Time for Vacation

Dear customers, business partners and Fortaco team,

The Corona crisis is still reality for all people around the globe. Countries are using their best knowledge and experience to reduce and eliminate the crisis. We are all impacted, harder or softer. Most probably, we will experience a new normal when Covid-19 is a new illness in our global society.

Since the beginning of March, Fortaco has taken serious actions to safeguard our employees, customers and business partners, and to keep our deliveries as promised to our customers. I am very honored to see a strong commitment by everybody involved in the complex supply chain, including the Fortaco team. Despite of somewhat declined net sales 2020 year-to-date, we have taken extraordinary actions and improved profitability. We have also strengthened our liquidity in case it is needed going forward.

New Chairman of the Board
Mr. Panu Routila has been appointed the Chairman of Fortaco Group Board of Directors as from May 2020. Mr. Routila has served as President & CEO at Konecranes and Ahlström Capital. Mr. Peter Augustsson has successfully chaired Fortaco Group since company’s establishment 2013.

Factory extension in Narva
Fortaco’s strategic investment in Narva, a new factory of 10.000 m2, is proceeding exactly according to the plan. Operational take over takes place in coming days. More information to be released after summer.

Make Tomorrow Safer and Better
Fortaco’s operational focus is on safety, quality, delivery performance and productivity, according to our strategic approach “Make Tomorrow Safer and Better”. By continuous development we have successfully been improving our performance.

Outlook for autumn
Fortaco is perceiving the outlook for autumn to large extent unknown. The Corona crisis is still alive with the releases of restrictions, depending on country and specific situations. We have updated our scenario plans for autumn to be prepared, varying from a slight optimistic to a less optimistic, equal to the second quarter net sales.

As of beginning of August, we are going to allow visitors at our Business Sites; changes might occur, depending on Covid-19 development. Since the beginning of March, our approach is “no panic”, we are managing our operations professionally day by day – and this is still valid.

I would like to thank you for your trust, and I am wishing all of you a nice summer period. Stay safe and healthy!


With best regards,

Lars Hellberg
President & CEO


Safe and Sound Summer Greetings

Looking back to the end of 2019, no one could predict such a turn, which happened during the first half of 2020. After optimistic 2018 and more realistic 2019, business environment was expected to continue in 2020 the same general trend as 2019. End 2019 the signals coming from China were not understood as a foretaste of an economical earthquake.

Standing now at the end of the second quarter, we can say it was a very unusual period. Entering year 2020, Fortaco felt some optimism as regards to the market growth. Our experiences from 2019, and customers’ forecasts for 2020 built a perception of stabilization. However, a quickly spreading Corona virus changed the business environment and rapidly introduced a new reality.

During the first quarter, Fortaco factories continued with the normal production output, deliveries were not interrupted. Shortage of components from China did not impact our operations. However, the rapidly rising number of infection cases as from end Q1, and quickly spreading virus through Europe, forced most of the economies in the old continent to implement various tools for temporary lockdown, which did not left Fortaco intact.

The overall slow-down on the market influenced us mainly through the situation at end-customers. Due to the governmental regulations, issues in supply chain, and protecting of employees’ health, the most customers implemented security measures and temporary closed their operations. All this had a strong correlation with Fortaco’s operations and our production and delivery plans. Luckily, from a supply chain perspective, Fortaco did not suffer from any major shortages which could have seriously impacted our customer supplies. Thanks to common understanding, good collaboration with suppliers and partnership approach, Fortaco has managed to secure the flow of parts and modules to our customers as well as for aftermarket.

The second half of the year remains to be a big question mark. Our customers’ forecasts follow the general trend in the industry. At Fortaco, we are preparing ourselves already now for the quick reaction once volumes return. We believe, the market situation caused by the pandemic will give new opportunities for those, who are ready in proper time to support customers quickly and agile way. We Trust in Tomorrow.

I am wishing all of you safe and healthy holidays. Enjoy the summer with your families and friends, getting ready for challenges in the second half of 2020.


With best regards,
Krzysztof Michel
Senior Vice President,

Fortaco Sourcing & IT


Changing a Culture

When a culture improves, KPIs follow.

