Operational excellence is business necessity. Without it, organisations enter into mediocrity or fail. Business First looks at the importance of operational excellence.
According to PriceWaterhouseCoopers (PWC), as markets shift, businesses must adopt new strategies to survive. PWC states: “As market conditions shift and competitive pressures intensify, so companies have to adopt new strategies. That, in turn, means they need new operational models to accommodate these new plans.
But rising volatility and business complexity have recently made operational transformation much more difficult. And, as another three billion consumers join the global middle class in the next few decades – straining far-flung supply chains – conventional operational models will come under increasing strain.” Take for example, the mining sector. According to Deloitte, Australia’s increasing production costs for operators are impacting their competitive advantage.
Deloitte’s report Extracting business value through operational intelligence states that during the recent mining boom, high demand and high commodity prices created favourable conditions for investment and expansion of mining operations whilst masking some inefficient work practices.
Now that the economics of the industry have shifted, Australian mining operators are responding by cutting costs and pursuing operational efficiencies.
“Our experience reveals that a delicate balance has to be maintained between ‘cutting too close to the bone’ and maintaining a sustainable operation that can respond quickly when the next opportunity presents itself,” said Deloitte Partner Links Chithiray.
According to the report operational efficiencies may be gained by automating and integrating information across the value chain, which can also inform the more radical step of redesigning the operations.
Operational intelligence is one of the key levers for improving efficiency.
“It is the companies that enable their operators and management to respond in a timely way to operational variances and market volatility, that will be better placed to minimise any adverse im-
pacts and take advantage of productivity opportunities,” said Mr Chithiray.
“Ultimately, the goal of any mining operation in simple terms, is to optimise production at the lowest cost with zero harm to the workers and the environment,” said Mr Chithiray. “It is no coincidence that despite the tougher market conditions, global mining leaders are making big data investments in operational intelligence, remote operations centres, automation, analytics and mobility.”
Deloitte’s report noted that as connectivity to remote sites improves, a landscape of reporting and analytic solutions is emerging that can enable greater transparency of operational performance in real time for operational staff, site management and executives of the organisation. Such alignment enables all parties to make more responsive and fact-based decisions.
“Operational intelligence is driving fundamental changes in the way information is exploited in mining. These solutions are delivering new insights to mine site executives, management teams and operations staff that reflects their environment and empowers them to make data-driven decisions on performance and costs,” added Mr Chithiray.
Those in the mining sector that are keeping the company’s operational infrastructure aligned with its current strategy are the ones who are thriving. This is a key point for all companies.
As PWC states, “In a perfect world, a company’s day-to-day operations are managed for peak performance, so that it maximises its profits while minimising its risks, costs and losses. But in the real world management must make constant trade-offs in the risk-cost-loss equation, if it’s to keep the company’s operational infrastructure aligned with its current strategy. To strike the right balance, management must be crystal clear about its operational goals and develop key performance metrics that will enable it to manage those operations within well-defined tolerances.”
It means businesses must take a more flexible approach to their operations. Agility and responsiveness to changing market conditions are crucial to growth and future survival.
Operational change is easier said than done, but it is important. Businesses need to look beyond ‘cutting the fat’ as an operational response, because invariably the costs saved don’t equate to a fix in managerial or company performance.
Says PWC, “many companies have been unable to build on these gains because they haven’t developed team leaders who can do three things: continuously identify and make efficiency improvements; align the corporate vision with activity on the shop floor; and demonstrate the technical and interpersonal skills that will help establish a lasting culture of operational excellence.
“Creating an agile operation in the services sector is an even bigger challenge. In factories, idle workers and stacks of inventory provide clear signals that an operation is poorly designed. In service operations, by contrast, it’s often difficult to identify waste and inefficiency. Management may be aware of operational problems without being able to define them in detail, let alone design ways to correct them. Yet failure to understand how well its operations are functioning can be fatal to a service provider.”
So how are these problems solved? The Shingo Institute has an interesting take. It offers Three Insights of Enterprise Excellence™.