Measuring operational excellence: an operational excellence profitability (OEP) approach.

Abstract

The pursuit of operational excellence in the manufacturing industry is at rise, but its measurement still lacks of appropriate indicators to determine its financial benefits. The ambiguity is due to the impact arisen from manufacturing fluctuations such as price and cost, production mix, and direct and indirect parameters variations. Manufacturing fluctuations distort the cost benefit of operational excellence. This paper therefore proposes the OEP (Operational Excellence Profitability) indicators to isolate the impact of manufacturing fluctuation, and distinctly identify the payback of operational excellence strategies and initiatives through cost benefits of achieving higher efficiency and yield. The paper presents the conceptual and mathematical development of the proposed OEP indicators and the formulas used for their calculation. Hypothetical and industrial-based investigations and applications of the OEP indicators are conducted for their validation. The results obtained from the hypothetical exercise and industrial case suggest that OEP indicators can provide an effective cost benefit analysis of operational excellence. This would contribute in providing manufacturing organisations with more complete information regarding the performance of their processes, which will allow their directors and managers to take better decisions related to the management and improvement of their processes.