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August 31, 2022

Operational excellence: definition and implementation

Operational Excellence

Any industrial company that wants to be competitive must adopt a strategy of continuous improvement of methods. If we were to summarize simply what operational excellence is, we could say that it is a set of approaches aiming to be better than the competition, especially in the organization of processes and tasks, but also in the allocation of human resources. We will see what interests a company to strive for operational excellence, but also how to measure it.

What is operational excellence?

Definition

Operational excellence is the ability of a company to provide the best possible products or services with the least amount of resources. Thus, a company that can maintain a good level of operational excellence is able to generate an optimal level of profit.

However, it would be a mistake to reduce operational excellence to a cost management technique. The concept goes far beyond that, and involves, in particular, the level of qualification and versatility of employees, or customer satisfaction. In fact, some people consider operational excellence to be more of a state of mind than a method. Indeed, getting as close as possible to operational excellence requires constant efforts from all employees, an adoption of continuous learning and a well-oiled process.

A response to Lean management

The concept of operational excellence has its origins in Lean management. As a reminder, this is a production method whose origin is attributed to Toyota, which wanted to produce vehicles by making savings on production costs. This method was then widely popularized, adopted by industrial companies around the world who saw it as a way to gain competitiveness.

It is only at the beginning of the 2000s that the first criticisms of Lean were born. Indeed, these techniques were criticized for focusing exclusively on cost reduction, to the detriment of employee well-being. As a result of these attacks, industry players have gradually shifted to a less rigid vision, and which considers human capital as a strategic resource in its own right.

So is operational excellence about reducing costs while taking human capital into consideration? That's a good start, but let's take a closer look at why it's worthwhile to put this philosophy into practice in your company.

Why practice operational excellence?

Companies that can produce better, faster and cheaper are usually the ones that stand out. The global health crisis has widened the gap between those who have embraced digital technology and those who are slow to modernize.

But beware, it's not just about putting the right tools in place. Much more than a set of processes, operational excellence is a philosophy that must be understood by everyone, from operational staff to managers.

So what are the benefits of this approach? We can distinguish three categories:

Optimization of resources and costs

In many industries, a large part of the time is allocated to repetitive, administrative and/or low value-added tasks. Some studies even estimate that only 15 to 20% of time is spent on purely productive activities. Operational excellence aims at limiting the time spent on time-consuming tasks that can be automated.

On the other hand, it is important to identify the key metrics (e.g.: scrap rate, number of monthly breakdowns, etc.) to be monitored in order to identify possible areas for improvement in the production cycle.

Employee involvement

The operational excellence mindset also involves empowering all employees. Automating some or all of the less interesting tasks allows operators to focus on more rewarding missions. But not only that, as mentioned above, it is the corporate culture that starts it all. And a healthy corporate culture means engaged employees. So operational excellence encourages continuous training, knowledge sharing and upskilling where relevant. In the same vein, involving employees in the choice of KPIs to be monitored on each job gives them the keys to make decisions in line with the company's objectives.

Branding and image enhancement

By placing the customer at the center of its processes, the company aims to reduce delivery times, while optimizing production time, waste and errors. The result is improved customer satisfaction, which leads to a progressive improvement of the brand image.
Finally, operational excellence increases the level ofadaptability to new business challenges, such as those following the 2020 pandemic.

The 5 metrics of operational excellence

Operational excellence is traditionally measured through five main themes. For each of them, it is necessary to identify the relevant KPIs.

The quality

Quality is often measured by the percentage of waste. This indicator is often complemented by customer-related metrics, such as the percentage of returns or the number of complaints.

The human

All employees in the company must be made aware of the operational excellence mindset. Managers also have a key role to play in the planning and assignment of their teams. Digital scheduling tools allow managers toorganize production shifts in an optimal way.

Delivery times

Often considered as one of the most important indicators, the delivery time measures the time taken between the receipt of an order and the final delivery. The idea, of course, is to reduce this time without negatively impacting the expected quality level.

Health and safety of employees

Indicators related to employee health speak volumes about the attention the company pays to employee well-being. For example, an abnormal number of work stoppages can indicate a poor distribution of tasks, a lack of communication or a lack of involvement.

In summary:

Operational excellence is more than just a methodology to reduce production costs. This philosophy implies a global strategy, which requires :

  • 1. Identify areas for improvement on the production lines.
  • 2. To enhance the value of employees' work by reducing low-value-added tasks and by providing them with continuous training.
  • 3. To place the customer at the center of the company's vision, and to strive for an optimal level of flexibility and versatility.

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