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Ask the average citizen what they think about the future of U.S. manufacturing, and you’re likely to hear bleak projections of companies shipping their operations offshore, or robots displacing human workers. Overall, the industry’s public image is fading at the edges — people perceive waning relevance and opportunity.
“But if you ask manufacturers what they think, the response is the exact opposite. U.S. manufacturers are actually quite enthused about the future,” said Seth Hedrington, Senior Vice President and General manager, National Insurance, West Division, Liberty Mutual Insurance. “It’s a very dynamic industry with new opportunities every day.”
Advancements in technology are changing the game in terms of capabilities, efficiency and agility.
“Automation and robotics enable smaller entities to produce at a smaller scale, which puts pressure on every player to become more efficient,” Hedrington said. But additional, less publicized
technology is also making a big impact. The Internet of Things, blockchain, and 3D printing, to name a few, are lowering barriers to entry and enabling companies to move into new markets more quickly.
Seth Hedrington, Senior Vice President and General Manager, National Insurance, West Division, Liberty Mutual Insurance
Thanks to these developments, technology is driving competition. However, its benefits are simultaneously counteracted by the challenge of keeping up with rapidly-changing consumer preferences, government regulation, and an ongoing labor shortage.
The result is an environment teeming with both opportunity and obstacles. “Manufacturers have to make changes to stay in the game, but that introduces new risks,” Hedrington said.
Here are five ways manufacturers are reacting to a newly competitive environment that may expose them to unforeseen risks:
The inability to attract and retain workers remains a top challenge for manufacturers, in part because the nature of the skill set required is changing rapidly. Because technology plays such a significant role in front-line production processes, manufacturers need people who not only operate the machines, but also understand how they work.
“They need workers who are more adept with technology, and that’s harder to come by,” Hedrington said.
To increase capacity, companies are lengthening or adding shifts for their existing workforce, which increases the likelihood of fatigue and the risk of injury. While co-bots may reduce labor demands and mitigate safety risk over the long term, they too present short-term challenges.
“Introducing new machinery or even new workers creates unfamiliarity, and that initially increases safety risk,” Hedrington said.
These changes also have product liability implications. “When you extend shifts, you’re taxing the equipment as well as your workers,” Hedrington said. “That makes it more difficult to achieve a consistent level of product quality.”
Risk Management Steps:
Thanks to recent tariffs on key imports like aluminum and steel, raw materials are becoming more expensive. “Manufacturers are faced with some of the most extreme fluctuations in the cost of materials that we’ve seen in recent history,” Hedrington said.
To control costs, some companies are turning to suppliers from regions not impacted by the tariffs. But significant risks always accompany a change in trade relationships. Product defect liability is chief among them, but the risk of supply chain interruption is also an issue.
“If you’re working with alternate suppliers and relationships are not as established, the risk of interruption is greater,” Hedrington said. Failure to deliver products on time ultimately presents a reputational risk and threatens a manufacturer’s ability to keep their contracts.
Risk Management Steps:
Technology makes it easier to stay connected anywhere in the world, and more manufacturers are taking advantage of that to open multiple locations across the U.S. and abroad.
“As companies start to feel pressured by the competitive environment, they’ll look for opportunities to manufacture in other parts of the world where regulatory hurdles and costs are smaller,” Hedrington said.
That, however, may increase exposure to intellectual property (IP) theft. While cyber breach happens everywhere, an international supply chain typically means a more expansive network, so the potential for infiltration and IP theft is greater. The ability to seek damages for IP theft occurring outside the U.S. can also be more challenging.
“A global network is a lot more difficult to manage—you need to regularly evaluate who has access, what they have access to, and make sure the access is secure,” Hedrington said. Limiting access to confidential information to specific groups or a specific location, like a U.S. headquarters, could help mitigate the exposure.
Risk Management Steps:
More manufacturers are incorporating sensors and internet-enabled technology that allows machines to collect and share data and work together in an automated fashion. This ‘smart’ technology provides valuable insights into the efficiency of production processes.
“The risk associated with “smart” machinery is their interconnectivity,” Hedrington said. “Anytime you have that level of connectivity, you have an increased level of risk to cyber breach.” It’s also easier to make unintentional or unauthorized changes to product design and specifications or material thresholds, which could impact product quality and safety.
“Many manufacturers don’t perceive themselves as major targets for cyber-attack, but failing to appreciate and mitigate that exposure can result in significant losses. In addition to reviewing your internal IT safeguards, it’s critical to review your insurance options. If you’re not considering the benefits of insurance, that’s a significant missed opportunity to protect your business,” he said.
Risk Management Steps:
Manufacturers in a variety of consumer product segments, from razors and eyeglasses to mattresses and sneakers, are increasingly exploring direct to consumer models that cut out the middle man. While few manufacturers are abandoning their traditional distribution outlets all together, they are considering e-commerce and even brick-and mortar locations of their own.
In addition to increased efficiencies, this format allows manufacturers more control over the customer experience and a bigger share of the profits.
“Going direct-to-consumer is another way to beat out competitors,” Hedrington said. “Technology and the connectivity of everything has helped open up new distribution avenues.”
It also, however, confers liabilities to the manufacturer that the middle-men normally accept, such as product and safety liability for proper packaging and labeling, as well as other operational risks that come with running a storefront, including workers’ compensation, cyber, property and general liability exposures.
Risk Management Steps:
Manufacturing represents one of the largest business segments that Liberty Mutual serves, and teams across the organization have specialized expertise in the unique challenges facing this evolving sector.
Liberty insures a wide variety of manufacturers, wants to write more, and has the products to address the industry’s specific exposures. The company can offer a holistic solution that includes core property & casualty, as well as cyber, D&O, and environmental lines through Ironshore, a Liberty Mutual company.
“Liberty Mutual is entrenched in the risk management practices of the manufacturing industry. Our risk control professionals participate in many boards and committees that create standards to improve equipment, product, and employee safety. Additionally, our Industry Solutions and Product Management teams have a deep understanding of the manufacturing industry and help customers stay ahead of emerging risks,” Hedrington said.
In addition, Liberty’s claims handlers have the experience, capabilities, and knowledge to deliver quality outcomes so manufacturers can rebound from losses as quickly as possible.
“Our commitment to this space manifests itself in many ways, and that will hold true as U.S. manufacturing continues to evolve,” Hedrington said.
To learn more, visit http://lmi.co/manufacturing.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.
Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.
Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.
That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.
“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.
Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.
That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.
“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks
Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.
For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.
Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.
Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.
“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.
MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.
“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.
Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.
Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.
“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.
Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.
At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.
Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.
UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.
Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &