Operational efficiency is based on the progressive identification and elimination of non-value added activities or waste from your operations—based on your customer’s perspective.
While the roots of operational efficiency lie in the manufacturing industry, entrepreneurs who want to gain or maintain a competitive advantage should also focus on eliminating waste in their business processes. For example, there are a lot of efficiencies to be gained in customer facing or back office operations (such as customer order administration, claims and warranty processing, handling of accounts payable and receivable, etc.).
Software and information technology now offer a lot of efficient, effective and scalable solutions for your business processes. But for most businesses, there is a lot of work to do before these solutions can be implemented.
The first thing you can do is apply lean or operational efficiency tools and techniques across your company to get “back to the basics,” improve the processes that aren’t working and create an environment of ongoing measurement, investigation and continuous improvements.
This exercise is called business process optimization. But, how exactly do you get started?
Process mapping, performance measures and data collection are critical starting points to understand the current state of your business processes.
Process mapping is about making processes “visual,” clearly establishing how processes really work (not how you think they work) so that everyone is on the same page. It is also a great tool to highlight all sources of waste or frustration, and pinpoint processes that need to be improved.
When we carry out a process mapping exercise with our clients, we often encounter situations where a business’ left hand doesn’t know what the right hand is doing! In this scenario, an enterprise-wide process mapping and data collection exercise is a great place to start.
Types of process maps
There are different types of process maps businesses can use: From a high level SIPOC (Supplier-Input—Process-Output-Customer); to a complex, data-rich value stream map.
The one thing we recommend for every type of process mapping exercise is to assemble a cross-functional team of employees to provide input on the processes. This team should include:
- Employees who execute the processes
- Employees who receive an output from the processes
In this way you’ll be able to develop an organization-wide process flow diagram.
Beyond assembling a balanced, cross-functional team, the following are some questions you can ask to gain an understanding of your organization’s processes and identify sources of waste during a process mapping workshop.
- What is the goal or desired outcome of this process or sub-process?
- When does the process begin and end?
- What activities or tasks move the process forward?
- What departments and/or employees are involved in this process?
- What happens first, second and third? What is the sequence of things? Do operations happen in parallel?
- Does this process reflect how this always happens? Are there circumstances where it happens differently?
- Is this task or activity value added?
BDC’s operational efficiency consultants have conducted hundreds of these workshops, and we often discover that companies, regardless of their size, operate in functional silos. We also identify quality mistakes as common forms of waste that impact businesses’ ability to perform efficiently. For example:
- Information or data errors (non-quality)
- Re-work loops (non-quality)
- Too many documents being processed at the same time (waste of work in progress)
This is not surprising. In many businesses, processes emerge as a result of things being cobbled together over time, usually by different people with different objectives and perspectives. As a result, many companies end up with a hodgepodge of processes made up of forms, spreadsheets, sticky notes and informal procedures that people “mostly” follow.
Key performance indicators and data collection
In a recent blog post, I wrote about the importance of a performance dashboard and key performance indicators (KPIs) for continuous improvement.
Similarly, data collection and the identification of process KPIs will help you see the impact of your business process improvement efforts. Quantifiable data collection will also provide focus and help prioritize the root cause analysis and your business process improvement efforts.
As an example, I recently worked with an entrepreneur whose company provides printed cheques and forms to businesses and consumers. As part of this project, I created a cross-functional process map detailing the process from the time the customer placed an order to the time the company received cash (order-to-cash).
This process map helped identify customer order entry and work order generation as the key processes that needed to be improved. Multiple errors were being made in these two processes before the orders were handed over to production. The team discussed the goals of customer service and work order generation, and identified “number of orders right the first time” as a KPI.
The team also collected data to understand this KPI and the types of errors that were being made. This data showed that 75% of orders were right the first time, and that while 19 different types of errors existed (for example name error, address error, etc.), only five types of errors accounted for over 80% of total errors!
This detailed data collection allowed the team to focus on getting to the root causes of those five errors, significantly improving the KPI. The team established a 90% accuracy target for the KPI and worked on root cause analysis and the implementation of improvements to achieve this goal.
Below are some key points to remember when implementing this methodology.
- Data collection and KPI have to be in sync with the desired outcome of the process.
- Business process optimization is about continuous improvement and progress, not perfection!
- Sometimes, when it comes to data collection, the devil is in the details—as was the case with this entrepreneur.
Remember what you are trying to accomplish
It’s important to always remember that the ultimate goal of business process optimization is to simplify your business processes so you can provide more value to customers and be more efficient in your operations. This goal is achieved by identifying and eliminating sources of waste
Organizations that are mature in business process optimization have an owner assigned for key processes and performance dashboard measures that identify process execution success or the health of the process.
For example, we recently worked with another company that specializes in road, highway and sidewalk construction. By optimizing their business processes and defining new processes, process owners, roles and responsibilities, they were able to achieve a 30% reduction in order processing lead-time. Following the success of this project, the company is now taking the initiative to invest in software to automate some processes and become even more efficient!
Just do it!
As a final note, incremental improvements are much better than the status quo, especially if your business is similar to the functionally-siloed companies I describe in this blog post.
So as a last piece of advice, get started with that long-overdue process map! Just do it!