Anna Młynarczyk-Widomska holds a Master of Engineering degree from Cracow University, though as fate would have it she never worked as an engineer.

Right out of school she got a job in selling technical maintenance and infrastructure services, then soon transitioned to do controlling for a production company from the automotive sector, and then worked for a Spanish construction company which built highways, buildings and airports. This was the beginning of her journey into finance.

At Fortaco, as Finance, People, and HR Director, she supervises a team of eight responsible for the financial areas of accounting, cash flow management, financial KPIs, and relationships with banks. Her team’s HR responsibilities include payroll, recruitment, and motivation. Motivation and people engagement is a topic of particular importance to her. She is lead of the IT and Administration team.

Communication and our behavior

“When I joined Fortaco in 2014, we still encountered elements from a very formal and old fashioned culture in our factory,” Młynarczyk-Widomska says. “Managers were addressed very often as ‘mister’ or ‘missus,’ doors were kept closed, people kept to their own departments, and the opinions of employees were not often sought.” Mrs. Młynarczyk-Widomska set out to change that.

She began to lead by example, using names instead of positions during daily work, keeping her office door open, greeting people in the production hall. “With other leadership team members we focused on introducing cultural change at Fortaco Janów Lubelski.

“Day by day we were able to see improvements. It was very helpful that new people joined our team. For example, we had a new production director, engineering manager, and quality manager.” Over the last five years new tools were implemented, including monthly meetings with three employees to hear their opinions about equipment, health and safety, salaries, or anything they wished to discuss. General meetings with the managing director were held in the production hall where people could ask questions and get key information about our current situation and our challenges.

The management team also began a campaign to tidy up the factory to make it a more pleasant environment. “You don’t have to spend much money to do that,” Anna says. “We painted walls and changed the carpets, put things in their proper place.”

Most important was the interaction with people, the hellos delivered on the factory floor. "It’s important to show people that we see their work, that they’re important. We must communicate with them, and treat them as partners whose ideas are valued.”

Accounting not only in the finance department

We are here to deliver the right numbers to our owners. “In the past, the forecasting process was located in the finance department. I changed it and asked managers responsible for each area to deliver data necessary to complete forecasting process,” she says. “We had to ‘clean up’ some mistakes from the past in case of bookings, clear up some accounting process ‘doubts,’ and take control of the flow and verification of financial documents. We created a new structure of cost centers and a transparent cost allocation process. Managers now get to manage their own budgets.”

“The beginning was very difficult because people couldn’t understand why they had to do these things, but now I know that they also see benefits from this changes.”

KPIs will follow

The soft changes quickly produced hard changes. Financial KPIs and survey results improved. EBITDA moved from three percent of turnover to double digits. Return on invested capital moved from a negative number to over 30 percent in the positive. Employee turnover is within normal bounds.

“There are lots of intangibles, too,” Anna says. “You can ask people how they’re feeling and get a very positive answer.”

Anna believes creating the right culture is essential to tackling problems which turn out to be more complex than previously thought. Several years ago, when KPIs did not improve after an across-the-board salary increase, we introduced a productivity bonus tool. To decrease sick levels, we created an availability bonus. “It’s a simple system. It’s very transparent, and people can easily calculate themselves the results of doing things differently.”

“Poland is not a low-cost country anymore,” she says. “In this period of transition it’s more critical than ever to create the best possible environment for people. It’s in everyone’s best interest. In Fortaco I meet a lot of fantastic people with great personalities. I am very proud to see what we achieved in Fortaco JL. We are aware that this journey is still ongoing. Trust in tomorrow.“


From Safety Cop to Safety Culture

Changing the way safety is viewed in an organization.

Safety has traditionally been a matter of compliance. Pity the safety specialist, the compliance officer responsible for filling out reports, recording infractions and sending information to management.

"Historically, people on floor think someone else is responsible for safety. That someone else is a safety policeman," says Andrzej Wrona, Operational Excellence Director at Fortaco Group. “And lots of people don’t like the police.”

What doesn’t work

The safety policeman approach may be popular — it has many years of manufacturing tradition behind it. But it's being shown to be ineffective. "The policeman approach either doesn't work or its effect is temporary," says Larissa Shabunova, Managing Director of Fortaco Estonia. "You can issue a lot of rules, you can make demands, but the only thing that’s effective is constant reminders, trainings, and showing examples from other factories."

