Planning for business success is challenging in today’s economy due to factors such as high interest rates, rising inflation, widespread labour shortages, and fears of a looming economic slowdown. In order to plan ahead, leaders must understand current trends and adapt their business model. One key to optimizing an organization’s business model is to reduce wasted time and resources to drive up business productivity.
Current Canadian economy
GDP growth in B.C. is forecasted to fall to 0.4% in 2023, a sharp decrease from an estimated 2.9% in 2022. One major challenge to growth is the continuing tight labour market. In May, B.C. added 1,400 jobs to the economy, with unemployment remaining steady at 5%, lower than the national rate of 5.2%.
Inflation also remains a major concern for not only businesses, but affordability across the board. As of April 2023, Canada-wide inflation fell to 4.4%, from 6.8% year-over-year. Despite this drop, inflation still remains above the Bank of Canada’s goal of 2%. On June 7, the BoC once again raised interest, this time increasing the benchmark overnight lending rate by 25 basis points, pushing the key interest rate to 4.75%, the highest it’s been since 2001. This increase further raises the stakes for business productivity and financial success, especially since the BoC is scheduled to provide another update on July 12, with many experts not ruling out a further rate hike. In this time of economic uncertainty, reviewing and amending processes to ensure operational efficiency is critical.
What is operational efficiency?
Operating efficiently means using resources like time, people, equipment, inventory, and money in an optimized way to serve the business. Efficient companies are leaner, agile and more profitable.
While implementing technological innovations such as AI continues to be widely discussed, it isn’t necessarily critical to achieving significant gains. The first step to improving your operations is usually to better manage your team, processes, and information to reduce waste and create more value for customers. By some estimates, just 15 to 20% of an employee’s work day is spent on purely productive activities in the average Canadian small-and-medium‑sized business.
The goal of an operational efficiency mindset is to cut or limit the amount of time spent by workers on non-value-added activities or inefficient processes. By maximizing the amount of value-added work employees do, an operational efficiency exercise can make a business much more competitive and profitable.
Benefits can include the following:
- Reduced costs, lead-time, and rates of accidents and errors.
- Happier customers and workforce.
- More clarity for your team about how your business works.
- Greater adaptability to new business challenges and opportunities.
How to identify operational efficiency problems
Businesses often understand they have operational problems, but leaders are too overwhelmed with day-to-day tasks to fix these issues, or simply don’t know how to begin optimizing their business. Often, leaders spend most of their time being reactive and not taking steps to proactively prevent problems before they happen.
Operational problems often accumulate over time in unnoticeable ways as businesses grow ad hoc, adding on new employees, and machines and processes haphazardly with inadequate strategic planning. Issues arising from this can include running out of work space, experiencing product defects, not being able to meet customer demand, and incurring employee overtime costs while still not hitting business targets.
You can alleviate these types of issues and boost productivity through an operational efficiency drive. An excellent starting point is to follow the Plan Do Check Act (PDCA) Cycle, which was developed by Dr. William Deming, an American engineer influential in innovating quality management. Also referred to as the Deming Wheel or Shewhart Cycle, the PDCA Cycle analyzes why processes may not work as planned, offers adjustments, and reviews the outcome.
The PDCA Cycle consists of the following four steps which are repeated in a loop to promote continuous improvement:
- Plan: Plan ahead of the change and try to predict the results.
- Do: Execute the plan, taking small steps in a controlled environment.
- Check: Monitor and collect data, comparing to expected results.
- Act: Take action to standardize or improve the process.
Let’s take a look at how the PDCA Cycle can been used.
Case study
A manufacturing company was struggling to meet production targets. They decided to implement the PDCA Cycle to identify the root causes of the inefficiencies and improve their operations.
Plan
The organization assembled a task force to lead this initiative. On different days and times, members of the task force did a Gemba Walk of the factory, which is a workplace walkthrough to observe employees and ask them questions about their tasks, and analyze the overall activity and flow of operations.
From this, the taskforce identified the following challenges to productivity:
- Employees are often kept waiting when colleagues in the assembly are busy with other tasks.
- Long distances between workstations eat up time when employees have to travel between stations.
- Cluttered workstations make it difficult to find the right tools.
- Machines and equipment are poorly organized.
- There is excessive inventory that takes up space.
After examining the findings, the team thought of possible solutions that would eliminate the inefficiencies and drive business success.
Do
In the next stage, the task force implemented their proposed solutions in one department to see how the adjustments would affect productivity. Some of these actions included:
- Redistributing and eliminating redundant tasks among employees to avoid lost time along the assembly line.
- Reorganizing workstation placements to reduce distances between stations, and grouping tasks more to reduce the number of trips that employees need to make.
- Creating an organized system for storing tools and creating visual aids for employees to find these tools.
- Implementing a regular organizing schedule for tools.
- Asking for employee feedback on machinery and equipment placement, and implementing the suggestions.
- Repurposing unused inventory and revisiting the forecasting system that determines how much inventory is produced.
Check
Digital dashboards were created to track employee productivity and inventory. Additionally, daily team meetings were implemented to collect employee feedback and address concerns.
Act
Encouraged by the operational efficiencies gained by the sample department, the task force rolled out similar changes in other departments throughout the factory.
As a result of using the PDCA Cycle, the manufacturing company was able to see significant improvements in their operations. They were able to consistently meet their production targets and also reduced errors and overtime pay. The company also saw an increase in employee morale and engagement due to their involvement in the improvement process. The success of the PDCA Cycle inspired the company to continue using this method to identify and address other areas of improvement within their organization.
Businesses face many challenges in today's uncertain economy. However, by adopting an operational efficiency mindset and using tools like the PDCA Cycle, leaders can take proactive steps to reduce waste and inefficiencies to ramp up productivity and overall success without significant added costs. With the right processes in place, businesses can unlock their potential and excel in any market.
Download BDC’s free operational efficiency toolkit to get started.
Mathieu Céré, CFA, Vice President for Vancouver at BDC is passionate about helping Canadian businesses thrive by providing financing, capital and advisory services.
Manuel Gogolin, National Co-lead for Impact - Growth and Productivity Accelerator at BDC is an expert in helping businesses optimize their operations and integrate digital technologies to stay competitive.
