Operational efficiency means using resources like time, people, equipment, inventory, and money in an optimized way to serve the business. Efficient companies are leaner, agile, and more profitable. It is often used to justify manufacturing companies driving capital acquisitions to buy better and faster machines. However, new machines are only one cog in an operational efficiency wheel.

Operational efficiency is primarily a metric that measures the efficiency of profit earned as a function of operating costs. The greater the operational efficiency, the more profitable a firm or investment is. The entity can generate more significant income or returns for the same or lower cost than an alternative.

In manufacturing, efficient production is a significant element of operational efficiency. This includes optimizing equipment, product processes, and employee output so that you produce the greatest number of quality products possible with the time and money invested. Operational efficiency is gained through a company by cost-effectively streamlining its base operations while eliminating redundant processes and waste. Generally, this is done by focusing on resource utilization, production, inventory management, and distribution. Operational efficiency refers to the positive correlation between a company’s input and output, resulting in minimal resource wastage and maximum resource utilization. This, in turn, leads to increased revenue generation.

By some estimates, just 15 to 20% of an employee’s workday is spent on purely productive activities in the average small and medium-sized business. An operational efficiency mindset aims to cut or limit the time workers spend on non-value-added activities or inefficient processes. By maximizing the amount of value-added work employees do, an operational efficiency exercise can make a business much more competitive and profitable. Operational efficiency refers to the standards and practices that allow a company to ensure sustainable growth and improved customer satisfaction. It also impacts the amount of profit and revenue that a company generates. Improving operational efficiency may help you improve your workplace’s profitability or decrease operating costs.

You don’t have to buy new technology to achieve significant gains (although it can help). The first step is better managing your team, processes, and information to reduce waste and create more customer value. Operational efficiency elevates organizations to a level of business maturity that many companies today struggle with. They tend to tell us, “We should have done this years ago.”

Here are six recommendations on how to improve operational efficiency in manufacturing:

  • Use an Automated System to Improve Efficiency

    This single approach can add the most value overall. Data can identify constraints in production, processes, and resources. The data can provide rapid validation of successful or unsuccessful changes to operations on the floor. In this technological era, manual work should be augmented or even replaced by automation. Automating your manufacturing processes can help you save time and money, reduce errors, and increase efficiency. It is essential to constantly improve manufacturing efficiency so businesses can reach their maximum potential. This is achieved through proper training, software implementation, and mitigating or eliminating bottlenecks. The theory of constraints states that constraints cannot be eliminated but only improved until it is no longer a limiting factor. This is achievable through a Demming cycle and accelerated by actionable data. However, it is imperative to employ a data collection and analytical system that includes monitoring operations related to orders on the floor. Simple red light/green light monitoring cannot assist in identifying value stream and process inefficiencies, especially in discrete manufacturing.

  • Identify Bottlenecks in Your Operations

    One of the most effective ways to improve operational efficiency is to analyze the things that cause congestion in the production process. Once the bottlenecks have been identified, you can come up with tactics. These will mitigate them so that your production process is no longer delayed.

    1. The Theory of Constraints (TOC) is a methodology that can be used to identify and eliminate bottlenecks in manufacturing. The five-step process outlined by TOC to identify and remove bottlenecks is as follows:
    2. Identify the process’ constraints: This step involves identifying the bottleneck in the manufacturing process. The bottleneck is the process step that limits the overall throughput of the system.
    3. Decide how best to exploit the process constraints: Once the bottleneck has been identified, the next step is to determine how to best utilize the bottleneck to maximize throughput.
    4. Subordinate everything else to the above decisions: This step involves aligning all other processes in the system with the bottleneck to ensure that they do not create additional constraints.
    5. Evaluate the process constraint: This step involves monitoring the bottleneck to ensure that it is being utilized effectively and that it is not creating additional constraints.
    6. Remove the constraint and re-evaluate the process: Once the bottleneck has been eliminated, the process can be re-evaluated to identify any new bottlenecks that may have emerged.
  • Test Your Workflow

    Before deciding to change your manufacturing company’s workflow, you must examine it by altering certain parameters scientifically and then measuring the results. You will need to start with a baseline of operational event data and compare it to the workflow originally intended for that operation. Before experimenting with changes, hypothesize and compare the results with your assumptions and previous manufacturing operating conditions. This will give you a clear perspective on what changes should be made. To revise the operational workflow on the manufacturing shop floor, you can follow these steps:

    1. Identify the current workflow: This step involves identifying the current workflow and understanding the business process that the workflow is designed to automate.
    2. Analyze the workflow: Analyze the workflow to identify inefficiencies and areas where your manufacturing operation can be optimized. This step involves understanding each component of the workflow thoroughly.
    3. Develop a revised workflow: Develop a revised workflow that addresses the inefficiencies identified in the previous step. This step involves determining how to best utilize the resources available to maximize throughput.
    4. Test the revised workflow: Test the revised workflow using various techniques such as use case and decision table. Perform positive and negative tests to ensure that the workflow is functioning as expected.
    5. Implement the revised workflow: Once the revised workflow has been tested and verified, it can be implemented on the manufacturing shop floor.

    In addition to these steps, you can also use Value Stream Mapping (VSM) to identify and eliminate bottlenecks in your manufacturing process 1. VSM is a lean manufacturing technique that analyzes, designs, and manages the flow of materials and information required to bring a product to a customer. It uses a system of standard symbols to depict various work streams and information flows. VSM can help you visualize the flow of work across all the processes, see more than waste in your value stream, and provide a common language for talking about a process 1.

    By following these steps and incorporating VSM, you can optimize your manufacturing operations on the shop floor and increase efficiency and productivity. For more information on VSM and its application to manufacturing, please refer to 1.

  • Introduce “Pull” into your production

    Since data will define the cadence of operational throughput, implementing a schedule to satisfy the average output will level out the overstock and shortfalls experienced in meeting your customer’s demands. It will provide a measure of predictability to your materials supply chain, mitigating and possibly eliminating materials shortages.

  • Set a Strategy for Material Ordering

    Ensure that the raw materials for production are always available so that this will not hinder your production process later. You should be able to forecast when to place an order and how many items you should request from your suppliers. You could create blanket orders for the materials you often use, requiring a long lead time.

  • Provide Employee Training

    Manufacturing operations won’t run smoothly if the employees are incompetent. Therefore, you need to focus on the quality of your employees. Frontline employees greatly impact the efficiency of the production cycle and the quality of your products. So it is essential to regularly provide employee training to develop their skills and improve their professionalism. To assist you in managing the training, consider implementing training management software.

In summary, these six recommendations will drive operational efficiencies across the plant. Even though each recommended course of action can be employed independently, The first recommendation will significantly reduce the time required to implement the other five.