Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Online education and training have long been available so what is the big attraction these days?  Throughout the economic downturn, there has a corresponding up tick in user demand for more convenient and economical education and training.  Users want the ease of time and place that suits their calendar.  They also want proven quality and value.   Accordingly, in collaboration with the American Purchasing Society, all six of my online courses are available on their site.  You will find a description of content and a link to order.    

What do customers say?

References are best left to the customer’s words.    Here is what Ann Unsworth said..

I have just successfully completed your “The Art of Negotiation” course …  and highly recommend to others to take both classes, the “Art” and “Science” of Negotiation.  I enjoyed the fact both courses rounded out the entirety of the process of negotiation.  Both philosophies go hand in hand.  You can not be a successful negotiator with just the skills from the science of negotiation; rather, you need to understand and practice the art of negotiation to be triumphant in your approach of buying or selling.

Not only does this course teach the interpersonal factors of negotiation through Personality Communications, it enhances one’s ability to explore your communication skills in management and leadership.  We deal with many different personalities on a day to day basis and need to understand the people we are communicating with before we can come to a resolution in our negotiations.  Throughout this course, I learned many tactics and strategies on how to successfully maneuver through my daily process of negotiations in which I encounter internal and external customers, clients, and vendors.  This course has been helpful in supplying tools and techniques to effectively reach ones goals. 

I recommend this course to other buyers.  It definitely refreshes and enhances your current negotiation skills.

Where and how to order these online courses

Click on this link  to go to the American Purchasing Society online store.  These are my online curses available there.

Green Purchasing and Sustainability Part I

Green Purchasing and Sustainability Part II

Body Language

The Art of Negotiati0n

The Science of Negotiation

The Science and Art of Negotiation

You’ll find many more topics on the American Purchasing Society site including Inventory Control, Foreign Trade, Ethics, Purchasing Law, and a score of others.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

The issue of a supplier holding and managing customer inventory has many manifestations, all of which have positive and negative cost  influences.  Here are four of the most popular:

Make and hold                       Under the “make and hold” strategy common to the manufacturing industry, a supplier manufactures an entire order at once and releases quantities as needed by the customer.

Just in Time (JIT)                  Just in Time” delivery happens when a supplier manages the inventory so intensively that it is shipped exactly when the customer needs it.

Vendor Managed Inventory  (VMI)                        This is a business process where the supplier monitors the customer owned inventory on hand at the customer’s sites and ships replenishment as required

Vendor Owned Inventory (VOI)                     This refinement of VMI differs only in that the inventory is owned by the supplier and not billed until shipped, or in some cases, incorporated into a finished product by the customer.  This is not only a cash flow advantage to the customer, but keeps inventory off the balance sheet.

No matter what the inventory arrangement you strike with a supplier, be aware of the advantages and disadvantages of buying material and having the supplier store rather than ship it. For instance, it may pay to do so if you don’t have storage space or if the supplier can keep the inventory at less cost than you can.

Some suppliers will even buy or produce material without a firm order from a good customer on speculation, especially if they know they can sell it elsewhere. At times, if you have been a good customer, the supplier may take a calculated risk and put the goods in inventory and hold it without any apparent cost to you until you order it. Nevertheless, there is a cost that the supplier must bear whether it is realized or not. Storage space, material handling, utilities, rent, and other business expenses are not free.  Moreover, inventory “shrinkage” risks of loss, spoilage, theft, and shelf life may impose considerable costs.  These costs incurred by the supplier could be used in other ways to generate income.

Suppliers who know their costs must eventually pass those costs on to the buyer. Those who are not aware of the holding costs are vulnerable to the competition. If you are obtaining so called free storage from a supplier make sure you periodically check prices with other suppliers. You may be surprised what the differences are. The difference may in part be the cost of holding the goods in stock.

Click to see Bob’s online training courses

Determine whether the supplier is aware of these costs

Be careful not to encourage or allow a supplier to stock your proprietary or custom inventory for you even without an order. If your company decides to change the design or do away with that product altogether, you may have to pay for the goods. The supplier may go to court and present a good case that they have been dealing with you for a long time and receiving order after order. They may say that you never gave them any warning that you would no longer need the goods. These types of cases have been settled at substantial cost to the buying organization.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Industry buzz words require usable definitions.  Strategic Sourcing is procurement that focuses on the core competencies of a business supply chain.  For hospitals, a core may be surgery, oncology, obstetrics, and the like.  Core competencies in the pharmaceutical industry include Active Pharmaceutical Ingredients (API), and in the transportation business, energy.

