Safety As A Competitve Advantage

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This presentation was delivered at the 2008 National Safety Council's National Conference and Expo in Anaheim California, by Phil La Duke (Director, Performance Improvement--O/E) Daryl James (retired--Chrysler) and George Drexel (Local 3520 President---UAW)

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  • @Joe Aiken The cost/benefit analysis was not based on anything but actual cost of implementation (including the costs of correcting the hazards) and actual savings as reported by customers. I find that attempts to convince people of the value of safety using industry averages or formulas etc. People want to know real numbers from real companies. Unfortunately that is often impossible to get as companies treat such information as confidential.
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  • @Joe Aiken Thanks Joe unfortunately the original is not in my possession so there's not much I can do about it.
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  • The cost/benefit of implementing safety improvements is frequently assessed as ALARP based on a Gross Disproportionate Ratio to reflect the 'hidden' value of safety (reputational, etc.), i.e. costs more than 8 times the perceived financial benefits is probably not justified (company specific). This would have a significant impact on the costs used in this presentation.
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  • The Poultry Company data on slides 11 & 12 appear to have been swapped, based on slides 13, 14 etc.
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  • If you enjoyed this presentation you might want to check out my worker safety blog:
    www.philladuke.wordpress.com
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  • Each speaker introduces himself and provides:
    Name,
    Position,
    Experience
  • DARYL JAMES:
    Additional Revenue. Most of us here don’t have a lot of power to add revenue to the company, although some of us might. Do we have any consultants in the audience? How about other service for hire providers? Unless your company sells safety services, and you are in a sales role, you don’t have a lot of control over your organization’s revenue stream.
    Increased Efficiency. We all have some influence over our organization’s operating efficiency. To increase efficiency we can either boost productivity (do more with less) or by reducing our operating costs.
  • There are two types of costs: direct costs and indirect costs
    Direct Costs. Direct costs are the kinds of things that we have to pay for as an immediate consequence of an injury. These kinds of costs include Workers’ Compensation payments, Insurance Premiums, Fines and legal fees, and loss of productivity; in other words, the kind of things that we know we’re going to see anytime someone gets injured.
    Indirect Costs. Indirect costs aren’t as obvious. These are the kind of things that we know in our gut are related to worker injuries, but are difficult or impossible to prove. Indirect costs include things like poor morale or decreased reputation in our community.
  • Direct Costs can be really tough to measure and define in ways that make sense to our customers in Operations, and Indirect costs can be impossible to prove definitively. For example, while the death of a worker might cost the company millions as they fight the negative public relations fall out, but you would be hard pressed to find someone who is able to accurately track the exact amount that was lost because of the injury.
  • Isn’t the claim that a safer organization is more competitive than it’s less safe rivals a bit of a stretch? Well we’ll let you be the judge of that yourself. We’ve created three side-by-side comparisons of three industries in the state of North Carolina. The figures you will see are all available from public documents and none of these figures were provided by the companies themselves. We’ve concealed the names to abet the guilty.
  • It took a mess of reverse engineering to figure out the costs we’re about to share with you. If you want to try to duplicate our little experiment, here is a copy of the sources we used. All these sources can be found at the O/E website for SafetyIMPACT! (www.safety-impact.com)
  • What I would like you to do now is go back to your organization and take a look at your info.
  • Safety As A Competitve Advantage

