Question

From an operation management perspective, how can operational metrics and analysis and best practices be implemented to contain costs?

Answer 1

In today's marketplaces, where competition is fierce and where distinctive competitive advantage is minimal (for example, today most of the cell phones in mid-price range boasts almost same features, same chipsets, and almost look same), every corporation is focussing on managing costs by efficient operations to maximise profits. This is where operations management becomes a highly relevant field of study in the context of today's dynamic marketplaces. There is always a scope of improvement right from the product conceptualisation (or creation of services in case of service industry), design development, sourcing of raw materials, production planning, inventory management, distribution and delivery and of course after sales services.

That is where operations management create value for businesses. For example, Operational metrics creates measurable performance indicators for individuals and then it can be linked to the corporate strategy to understand if the business processes are in line with the strategy or not. Also contribution by individuals can be readily assessed by way of operational metrics. Operational metric measure the efficiency with which any operation is carried out and can suggest areas of improvement. Interestingly operational metrics can be applied to any business processes including leadership and service management.

Primarily, operation metrics help in managing the costs by doing the following

1. Create companywide benchmarks of performance. Thereby it creates awareness across the hierarchies
2. Setting up guidelines for stakeholders in achieving the desired level of performance
3. Generating information to be shared with the management which can take necessary actions in the case of deviation from business strategy or in the event of falling levels of performance/ efficiency
4. Improving better utilisation of resources. Resources are finite and as such allocation of resources is a critical activity in any business operation. Operational metrics can indicate need of a resource to a specific bottleneck and provide insightful information to the planners.
5. Apart from creating measurable performance indicators, operation metrics also creates a feedback loop between the managers and decision makers, thereby improving communication within the organisation.
6. This helps in improving overall efficiency, reduce wastage of resources, optimising costs, and thereby improving market performance

While implementing such metrics, it is important to consider following parameters

1. Identifying parameters to measure, how to meassure them and how to interpret the results
2. The metrics should be implemented so as to improve the same by taking feedback from operations units and individuals
3. The implementation should start at one specific function or unit or operation which then can be scaled up to other departments or operations
4. Most importantly reporting of performance to the management/ decision makers should be precise and concise, so that time is not wasted in creating as well as analysing the same.
5. The metrics should keep changing to align with the business strategies in the medium and long term.