It is our long held view that the primary function of operations is to optimise gross margin
contribution.
From our extensive experience, operations teams are typically poor at linking manufacturing
performance to the financial performance of the business.
The manufacturing operations team must take responsibility for converting sales orders into revenue,
the safety of its employees, the quality of the products and services, delivering orders on time
in full and controlling the associated costs.
The assessment helps us understand how the business manages the components that impact financial
performance. In order to bring together the complex variables contained in the assessment results,
we have
adopted Red, Amber and Green (RAG) zones to describe the current state of the
operation.
Red status indicates operational components are not developed and robust enough to fulfil their operational responsibilities.
In generating revenue, manufacturing operations are a major contributor to the attraction and retention of customers. Satisfied customers generate revenue. Red status indicates that operational performance is inconsistent and below par which will increase the cost of sales and put at risk the ability to retain customers. Ultimately, this will adversely affect the viability of the business.
Ensuring employees are working safely and in a safe environment is a prime responsibility for operations. Red status indicates that neither employees nor managers feel responsible or have a commitment towards safety. Accidents initiate reactive actions that do not necessarily address root cause. This type of culture has an adverse effect on productivity, demotivates employees, causes absence and, overtime and reduces the quality of employees attracted to the business.
Quality management plays a crucial role in operational performance. It is a key influencer in attracting and retaining customers and essential for optimising performance and controlling costs. Red status indicates that the processes and systems for managing quality are not performing to a standard that can consistently protect the customer and contain costs. The higher costs associated with poor quality reduces gross margin contribution and adversely effects the profitability of the business and its ability to attract and retain customers.
In a manufacturing business, the cost of converting sales into revenue is circa 60% of the total business costs, with direct labour and materials the main contributors. These are the responsibility of operations. Red status indicates that the processes controlling costs are not performing consistently at the levels required to maintain gross margins. This reduces gross margin contribution due to higher than budgeted costs and affects the profitability of the business and its ability to attract and retain customers.
Delivering on time and in full is essential for achieving customer satisfaction. Red status indicates that the processes required to ensure delivery performance are not robust enough and will fail to maintain the required standard. This will reduce productivity, increase transport costs, stock levels and ultimately put retaining and attracting customers at risk.
Amber status indicates that the operational components are partially developed and can fulfil their operational responsibilities to current performance levels.
In generating revenue, manufacturing operations are a major contributor to the attraction and retention of customers. Satisfied customers generate revenue. Amber status indicates that operational performance has achieved a consistent standard that will sustain the current position in price and margin. The medium to long term retention of customers depends on keeping pace or gaining an advantage over the competition. Ultimately, this means improving the processes that enable a reduction in costs and an improvement in lead times and delivery performance.
Ensuring employees are working safely and in a safe environment is a prime responsibility for operations. Amber status indicates that rules and guidelines have been established and safe working environment is achieved when the rules are followed. As a result, accident rates are reduced and the perception is that injuries happen because the rules and guidelines have been disregarded. This environment requires the guidelines and rules to be enforced leaving the workforce disengaged from the process. When accidents happen, they have an adverse effect on productivity through increased absence and overtime. Improving the processes driving safety performance will reduce costs.
Quality management plays a crucial role in operational performance. It is a key influencer in winning and retaining customers and essential for optimising performance and controlling costs. Amber status indicates the systems and processes for managing quality are effective at controlling both external and internal performance. Improvements will attract and retain customers, reduce the cost of quality and maintain pace with the competition.
In a manufacturing business, the cost of converting sales into revenue is circa 60% of the total business costs, with direct labour and materials the main contributors. Controlling and reducing operating costs is the responsibility of operations. Amber status indicates that the processes that incur these costs are performing at an acceptable and consistent standard and results are dependable. Improvements are needed to maintain pace with the competition and sustain the current position in price and margin.
Delivering on time and in full is essential for achieving customer satisfaction. Amber status indicates that the current processes provide a delivery performance that meets customer expectation. Improvements must be applied throughout the supply chain to reduce stock holding, lead-times and reduce operating costs. This will ensure that medium and long term competitiveness can be achieved.
Green status indicates that the operational components are fully developed and provide a solid base for achieving the aspirations and reliably fulfil their operational responsibilities.
In generating revenue, manufacturing operations are a major contributor to the attraction and retention of customers. Satisfied customers generate revenue. Green status indicates that the operation is satisfying the customer and consistently achieving budgeted revenue. Improvements will consolidate current performance, grow revenue and increase competitiveness.
Ensuring employees are working safely and in a safe environment is a prime responsibility for operations. Green status indicates that the operation has achieved a level of cultural maturity where employees and managers take collective responsibility for safety. The next step is to create an environment where safety is based on teamwork aspiring to achieve zero incidents. This is a low cost strategy.
Quality management plays a crucial role in operational performance, it is a key influencer in winning and retaining customers and essential for optimising performance and controlling costs. Green status indicates the systems and processes for managing quality are satisfying the customer and focused on prevention throughout the supply chain. Further improvement will consolidate current performance, satisfy the customer and raise the bar in competitiveness.
In a manufacturing business, the cost of converting sales into revenue is circa 60% of the total
business costs,
with direct labour and materials the main contributors. Controlling and reducing operating costs is
the
responsibility of operations.
Green status indicates that the operational processes are performing at a standard which achieves or
improves
on budgeted targets. Improvement will consolidate current performance and result in further cost
reduction.
Delivering on time and in full is essential for achieving customer satisfaction. Green status indicates that the processes that manage the supply chain are satisfying the customer delivery expectations and controlling and reducing cost. Improvement will continue to enhance delivery performance and reduce the costs across the supply chain.