Strategic Sourcing concentrates on major spend categories Buyers move from general to specific categories such as oncology, API, energy, etc, some times called “commodities” in which buyers become experts. 

Why Strategic Sourcing?

For one major reason, purchasing makes a major contribution to profitability.  Procurement is the most efficient generator of profits in business as every dollar saved fattens the bottom line compared to only a fraction of that for every dollar. 

The Total Cost of Ownership (TCO) philosophy states that Best Value equals the lowest TCO, not necessarily the lowest price.  In health care and pharmaceuticals, to name two, Price is almost never the most important cost.  For obvious reasons, Quality tends to be the dominant cost concern and one for which we will pay a higher Price. 

Since Quality, Service and Delivery considerations trump the Price, the end-users, often called Purchasing’s internal customers, have vital input in the procurement decision.  In Strategic Sourcing, instead of Purchasing being the choke point between the internal end-users and external suppliers, buyers and internal customer become allies in cost reduction, reading from the same TCO page and focus on lowest cost suppliers.

Tactical Purchasing

The tactical purchasing model has the end-users requisitioning the purchasing department for needed items.  This tedious and time consuming task is repeated ad infinitum, wasting an un-totaled fortune in transaction costs alone to say little of waste cost savings that could be achieved if Purchasing were otherwise pursuing core competencies, qualifying major suppliers and negotiating Best Value contracts with themProfessional buyers prefer strategic Sourcing because it removes the burden of repetitive tasks and deploys their skills to more productive pursuits. 

online training in purchasing, negotiation, and sales

How does a business start a Strategic Sourcing Initiative? 

• Analyze your annual spend for the past three years.  Identify
  • Major categories (surgical, facilities, professional, etc)
  • Major suppliers in each category
• Designate specific purchasing professionals to specialize in these major categories
• Train end users in the concept of TCO
• Specify roles of buyers and end users
  • End-uses generate technical requirements and specs 
  • Buyers source qualified suppliers, evaluate proposals, negotiate appropriate contracts
  • End-users order from negotiated contracts, by-passing tactical and expensive purchasing functions
  • Buyers and end-uses collaborate in evaluating supplier performance over life time of contract
    • Monitor cost reduction targets
    • Improve or reward performance as justified

This is Part VI in a series of eight that will explore Sustainability and green purchasing’s leadership role. Part I explains how Sustainability is driven by the cost savings of green purchasing, Part II deals with the heart of Sustainability, energy and fuels, Part III with the 3Rs of Reduce/Reuse/ Recycle, and Part IV with construction and facilities in green purchasing, and Part V with Chemical and Environment Management .  The common theme though all is that purchasing can and should take a leadership role.  

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note:

Corporate Social Responsibility (CSR) is probably the area of Sustainability least under purchasing’s direct control.  For the uninitiated, CSR seemingly appeals to those who plant trees in proportion to their GHG emissions.  Further, CSR is often broadly defined  and  loosely quantified.   

Yet, it also almost always entails the supply chain inclusion so chances are high that CSR will fall to purchasing.  For instance, a Sustainability goal required by a customer might be that suppliers report in specific areas such as Reduce/Reuse/Recycle (3Rs).  The primary motive for the 3Rs is cost savings and thus the tie to procurement.  The skill sets needed to discharge this CSR obligation falls squarely within purchasing’s forte and thus the reason why we may need to step up CSR efforts.  When a major or new customer demands that all their suppliers drive Sustainability throughout the supply chain, expect that down hill torrent to flood the desks of the purchasing managers who must then adopt green procurement as our own new mantra.  

A popular but fuzzy precept of CSR is stewardship of the planet’s resources.  This is widely interpreted to mean conservation of natural resources such as fuels, water, and raw materials as well as reduction of GHG.  

CSR also extends into areas remote from purchasing such as

• ethnic, social, gender and economically disadvantaged diversity of ownership of supply chain enterprises
• mandatory compliance with edicts involving types and sources of labor (child, prison, slave, or other coerced)
• wage levels, including the ratio of executive to worker pay checks
• ethics in business matters with suppliers
• sponsorship of “community” events, and more 

Click here for online or CD/print media versions of "Green Purchasing" course

Other goals of CSR are more familiar to procurement.  These include

• commitment to treat all suppliers honestly, ethically, and equitably
• requirement that supplier performance be measured
• those suppliers at risk of losing business must be given  the opportunity to improve in all areas of deficiency, not just CSR

Any experienced procurement pro recognizes the parallel to the best practices of supplier qualification and evaluation.  Thus, purchasing is in the best position to ensure that suppliers satisfy these CSR requirements. 

