Safety: the new competitive advantage in a world of liability

As regulators change their view on the relationship of worker safety to contractors and their customers, more companies are using a prospective supplier’s safety record as criteria for awarding business. Some shops have lost profitable contracts to competitors with better safety records. And that’s not all.

A growing number of business owners are waking up to the fact that keeping workers safe isn’t just a matter of being a good corporate citizen or an astute executive, it’s becoming a matter of survival.

This isn’t just your typical safety engineer playing chicken little, melodramatically insisting that the sky is falling; far from it. The number of companies that use a prospective supplier’s safety record as a criteria for awarding their business is rising and manufacturers who have long considered worker injuries a “normal” – albeit undesirable and repugnant – cost of doing business are finding themselves losing profitable contracts to competitors with better safety records.

The business world hasn’t suddenly found religion. Companies have practical and pragmatic reasons for their sudden interest in the safety performance of their subcontractors. Government safety regulators are changing the way they view the relationship of contractors and their customers when it comes to worker safety and, much to the chagrin of business owners, governments are tightening the enforcement of grey areas and closing perceived loopholes in the law.

In the U.S., I have seen an increase in OSHA levying fines and issuing citations to companies who turn a blind eye on the infractions of their key suppliers. The dark truth is that there was a time when original equipment manufacturers (OEMs) could outsource the most dangerous jobs to suppliers and forget the liability. This had the practical effect of lowering their Incident Rates and DART Rates so they could gain all of the associated benefits from the lowered rates.

Increasingly, however, OSHA has been stepping up enforcement of a little known exception to the co-employment law that holds that both the employer of record and the customer to a shared responsibility for safety. What this translates to for suppliers and customers is that neither party can no longer shrug their shoulders and plead ignorance when confronted with workers who haven’t received required safety training.

The U.S. is far from alone in tightening its requirements and/or enforcement of safety requirements among suppliers. It is worth noting that the Labour Minister in Canada has long held suppliers accountable for safety. Australia recently passed legislation that changed the wording of its safety statutes to move away from the traditional view of “employer” and “employee” and these changes make it easier to hold both the customer and suppler accountable for safety.

The customer’s interest isn’t just driven by self-preservation. Many companies use the potential supplier’s safety record as a key indicator of the efficiency of the supplier and a decisive tell of the robustness of its processes.

In other words, a company with a poor safety performance is likely to be unreliable in other ways as well.

In some countries a serious safety violation can cause operations to grind to a halt. Supply chain managers want to reduce this risk of disruption of operations caused by worker injuries.

Companies are also more cognizant of the impact a high profile supplier injury can have on their public image. When a part fails, it is seldom just the reputation of the part manufacturer that is at risk, but also that of the company that sold the part to the injured party. In fact, most headlines concern the seller, not their supplier. Companies now recognize these risks apply even more so to worker injuries and are more judicious when selecting a supplier with which they partner.

This is old news for industry segments such as construction, where a bidder’s safety record plays a prominent role.

But for manufacturers who think they are immune to this issue, think again.

Concern over a supplier’s safety record is becoming common in organizations as diverse as agriculture to healthcare.

In some cases, companies have a much more practical reason for considering supplier safety when awarding business: cost. It stands to reason that companies with high injury levels tend to have higher operating costs, which are typically passed on to the customer. Higher injury rates are a sign of operations with higher waste levels. Why pay a premium for an inferior product or service?

Finally, many companies understand that their employees often have to go on to a vendor site for prolonged periods of time and they want to protect their people. This may sound corny, but a growing number of companies will not do business with a supplier that has a poor safety record simply because they value their people and will not subject them to unsafe working conditions anywhere they find them.

How much is really at risk?

Incident rates are calculated based on both the number of injuries and the number of hours worked. What this means is the smaller the supplier, the more disastrous a single injury can be. A manufacturer with 100 employees is much more adversely affected by a single injury than one with 500 employees. Similarly, a company that has worked considerably more hours than a competitor will have a lower incident rate simply because of the increase in the number of hours worked.

The typical response to worker injuries has been concern for the worker, which is the appropriate response. But now companies must also look at how their safety performance impacts their ability to compete.

Where there is pressure to compete, there is pressure to cheat

The increased business threat to an organization’s livelihood could potentially create a climate that falsifies injury reports, over zealously (to the point of criminality) pursues claims management, and inappropriately pressures workers not to report injuries through hackneyed incentive programs.

This is an even bigger threat to a manufacturer than recordable injuries. Its customer may sympathize with a high incident rate caused by a relatively small population, but that customer is not likely to cast a kind eye on criminal or unethical practices. Even if a company was able to get away with concealing some injuries, the far bigger problem is that under-reported injuries make it harder to identify systemic causes of risk.

Concealment of risk lulls organizations into a false sense of security, at least until disaster strikes and a worker is killed or horribly injured. At this point the injury cannot be concealed, chief executive officers get charged with homicide, citations and fines are handed out like Halloween candy, and the customer runs from the vendor at top speed.

Is there no hope?

Getting control of workplace safety is pretty simple. It typically doesn’t require expensive capital investment, complex schemes brought in by fast talking safety vendors, or even a lot of work. The simple fact of this matter is that a company’s safety lies in the hands of its employees. To make any workplace safer the employees must want it to be safer.

Once a manufacturer takes safety seriously – from an efficiency, competitive, and sustainability perspective – that shop will find many simple, practical and fast things can be done to protect its workers, its investment, and its livelihood. If a shop doesn’t care about safety now, maybe it’s appropriate that its business does fail.