Being efficient....

The first step in learning how to be efficient is to understand efficiency. So here, in no particular order, is the ramblings of my mind on the topic of efficiency. :)

So, what is efficiency?

As I see it, increased efficiency is basically all about more for less. Producing $10 worth of stock for only $4, instead of $5. More sales, lower costs, that whole deal.

Is it important? You bet it is! Efficiency is one of the key factors that effects how you rate against your competition. Not only will efficiency in an organisation reduce your costs, but that reduced costs will allow you the luxury of lowering prices in order to attract more sales.

Look at Ford's assembly line -- a pure increase in efficiency that did wonders for him, and propelled him past the competition.

I'll give another general example of why efficiency is important.

If you're in a competitive market, and everybody is selling ITEM A for $100, and it's costing them all $98 to make it, then if you're not efficient, that ITEM A might cost you $102 to make.

Efficiency lowers your costs, and lower costs means higher profits. And that interests me, and it probably interests you.

So, we now know effiency is important... for revenue, speed, profits, the whole works. But where to from here?

I think it's good to focus on the different TYPES of efficiency there are. In my mind, I've broken it down into two major categories -- Labour Efficiency & Technological Efficiency.

First - Labour Efficiency.

This idea mainly relates to people building organisations with employees or partners or other outside labour sources. It's the idea that people function better as a specialist rather than a generalist.

I'll give you an example from my Distributions company.

I recently bought a van to make deliveries in, and it's a manual van. I can't drive a manual van, as I only have a license to drive automatic vehicles. Someone suggested that I get my manual license in order to drive the van and make deliveries and cut costs.

My view on this is that I shouldn't, but it would be better to hire a driver to do that 2-3 times per week.

Why?

Because of efficiency.

Let's say on average if I do deliveries every now and again, combined with the other activities I do, I might do 2 deliveries per hour.

A driver, after a week or two of doing it, is more inclined to become specialised in that area as they learn where the different customers are and the different roads to take.

The driver is becoming specialised, and you'd expect the delivery times to drop, and EFFICIENCY to increase.

What's that mean? Basically it means more deliveries are done per day, so the cost per delivery (as measured by the driver wage) is decreased, and my profits increase.

Labour efficiency in practice.

So the other type? Technological efficiency!

That's where you increase your technology in some way in order to produce more for less, provided the increased output justifies the cost.

Here's another example, also from my Distributions company.

In my warehouse, we have a lot of different products stacked up in different areas, and when putting together an order, we pick them up, move them towards the van, number them, and load them in.

I saw "Cast Away" the other night and noticed Fed Ex in the movie used those roller things you find at airports to put boxes on and move along, which gave me the idea of getting one.

Now, to most people such an idea is a strange one -- and most people will remark, "C'mon, it's not that hard to move boxes to the van" or "What a waste of money!"

I take a different stance.

I look at such a device as an improvement in technological efficiency, as whoever is packing boxes doesn't need to lift them as quickly, won't get tired as easily, and most of the distance it can just be rolled along.

So what's the benefit? I would expect a time saving on packing boxes, and that translates into a cash saving when you convert the time saving into the hourly wage of the person packing boxes.

So do I invest in this technological benefit? Well, depends on how big the cost saving is compared to the cost -- I'd do a Net Present Value calculation (it's in a previous post somewhere), and make my decision from there.

Other examples of technological efficiency are -- using accounting software, using a van to deliver rather than a small car, buying faster computers.

So there are the two broad types of efficiency as I see it. As Managing Director of my own company, I view one of my KEY responsibilities to always look for ways to improve EFFICIENCY.

As I know EFFICIENCY effects the bottom line, and in my view is essential.

Now, I've mainly spoken about efficiency from an organisational standpoint -- how to increase efficiency in an overall system.

Some of you would be more interested in increasing PERSONAL EFFICIENCY -- that is, how do organise your own life better, to not waste time, and so forth.

As for that topic, I'm no expert on it. :) So I think I will leave someone else to post their ideas and insights.

- Thomas. :)