A common trend in successful companies is that they each have a clear and focused idea of how they intend to make money. Whether your company is providing a good, a service or some combination of the two, your company should share this mindset. To make your company more profitable, you must continually seek ways to raise the value of your products and/or services.
Value is defined as the attractiveness of a product or service relative to its price. Value of a product or service comes by way of decreasing the price or increasing the quality. If you can provide your customer with a lower price without reducing the quality, you have now increased the value. Understanding how you can competitively produce and distribute products and deliver services is a major challenge in any industry. Ultimately, the goal is to do this at a low cost while meeting the ever-changing requirements of your customer. How can your company approach this problem?
Throughout the evolution of increasing operational efficiency, businesses have introduced concepts such as just-in-time production, total quality control, lean, six-sigma and countless others. Nearly 30 years ago a name was given to the holistic grouping of these concepts: Business Process Reengineering (BPR). BPR is an approach to improving business processes that seeks to make revolutionary changes as opposed to small, iterative changes. BPR does this by taking a fresh look at what the organization is trying to do in all its business processes, and then eliminating non-value-added steps. Compared with most of the other ways managers try to stimulate growth, innovations in operations are reliable and low cost, relative to other business improvement initiatives.
BPR focuses on removing non-value-added processes through complete process redesign. In industrial engineering, these non-value-added processes are classified by Lean as Muda, or waste. The eight wastes include transport, inventory, motion, waiting, overproduction, over processing, defects and underutilized capabilities. Performing Lead Six-Sigma value analysis is a great way to start this practice, allowing you to identify each component of the process, classify it as value-add, value-enabling or non-value-add (waste), as well as determine the size of the prize in eliminating the steps through BPR.
BPR evolved throughout the early aughts into Business Process Management (BPM), borrowing the main principles of BPR but putting an increased emphasis on utilizing technology to identify opportunities in efficiency to achieve the end goals of removing non-value-added processes from operations. Over time, BPM evolved to put equal emphasis on people and technology processes, and is now viewed as a critical component of Operational Intelligence. Operational Intelligence aims to provide real-time actionable information to key decision makers in an organization to identify inefficiencies and improvement opportunities as well as suggest operational solutions.
Putting the concepts of BPR, BPM and Operational Intelligence together yields how businesses leading in operational efficiency will operate going forward to increase the value of their products and services. For example, take one of the eight wastes of Lean: overproduction. Overproduction leads to many negative business outcomes depending on the industry your business is in. Within retail, overproduction often leads to increased shrink, causing a loss not only in the materials used in the overproduction, but also the labor costs that were required to facilitate that production.
An example of how Operational Intelligence would address this situation would be a combination of processes and technology. First, a process would be in place at the point where shrink is occurring to systemically capture the waste, such as having an employee scan merchandise that will contribute to shrink and record the reason for the shrink (e.g., overproduction, damage, etc.). Next, this data would be tracked to define a baseline as well as to benchmark it against best-in-class data. It would also be monitored over time to identify how it is trending.
This system or combination of systems would also be able to leverage data on labor requirements to produce the shrink items, material costs of the shrink items and attributable overhead to estimate the true cost of the overproduction. Based on the data, trends, and known history of these types of issues in the past, recommendations would be made on the root cause of the issue (e.g., inaccurate forecasts, poor execution against plan, etc.) and the appropriate steps to mitigate those root causes. Finally, the system would automatically communicate the issue to operational leaders through a dashboard or real-time alerts so that corrective action can be taken swiftly.
Just as BPR evolved to BPM which eventually became part of an approach to managing operations through Operational Intelligence, the way that your company combines processes and technology to improve operational efficiency will evolve and become smarter over time. Even before your company evolves to the point where a tightly integrated suite of systems delivers real-time identification of operational improvement opportunities, applying BPR and BPM concepts to your operations can continually identify ways to add value to your products and/or services, the result of which is an increase in value to your customers. These processes and tools aim to address the age-old question – is your customer willing to pay for this? – and eliminate as may of those processes where you answer ‘no’ as possible.