In Search of Operational Excellence

Submitted by Morten Irgens on 14 December, 2007 - 21:03.

A couple of years ago I wrote a White Paper in which I discussed the use of technology for achieving operational excellence. I believe this is an important topic, so I want to revisit it here.

The motivation for an increased focus on operational excellence is largely due to increased connectivity and globalization. While these trends enlarge markets, they also increase competition. Increased competition, in turn, creates a drive for more efficient processes and slimmer margins. Organizations have to ensure the best possible utilization of resources like people, time, processes, vehicles, equipment, and materials; as well, they not only need to do more, but also do more of the right things, and often with less: fewer people, less spending, less time, and a smaller margin for error. In other words, operational excellence is key to survival.

And technology is key to operational excellence: while there's a lot of talk about processes and the use of Six Sigma and/or other continuous improvement principles to save time, money and effort, the importance of technology is often forgotten or taken for granted.

Consider, for example, new technologies for managing and optimizing resources. The demand for resource management solutions today is very different from a few years ago. A main challenge is the inherent complexity of modern operations, caused by such various factors as compressed timeframes, just-in-time manufacturing, supply-chain management, online commerce, complex equipment, stricter regulations, environmental impacts, and a large increase in the volume of available data.

Technologies for managing this complexity have for many years been a focus of research in the fields of Operations Research (OR) and Artificial Intelligence (AI). A new generation of technologies from these fields shows great promise for handling the challenges of increasingly complex and dynamic operations of modern businesses. You may have heard about some of these technologies, such as Constraint Programming, Stochastic Local Search, Modern Heuristics, Ant Colony Optimization, and Genetic Algorithms, to name a few.

So what do these technologies do for businesses? Such technologies help companies achieve operational excellence and commercial accomplishments. The technologies make it possible to address challenges like effective resource management, supply-chain management, scheduling, and warehouse and transportation optimization in complex and dynamic environments, for instance by

  • handling an increasing operational complexity;
  • providing decision support swiftly and flexibly during operations;
  • proposing operational decisions that optimize on key performance goals;
  • minimizing operational disruptions;
  • turning volumes of data into decisions, and
  • leveraging the knowledge and expertise of key personnel.

Here are five examples:

  1. Warner Robins Air Logistics Center reduced the time required to repair and overhaul aircraft by 33 percent, generating additional revenues of at least $49.8 million per year.
  2. Sears created a vehicle routing and scheduling system to run its delivery and home service fleets more efficiently, resulting in $42 million in annual savings.
  3. Saudi Aramco, the world largest oil producing company, realized annual improvements in key performance indicators worth several million dollars after deploying Actenum's Rig Activity Scheduler.
  4. Procter & Gamble achieved nearly $67 million annually in cost savings by applying new methods for selecting the best sources for the materials in their products..
  5. The Canadian oil sands extraction company Syncrude avoided an unplanned downtime estimated at a cost of $32 million within two weeks of using a reliability driven maintenance scheduling prototype developed by Actenum.

These technologies not only offer a record of solid, practical accomplishment that provides real, commercial, competitive advantage, but they are necessary for achieving operational excellence.

More reading

  • Renee Cordes, “Europe’s Steelmakers Get Lean and Green”, Business Week, February 19, 2001.
  • “Visteon Honored in Operations Research Award”, The 1999 Franz Edelman Award for Achievement in Operations Research and the Management Sciences, 1999, INFORMS.
  • Michael Trick, “Best Possible Outcome”, Optimize, January 2003, Issue 15. 
  • Virginia Postrel, “Operation everything”, The Boston Globe, June 27, 2004.
  • Mike Borzumate, “Five Great Uses of Technology Toward Operational Excellence”, Tuesday, September 18, 2007