Operational Efficiency - Definition & Meaning
What is Operational Efficiency?
Operational Efficiency is defined as the ratio of input utilized in carrying out a business operation to the output produced with those inputs. Inputs maybe raw materials, labor, capital etc. whereas output maybe goods, ROI, customer loyalty etc. Operational Efficiency ensures the company’s capability to process, produce, and deliver goods to customers with ensured quality and support.
In order to achieve efficiency following steps must be taken:
- Decrease redundancy
- Avoid wastage
- Streamline the production process
This not only reduces company’s expenses but makes it more competitive in the market.
Some important process on adopting of which, operational efficiency may be increased are:
- Just in Time (JIT)
- Six Sigma
- Total Quality Management (TQM)
Just in Time (JIT) process is one of the important concept which emerged to increase operational efficiency. In JIT, supply of inventory is done when it is needed and thus carrying costs are reduced.
Six Sigma is the quality improvement process aimed at reducing errors to six sigma level (3.4 defects per million). It uses several quality management and statistical methods.
Total Quality Management is a management approach that involves improvement of all employees, their culture and the communication levels through several disciplined activities like cross functional training, process management, customer involvement, strategic planning etc.
Example
In year 1995, Jack Welch, CEO of General Electric implemented six sigma concept as GE’s business strategy. At that time, GE was struggling hard to move ahead, and so started reducing wastages, decreasing defects, maintaining work culture etc. Thus, GE tried its best to increase its overall operational efficiency through several processes and achieved the same.
Hence, this concludes the definition of Operational Efficiency along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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