Operational Performance Improvement in Industrial Companies

kaushalsai

Bain & Company has developed a state-of-the-art program for operational performance improvement. Our program applies 10 performance improvement levers without losing sight of long-term company goals. Using Bain’s Performance Improvement Diagnostic , also known as the PI X-ray, a company’s efficiency can be screened both accurately and quickly. This process identifies areas with high optimization potential. It also develops and prioritizes suitable improvement initiatives. Companies can then focus on projects and initiatives that promise genuine success.[br][br]Virtually every company is familiar with the broad challenge of improving work efficiency and streamlining costs to boost profitability. By simplifying operational procedures and focusing the product ranges, companies can reduce complexity in specific areas and increase revenue while reducing costs. Companies can also achieve long-term structural improvements by, for example, optimizing plant networks, inventory management and distribution structures.[br][br][br][br]Examining operational performance[br][br]Regardless of its financial situation, every company should carry out an operational performance improvement program every once in a while. However, the motivations for conducting such a program vary substantially. Typical reasons include urgency to achieve financial targets, exhausted cost-reduction potentials, a challenging strategic and competitive position, and evolving market conditions. Bain assumes three different starting situations:[br][br]Expanding leadership positions[br][br]Successful market leaders work constantly to improve a good cost structure. However, some market leaders achieve a satisfactory profit margin but fail to fully exploit their profitability potential. Bain refers to these companies as “happy underperformers.”[br][br]Closing cost gaps[br][br]Next we find companies with a size handicap that prevents them from realizing the same “leadership economics” as the market leaders in their sector. The key is to determine the extent to which the current profitability and cost gap results from operational inefficiencies.[br][br]Operational restructuring[br][br]Companies experiencing stormy weather are often confronted with drastic changes in market conditions. Especially in capital-intensive sectors, cyclical or structural market weaknesses quickly lead to revenue losses and dwindling profits. In this situation, companies must optimize their operational business, usually under time constraints.[br][br]The Performance Improvement X-ray[br][br]Regardless of their individual circumstances, companies usually ask themselves the same question: Where does the operational full potential lie along the value chain, and how do we achieve it? Bain’s PI X-ray involves a thorough screen of key performance dimensions, including procurement, production, service, distribution and administration. The result is a dashboard of the most important cost and improvement potentials across the entire company. The main areas of action can be defined, goals determined and concrete measures planned.[br][br]The X-ray is based on a sound understanding of the four critical parameters of operational improvement: cost, market position, customer trends and complexity, which is probably the most underestimated.[br][br]Complexity arises from several causes. Insufficient knowledge of customer needs can create technical complexity due to a needlessly broad range of products. On the other hand, unclear responsibilities can create overly complex processes and organizational structures. Whatever the cause, Bain studies reveal that the least complex companies grow 30% to 50% more quickly than the peer average.[br][br]Benchmarks are good, but not good enough[br][br]Using the PI X-ray, Bain applies proprietary benchmarks and databases as well as a variety of leading cross-sector and sector-specific databases. The point of benchmarking is to determine the targets for numerous Key Performance Indicators (KPIs) that embrace all company functions.[br][br]However, benchmarking has its limits. Benchmarks indicate how good “good” really is, but they do not indicate whether it’s possible to be better than just “good.” Nor do they show companies how to achieve performance improvements.[br][br]In addition to benchmarking, Bain draws on the functional expertise of experienced specialists in different fields as well as its own experience in best practices across many industries.[br][br]Operational performance improvement potential[br][br]Bain’s X-ray is geared to 10 performance levers that have proved valuable over many years[br] These levers are:[br][br]Reducing procurement costs[br][br][ul][li]Optimizing production[br][/li][/ul][ul][li]Optimizing distribution[br][/li][/ul][ul][li]Optimizing after-sales service[br][/li][/ul][ul][li]Reducing overhead costs[br][/li][/ul][ul][li]Optimizing IT[br][/li][/ul][ul][li]Reducing product complexity[br][/li][/ul][ul][li]Reducing product costs[br][/li][/ul][ul][li]Reducing working capital[br][/li][/ul][ul][li]Optimizing capital expenditure[br][/li][/ul][br]rest are all the boring stuff[br]

Rintu sk

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