Using Safety As A Using Safety As A Competitive AdvantageCompetitive Advantage

National Safety Council

2008

Presented ByPresented By

• George Drexel, President, UAW Local 3520

• Daryl James, Senior Manager, DaimlerChrysler (Retired)

• Phil La Duke, Director, Performance Improvement; O/E

Competitive AdvantageCompetitive Advantage

• Additional Revenue

• Increased Efficiency

Real Cost of Worker Injuries 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 CostsDirect 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 InjuriesCalculating the Cost of Injuries

• Direct Costs Can Be Difficult to Quantify

• Indirect Costs Are Impossible

The Case for Safety As An Element The 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

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/mod

1_estimating_costs.html• www.safety-impact.com

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

Industry Overview: Industry Overview: Chicken ProcessingChicken Processing

Industry

SIC Code

# Employed

AnnualRevenu

eAverageIR

Average

DART

Average Profit Margin

Poultry Processing 2015 2,365,000 $25 B 7.4 4.6 2.0%

Chicken Processing: Market ShareChicken Processing: Market Share

Example 1: Poultry Processing Example 1: Poultry Processing

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

Example 1: Poultry Processing Example 1: Poultry Processing

Company B# of Employees: 1,000SIC Code: 2015IR: 6.9DART: 5.3Injuries: 72DART Injuries: 55Annual Sales: $40 MPrice Per Unit: $.16 lb

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%

Competitive AnalysisCompetitive AnalysisRequired 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

Competitive AnalysisCompetitive AnalysisRequired Increase In Market ShareRequired Increase In Market Share

0

5

10

15

20

25

30

35

40

Company A Company B

<1%

31.83%

%

Chicken Processing: Market ShareChicken Processing: Market Share

Tire Industry OverviewTire Industry Overview

Industry

SIC Code

# Employed

AnnualRevenu

eAverageIR

Average

LWDI

Average Profit Margin

Tire Manufacturing 3011 64,000 $12 B 6.3 3.9 2.0%

Tire Industry Market ShareTire Industry Market Share

Example 2: Tire ManufacturerExample 2: Tire Manufacturer

Company A# of Employees: 2,800SIC Code: 3211IR: 7.0DART: 4.5Injuries: 134DART Injuries: 109Annual Sales: $380 MPrice Per Unit: $81

Example 2: Tire ManufacturerExample 2: Tire Manufacturer

Company B# of Employees: 2,200SIC Code: 3211IR: 7.0DART: 4.6Injuries: 35DART Injuries: 106Annual Sales: $350 MPrice Per Unit: $98

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%

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

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

Tire Industry Market ShareTire Industry Market Share

Industry OverviewIndustry Overview

Industry

SIC Code

# Employed

AnnualRevenu

eAverageIR

Average

DART

Average Profit Margin

Heavy Truck Manufacturing

3713 669,000 $21 B 11.1 5.0 3.3%

Industry Overview Industry Overview Heavy Truck ManufacturingHeavy Truck Manufacturing

Kenworth

Peterbilt

Example 3: Heavy Truck Example 3: Heavy Truck ManufacturingManufacturing

Company A# of Employees: 4,500SIC Code: 3713IR: 13.1DART: 4.4Injuries: 613DART Injuries: 346Annual Sales: $380 MPrice Per Unit: $98,500

Example 3: Heavy Truck Example 3: Heavy Truck ManufacturerManufacturer

Company B# of Employees: 4,800SIC Code: 3011IR: 7.0DART: 4.6Injuries: 654DART Injuries: 370Annual Sales: $450 MPrice Per Unit: $118,000

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%

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

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

Industry Overview Industry Overview Heavy Truck ManufacturingHeavy Truck Manufacturing

Kenworth

Peterbilt

Secrets to Improving Work Place Secrets 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

All Injuries Are Predictable and All 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.

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.

Be ProactiveBe Proactive

• Balanced Scorecard Approach

• Monthly Strategy Sessions

• Leading Indicators

• Analyze and Understand Industry Trends and Take Appropriate Action

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

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.

Safety Is a Strategic Business Safety 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.

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?”

ConclusionConclusion

Companies spend significant sums of money hurting workersPreventing Injuries has the same effect as boosting revenueBy seeing safety as a business element companies can have a competitive advantageQuestions?

Thank Thank You!You!