Keep both efficiency and effectiveness in mind
One of the topics APICS magazine discussed recently was the evolution of lean manufacturing from efficient to effective. It got me thinking: We talk about process and performance improvement a lot, but how often do we think about what that really means?
Continuous improvement is a key part of lean, just in time, six sigma, and many other methodologies that resource management 
professionals know and love. Most of the time, these programs are aimed at efficiency—primarily, cost reduction. While that’s a worthy and necessary goal, it can’t be the only goal. A company can’t cost-cut its way to growth and success. Efficiency is mainly an internal objective related to business operations. But the overall company strategy must focus on external objectives—pleasing customers. And that turns our focus from efficiency to effectiveness.
In the supply chain world and the Certified Supply Chain Professional body of knowledge, we talk about efficient supply chains and responsive supply chains. With a stable product line and an accurate forecast, the supply chain can focus on efficiency, thus minimizing inventory and transportation costs. However, that comes at the expense of agility, as unexpected changes in demand are likely to cause major disruptions and shortages.
At the other end of the scale, a responsive supply chain is optimized for an unstable market. Extra inventory, fast but expensive shipping alternatives, and less efficient but more responsive facilities and processes all contribute to agility. Presumably, fast-changing markets are less price-sensitive, resulting in sufficient revenue and margin to cover the extra costs, which makes efficiency a secondary concern.
Most markets and supply chains fall somewhere in between these two extremes. Supply chain professionals are continually challenged to find the right mix of efficiency and effectiveness to deliver optimum results for the company’s bottom line.
Things are not so easily categorized inside the plant. We seldom think of production as being efficient or responsive in those terms, but the concept is just as valid and probably most evident in terms of lot sizes and setup or changeover times. High-volume, low-mix production can be thought of as efficient and relatively less responsive, with large production lot sizes, considerable changeover times, and high inventory levels. Low-volume, high-mix plants would be responsive (small lot size, flexible) but not as efficient as the alternative.
The point is that both high-volume, low-mix plants and low-volume, high-mix plants are set up that way because that is what the products and market require. To move either in the other direction is to compromise on the primary objective that determined the operating configuration in the first place. In other words, you can say that efficiency and effectiveness are opposites, and improving one can be expected to adversely affect the other.
In the real world, these are just labels, of course. But supply chain and operations management professionals are constantly making decisions and acting to either favor efficiency but reduce effectiveness or vice versa. The optimum solution is almost always a compromise that lies somewhere on the continuum between most efficient and most effective.
At what point does a company switch from a focus on efficiency to concentrating on effectiveness? Both objectives should be a part of the picture; it’s really just a matter of emphasis. Cost reduction (efficiency) is always of interest, no matter what the plant, market, and supply chain look like. And a focus on customer service (effectiveness) has to be in the DNA of any company that wants to succeed. Often, companies will change their focus based on changing market conditions—when there’s pricing pressure from competition, there will be a focus on cost containment. When product cycles are short and margins high, responsiveness takes center stage. But it’s never a question of “either/or,” but more a matter of which has more weight in operational decisions.
Enterprise Insights by Dave Turbide, reprinted with permission from APICS magazine | March/April 2015