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In today's business environment, organisations find themselves in a tough spot.
They must deal with increased operational costs due to rising inflation and interest rates, but unfortunately, not all of these cost increases can be passed on to the customer.
So, the challenge is complex: how to absorb these increased costs without passing them on to customers or eroding margins.
The solution lies in streamlining operations to enhance efficiency and maintain profitability.
Streamlining Operations: The Essentials
At its core, operational efficiency is about maximising output from every input unit.
It's an ongoing process of evaluation and refinement that ensures every operation within the organisation contributes to overall productivity and cost-effectiveness.
This requires you to be a cost-reduction superhero with the detection skills of Sherlock Holmes.
You need to analyse production times, review waste management practices, minimise excess inventory levels, and examine every other process that contributes to the delivery of products or services.
Implementing changes to improve efficiency requires a strategic approach.
We start by thoroughly analysing existing operations to identify areas for improvement.
Ultimately, this might mean we must invest in adopting new technologies, rethinking workflows, or reorganising teams to better align with business goals.
Implementing Process Optimisation
The journey towards operational efficiency begins with a deep dive into the organisation's processes to uncover inefficiencies and areas for improvement.
It's about asking the right questions:
Are there redundant steps in our production line?
Can we automate routine tasks to free up resources for more critical work?
Is our inventory management strategy meeting customer demand whilst minimising waste and reducing costs?
A real-world example of process optimisation comes from my experience leading a centralised procurement team:
Case Study:
When I ran a centralised procurement team for an information solutions business, we did a lot of work on making savings in our corporate services areas.
Still, we had little involvement with business group procurement, which was run as individual profit centres.
One extensive (and increasing) area of spending was outsourced software development.
Software development activities were increasingly being undertaken by an outsourced provider on our premises and their premises overseas.
Outsourcing developers vastly increased our ability to acquire hard-to-obtain skill sets in our local market.
Outsourced labour in one business group was so successful that others followed suit.
When the Procurement Team asked to get involved in a tricky negotiation to support one business group, we did some analysis across business groups and the outsourced labour providers.
To our great surprise, we discovered that different business groups were getting charged different rates for the same types of developers.
Identifying this information allowed us to centralise the procurement of all the contracts and negotiate standardised prices.
We saved significant amounts of money and substantially simplified the procurement processes for the whole organisation.
This case study illustrates the power of process optimisation in uncovering cost-saving opportunities that can directly benefit the bottom line.
Choosing the Right Technologies
The role of technology in operational efficiency cannot be overstated. From automation and robotics to AI and machine learning, the right technological tools can transform business operations, making them faster, more accurate, and less costly.
However, technology implementation must be strategic. Evaluating the potential impact of new tools against their cost and complexity is essential. For example, while AI can offer significant data analysis and decision-making advantages, it may require substantial investment and expertise to deploy effectively.
Consider the impact of introducing a simple automation solution in another real-world scenario:
In one organisation I worked with, reconciling manual customer payments took 3 to 4 hours each day.
The task was more challenging when a customer either continued to use an old or incorrect reference, making the reconciliation job more of a detective job than merely allocating payments correctly would suggest.
This was a never-ending job because no sooner had the payments been reconciled for the day than the payments needed to be reconciled the following day.
Not surprisingly, because the reconciliation process took so long, there was little time to do anything else.
The old classic of no time to improve the process meant keeping on top of the work; it was easier to continue dealing with the inefficiencies than fix them.
A trial of a software robot mimicked the process and was programmed to perform the same task as the cash management team.
The software robots could run as soon as the bank feed fed the Finance system, which in this case, was 7 am.
The software robot was programmed to run a few minutes later and completed the reconciliations in about 20 minutes, typically before the team came into the office.
This saved 3-4 hours daily, which the team could use to perform more value-added activities and improve business processes elsewhere.
This example underscores how even straightforward technological interventions can yield significant efficiency gains.
Balancing Automation and Human Touch
While technology can streamline many processes, it's crucial to maintain a balance between automation and the parts of an activity that add substantial value to an organisation.
Certain aspects, particularly those involving customer interaction and high-quality craftsmanship, like in the manufacture of a Rolls-Royce, benefit from the irreplaceable skills of humans.
If these craftsmen were replaced with robots, the value of the product would diminish and subsequently reduce the amount that could be charged for the car.
Fostering a Culture of Continuous Improvement
Operational efficiency is not a one-time project but a continuous quest.
It requires a culture that values ongoing improvement, encourages innovation, and is willing to adapt to change.
Employees at all levels should be empowered to identify inefficiencies and suggest improvements.
Conclusion
Streamlining operations for cost efficiency involves process optimisation, strategic technology adoption, and a commitment to continuous improvement.
By learning from real-world examples and applying these principles to your organisation, you can navigate the challenges of the current economic climate and position your organisation for long-term success.
Call to Action
For leadership teams and CFOs looking to expand their influence, the path forward involves embracing innovation, investing in personal and professional development, and fostering a culture of strategic thinking within their teams. The future belongs to those who can see beyond the numbers, I can help; please get in touch.
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