Staff shortages, high material costs, supply chain bottlenecks … these days, there seems to be no end to the challenges facing most organizations. That’s why ‘operational excellence’ is more important now than ever before. And why more and more companies are setting this as a goal. But how do you measure operational excellence? This article sets out to show you how!
So, what is ‘operational excellence’ exactly?
Operational excellence is about being the best you can be in terms of customer satisfaction and reliability, in order to gain a competitive advantage. In practice, this means you supply or deliver everything on time, your customer processes work flawlessly, and you offer your product/service at the best possible price.
Read on to find out more …
Monitoring and measuring
To achieve operational excellence, it’s important that you monitor and measure your processes. The focus here is on continuous improvement until you’ve found your optimal operating procedures. By monitoring and measuring everything you do, you can see where you are right now, how well you’re progressing, and where you need to make adjustments or improvements.
5 steps to measurable operational excellence
How you need to optimize your processes to achieve operational excellence depends largely on your product(s) and/or service(s). That’s why we’ve shared a generic action plan below that applies to virtually any type of organization …
1. Set top-level organizational objectives
What’s your target? What benefits are you looking to achieve by striving for operational excellence? Examples might include higher profitability, greater market share, or increased resilience (future-proofing).
Whenever you set goals, it’s often useful to use the SMART system – Specific, Achievable, Measurable, Realistic, and Time-bound. In other words, not … “Higher profits by next week” (too vague and unrealistic). Compare this to the following … “In 2024, we aim to increase profits by 15% with respect to 2021.”
2. Set operational goals
Within your organization, there are countless aspects of your operations that affect profitability, for example, productivity, downtime, waste, customer satisfaction levels, cost prices, efficiency, and capacity utilization.
Divide your top-level organizational objective into smaller bite-sized operational goals. Which aspects of your processes can you optimize to achieve your organizational objective? Again, use SMART!
3. Implement KPIs
So, what constitutes ‘better capacity utilization’? And how do you measure ‘increased customer satisfaction levels’? This third step towards operational excellence involves assigning key performance indicators (KPIs) to the goals you set in Step 2. These are variables that help your monitor and measure your organization’s performance.
For example, if your goal is …
- Increase productivity by 10% in the next 2 years, then relevant KPIs might include the number of items manufactured, the percentage of billable hours, or downtime.
- Or orders must reach customers within 48 hours, then possible KPIs might include your average order-processing time, order picking time, and delivery time.
- Or increase customer satisfaction levels by 10% in the next year, then possible KPIs might include your Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), or Customer Effort Score (CES).
4. Take a baseline measurement
In order to measure your progress, you have to know where you are right now. Once you’ve established KPIs for your operational goals, it’s time to work out how you’re performing at the moment. This means taking a baseline measurement.
- You may already be monitoring and measuring certain KPIs or their components, for example, profit, turnover, costs, staffing levels, or billable hours.
- If need be, you can create dashboards for any of your other KPIs, for example, the time from order receipt to order shipment.
- In some cases, you may have no data available whatsoever, which means you’ll have to start gathering relevant information.
Your company doesn’t operate within a vacuum. And your competitors aren’t standing still either. To make your organization’s growth truly measurable or meaningful, you’ll also need to keep a close eye on your competition.
Why? Because becoming more profitable is great, but you can only increase market share if you achieve greater growth than your competitors. Sometimes, the market is simply growing and everyone’s riding the wave regardless of what you’re doing internally.
That’s why it’s important to look outside your own organization and to baseline your competitors too, wherever possible, and repeat this every so often.
The human factor
Operational excellence mainly addresses your operational processes. But don’t forget that these, in turn, rely on the human factor, for example, staff members with specific skill sets.
And did you know skills are measurable, too? A great way to do this is to use AG5’s skills management software.