For a successful business, you want to maximise revenue while also delivering the best possible service for customers. Equally, there is a need to keep costs low without compromising on product or service quality.
Operational efficiency is all about this balance. It refers to the ability of a company to deliver its products or services cost-effectively. If you achieve the right balance, your business will be more productive, increase profits and gain a competitive edge.
The concept isn’t new. Henry Ford summed it up:
Specifically, for a business to improve its operational efficiency it must review the ratio between input and output. Input refers to the resources required to produce your goods or service, such as costs, staff, time and effort. Meanwhile, outputs include revenue & margin, production, quality, speed & agility.
Operational efficiency refers to the steps companies can take to streamline core processes. The output to input ratio is improved for better business performance.
The concept can be far reaching, but isn’t just about cost cutting. In fact, research from PwC reveals that less than 30% of cost-cutting programmes reach their targets, and less than a fifth of these can demonstrate sustained benefits over three years.
So, the goal is to achieve sustainable efficiencies, which take cost out of the business, but without harming the customer experience. Operational efficiency combines many factors, including streamlining processes, use of technology and employee engagement.
In order to improve operational efficiency, it’s crucial to review all aspects of performance. The most critical factors will vary by type of business, for example they may be driven by processes or manufacturing – see examples in the table below.
|Revenue Per Employee||Employee productivity|
|Process Efficiency||Repeated activity that could be streamlined or automated|
|Marketing Efficiency||Customer acquisition cost, customer value, ROI|
|Equipment Efficiency||Reliability, cost and energy efficiency of machinery|
|Asset Efficiency||Refers to capital assets such as hotel occupancy|
Types of Efficiency Measure
To review the input: output ratio, you’ll need to consider both input and output processes. The precise metrics to use will depend on business objectives, short and long term goals and business sector/size. Metrics will also vary from team to team, as production staff will have different metrics to HR.
Depending on your industry and type of business, there are various ways to boost operational efficiency. Here are 3 factors for success.
A common issue for businesses is the time and effort involved in dealing with multiple suppliers. A form of wastage as identified in section 2. Identify above, this brings cost without adding value. Employing a consolidated supplier model is a key strategy to improve efficiency.
Choosing a multi-category provider will allow you to:
It makes sense that supplier consolidation enables process efficiencies – less time sourcing and managing suppliers, fewer invoices to process, better leverage on pricing.
In today’s world, businesses must have exceptional efficiency to compete with companies with greater economies of scale and bargaining power. Unfortunately, the UK is on the back foot. Bank of England research suggests that large businesses (+250 employees) that are foreign-owned are twice as productive as their UK counterparts.
While this refers specifically to productivity, it’s a reminder that overall efficiency matters. Operational efficiency is vital to success. It can free time and resources, simplify processes and lower costs. It makes it easier to achieve both growth and profitability.
Furthermore, efficiency is about streamlining business processes; enabling you to deliver better products at better prices. More productive staff leads to increased customer satisfaction; translating to increased brand awareness and revenue. Strive for a culture of continuous improvement and you will soon reap the benefits.
You can improve profitability and growth by consolidating multiple suppliers. In addition, optimising efficiency supports your organisation’s commercial objectives. We work with you in a strategic partnership, enabling you to consolidate spend across multiple products and services. In turn, this provides better control, better visibility and reduced costs.
OfficeTeam is a leading UK business services company and can provide everything you need for your workplace through a single tailored solution.