Getting the most operating profit is a natural purpose of business. That means lowering variable costs and fixed costs to get increased operating profit
It follows then, that getting Operational Excellence success is also a natural purpose of business, because it drives variable costs and fixed costs to their lowest expenditure and maximizes the operating profit
Slide 24 – Getting to Operational Excellence Success is a Natural Purpose of Being in Business
The slide above is a simple accounting model explaining how businesses make a profit. It also explains why getting to Operational Excellence success is so important to the profitability and longevity of a business.
Operations have fixed costs, such as leases, rents, permanent staff, et cetera. They also have variable costs, for example, raw materials, utilities, casual and contract labour, and many others. The fixed costs and variable costs add together to the Total Cost. By selling their production at greater than the Total Cost the business makes a profit. The opposite results if fixed costs or variable costs increase—the business loses profit.
A purpose of business is to increase the profit. That is achieved every time the variable and fixed operating costs are reduced, or if the sales revenue can be increased.
Operational Excellence aims to maximise operating profit. It does that by driving variable costs and fixed costs down to their lowest amounts, and by continually finding new ways to reduce those costs even further.
It means striving for Operational Excellence success is another purpose of business. The amount of additional operating profit gained can be unbelievable when compared to how a company was run before Operational Excellence methodologies were used.
|This slide is a companion to the new Industrial and Manufacturing Wellness book. The book has extensive information, all the necessary templates, and useful examples of how to design and build your own Plant Wellness Way enterprise asset life cycle management system-of-reliability. Get the book from its publisher, Industrial Press, and Amazon Books.
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