Some have a great level of maturity in their operations, minimising their operational expenses and enjoying their competitive advantage while some struggle to keep good profit margins.
Let's look at the equation of competitive advantage.
Competitive Advantage =
(Willingness to Pay - Cost)you - (Willingness to Pay - Cost)strongest competitor
It's obvious that one way to gain competitive advantage is to reduce costs, which gives organisations an edge over their competitors.
The first step is to understand what market perceives as valuable and what creates that value. This is exactly what your customers are paying for. No customer is willing to pay for operational shortcomings, repetitive and tedious processes, and endless meetings with no results.
Once value is clearly defined, visualising how it flows through an organisation becomes possible.
Best way to visualise flow is through mapping the value stream. It results in a big picture of how organisation converts inputs to outputs, and eventually outcomes. Therefore, people who are close to the picture should be all involved in this. In one single workshop.
Questions to ask;
There's a lot of NVA. Value stream map (VSM) is not only brilliant for spotting the bottlenecks and shortcomings of an organisation systematically, but also helps reimagine new ways of delivering business and customer value.
One of the greatest flow inhibitors is the defects. They create unplanned work that increases the lead time, therefore, cause delays and reduce customer satisfaction.
Large batch size is the nemesis of lead time. As the size of work gets larger, it takes longer. Long-running work brews a lot of problems in the background.
e.g. Assumptions become growing risks as they remain unvalidated for extended time frames.
e.g. Defects hide behind large piles of work, and create too much rework when noticed late.
Think of a traffic jam. More vehicles, more congestion. As the utilisation increases, it takes longer for vehicles to get from point A to B. Now imagine all the initiatives, programs, and projects running throughout the organisation at any given time.
Organisations that add more work to prevent underutilisation need to keep in mind Kingman's Formula and Little's Law. Kingman tells us that lead time increases exponentially once a certain level of utilisation has been exceeded. John Little gives us the equation that demonstrates the impact of a system's load on its queue time and throughput.
Now that we've gone through boosting operational efficiency, let's talk about operational excellence.
Doing all of the above helps maximise operational efficiency. However, taking operational excellence as a one-off optimisation project is unlikely to be sustainable. That's because excellence requires continuous adaptation. Today's excellent may become irrelevant pretty quick.
Leaders play a crucial role in building continuous improvement to sustain efficiency. Those who are grounded in reality, motivate others with their humility, and aspire them with their knowledge help raise new leaders, boosting autonomy without sacrificing alignment.
Building a culture of trust, respect, and empathy builds an operational engine of excellence that keeps excelling at what it does, creating value. Therefore, start with people, optimise or redesign processes, and choose technologies that suits the former two.
