Eldar Itlyashev, Executive VP and COO, Kavkaz Express, LLC.
As we continue to emerge from the Covid-19 pandemic, the global economy is facing a new set of challenges: inflation, fragile consumer loyalty and, finally, a possible recession. In such an uncertain economic climate, businesses must be unrelenting in managing their expenses and maximizing productivity. As a result, difficult decisions must be made, particularly when it comes to workforce reductions and layoffs.
Poorly managed layoffs can lead to many negative outcomes, including decreased customer satisfaction and sales, as well as a tarnished internal and external brand reputation. Certainly, managing and reducing expenses must always be done strategically, but when people are affected, it requires an even greater focus on objectively analyzing the return on investment and overall productivity of every asset.
One tool to help analyze this operational impact is an operations management transformation process. This is a fancy name for converting all of your inputs (i.e., labor, capital, equipment, land, buildings, etc.) into outputs (i.e., goods and services).
The Value Of Visualizing Operations
In times of economic slowdown, companies often face tough decisions, such as staff layoffs, to navigate challenging circumstances. As a business owner myself, I recently encountered this predicament and realized that making decisions solely based on financial statements is insufficient. It was during this period of uncertainty that I discovered the work of Professor Jan Albert Van Mieghem and Professor Achal Bassamboo at Kellogg School of Management, where I am an alumnus.
Their insights into operational visualization transformed my approach to decision-making. Rather than relying solely on financial data, I started looking deeper into the visual representation of our company’s operations. By breaking down the flow of work and understanding each task’s processing time, I gained valuable insights into our overall efficiency and capacity.
I also learned the significance of visualizing a company’s entire operation. In the case of my company, this means visualizing from the moment a customer enters our restaurant until they leave after their meal. This visual representation allowed me to recognize critical steps, potential bottlenecks and areas where improvements could be made.
Through this new lens, I came to understand that reducing labor expenses without a thorough understanding of each task’s impact could lead to unintended consequences. Visualizing operations allows you to see the interconnectedness of each step and the vital role each employee plays in delivering an exceptional customer experience.
Key Operational Performance Metrics
Visualizing the workflow and documenting each step can be an effective way to better understand the positions that perform the work and what resources are absolutely critical. Essential to this analysis is identifying operational performance measures. Examples include:
• Flow time: The average time it takes to convert one unit of input into one unit of output.
• Throughput rate: The average time it takes for units to move through the production process.
• Inventory: The average number of units within the boundaries of the process.
• Process cost: The average cost of converting one unit of input into one unit of output.
• Quality: The average fraction of output that meets the customer’s criteria.
These measures provide valuable insights into your operation’s performance. You’ll be able to determine your cycle time and your takt time.
Putting This Framework Into Practice
In its simplest definition, your company’s operation can be seen as a flow of work. For my business, the operation entails transforming raw products into ready-to-serve meals or services. This flow comprises various tasks, each performed by specific individuals with designated processing times. For instance, in the restaurant business, a customer acts as a unit, from entering the establishment to leaving after a meal.
Visualizing the horizontal flow of operations in a restaurant, we encounter several key steps: The customer is greeted by the host, seated by the host, attended to by the server, the order is taken and entered into the system, the kitchen receives and prepares the order, and the server delivers the meal to the customer’s table. Finally, the customer receives the bill, makes payment and departs from the restaurant.
As the business grows, additional staff members are added, while a slowdown in customer flow might necessitate layoffs. Such adjustments impact the financial statements, and decision-makers seek to reduce direct labor expenses or payroll expenses. However, making these decisions accurately requires an understanding of each task’s processing time and the personnel involved in the process.
Here comes the “aha” moment: A breakdown of all tasks and their processing times enables a precise calculation of how many customers a restaurant can serve from 8 a.m. to 8 p.m. This quantity is known as the “cycle time” or “unit workload”; it represents the restaurant’s ability to serve customers. By analyzing customer data for each day, the business owner can determine the number of customers to serve during the same time frame, which is referred to as the “takt time.” Takt time is a crucial measure that reflects the demand the restaurant must meet.
The integration of this detailed operational breakdown with your financial objectives leads to better-informed strategic decision-making. With a clear understanding of your cycle time, takt time and all the tasks in process (including each task’s processing times for specific individuals), you can ascertain the number of employees needed to meet current customer demand and adjust as the marketplace evolves.
In an era of continued economic uncertainty and unpredictable macroeconomic factors, the companies that ultimately win will be nimbler. They will have figured out how to more effectively align their operational processes to changing customer demand in real time. I believe the results will be better financial performance, fewer workplace disruptions and happier employees and customers.
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