Shabunova’s statement is borne out by modern research, which shows safety cannot be disconnected from quality, delivery accuracy, and productivity. Record safety goes hand in hand with record performance. With that in mind, Fortaco is working toward transforming its safety cops into culture creators.

From the top to the shop

But just as the lone policeman cannot be effective, it isn’t possible to assign one individual to create a safety culture. Safety must permeate every level of the organization, from top management to the most junior employee on the shop floor.

Buy-in must start with not only group-level management, but with top management at every production site, as well. “We spend a lot of time doing night audits to show people that top management is involved, says Yuri Krupinin, Fortaco Estonia's QHSE Manager. “We’re not only present, but we’re leading by example. Safety starts with us, and you’ll see the director wearing a hard hat. We don’t ask people to do anything we don’t do ourselves.”

Asking employees to take part is critical, because there are barriers which simply cannot be broken without them. “It’s difficult to get your LTIF rate below five or six without employee involvement,” says Andras Csizmazia, Head of QHSE for Fortaco Group.

Hard heads and transitions

Historically, Fortaco has required hard hats to be worn by employees operating a crane from the floor. Welders and forklift operators were not required to wear them. In 2018, Fortaco weighed its options to make hard hats obligatory for all.

"We could have issued an order and then administered warnings and punishment, but we tried another approach,” says Larissa Shabunova. “We bought a variety of helmets, tested them with management when we went to production. This allowed us to both see which helmets met our needs, but also demonstrate to workers that we were wearing them. We chose three suitable models, and then allowed middle management to choose the one they liked. They started showing up on the floor in them. Then we added shop floor supervisors, department managers, and team leaders, slowly moving down the chain. We never issued a formal order, though we told people hard hats would eventually be required. Finally, when we approached the workers there was little resistance, because they'd already seen us setting an example for several months."

As of January 1, 2020, everyone in a Fortaco factory in Estonia wears a hard hat.

The workers know

Educating workers about what’s unsafe isn’t the real challenge according to Agnieszka Koziara, Fortaco's SVP People & HR.
“I have a feeling that people know exactly what is safe and unsafe. I know that if I’m hurrying to pick up my kids, I know that’s dangerous and improper. We have to be honest with our colleagues and with ourselves.”

Koziara says the challenge of creating a safety culture lies in convincing workers that safety at work is as important as safety at home. “Why don’t we take responsibility for our colleagues at work, just as we take responsibility for our family members at home?” she asks. “If you see something unsafe you need to say ‘stop.’ I think there’s a barrier in our minds.”

Teaching safety

Larissa Shabunova has tried to cross that barrier one step above the individual level: with the team.

In order to improve efficiency we need to empower team leaders. "Before, a foreman managed 50 to 60 people, which is far too many. A leader should be responsible for a maximum of 15 people. We selected the best workers to be team leaders, since they were unofficial leaders, anyway. The team leaders became ambassadors of our values, with safety as one of those key values.”

What’s the most impactful teaching tool for safety? Many believe it to be real-world examples. Since human beings are by nature curious, and often competitive, frequent trainings and constant emphasis on safety should include information from other factories.

Fortaco Estonia's Yuri Krupinin organizes trainings for welders and bending machine operators. His sessions include not only safety requirements for each task, but fault and deviation figures from other factories. It’s also routine to distribute accident reports across the Fortaco organization. "If you show real situations, not stuff from the newspaper, then it's very effective," says Krupinin. "Forklift drivers are always curious about forklift drivers in other factories."

Tomorrow’s safety education

As technology develops so will safety training. "If we’re going to have trainings," says Andrzej Wrona, “then let’s make sure we benefit from it. I believe that virtual reality training can be very effective and is a good option to consider in the future. Put people in unsafe situations in a virtual setting. Make it interesting and deliver a message.”

Regardless of modern tools available, the most effective safety tool will remain the one between the worker’s ears. That tool, combined with the clear understanding that the employee is actually encouraged to stop work if something is unsafe, will bring Fortaco closer to its goal of zero accidents.

