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 organizations 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.

Keywords:

• Operational excellence
• performance
• measurement
• indicators
• OEE

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Luis Alejandro Gólcher-Barguil

LuisAlejandroGólcher-Barguil is a consulting engineer and CEO of the company IPG, where he has more than 25 years of experience implementing Manufacturing Execution Systems in the food & beverage, pharmaceutical, and automotive sectors. Luis obtained his Master of Science in Electrical Engineering from the University of Colorado at Boulder. He is also a professor in the Electrical Engineering Faculty at the Universidad de Costa Rica.

Simon Peter Nadeem

Simon Peter Nadeem is a PhD candidate at the University of Derby and has been teaching at the university level since 2013. He has earned his Executive MBA from Preston University and an MBA from the American University of Central Asia and is now pursuing PhD with a focus on Circular Economy and Operations Management. Prior to his academic career, he has enriched experience of business management by working with International organisations, mainly in the health sector. As a growing academic, he has presented and published in international academic conferences and is also active in contributing to scientific academic journals in the area of Circular Economy, Operations Management, Lean, Logistics and Supply Chain Management.

Jose Arturo Garza-Reyes

Jose Arturo Garza-Reyes is a professor of Operations Management and Head of the Centre for Supply Chain Improvement at the University of Derby, U.K. He is actively involved in industrial projects where he combines his knowledge, expertise and industrial experience in operations management to help organisations achieve excellence in their internal functions and supply chains. He has also led and managed international research projects funded by the British Academy, British Council, European Union and Mexico’s National Council of Science and Technology (CONACYT). As a leading academic, he has published over 100 articles in leading scientific journals, international conferences and five books. Areas of expertise and interest for Professor Garza-Reyes include general aspects of operations and manufacturing management, business excellence, quality improvement, and performance measurement.