safety as a competitve advantage
DESCRIPTION
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)TRANSCRIPT
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Using Safety As A Using Safety As A Competitive AdvantageCompetitive Advantage
National Safety Council
2008
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Presented ByPresented By
• George Drexel, President, UAW Local 3520
• Daryl James, Senior Manager, DaimlerChrysler (Retired)
• Phil La Duke, Director, Performance Improvement; O/E
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Competitive AdvantageCompetitive Advantage
• Additional Revenue
• Increased Efficiency
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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
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Calculating the Cost of InjuriesCalculating the Cost of Injuries
• Direct Costs Can Be Difficult to Quantify
• Indirect Costs Are Impossible
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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
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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
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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
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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%
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Chicken Processing: Market ShareChicken Processing: Market Share
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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
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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
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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%
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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
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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%
%
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Chicken Processing: Market ShareChicken Processing: Market Share
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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%
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Tire Industry Market ShareTire Industry Market Share
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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
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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
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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%
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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
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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
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Tire Industry Market ShareTire Industry Market Share
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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%
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Industry Overview Industry Overview Heavy Truck ManufacturingHeavy Truck Manufacturing
Kenworth
Peterbilt
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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
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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
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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%
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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
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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
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Industry Overview Industry Overview Heavy Truck ManufacturingHeavy Truck Manufacturing
Kenworth
Peterbilt
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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
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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.
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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.
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Be ProactiveBe Proactive
• Balanced Scorecard Approach
• Monthly Strategy Sessions
• Leading Indicators
• Analyze and Understand Industry Trends and Take Appropriate Action
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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
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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.
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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.
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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?”
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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?
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Thank Thank You!You!