    1. 1. Using Safety As AUsing Safety As A Competitive AdvantageCompetitive Advantage National Safety Council 2008
    2. 2. Presented ByPresented By • George Drexel, President, UAW Local 3520 • Daryl James, Senior Manager, DaimlerChrysler (Retired) • Phil La Duke, Director, Performance Improvement; O/E
    3. 3. Competitive AdvantageCompetitive Advantage • Additional Revenue • Increased Efficiency
    4. 4. Real Cost of Worker InjuriesReal 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
    5. 5. Calculating the Cost of InjuriesCalculating the Cost of Injuries • Direct Costs Can Be Difficult to Quantify • Indirect Costs Are Impossible
    6. 6. The Case for Safety As An ElementThe Case for Safety As An Element in Competitive Advantagein Competitive Advantage • Case Study 1: Chicken Processing • Case Study 2: Tire Manufacturing • Case Study 3: Heavy Truck Manufacturing
    7. 7. How We Figured…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_ • www.safety-impact.com
    8. 8. Assumptions and DisclaimersAssumptions 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
    9. 9. Industry Overview:Industry Overview: Chicken ProcessingChicken Processing Industry SIC Code # Employed Annual Revenue Average IR Average DART Average Profit Margin Poultry Processing 2015 2,365,000 $25 B 7.4 4.6 2.0%
    10. 10. Chicken Processing: Market ShareChicken Processing: Market Share
    11. 11. Example 1: Poultry ProcessingExample 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
    12. 12. Example 1: Poultry ProcessingExample 1: Poultry Processing Company B # of Employees: 1,000 SIC Code: 2015 IR: 6.9 DART: 5.3 Injuries: 72 DART Injuries: 55 Annual Sales: $40 M Price Per Unit: $.16 lb
    13. 13. Competitive AnalysisCompetitive Analysis Company A Company B Annual Profits $40,000,000 $380,000,000 Profit Margin .13% 3.08% Profit $52,000 $11,704,000 Injury Cost $1,883,000 $3,185,000 Injury Costs as a % of Profit 27.2% 6,071.2% Additional Production 15,177,884,612 lbs 778,462 lbs Additional Revenue $2,426,461,538 $103,409,000 Additional Market Share 31.83% >1%
    14. 14. Competitive AnalysisCompetitive Analysis Required Increase in RevenueRequired Increase in Revenue 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
    15. 15. Competitive AnalysisCompetitive Analysis Required Increase In Market ShareRequired Increase In Market Share 0 5 10 15 20 25 30 35 40 Company A Company B <1% 31.83% %
    16. 16. Chicken Processing: Market ShareChicken Processing: Market Share
    17. 17. Tire Industry OverviewTire Industry Overview Industry SIC Code # Employed Annual Revenue Average IR Average LWDI Average Profit Margin Tire Manufacturing 3011 64,000 $12 B 6.3 3.9 2.0%
    18. 18. Tire Industry Market ShareTire Industry Market Share
    19. 19. Example 2: Tire ManufacturerExample 2: Tire Manufacturer Company A # of Employees: 2,800 SIC Code: 3211 IR: 7.0 DART: 4.5 Injuries: 134 DART Injuries: 109 Annual Sales: $380 M Price Per Unit: $81
    20. 20. Example 2: Tire ManufacturerExample 2: Tire Manufacturer Company B # of Employees: 2,200 SIC Code: 3211 IR: 7.0 DART: 4.6 Injuries: 35 DART Injuries: 106 Annual Sales: $350 M Price Per Unit: $98
    21. 21. Competitive AnalysisCompetitive Analysis Company A Company B Annual Profits $380,000,000 $350,000,000 Profit Margin 4.62% 5% Profit $17,556,000 $17,500,000 Injury Cost $3,990,000 $5,220,000 Injury Costs as a % of Profit 22.7% 29.8% Additional Production 1,066,218 109,936,842 Additional Revenue $86,363,636 $104,440,000 Additional Market Share .72% .87%
    22. 22. Competitive Analysis:Competitive Analysis: Required Increase in RevenueRequired 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
    23. 23. Competitive Analysis:Competitive Analysis: Required Increase in Market ShareRequired Increase in Market Share 0 .10 .20 .30 .40 .50 .60 .70 .80 Company A Company B .72% .87% % .90
    24. 24. Tire Industry Market ShareTire Industry Market Share
    25. 25. Industry OverviewIndustry Overview Industry SIC Code # Employed Annual Revenue Average IR Average DART Average Profit Margin Heavy Truck Manufacturing 3713 669,000 $21 B 11.1 5.0 3.3%
    26. 26. Industry OverviewIndustry Overview Heavy Truck ManufacturingHeavy Truck Manufacturing Kenworth Peterbilt
    27. 27. Example 3: Heavy TruckExample 3: Heavy Truck ManufacturingManufacturing Company A # of Employees: 4,500 SIC Code: 3713 IR: 13.1 DART: 4.4 Injuries: 613 DART Injuries: 346 Annual Sales: $380 M Price Per Unit: $98,500
    28. 28. Example 3: Heavy TruckExample 3: Heavy Truck ManufacturerManufacturer Company B # of Employees: 4,800 SIC Code: 3011 IR: 7.0 DART: 4.6 Injuries: 654 DART Injuries: 370 Annual Sales: $450 M Price Per Unit:$118,000
    29. 29. Competitive AnalysisCompetitive Analysis Company A Company B Annual Profits $380,000,000 $750,000,000 Profit Margin 3.5% 2.5% Profit $13,356,000 $18,750,000 Injury Cost $14,000,000 $17,500,000 Injury Costs as a % of Profit 105.3% 79.7% Additional Production 4,061 4,779 Additional Revenue $400,000,000 $597,520,000 Additional Market Share .55% 2.85%
    30. 30. Competitive Analysis:Competitive Analysis: Required Increase in RevenueRequired 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
    31. 31. Competitive Analysis:Competitive Analysis: Required Increase in Market ShareRequired Increase in Market Share 0 .50 .1.0 1.5 2.o 2.5 Company A Company B .55% 2.85% % 3.0
    32. 32. Industry OverviewIndustry Overview Heavy Truck ManufacturingHeavy Truck Manufacturing Kenworth Peterbilt
    33. 33. Secrets to Improving Work PlaceSecrets to Improving Work Place SafetySafety • 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
    34. 34. All Injuries Are Predictable andAll Injuries Are Predictable and PreventablePreventable 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.
    35. 35. Compliance Is Not EnoughCompliance 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.
    36. 36. Be ProactiveBe Proactive • Balanced Scorecard Approach • Monthly Strategy Sessions • Leading Indicators • Analyze and Understand Industry Trends and Take Appropriate Action
    37. 37. Safety Is Owned by OperationsSafety Is Owned by Operations • Goal Alignment • Leadership-driven • First-line Accountability for Safety • Forced Accountability • Safety Personnel as Coaches and Consultants
    38. 38. Safety Is Everyone’s JobSafety 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.
    39. 39. Safety Is a Strategic BusinessSafety Is a Strategic Business ElementElement 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.
    40. 40. Push BackPush 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?”
    41. 41. ConclusionConclusion 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?
    42. 42. ThankThank You!You!

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