It’s a cultural shift that won’t come overnight, a step toward Eastern philosophy, as Yuri Krupinin describes it. A workplace environment where it’s clear one impacts his own safety, and a company that has your back. “If you’re part of our company,” says Krupinin, “then we’re here to teach you, not to blame you.”


Mining

Spirit of Commitment

During the Corona outbreak it is good to remember that business continues despite the recent restriction across Europe. In Sastamala, Finland we have celebrated the roll-out of the 2500th completely assembled mining machine for one of our important customer. Special congratulations to the local team for the achievement of this great milestone during these special times.

Recently, governments across Europe have started to lift Corona restrictions on people and businesses. However, the Covid-19 situation remains challenging, and we are following all earlier implemented preventive measures at our factories. Our priority is to continue protecting our people and local communities from spreading the virus, as well as protecting our cashflow.

Fortaco factories are operative since the outbreak of Covid-19, we have managed with the supply without any major disruptions. We are closely monitoring the market demand, as our customers are slowly increasing orders and/or slowly reopening their factories. However, we still have a long way to go, both with ups and downs, before the crisis is behind us.

We would like to thank all our partners for the support and trust in tomorrow during the challenging times.


Residual Value: Beyond the Holy Trinity

How data will eventually impact residual value, total cost of ownership, and transform heavy-equipment financing.

“Hours of use, type of use, and maintenance record. These are the three things that matter when calculating residual value,” said a former director of a major OEM’s financial business. While it’s hard to find anyone who would dispute that information has value, is more information necessarily good information when it comes to residual value?

"Don't overthink it," cautioned the finance professional, who has left the OEM for another business and agreed to bounce around ideas off the record. “Was the bulldozer used 2,000 hours per year in a single shift? Or double that? Was the ADT used to haul mine tailings, or did it transport feathers? Was the backhoe professionally serviced? Or was the owner a DIY type?”

At the moment, the prevailing wisdom seems to be that hours of use, type of use, and maintenance record — the Holy Trinity of residual value — adequately serve the industry’s purpose.

A used-car model

Dr. Rafał Sornek, Senior Vice President of Technology at Fortaco Group, makes the case for data impacting residual value.

“Take data OEMs already collect, store it in a public place, authenticate it with blockchain, and give industry professionals access to it.” Sornek’s proposal is to do for the off-highway industry what has already been done for used cars in Europe. "I can use a VIN to see a vehicle's entire history. Why not do the same for a used crane?"

Sornek’s vision is massive amounts of data contributing to more accurate residual value, resulting in a lower total cost of ownership. "Even in an honest marketplace," he argues, “sellers themselves sometimes don't know what they're selling."

What OEMs know

Chris Domagala, CBDO of Lectura, a German- and Czech-based company which collects and sells transactional data on heavy machinery, says OEMs don't always know as much about their assets as they let on. "OEMs have huge distribution- and dealer networks that sometimes show significant price autonomy. There are cases where the OEM doesn't even know exactly for how much their machines went to market. They may not get data back from dealers. OEMs are experts on machine specs — they know which components break fastest — but not market prices."

Domagala offers an example of how residual values are still handled on a higher “aggregation level” than they could be at financial institutions (the majority of assets in most countries belong to banks). “It depends on the institution, but crawler excavators, for example, are generalized on a rather high level. You’ll see it's a 20- or 30-ton crawler excavator from a first- or second-tier manufacturer, and that’s usually it. Thus, the residual values they use are aggregated. But the more you know about your particular asset’s value development, the better you can calculate risk, the more profitable it can be. There are more and more ways to approach the car market’s transparency regarding rather accurate model-based value estimates.”

Change begins with a process of mutual educational, he says. “Bankers in the risk department have been in their jobs for 35 years, and to have a third-party company say ‘Our data knows more than yours and your experience’ isn’t always welcome. Also, vast smart data can fail. Banks will naturally take a defensive posture if the process is not symbiotically designed. There is also, literally, a lot that data can learn from ‘old stagers.’”

While collecting data isn’t at all new, putting it to good use is. “We're not in the Dark Ages of collecting data, but we're still at the beginning of connecting data,” says Domagala.

