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Breaking Down Operational Optimization to Maximize Value Creation

Team rowing or crew, requires a group of people to work in unison to go the fastest in the most efficient manner possible.  If only one member is out of rhythm then the team will lose.  It is the old proverb, “a chain is only as strong as its weakest link”.  In business we aspire to win in terms of growth and profitability, but if sales and operational effectiveness are not working in unison it will erode the value of your enterprise.  On the surface this insight is incredibly obvious, but in the “heat of battle” (especially with small and mid-sized companies) the balance between the need to generate sales and the ability to meet demand often get out of sync.  This disconnect creates a drain on capital, internal dissention, and the erosion of customer goodwill.  Certainly a recipe for disaster.

As you look to generate your yearly growth plan, consider that both sales and operations must work in unison.  Asking how to maximize your operations in terms of Cost, Quality, Speed, and Flexibility is where most start the process.  But it goes beyond being cheaper, faster, better in generic terms.  You need to discover where you create value for your customer – which in turn drives your value proposition.  This needs to be your initial focus.  For example, if you sell primarily to Walmart, you must produce high volume at low cost. However, if you create custom engineered parts for tool and die operations it is a completely different view.  The reality is one process fix does not enhance all value drivers. You need to view each driver from your customer’s perspective to ensure your business stays efficient and effective in delivering value to your client.  Gaining this understanding will allow your organization to determine how value is best created and how it flows through the enterprise. This will keep you not only within your desired margins, but keep you relevant to your customer.

Once you understand the value proposition. The second step is to identify the constraints that impede value creation.  From an operational perspective this means linking Inventory, Through-Put and Cost, within the context of Equipment, People and Policies to determine where bottlenecks erode efficiency.  The idea is to keep pace throughout the entire operation, focusing on ways to ensure the slowest process does not stop your fastest. It seems paradoxical that going slower, makes you faster, but the reality is you can only produce at the rate of your slowest process – so plan your inventory stacking, equipment and human resources to eliminate backlogs and delays in your faster operations.

Third, this is an iterative process.  Adjusting to maximize the effectiveness of your slowest link will by default create inefficiencies your faster processes.  You are constantly solving a circular equation to keep operations in harmony with demand.  How do you use your people, equipment, and policies to best utilize inventory, improve through-put and control costs. It is the harmonization of resources (human, material, and machine), policies and customer value that will keep you track.  Create the internal communication systems and processes that keep the continual review and measurement of your operations at the forefront of your enterprise to drive sustainable value for both your customer and your enterprise.

 

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