Cost Reductions Using the Lean Methodology: A European Union Focus

Recovery within the European Union (EU) has been occurring at different rates, and the countries in the region are still struggling with the hangover from the recession.

Figures from Eurostat, the statistical arm of the EU, show that in the first quarter of 2010, business investment continued to fall and gross domestic product (GDP) increased by just 1 percent on the previous quarter.

A number of countries continued to experience dropping GDP rates during the second quarter, including the Eastern European states of Latvia, Bulgaria and Romania.

Growth is expected to occur as 2010 continues. However, austerity measures being taken by some states, the removal of support mechanisms put in place during the recession and a general slowdown in the global growth rates mean that it could remain at low levels.

Olli Rehn, EU economic and monetary affairs commissioner, said: "Uncertainties remain and safeguarding financial stability and continuing fiscal consolidation remain key priorities. At the same time, we need to frontload structural reforms to lift our growth potential.

"The sooner and stronger we act on this front, the more certain we can be of sustained growth and job creation."


Implementing Lean Practices to Improve Costs

Making cost reductions using the Lean methodology could be one way in which countries in the region can ensure they survive within the continuing difficult times, and thrive when the economic climate improves.

By eliminating practices that deliver no end value to the user, businesses will be better able to utilize their workforce and the key skills within their organization.

Lean manufacturing processes and the associated reductions in costs can also aid European firms in their quest to attract more global contracts.

A report produced by Technical Change Associates claimed that 2.7 million manufacturing roles have moved from the United States to regions such as Eastern Europe, South America and Asia.

The report claims that this is largely due to the reduced labor costs, which make manufacturing in the United States uncompetitive, but if such organizations were to employ the Lean methodology, this would further increase the cost advantages.

The adoption of the Lean methodology in such nations was predicted earlier this year by Professor Jiju Antony in the inaugural issue of the International Journal of Lean Six Sigma.

"We will witness an increased number of applications of Lean Six Sigma methodology in the developing nations such as India, China, Thailand, Malaysia and also some east-European countries such as Poland, Hungary and Baltic States," he explained.

Using RACI to Engage Personnel

Identifying the roles and responsibilities of all personnel in implementing Lean processes is key to their success. This can be done by implementing a RACI model; then, firms can ensure they use the local knowledge amassed by the employees to its greatest effect.

RACI, which stands for Responsibility, Accountability, Consultation and Inform, will help integrate Lean practices within a company and ensure those at all levels feel like they are a part of the process.

Mark Price and James Works of George Group have written that one of the main principles of RACI is to push accountability as low down in the organization as possible.

"If the organization's executives hold onto all or most of the accountability, employees will continue looking upward for approval/permission — resulting in gridlock and reinforcing the notion that nothing has truly changed," they explained.

Price and Works also identified that if accountability remains too high up in the hierarchy, this could lead to poor decision making, as those at the top may not have the requisite local knowledge compared to those who interact with the processes daily.

This is not to say that those at the top should take a backseat in implementing the Lean methodology, as commitment at the top is essential to create a trickledown effect.