Operational Efficiency: What Is It and How to Improve It

Efficiency is one of the keys to winning in life and in business. It minimizes waste, so you can have more resources to invest in more important things. You’ll be able to achieve your goals or desired results faster. And your organization will be able to weather storms better.

But how do you attain and improve operational efficiency? Let’s discuss it in this article.



What Is Operational Efficiency?

Operational efficiency is all about making the most out of your resources. It means using the least amount of resources to produce a result. To achieve that, companies implement a set of strategies. These strategies may include streamlining processes, using new technologies, and eliminating redundancies.

Operational Efficiency vs. Productivity

Operational efficiency is closely related to productivity. However, they are different business metrics. Productivity refers to the amount of output a team or business can produce in a given period.

On the other hand, operational efficiency measures how well an organization uses resources to get things done.

While efficiency and productivity are different concepts, they go hand in hand. When you become more efficient, you’ll be able to complete more tasks within a given time frame. Productivity increases when you do something efficiently.



The Purpose of Operational Efficiency

Operational efficiency helps businesses become more profitable and competitive. Today’s business landscape is hyper-competitive. Companies need to do it better, cheaper, and faster to succeed.

By operating efficiently, a business can deliver higher-quality products or services. They can also guarantee faster turnaround times while spending less effort and money. All these can help you generate more revenue and compete better.



The Role of Waste in Operational Efficiency

We know waste as unusable materials or garbage. But in business, waste refers to activities or resources that don’t add value to the company or customers. You can also call them inefficiencies. For example, equipment becomes waste when you don’t use them. It’s also a waste when you hire a talented candidate whose skill set does not match the position.

Operational efficiency eliminates this waste. You’ll have to assess every business procedure to discover ways to improve them. In the process, you’ll come across this waste and have to get rid of them.



Factors of Operational Efficiency

The first step to achieving operational efficiency is streamlining the base operation. Baseline operations describe the functions that make the organization work. Businesses can streamline operations by focusing on several factors, including:

  • Resource utilization
  • Production
  • Distribution
  • Inventory management



The Benefits of Operational Efficiency

Improving operational efficiency takes time and effort. However, it pays huge dividends. Here are a few of the substantial benefits a company can enjoy:

  • Happier and satisfied workforce and customers
  • Reduced rates of accidents, errors, lead time, and costs
  • More clarity for your employees about how the business functions
  • Improved business adaptability to new challenges and opportunities


How to Measure Operational Efficiency?

There isn’t a foolproof formula to measure your business’s operational efficiency. But there’s one you can use to get an insight: the operational efficiency ratio. 

The formula is:

Operating expenses (OPEX) + Cost of Goods Sold or Supplied (COGS)/Net Sales = Operational Efficiency Ratio

  • OPEX generally includes sales and administrative costs, office supplies, general salaries, etc.
  • COGS are the costs directly associated with delivering services and goods. 

Compare the operational efficiency ratio to industry benchmarks, past performance, or current targets. The result will show you how the business is doing.



How to Improve Operational Efficiency

Here are a few tips to help in improving your operational efficiency:

  1. Take a critical look at your processes. Identify inefficient processes and find ways to refine them.
  2. Understand and support your employees. Take an up-close-and-personal look at your employee’s daily performance. It will help you discover what holds your team back from working at their best. Provide any necessary support, like employee training and development for improvement
  3. Focus on eliminating data silos within your organization. You can achieve this by promoting cross-departmental collaboration.
  4. Embrace technology. Technology can automate many aspects of your business’ operations. They also offload tons of admin work off your employees’ shoulders, further enhancing efficiency.



Examples of Operational Efficiency Improvement

Let’s explore some operational efficiency examples in different industries:

  • A small business marketing team struggles to keep customers satisfied. Hence, they use CRM systems to acquire and analyze customer data to personalize in their marketing strategies.
  • An online store that often runs out of stock uses an advanced inventory management system. The system helps the e-commerce business ensure optimal stock levels and prepare for increased demand.
  • A restaurant automates back-office procedures like invoice processing. As a result, the business improves its relationships with distributors with punctual payments.


How Kilpatrick Can Help Your Company Improve Operational Efficiency

Time is one of the most valuable resources in business. As they say, time is money. And Kilpatrick Executive can help you save time. We can help identify problematic workflows and optimize business processes to increase operating efficiency.

Kilpatrick Executive can also handle all your HR-related needs, from recruiting to onboarding. By letting our experts handle these tasks, you can have more time to focus on valuable activities. 

Get in touch to learn how Kilpatrick Executive can help your business in improving operational efficiency.