Safety As A Competitve Advantage

Using Safety As A Competitive Advantage National Safety Council 2008

Presented By
George Drexel, President, UAW Local 3520
Daryl James, Senior Manager, DaimlerChrysler (Retired)
Phil La Duke, Director, Performance Improvement; O/E

Competitive Advantage
Additional Revenue
Increased Efficiency

Real Cost of Worker Injuries
Worker’s Compensation
Insurance Premiums
Fines
Loss of Productivity
Loss of Inventory
Wages of first responders
Paperwork and administrative costs
Hidden Costs
Direct Costs
Drop in Employee Morale
Absenteeism
Loss of Customer Confidence
Legal Fees
Public Relations Fallout
Disruption of Productivity
Work Stoppages
Turnover
Lower Quality
Property Damage
Scrap

Calculating the Cost of Injuries
Direct Costs Can Be Difficult to Quantify
Indirect Costs Are Impossible

The Case for Safety As An Element in Competitive Advantage
Case Study 1: Chicken Processing
Case Study 2: Tire Manufacturing
Case Study 3: Heavy Truck Manufacturing

How We Figured…
Bureau of Labor Statistics Survey of Occupational Injuries and Illnesses, 1995
Manufacturer’s News North Carolina Manufacturer’s Directory, 2007
Sundry industry websites
http://finance.yahoo.com/search
www.census.gov
http://www.osha.gov/SLTC/etools/safetyhealth/mod1_estimating_costs.html
www.safety-impact.com

Assumptions and Disclaimers
For the purposes of these cases :
We assumed the companies had a safety record that was roughly the average for their SIC code as calculated by the U.S. Department of Labor and the companies worked 2,080 hours per employee
the sales volumes were roughly the mid-point of the range reported to Manufacturer’s directory
No companies suffered any fatalities during the time period (unless you count chickens which were getting killed right and left)
Where gaps in the data existed the authors made educated guesses as to the most likely data, endeavoring to provide the most accurate picture of the industries involved.
The costs of injuries were computed using the etool for calculating injuries available from their website

Industry Overview: Chicken Processing 2.0% 4.6 7.4 $25 B 2,365,000 2015 Poultry Processing Average Profit Margin Average DART Average IR Annual Revenue # Employed SIC Code Industry

Chicken Processing: Market Share

Example 1: Poultry Processing
Company A
# of Employees: 1,200
SIC Code: 2015
IR: 7.4
DART: 4.6
Injuries: 131
DART Injuries: 81
Annual Sales: $380,000,000
Price Per Unit: $.16 lb

Example 1: Poultry Processing
Company B
SIC Code: 2015
IR: 6.9
DART: 5.3
Injuries: 72
DART Injuries: 55
Annual Sales: $40 M
Price Per Unit: $.16 lb

Competitive Analysis 778,462 lbs 15,177,884,612 lbs Additional Production $103,409,000 $2,426,461,538 Additional Revenue >1% 31.83% Additional Market Share 6,071.2% 27.2% Injury Costs as a % of Profit $3,185,000 $1,883,000 Injury Cost $11,704,000 $52,000 Profit 3.08% .13% Profit Margin $380,000,000 $40,000,000 Annual Profits Company B Company A

Competitive Analysis Required Increase in Revenue 0 $100,000 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $ Company A $4,000,000 Company B $4,500,000 $5,000,000 $5,500,000 $6,000,000 $6,500,000 $2,500,000,000 0 $100,000 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $ Company A $4,000,000 Company B $4,500,000 $5,000,000 $5,500,000 $6,000,000 $6,500,000 $2,500,000,000 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 $ Company A 900,000 Company B 1,000,000 1,100,000 1,200,000 1,300,000 1,400,000 $2.5B

Competitive Analysis Required Increase In Market Share 0 5 10 15 20 25 30 35 40 Company A Company B <1% 31.83% %

Chicken Processing: Market Share

Tire Industry Overview 2.0% 3.9 6.3 $12 B 64,000 3011 Tire Manufacturing Average Profit Margin Average LWDI Average IR Annual Revenue # Employed SIC Code Industry

Tire Industry Market Share

Example 2: Tire Manufacturer
Company A
SIC Code: 3211
IR: 7.0
DART: 4.5
Injuries: 134
DART Injuries: 109
Annual Sales: $380 M
Price Per Unit: $81

Example 2: Tire Manufacturer
Company B
SIC Code: 3211
IR: 7.0
DART: 4.6
Injuries: 35
DART Injuries: 106
Price Per Unit: $98

