The ROI of Logistics Safety Programs

Every logistics operation will say safety programs are a priority. But many such claims are lip service only. Safety solutions, over and above OSHA-mandated programs, cost money – for training, equipment and software. Many companies struggle to invest money in things that might happen.

A good metaphor is preventative medicine. According to the Centers for Disease Control, preventable chronic diseases account for 75% of the nation’s healthcare spending. One small example: preventative programs that reduce hypertension by just 5% would save the economy $25 billion per year.

Shippers and 3PLs, alike, need to focus less on the cost of logistics safety programs and more on the real cost of preventable safety incidents. In this context, safety program investments deliver a positive, sometimes staggering, ROI.

What are the costs of poor safety performance?

Here are some key cost areas associated with poor safety performance.

Insurance costs

With every reportable safety incident, your workman’s comp policy cost is modified to reflect what the insurance company regards as its heightened risk. Just one or two incidents can cost hundreds of thousands of dollars, which otherwise would drop to the bottom line. 

Hiring replacement workers

Hiring a long-term replacement has serious costs attached. For example, bringing in a new driver costs upwards of $5,000 for recruiting, processing and training – and that’s all before even one load is delivered. Sometimes, you continue to pay the salary of the injured worker while absorbing the full cost of the new hire. 

Lost productivity

This impact is significant but more difficult to quantify. Replacement workers typically don’t know the job well. You’ll need to pay a supervisor to train these associates and, even then, they won’t be as productive as the people they replace. If their picking productivity is poor, completing a job on time could require costly overtime. 

Product loss

The costs of poor safety performance aren’t always people-related. If a forklift takes out a section of racking and products fall to the floor, you’re dealing with a cargo claim and lost product costs – not to mention an angry customer. On the transportation side, even a minor, low-speed truck accident starts at $7,000–$9,000 in property damage. 

Major safety incident

A major safety incident that results in long-term disability can come with a serious price tag. Insurance will cover such incidents, but deductibles on such claims tend to be high – $250,000 or more. That’s not just a “cost of doing business” (insurance premiums), it’s real money that gets paid out and reduces company profit. 

KANE’s logistics safety programs

“Keep safety first” is the first tenet of our KANE Code. We prioritize safety and it pays off.

• In the warehouse, our YTD 2019 recordable incident rate (RIR) is 2.1 versus an industry average of 5.1 (source, Bureau of Labor Statistics).
• On the road, our YTD 2019 RIR is 1.24 versus an industry average of 4.2 (source, Bureau of Labor Statistics). Additionally, we’re proud to state that we’re going on 14 months without a DOT recordable incident – remarkable for a busy fleet of 150 power units.

At KANE, safety-related costs are viewed as investments in prevention. For instance, while our EHS Insight software carries an ongoing cost, it helps manage safety incidents and compliance far better than a spreadsheet-based approach, which is free but would not deliver the insights we need to continually improve. 

Keys to success for safety programs

What characteristics define successful logistics safety programs and solutions? 

• Top management commitment. Do they simply talk about safety at company events or do they participate actively in ongoing safety-related calls and working meetings?
• Proactivity.  Many companies are reactive when it comes to safety. When something bad happens, re-training is mandated or new precautions are adopted. Companies with the best safety cultures have associates that anticipate problems and suggest preventative solutions. The company takes these suggestions seriously and funds those that make sense.
• Rapport with safety team. At companies with poor safety cultures, the safety team is more like the “compliance police” who show up regularly to tour the facility and tick off boxes on an OSHA audit checklist. At companies with excellent safety cultures, safety professionals are seen as colleagues who work in the trenches with warehousemen and drivers and can be contacted to assist with a problem, such as finishing a driver shift when HOS-restricted hours are about to expire. 

An ounce of prevention…

Logistics safety programs cost money, but logistics safety incidents cost much MORE money. 

Make no mistake, investing in safety is an ROI-driven decision.