A new type of finance company

Michael Rohmeder is CEO of Equippo, which he characterizes as "a full-service marketplace for construction equipment” with a telematics project. Equippo might be thought of as the Zappo's for excavators, offering online sales of inspected, delivered, and guaranteed equipment.

Depending on how you count it, the annual global transaction volume of used heavy equipment ranges from 100 to 300 billion dollars. Equippo's goal is to get its customers the highest price possible for their equipment, with a high residual value and the lowest possible total cost of ownership. "The components of TCO are the new price, maintenance cost, and the resale value,” says Rohmeder, “and data can impact these heavily."

Rohmeder says banks will write a seven-year contract with a residual value curve so they won't lose money if the value turns. He sees room for a new type of finance company that derives benefit from connected data. One that might offer higher residual value thanks to smart data models, knowledge of future use, and maintenance, allowing the financer to be more aggressive on residual value and still make money.

“A starting point might be in the financing of extremely high-value equipment like cranes,” he says, which can sell new for over a million euros. But when purchased used, he notes, “Crane hours don’t convey how much it's actually lifted. It's an indication, but sometimes the crane is moving up and down with no load. What if we could prove with telematics data that the boom was only used to lift 20 percent of the time?" It's the grandmother-only-drove-it-to-church scenario. Grandma may be telling the truth, but data could tell us whether she had a habit of riding the clutch.

Persuading the bankers

Since interest rates can represent 30 to 50 percent of total ownership costs, it's a matter of time before things begin to change. Chris Domagala says a proper consortium must be built. "We need suppliers like Fortaco with deep knowledge of steel structures. Then we need an OEM with telematics data, a data company like ours, and then a tech provider who can build safe ways of data transfer."

Domagala praises JCB as a first mover. "They launched a telematics platform for JCB users which gives you an overview of all JCB machines, where they are, and all telematics data on one dashboard. It's impressive. But you've got to be an accredited JCB customer, it applies to JCB machines only, and it's not even semi-public."

"Bankers can be persuaded," he says. The risk buy may be intimidated but the CEO will think differently. The bankers will eventually be in favor of it, and they have pull with the OEMs. It could happen in as fast as a year, if an OEM is willing to share historical data.”

Join the cause

Rafał Sornek hasn’t named the group yet, but he’s talking to anyone who’ll listen. He’s convinced Rohmeder and Domagala. And he’ll get around to convincing you, too.

“I want to appeal to people to be part of this project,” says Domagala. “The more people we have at the table, the better the results, and the better we can build trust. Think about a machine's decreasing residual value curve and the upward-sloping cost development. Where the two curves intersect is the perfect place to sell. This leads to better circular economy and, in the end, lower emissions. It’s better for everyone.”


Petra

Opportunities Beyond Obstacles

Every cloud has a silver lining – Petra Špačková’s motto, and more thoughts about her quarantine times during Corona virus crisis.

Special circumstances require special solutions – and those solutions would not be created with ordinary thinking. As everything else in life generally, these special circumstances shall be passed by, but in the meantime our thinking is being stretched to dig deep into our potential in creative thinking and problem solving. Petra Špačková, Fortaco’s Operative Purchaser in Holíč, Slovakia, is a professional, who is working at the frontline of business to keep operations going. Communicating with vendors and production, she is securing that all parts needed in the manufacturing process are being purchased just on-time.

Fortaco operations have been safe and solid during the Corona crisis this spring thanks to all hardworking and flexible members in our team, like Petra. At the moment working means for her spending the days in the solitude of her home office. “In the beginning it was hard to imagine a different daily routine, even though I did understand the seriousness of the situation”. Like for many, at first it was obvious to see only the negative sides, and the change didn’t come without doubts.

“It’s difficult to deal with someone without seeing face to face. On top of that I’m also communicating quite often with people whom I’ve never met before.” Naturally, there were a lot of questions occurring in her head, and not all the answers were totally clear; what can be expected from virtual suppliers; are our network agreements the same as personal agreements?

