What are the Benefits of Operational Excellence?
This may seem like a fairly straightforward question, but it’s not that easy to answer since how we describe the benefits of Operational Excellence cuts to the heart of how we think about our manufacturing operations and their relationship to business growth.
All the operational benefits we normally associate with continuous improvement dramatically improve once we achieve Operational Excellence. These include:
- enhanced on-time delivery
- inventory turns
- lead time
However, the true impact of Operational Excellence on an organization is much deeper and far more profound:
Remarkable business results in a short amount of time.
Once an operation has achieved Operational Excellence, it will require very little (if any) management intervention. The employees who work directly in the flow will be capable of not only of getting the product to the customer, but also of recognizing problems with the flow before they happen and fixing them on their own using pre-established standard work.
Management’s Time is Focused on Business Growth, Not Putting Out Fires
In an environment like this, when an organization’s managers and leaders are not chasing parts and people, putting out fires and going to meetings, how will they spend their time? They will be working on offense, or growing the business in areas like:
- meeting with new customers
- interfacing with existing clients
- developing new products
- breaking into emerging markets
By extension, we can also reapply the time, capital, and personnel once allocated to operations to other areas of the business.
With Operational Excellence, we move from an environment where operations simply produces the product to one in which the operational side of the organization becomes capable of contributing to the overall growth of the business. And that’s the true power and benefit of Operational Excellence, because we can’t grow the business if we don’t have the time we need to do it.
All the other benefits we’ve come to expect from a journey of continuous improvement will be realized once we achieve Operational Excellence. But its true benefit is not so much what it will do for the operation, but what it will enable the operation to do for the rest of the business.
Below is a sampling of the benefits some companies have seen as a result of implementing and achieving Operational Excellence —
Parker Instrumentation Products Division Europe
Parker Instrumentation Products Division Europe makes fittings, valves, and manifolds for the oil, gas, and petrochemical industries. After following the principles of Operational Excellence, the operations side of the business now runs using “self-healing flow” where the employees fix flow when it breaks down. The company was able to reallocate time, capital, and additional resources from production to other areas of the company to drive innovation and growth. The results?
- Parker IPDE launched three products in the span of one year – something it took their competition ten years to do
- The company grew its manifold line from something that was essentially a non-factor in its business model in 2003 to 18% of its business as of 2008
- Employees who once worked in production now contribute to business growth in a more powerful way. For example, an employee who used to work in production control was converted to a pricing analyst to make sure “the company was winning business through its strategic pricing initiatives.”
- Parker IPDE can now process 30% more quotes per day, in 25% percent of the time, and is “achieving 23 percent more value from quoted items”
IDEX Health & Science
At IDEX Health & Sciences (IH&S), a business unit that produces fluid handling equipment for analytic and diagnostic systems, growth soared after the company achieved Operational Excellence.
- In 2010, IH&S grew at a rate about three times that of the market average
- That same year, 35% of its sales came from new products and systems
- The general manager spends roughly 60-70% of his time on offense, meeting with customers, evaluating new products, and breaking into new markets
At Micropump, another IDEX-owned business, the company also runs according to the principles of Operational Excellence, freeing up time and resources to devote to innovation.
- Micropump grew at a rate about four times that of the market average in 2010
- In 2010, “revenue from new products increased 162% from 2009 to 2010”
- That same year, time spent on innovation increased 125% from the previous year, and dollars in their innovation process experienced a 240% gain from 2009 to 2010
At Hypertherm, a small, privately held company located in Hanover, New Hampshire, Operational Excellence is simply the way they do business. There is virtually no management for a 600-plus associate production staff who work off of visual indicators that tell them when to produce and when to reorder raw materials, essentially eliminating the need for a production control department. With so many resources freed up by Operational Excellence, Hypertherm has focused its efforts almost entirely on business growth.
- After the recession of 2009, Hypertherm’s sales were back to prerecession levels roughly one year sooner than they expected
- From its facility in Hanover, New Hampshire, Hypertherm sells and delivers nearly 25% of its products to Asia and almost 30% to Europe
- According to the company’s vice president of manufacturing: “Operations aren’t a fundamental business problem. They’re not an issue. What amazes me when I sit through our planning, relative to other firms I’ve been with, is how very little time we spend discussing Operations-related things. It’s really focused on customers; it’s focused on markets; it’s focused on strategy. Operations gets time; it’s not ignored. It’s not like we don’t want to talk about it. It’s that we don’t have to talk about it.”
These gains in market share and top line growth did not come from improvement efforts focused on eliminating waste; they came from the companies setting a destination where “Each and every employee can see the flow of value to the customer, and fix that flow before it breaks down.”SM By creating self-healing flow and removing the need for management intervention in the operation, these companies have freed up their leadership to unleash the power of their organizations to grow.