Process efficiency – what is it?

Basically, it is the amount of effort your business must put in to achieve an outcome. The better execution, the smoother processes, then the better process efficiency. 

More specifically, let’s say your business produces shoes. You have 3 highly specialized cobblers who can make (each of them) 3 pairs of shoes per day. It gives you 9 pairs of shoes per day. Each new potential employee has to go through a long, 3yrs training to gain the skills of a shoemaker. If any of the cobblers goes sick, you lose 3 pairs of shoes each day, and it is hard to replace the cobbler with another. 

However, you can create another system. Instead of one, a highly specialized cobbler who knows the whole process of shoemaking, you can cut the process into smaller, and easier pieces. Let’s assume the new way has 15 parts. You can hire 15 people, each of them gets a 3 weeks training and they are ready to work. Moreover, because of the repetitive nature of the smaller part of the process they might be able to create more products. If anything happens, it is easier to replace employees who know just a small part of the process than a shoemaking master. 

Another case: you have an IT department in the company, and they are supposed to create an application. 

Imagine the following situation as Test Manager:

Your team finds bugs when testing project x:

Subject: “So far we’ve found 56 defects in project x.”

Test Manager: “Okay, I will inform the development team.”

After a week, the developers respond to Test Manager:

Developer: “We’ve fixed 45 defects.”

Test Manager: “Good, I will inform my Test Team about that.”

 After another week, the tester responds:

Subject: “Indeed, these 45 defects are patched, but we found an additional 10.”.

As much as we can believe this situation doesn’t happen often, it occurs to be quite popular. However, there is an easy solution: improving the defect management process to speed up the whole production in the end.

PS you can read more particularly about the defect management process here 😊

The smoothness of the processes has a and impact on profitability, so increasing process efficiency you are influencing the rise of profits. 

How do you calculate process efficiency?

To measure efficiency, you can use this process cycle efficiency formula:

value-added time/total lead time

           value-added time – time spent creating your product

           total lead time – the time it takes to complete the entire process cycle (so the values-added time and wasted time).

 There is also a known formula to determine overall process efficiency: 

(value of outputs/value of inputs) x 100

We can come back to a shoemaking example (before changing the process). Let’s assume the company spends $1500 a day to pay for the labour of professional cobblers and materials and the company produces $2500 worth of shoes per day. It gives 60% efficiency. 

If a process is above 100% efficiency, it is considered to add value. The higher the percentage, the higher efficiency your processes have.

How to improve process efficiency?

First of all – identify all the processes and do a check-up

What is working well? What is not? What would benefit from a change? Do not forget to ask people. People who work with a system/process every day know the best what slows them down. They might be an excellent source of info, you just need to listen. Depending on a business it could be valuable to ask clients about their opinion.

Second of all – set goals and create KPI

You already know the downsides of processes. What results do you want to gain? Be specific and set very clear goals. For example: rising manufactured products by 10% or rising customer satisfaction by 90%. Then you can create KPIs that are going to help to reach expected results. 

Next step – redesign processes

Step by step start fixing processes one by one. Change workflows, improve measures and don’t forget about your employees’ advice. Bring KPIs under particular workers who will be responsible for monitoring the metric. 

Fourthly – implement improved processes.

Now, you should have a solid process in mind. Time to bring the improvements into effect. However, it is relevant to show your employees why redesigning took place and how it is going to help everyone to get the goals faster.

Then, the implementation can start. Consider that your workers need time to adjust to the new processes. Be sure to provide them with all the necessary knowledge or eventual upskills if needed. 

Last part – observe, analyse, and optimize new ways

Process efficiency requires constant monitoring, analysing, and optimizing. Schedule regular check-ins with stakeholders to ask for their feedback on the processes, because people are a crucial part of each business. Let them know they can feel comfortable while expressing opinions. 

Every business has a process efficiency. The question is what percentage of efficiency does your business represent and how to improve that number. Five steps on how to do it are not much but each step is extremely important and require a whole lot of attention and insight. The way of improving process efficiency probably will be tough but worth it. 

Fabres is always ready to step in and help out your business! 

May efficiency be with you

Fabres