Operational Efficiency Definition
Operational Efficiency denotes the ability of a company, organization or enterprise to deliver products or services in the most cost-effective manner without hampering its high quality, service or support. It can also be defined by the ratio of input and output of a business operation. If the operational efficiency improves in a business the ratio of output to input increases. Streamlining the internal processes of a business can help in achieving the operational efficiency and it also enables the company to respond effectively to the ever-changing market forces in a profitable manner.
A company can attain operational efficiency by curtailing the waste and redundancy and also by influencing its human resources who contribute most to the success of the company. An enterprise has to know its workforce, technology and business processes so well that it can utilize the best of it. Once the operational efficiency is achieved, a company can gain higher profit by reducing internal costs and as a result become more successful in the competition outside.
Operational efficiency can be improved by measuring it through the input and output ratio. Often the management of a company measures the operational efficiency by measuring the input indicators only like the man hours for a production or production cost per unit. Though the input indicators are important but they must not be seen solely on the basis of indicators like unit production cost. A company must track and define various indicators from both the input and output sides to measure the operational efficiency properly. The categories are mostly like –
Input side- OPEX or Operational Expenditure, CAPEX or capital Expenditure, number of employees.
Output Side- quality, growth, revenue, customer numbers, customer satisfaction etc.
‘Same for less’ is an option where the companies reduce its number of workers yet producing the same volume and quality of products. It can be achieved through automation or centralization process in a company.
‘More for same’ is another alternative for the companies where a manufacturing company can reduce its output of defective products and henceforth reducing the sales cost. It can be achieved by a better quality management system, quality in training programs for workers etc.
‘Much for more’ is the last alternative when a manufacturing company invests more in the units that can fetch more profit. For example, a company invests more on a new production unit to produce goods that are more refined than the previously produced goods, and can sell it in a higher rate as well to cover up the costs and get profit as well. Also, if a service company puts more resource in the customer service sector to increase customer satisfaction and loyalty, is another example of ‘Much for More’ operational efficiency.
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