When the dust was settled, Petra started to pay attention to the advantages of this special situation. Thanks to the advanced information technologies we’re able to stay in contact without the physical presence. “There is no need to meet people personally, in most cases a considerable amount of time is being saved – and also a huge cost”. Even though she was worried the circumstances would affect people’s communication skills, it proved out to be that connections were still made, and people were able to carry on and follow the path towards a common goal.

We are not always able to change situations around us, but luckily, we can always decide, how we respond to them. When a crisis occurs, there are also opportunities to be found. ”I have said to myself, it’s a new period in my job and I should take it as an opportunity for my personal development.” Staying resilient and calm, these are the key factors when making progress through the crisis. And we all have our own way forward when facing hardships. “I´ve discovered the benefits of yoga thanks to my social networks in free time”.

“Viva information technologies - technologies against business crises”, Petra sums up.


Holiday Greetings

We are wishing you a peaceful and safe Easter. Despite the serious and special circumstances we hope everyone can still find their time to relax and enjoy the holidays.

Fortaco operations are still stable and we are not experiencing any major disturbances. We would like to thank our great team for keeping up with the safe and health instructions.

Let's keep the way forward.


True Believer

Agnieszka Koziara’s goal is to create conditions that allow teams to play to win, rather than playing not to lose.

Fifteen years ago Agnieszka Koziara began her career as an executive assistant. Her direct supervisor was from Sweden. "As a Pole it came as a huge surprise to me that you could work with people without giving orders,” she says. “My boss gave me lots of freedom.”

As fate would have it, a career move gave her a second direct superior who was also Swedish. “I wanted to be like them. I wanted to work with people who had their own mind and own ideas, and I wanted to bring out the best in people."

Playing to win

In 2014, Koziara was invited to join Fortaco’s human resources team, and having never forgotten her Swedish bosses and the work cultures they created, she found Fortaco’s culture to be familiar. Today she’s Fortaco’s People & HR Director.

“My Swedish bosses made me a believer that you have to give people the freedom to take risks and make mistakes. When you’re taking risks then you’re playing to win. Otherwise, you’re just playing not to lose.”

She says Fortaco is full of like-minded believers, despite the fact they come from a wide variety of cultures.

Strategy for a winning culture

Koziara works regularly with people from Hungary, Poland, Estonia, Slovakia, and Finland, and within each of these cultures are generational differences. Accommodating those differences is one of the challenges that she relishes.

“Each environment has a different reality and there is no one good way to deal with everyone. What’s critical is that you find enough time to listen to everyone and hear their proposals for change. As an organization we can't dictate how people must behave. We should give guidance and work together to build our own reality."

Take safety, for example. "We'd like to have zero accidents, however our work environment can be quite dangerous. You reach zero accidents by increasing safety awareness. But you can’t do that by organizing training sessions alone. In addition, you’ve got to interact daily with your coworkers, explaining why safety issues are important, and why shortcuts are not necessarily a good idea. In private life, we do everything possible to keep our families safe. Work should be no different."

These conversations go better when everyone is on the same page, and at Fortaco that page is the company’s core value of respect. “We’re all believers in this vision, and Fortaco's vision and strategy are key in empowering our employees to choose the right direction.”

Challenges

Culture is also key when confronting business challenges. In Koziara’s role coordinating HR at the group level, her challenge twofold. First, she readies the staff for an environment of change, since change is the only certainty in business. Second, she’s charged with attracting young people to Fortaco. “We’re competing with the IT industry for young people. Those with us tend to have real experience and know-how we can’t find on the market. We need to treat them with great respect, and it’s critical to show appreciation for them.”

There are more direct measures, too. "We know technology is something that attracts young people to work, so we’re investing in welding robots and other modern solutions. We also want to make the production environment less dirty. But above all is our culture. Everyone has the freedom to share ideas and sometimes make mistakes.”

Koziara says feedback is particularly important to young people. “They get feedback when something is done wrong, but not always when something’s done right. We’re always working to improve that.” To make sure feedback runs both ways, each year Koziara invites employees to European Work Council meetings and to take part in joint initiatives.

Creating leaders

“The Fortaco culture is about creating leaders,” she says. “A leader isn’t a person with a title, but a person who illuminates a direction and allows others to use their own skills to get there.”

Her two Swedish bosses once made Agnieszka Koziara a believer. And now it’s her job to create more believers within Fortaco. "If you’re working with believers, then it's much easier to move forward.”


