Safety pays & pays

High productivity rates in manufacturing can only be achieved by focussing on accident- and error-free performance. Safety and productivity are two sides of the same coin and each is either gained or lost through a rigorous daily focus on details using procedures, work control and effective communication.

There are a number of studies that show a direct link between health and safety and an increase in productivity.

A Lockheed Martin Corporation case study, for example, indicates that the Paducah, Ken., plant’s safety-based culture has enabled it to operate efficiently and reach an all-time high in production. The plant has maintained 100% delivery of its product on schedule and has consistently met its quality standards. Factory costs have been reduced by 20% over the past five years and a 24% improvement in employee productivity has been achieved based on the unit output per employee.

Lockheed Martin is a diverse, high technology company involved in aerospace, information technology, energy research and production, environmental technology and defense programs. Its major safety upgrade included the following projects: machine guarding, electrical lock out and tag out, fire protection, and health hazard upgrades.

A 24% improvement in employee productivity over five years represents very significant savings for the company. The case study cited indicated that the annual revenue for the Paducah plant was about $1.6 billion. With a profit margin of 25% of annual revenues, a 24% improvement over five years equals a 4.8% annual increase in productivity and represents $19.2 million in additional revenues for the company.

Originally, Lockheed Martin spent $12 million over five years on these safety upgrades. This represents less than one year of payback, an incredibly quick period. This calculation does not take into account a 20% reduction in factory costs over a five-year period.

The efforts to instill a safety culture at the facility involved revising and generating numerous procedures, as well as improving training. This significantly increased the focus on procedural adherence, which in turn increased employee sensitivity to conditions that could lead to equipment malfunction — and resulted in improvements to the preventive maintenance program.

These actions helped identify unsafe conditions and practices, thereby improving the company’s industrial safety performance. As a result of these actions, plant operations and maintenance improved. The improvements have been demonstrated by reductions in equipment failure, the near total elimination of equipment downtime resulting from personnel error, and increased production.

It turns out that being safe is a very good business practice.

A European study of Foster Wheeler Energy UK Ltd. indicates that reducing safety risks by 50% caused a 12% increase in productivity. For a site of 600 workers, this produced an annual labour cost saving in the order of 2.4 million.

In a separate case study on the meat processing industry, the cost benefit of safety management was calculated using a Total Loss Control approach. Over a 10-year period the internal rate of return was 7%. However, increasing productivity was also associated with improved safety performance. When this was taken into account, the internal rate of return was in excess of 30%.

Similar studies exist in Canada as well. For example, Ontario’s Workplace Safety & Insurance Board (WSIB) reports that the average lost time/injury claim is over $11,500, but other indirect factors can drive costs to over four times the original compensation cost, or $59,000.

There is a business case calculation that can identify the real savings for an organization that can prevent workplace injuries. A business must achieve significantly more sales in order to offset the cost of injuries. If a business can potentially save $150,000 each year in injury cost reduction, and its profit margin is, say, 8%, then this savings is equivalent to achieving $1,875,000 in additional sales. It’s clear that improving health and safety has a direct impact on business goals, profitability and productivity.

Simon Fridlyand, P.Eng., is president of S.A.F.E. Engineering, a Toronto-based company specializing in industrial health and safety issues and compliance. He can be reached at 416-447-9757 or simonf@safeengineering.ca. For more information, visit www.safeengineering.ca.

Insider Insight

‘Safe operations contribute to the bottom line’

“As CEO, I want to be sure that employees go home each night to family and friends the same way they come to work in the morning. Safe operations contribute to the bottom line. Excellence in health and safety performance leads to improved productivity and lower costs. Time is not lost to injury, investigation processes and all the follow-up that results from an accident.

“I also believe that an organization that has a high level of health and safety awareness and performance is also an organization that is known for quality in its end products and customer service. That link is a positive contributor to the company’s profit margin.”

J. A. MacKenzie, P.Eng.

President and CEO

Guelph Hydro Inc., Guelph, Ont.