Extending governance of safety risk to off-site transportation

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Road-transport safety has arrived on the corporate leadership agenda and is becoming key to reputation, as other parts of the risk profile are being systematically reduced. Often dominated by contracted-out logistics within the supply chain, this presents a range of challenges beyond those typically encountered on site. Leading companies are working to extend management of the corporate risk profile to road safety write Marcus Beard and Guillaume Rominger of Management Consultants Arthur D. Little

Limited safety risk management among companies

Companies have increased safety risk management efforts over the last few decades and significantly reduced harm to staff, contractors, customers and members of the public. However, most companies continue to limit safety risk management to on-site activities. Management of off-site safety risks for owned operations across the supply chain is typically weak; indeed, many companies do not systematically record or report off-site incidents.

Specifically, with respect to road safety, only a few leading global companies consider the issue a priority, despite 36% of all occupation-related deaths occurring on the road, outside of plant gates. Even fewer truly understand the safety risk profile across their supply chains. While legal obligations for managing safety vary globally and, in many cases, fall to the supply-chain players themselves, ever-increasing scrutiny exposes corporate reputation.

Group-wide programs to manage road-safety risks

Analysis of external reporting by 85 of the world’s largest companies across seven sectors notes that just one-third declare the matter to be a priority, and shows considerable variation in prioritising supply-chain safety by sector

Road safety is rapidly joining the corporate leadership agenda. Leading companies are now launching group-wide programs to manage road-safety risks in distribution, in particular global companies operating in low- and middle-income countries with less than half of the world’s vehicles but 90% of fatal accidents.

Our analysis of external reporting by 85 of the world’s largest companies across seven sectors notes that just one-third declare the matter to be a priority, and shows considerable variation in prioritising supply-chain safety by sector.

Such campaigns have been fuelled by rapidly developing technologies such as vehicle telematics and on-board driver-monitoring cameras, enabling low-cost and effective support to safety management of fleets.

Good business performance and a range of benefits

Many road-safety initiatives support good business performance and deliver a range of benefits, for example:

  1. Cost savings. Direct costs typically involve vehicles (recovery, repairs, insurance premiums) and drivers (injury and absence, replacement drivers, compensation). Further indirect costs are typically much more extensive and not fully covered by insurance (downtime, loss of production, damaged reputation, loss of goodwill and management burden) – and often forgotten when reviewing the incident.
  2. Competitive edge. Improved governance of safety risk results in highly reliable supply-chain networks, whether transport services are owned or outsourced, in which products are more likely to reach their customers on time.

A broad scope of initiatives

The world’s largest companies are introducing a broad range of initiatives to reduce the number of road accidents:

Defensive driver training and driver-monitoring technologies are becoming more mainstream. Such initiatives present cost-effective initiatives and are rapidly being considered as part of “taking reasonable steps” to manage all-offsite transportation safety risks throughout the supply chain.

Our recent experience of working with leading companies has highlighted three key elements:

  • Acknowledging key challenges
  • Understanding the big picture
  • Launching well-targeted strategic programs

Key Challenges

Unlike when managing on-site safety risks, companies have no direct ability to control the actions of third parties on public roads. For companies with extensive road-transport footprints in low-income countries, this is particularly relevant as poor transport infrastructure, together with often weak road-safety law enforcement and larger numbers of pedestrians and bicycles, lead to dangerous road conditions. The third-party death rate in such countries is significantly higher than in the developed world.

Understanding the Big Picture

Many organisations do not record or report off-site incidents at corporate level, which makes such matters invisible to their boards, and hence not a corporate priority.

A critical enabler to improving road safety is to understand the specific local risk profile by consistently collecting and reporting data on fatalities/incidents. Many organisations do not record or report off-site incidents at corporate level, which makes such matters invisible to their boards, and hence not a corporate priority. From our experience, a critical success factor is to equip the organisation with effective safety governance mechanisms. These actions allow identification of the low-hanging fruit and opportunities to take those reasonable steps.

Launching Well-Targeted Strategic Programs

Safe-driving initiatives need to be led from the top. Cost-effective and sustained success requires tackling the underlying causes of current accidents and alignment of driver programs with broader company culture – targeting the directly controlled workforce as well as contractual/supplier relationships. Initiatives need to be systematic and embrace driver selection, behavior, development and monitoring, best use of new technologies to equip vehicles, and assessment of driving routes.

We note three elements which are critical for success but often overlooked:

  • A large-scale corporate program does not necessarily imply a uniform turnkey solution. Local evaluation of driving culture, the driving environment and underlying causes of accidents is required to develop smart and effective investments rather than a global broad-brush approach.
  • Contracted supply-chain fleets are often left out of the safety equation. Contracted operations are sometimes perceived as a way to transfer risks, and for many companies, contractors are viewed as beyond their control and primary concern. Development of suitable formal structures for managing supply-chain risks is perceived as one of the biggest challenges. Companies seeking to progress from “contract-driven” supply-chain safety management to “culture driven” do well to nurture long-term relationships with high-performing contractors. A key factor for success lies in effective evaluation, based on suitable metrics, of performance on an ongoing basis.
  • Technology should strengthen rather than replace driver management. Telematic-based black-box and camera technologies are now mainstream and allow real-time monitoring of driver performance. These typically record hard stops, turns, harsh braking, speeding and swift lane-change manoeuvres, and can therefore detect unsafe driving practices. Adaptive cruise control and roll stability maintain safe following distances and apply the brakes if a vehicle corners too fast. However, too often we saw during our business reviews a large amount of “guilty” knowledge accumulated by Big (Safety) Data, but not used by the management for action. Effective management programs may include a scheme with clear rewards/sanctions for the drivers. We have seen healthy day-to-day competition between drivers lead to reduced collision rates.

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