MAXIMIZING OPERATIONAL EFFICIENCY

Maximizing Operational Efficiency

Are you operating your warehouse, distribution center or manufacturing facility at maximum efficiency? Most people would answer “no” and are willing to settle for good, but not great. Efficient operations reduce operating expenses which translate directly to the bottom line. Yet, many companies are satisfied by making budget and tend to focus on other core competencies. Efficient operations improve customer service levels. Yet it is not uncommon for companies to focus more attention on customer service departments to handle customer’s complaints.

Why is this? It is because operations are becoming more and more complex. It can be difficult to isolate the causes for inefficiencies, especially when they may be linked to several other business factors or constraints. However, by focusing on a few key operational areas, these complex causes can be isolated, offering meaningful improvement opportunities; opportunities that translate directly to the bottom line of the balance sheet. These four areas are Processes, People, Tools and Systems – and all four are inter-related.

Processes (Engineer Approach)

When asked about improving operations, most people will invariably think of improving processes. Process Engineers have existed for decades and it is true that to have an efficient operation you must have sound processes. However, when processes are typically reviewed, companies will invariably defend the “current state” with excuses and rational reasons.

For example, it is very common in today’s systematized world for a companies accounting system or warehouse system to dictate business processes. Unfortunately, computer programmers aren’t usually that concerned about the result of the “functionality” they have developed. A few seconds of scan delay here, an extra keystroke there, and before you know it, you’ve lost 20% productivity. High tech isn’t always high productivity.

Internal business requirements, either customer or corporate driven also influence operations. Picking sequences, order batching, labeling, and “value added services” (e.g. ticketing) can have a big impact on efficiencies.

Best operating practices for most industries have existed for years. Many of these practices cross over industry lines and can reduce costs significantly. One approach to improving operating processes is to focus on 3 S’s, Streamline, Standardize and Simplify. By removing the “non-value added” activities, standardizing procedures and by simplifying methods, improvements are readily available.
Improving processes is not easy and takes focused attention and experience for improvements to be realized. It also requires collaboration across departments and the ability to associate a cost to a benefit, real or in theory. Is your IT department aware of the cost of system delays and down time? Are merchants passing value added costs along to “their” customers? Are the costs for last minute, knee jerk decisions made by others being tracked? Are your operations and costs at the mercy of Accountants, Programmers and Merchants?

People
(HR Approach)

Regardless of how efficient you operational processes may be, it still takes people to get the work done. Labor is the largest variable operating cost. It is also the most difficult to manage and optimize. When evaluating people, we refer to an acronym – STAR, to relate to a “star performer”. STAR stands for Skill, Technique, Activity and Rate. A star performer excels in all 4 of these areas.

Skill – talent or proficiency.
Technique - efficiency and effectiveness of methods.
Activity – time spent staying on task.
Rate – level of effort expended.

By evaluating you work force in these for areas, you can easily determine the causes for sub-standard performance. You can then provide training to assist the associate in improving their weaknesses. This shows a commitment on the management team’s part in their associates’ development.

Motivation is another key area to be considered. Are you providing the proper motivation to keep your work force energized? People are motivated by different things. Some are motivated by money, others by recognition. Regardless of the motivator, the key is to motivate. Employee incentive programs are one way to offer monetary incentives as a means to improve productivity and operational efficiency.

Tools (Management Approach)

In professional sports, teams spend millions of dollars to provide their athletes with the best equipment available to perform at the highest levels. Are you providing your team with the best tools? Are they always available? You don’t see baseball players coming to the plate without a bat. However, I’ve witnessed countless times associates in warehouses going to their workstation without pens, box cutters, tape, RF guns, labels, etc. You get the point.

Sometimes it’s not about having the best tools, just tools that are accessible and within easy reach. You’ll notice that your best performers are usually the most organized and in many instances they will have created their own work pouch modified their work station to make their job easier. Easier translates into more efficient. Learn from these associates. Better still, ask them what they need – and give it to them! Share it with the rest of the players on the team.

Systems
(IT Approach)

As mentioned previously, systems are becoming more and more complex every day. Adding “functionality” can add inefficiencies – more steps to be followed for every order processed. An additional 2 seconds over 1,000,000 transactions will add over 550 hours to a process. Sure, it’s great to be able to track and analyze operational data, just be aware of the cost.

System down time is easily measured and causes large increases in labor costs. Batch processing (usually performed during “off hours”), which limits a 3rd shift operation. It also effects order cut-off times, requiring them to be earlier in the day.

System transaction delays are a sneaky, yet underestimated cause of operational inefficiency. They are usually intermittent which makes them hard to track. However, using the previous 2 second delay over 1,000,000 transactions example, the cost can be significant.

Most systems providers will site a significant ROI when using their systems. However, most of those cost savings are from reduced clerical functions. If they claim efficiencies from core operations, review them carefully because they are usually not realized in practice. You’ll be asking were the savings have gone.

Summary

By focusing on these four areas, Processes, People, Tools and Systems, becoming more operationally efficient is possible. The largest gains are realized when all four components are optimized simultaneously in a collaborative environment. This is not easy and requires leadership to achieve. However, it can and is being done by companies, large, medium and small. It all begins with asking the right questions and not limiting yourself to one particular area.