Can safety be measured?

Better Ways to Measure Safety

Days Without Accidents posters may be common in industry, but counting accident-free days does little if anything to prevent accidents.

"Traditional manufacturing safety programs deal with negative information, says Andras Csizmazia, Head of QHSE at Fortaco. “If that’s how we think about safety, then it means the best result is when we hear nothing at all.”

Of course, the seemingly obvious approach is to celebrate those accident-free days. (Fortaco’s cabin vehicle assembly plant in Holíč, Slovakia, has over 888 accident-free days. A unit in Sepänkylä has over 5,000 days!) But factory workers can be as superstitious as 18th-century sailors, and a celebration can be viewed as inviting an accident.

From lagging to leading

Like days without accidents, loss time injury rate or frequency (LTIF) is another lagging indicator of safety. It’s expressed in hours lost per one million working hours. It’s not bad to measure it – manufacturing in Finland averages an LTIF of 30, according to tvk.fi – but like all lagging indicators, it measures only a lack of safety.

Since accident-free days and LTIF are both easy to understand and measure, it’s unlikely the measure will soon be fully replaced. “We’ll of course continue to use lagging indicators, because they’re accurate, and make it simple to benchmark ourselves,” says Csizmazia. “But they’re not of help to predict the future or take actions to change outcomes.”

Heinrich's triangle was one of the first attempts to create a leading indicator of safety. This theory of industrial accident prevention, developed in the 1931, posits that if the number of minor accidents is reduced there will be a corresponding fall in the number of serious accidents. After studying 75,000 accident reports, Heinrich concluded that there is one major injury accident for every 29 minor injury accidents, and for every 300 no-injury accidents.

Larissa Shabunova, Managing Director at Fortaco Estonia, routinely tracks three KPIs at her factories in Narva: number of accidents, near misses, and unsafe behavior. As she works further down the list, the indicators transition from lagging to leading.

In practice, less unsafe behavior and fewer near misses translate to fewer lost-time accidents. Shabunova knows that if she can convince a worker to stop riding a palette jack as if it were a recreational scooter, she will reduce serious accidents.

Fortaco’s Agnieszka Koziara, Senior Vice President of People & HR with Fortaco Group, is also a believer in tracking near misses. “KPIs of risk behavior are the key to unlocking the mindset.” She says zero tolerance for accidents has to be more than just a slogan. “We can’t stop with the motto and pretty words. We’ve got to have zero tolerance for unsafe behavior.”

A new KPI: measuring ideas

Near misses and incidences of unsafe behavior are easy enough to count, but only if employees report them. Adam Czerwiec, General Manager of Fortaco’s Wrocław Steel Fabrications plant, and his team decided to create a new KPI: ideas. Czerwiec’s management team regularly collects ideas for changes from the plant’s 400 blue collar workers.

Ideas are written on a whiteboard on the factory floor and systematically addressed before being erased. “We’re trying to show that all ideas are most welcome, and we’ll at least try to fix the problem, says Czerwiec. “This demonstrates that the workers’ ideas are important. Sometimes, with small issues, we encourage them to help us fix the problem, so it doesn’t just become a worker complaint board.”

Many critical ideas are received, and no idea is too trivial. Last summer, requests were addressed to put drinking water on the production line on hot days. Another request was to remedy missing toilet paper. “The process shows that every worker can be an influencer,” he says. But it’s not only psychological. The ideas serve as a leading indicator.

Czerwiec’s team counts the number of ideas that come from employees, and tracks from which employee group they come. “We still get most ideas from white collar employees and the safety department,” he says. “But our goal for Wroclaw is to be challenged and supported by our blue collar workers in safety.”

No matter how you measure it

For the near future, near miss and safety observation reporting may represent the best indicators for both improving safety and changing culture. But no matter what your leading indicator, no one disagrees that success depends on safety becoming a personal commitment for everyone in the organization.

“People are eager to raise their hands and say ‘this is unsafe,” says Andrzej Wrona, Fortaco’s Director of Operational Excellence. “But once you identify these things management has to react immediately. If you don’t, people will think you’re not serious.”