Operational Efficiency

The fields of engineering and management associate efficiency with how well a relevant action is performed, i.e. ‘‘doing things right’’, and effectiveness with selecting the best action, i.e. ‘‘doing the right thing’’. Thus, a firm is effective if identifies appropriate strategic goals, and efficient if it achieves them with minimal resources. This chapter focuses on operational efficiency, or the ability to deliver products and services cost effectively without sacrificing quality. In this chapter we investigate a firm’s operational efficiency with both queueing models and productivity and efficiency analysis methods that identify maximum productivity and measure efficiency as a ratio of observed productivity to maximum productivity. The maximum productivity levels serves as a benchmark for desired perform. The methods for analysis will vary depending on the level of analysis. For example, at the micro-level, we measure operational efficiency at points (machine, workstation, laborer) on the shop floor, whereas the macrolevel might be at the firm, industry, or nation level. We begin by evaluating performance at the operational level, and then apply productivity and efficiency analysis to aggregate performance at higher levels.