Competitive Analysis 109,936,842 1,066,218 Additional Production $104,440,000 $86,363,636 Additional Revenue .87% .72% Additional Market Share 29.8% 22.7% Injury Costs as a % of Profit $5,220,000 $3,990,000 Injury Cost $17,500,000 $17,556,000 Profit 5% 4.62% Profit Margin $350,000,000 $380,000,000 Annual Profits Company B Company A

Competitive Analysis: Required Increase in Revenue 0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 $ Company A 90,000,000 Company B 100,000,000 110,000,000 120,000,000 130,000,000 140,000,000 $104M $86.3 M

Competitive Analysis: Required Increase in Market Share 0 .10 .20 .30 .40 .50 .60 .70 .80 Company A Company B .72% .87% % .90

Tire Industry Market Share

Industry Overview 3.3% 5.0 11.1 $21 B 669,000 3713 Heavy Truck Manufacturing Average Profit Margin Average DART Average IR Annual Revenue # Employed SIC Code Industry

Industry Overview Heavy Truck Manufacturing Kenworth Peterbilt

Example 3: Heavy Truck Manufacturing
Company A
SIC Code: 3713
IR: 13.1
DART: 4.4
Injuries: 613
DART Injuries: 346
Price Per Unit: $98,500

Example 3: Heavy Truck Manufacturer
Company B
SIC Code: 3011
IR: 7.0
DART: 4.6
Injuries: 654
DART Injuries: 370
Price Per Unit: $118,000

Competitive Analysis 4,779 4,061 Additional Production $597,520,000 $400,000,000 Additional Revenue 2.85% .55% Additional Market Share 79.7% 105.3% Injury Costs as a % of Profit $17,500,000 $14,000,000 Injury Cost $18,750,000 $13,356,000 Profit 2.5% 3.5% Profit Margin $750,000,000 $380,000,000 Annual Profits Company B Company A

Competitive Analysis: Required Increase in Revenue 0 100,000,000 200,000,000 300,000,000 400,000,000 500,000,000 600,0000,000 700,000,000 800,000,000 $ Company A Company B $597 M $400 M

Competitive Analysis: Required Increase in Market Share 0 .50 .1.0 1.5 2.o 2.5 Company A Company B .55% 2.85% % 3.0

Industry Overview Heavy Truck Manufacturing Kenworth Peterbilt

Secrets to Improving Work Place Safety
Treat All Injuries As Predictable and Preventable
Understand that Compliance is not enough
Be Proactive
Instill Operations Ownership
Reinforce that Safety is Everyone’s Job
Treat Safety As a Strategic Business Element

All Injuries Are Predictable and Preventable
Injuries are system failures.
FMEA and Root Cause Analysis can be used to predict system failures.
Job Safety Analysis helps to determine likely failure modes.
No-blame incident investigation.
Standard Work is key to preventing injuries.

Compliance Is Not Enough
Industry average is a dangerous and misleading metric.
There is no cause-and-effect relationship between compliance and lower injury rates.
Compliance-driven safety is not good business.
Compliance-driven approaches tend to be reactive.
Prevention-driven approaches seek to reduce risk irrespective of regulation.

Be Proactive
Balanced Scorecard Approach
Monthly Strategy Sessions
Leading Indicators
Analyze and Understand Industry Trends and Take Appropriate Action

Safety Is Owned by Operations
Goal Alignment
Leadership-driven
First-line Accountability for Safety
Forced Accountability
Safety Personnel as Coaches and Consultants

Safety Is Everyone’s Job
Defined in each worker’s job description.
Identified as a criteria for successful job performance during annual reviews/compensation.
Safety is hardwired into Operations.

Safety Is a Strategic Business Element
Injuries are inefficient and cost money and productivity.
Understanding the true cost of injuries.
Obvious costs
Hidden costs
Policies and processes are reviewed and changed to reflect changes in the business environment.

Push Back
“We’re already doing this.”
“We can’t afford it right now.”
“We’re already ahead of industry average—that’s good enough.”
“Safety Culture Change?---Isn’t that why I hired you?”

Conclusion
Companies spend significant sums of money hurting workers
Preventing Injuries has the same effect as boosting revenue
By seeing safety as a business element companies can have a competitive advantage
Questions?

Thank You!

Phil La Duke
Director, Performance Improvement
O/E
2125 Butterfield, Suite 300N
Troy, MI 48084
248-860-1086
For Additional Information Contact:

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Safety As A Competitve Advantage

by Phil La Duke

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