Why a Business Should Aim for Operational Excellence Performance

The aim of being in business is to satisfy customers in ethical ways while making a profit. To achieve this, variable and fixed costs should be as low as possible without sacrificing on quality products or customer experience.

The term Operational Excellence is often used to refer to a range of technical, soft-skills, and culture components. Regardless of how it is phrased, the core definition and goal are the same – to produce better operational results, and create value for customers and shareholders. In short, Operational Excellence performance is to produce the best quality products or services customers will buy for the lowest expenditure to maximize operating profit. The most successful businesses have built systems and processes that automatically keep their costs low and profits high.

A simple accounting model of how businesses make a profit.

Figure 1. A simple accounting model of how businesses make a profit. It also explains why achieving Operational Excellence success is so important to the profitability and longevity of a business.

The diagram above shows operations have fixed costs, such as leases, rents, permanent staff etc. Variable costs also exist, such as raw materials, utilities, casual and contract labour, etc. The sum of fixed and variable costs is the Total Cost of Operation. Businesses make a profit by selling their products for more than the Total Costs of Operation. When fixed or variable costs increase, the business loses profit.

As the purpose of a business is to increase its profit, this is achieved by either increased sale price of products (which is difficult in competitive markets) or by reducing the Total Costs of Operation. When a company strives for Operational Excellence performance, they are striving to reduce their fixed and variable costs.

Industrial companies, those which are dependent of the performance of physical assets to produce saleable products, can reach Operational Excellence performance soonest with Plant Wellness Way EAM methodology. PWW EAM is a system-based, holistic approach to reduce operational costs – addressing losses and wastes that occur in daily operations, and improving operating asset reliability. Through the use of the tools and processes in the PWW EAM methodology, companies eliminate thousands of operational risks and thereby forever lower their fixed and variable costs. They design and implement targeted changes that ensure Operational Excellence results by getting the greatest reliability improvements and quickly reducing maintenance and operating costs.

Many organizations seek Operational Excellence performance but very few are successful. Getting Operational Excellence results and profits is built into your business when you use the Plant Wellness Way EAM methodology.