capacity and under the desired conditions.
- OLE (Overall Labor Efficiency): evaluates employee performance in terms of availability, performance and quality of work. This allows the company to decide whether it needs to restructure the team or hire new professionals.
These and other indicators help minimize rework during the production process, as well as customer returns due to order defects.
11. Ask customers for their opinions
Customer opinion is valuable data for identifying successes, errors and opportunities for improvement.
Implement surveys at the end of the purchasing process to encourage customers to evaluate key service points, delivery quality and provide suggestions for optimizing processes.
This stance demonstrates concern in ensuring not only operational efficiency, but also customer satisfaction.