As the public becomes more aware of Sustainability, customers will seek to buy “greener” products.  Companies must act to “green” their processes and supply chains.  For example, minimizing heavy metals or GHG intensive processes reduces the potential exposure to claims of air and water pollution.  These good business measures are logs on the image fire that warm the public to an organization’s CSR efforts.  If the cost of these logs are defrayed in whole or in part from savings achieved in other parts of green purchasing efforts, there is every reason to pursue it. 

Smart companies see this and try to convert the public’s interest Sustainability into increased profits. The link between CSR and economic gains cannot be over stressed.  For example, General Motors (GM) reduced disposal costs by $12 million by reusing containers.  Whether GM was motivated by CSR or cost savings, or perhaps to publicize their soon to be released hybrid (green) Volt vehicle, the economic gains were a consequence of its commitment to Sustainability.  

And it is not just customers. As the economy improves, job candidates may favor a perceived green company.   Younger ones in particular are likely to evaluate an organization’s sustainability. 

While purchasing always has plenty on the plate, expect that Sustainability and its high profile subset, CSR, to soon be on the green procurement menu.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: this post is not legal advice; seek competent legal counsel in all legal matters.  This post draws attention to what buyers need to know about how law affects commerce.  For further information, the reader is directed to the best source in print, The Purchasing Manager’s Desk Book of Purchasing Law by Donald B. King and James J. Ritterskamp, Jr., published by Prentice Hall.

We all know that oral contracts are commonplace and most of us have engaged in them.  Yet, the question always arises in seminars about the legality and risks of such oral contracts.

In restaurants, when you give your selections to the server, you are engaging in an oral contract.  Presuming the food comes according to your specifications, it is consumed and the bill paid; volia, a completed contract.  All is well even if you don’t like the soup as the server will deduct that from the bill.  The verbal contract becomes a “fait accompli” (French expression meaning done deed.  According to King and Ritterskamp, however, “the laws does not police, control, or interfere with such (oral) contracts.

The business landscape for merchants, defined by the Uniform Commercial Code (UCC) as either a buyer or a seller, can be full of land mines for the oral contract user.  King and Ritterskamp go on to state that “The law will not consider your complaints if they arise from the purchase or sale of goods having a value of $500 or more because such a verbal contract is not enforceable in a court.”  To make matters worse, the authors also state that “…an oral contract for services is enforceable in court without a writing if the services can be performed within one year from the date of the contract.  The amount of the contract for services is immaterial.  Only the length of time of the service is to be performed dictates whether or not a writing is required for the contract to be enforceable.”  Hmm, none of this sounds like it will have a happy ending.

Purchasing Manager’s Desk Book of Purchasing Law

Now if all the foregoing were not bad enough, add to this the problem of what the UCC refers to in Section 2-207, Subsection 4, point A.  “Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.”

The problem here, and it is the major reason why professional buyers must never engage in oral contacts, is found in Section 2-204(1) which states in part that, “It ignores the need to determine who is the Offeror and who is the Offeree.”

The reader recalls from a previous post that the Offeror’s terms and conditions govern the document.  Let’s take an example to illustrate how buyers can run hard aground with oral contracts.

Suppose the established routine in place has a buyer placing verbal orders for thousands of dollars of widgets.  The product is delivered, inspected, and accepted and then payment is made.  Thus the “conduct of the parties” has established a “path of contract”.  However that contact is not enforceable in a court of law and the Offeror cannot be identified.

We all know that there is never a problem until there is a problem.  With oral contracts, it is merely a matter of time and risk before a big problem happens.

Moral of the story.  Avoid oral contracts put everything you buy into a written contract and ensure that the contract form used identifies the buyer as the Offeror.

This is not legal advice; it is just good business practice.  Leave the oral contracts to the restaurant.

Editor’s note: Stu Schlackman is a frequent contributor to this blog

"Shorten your sales cycle & increase your win rate through competitive excellence"

One of the more popular topics of discussion these days is the impact of emotional intelligence on teambuilding, customer relationships and the art of selling. Another important way to improve your emotional intelligence in the area of selling is by identifying and understanding the four primary personality styles. Competitive Excellence uses a color coded system by Insight Learning which categorizes your personality as Blue, Gold, Green or Orange. The question we’d like to ask is, “How do we better engage the brain during the selling process?”

Most of you know that the brain is divided it two hemisphere’s which, the left and the right. People are dominant on only one. The left side of the brain is all about information, text, logic and rationale. The right side of the brain is about feeling, emotions, images, patterns and perceptions. Basically, the left brain is about task and the right is about relationships. Based on this it would make more sense to sell to the right side of the brain, right? Yet we don’t.  Customers buy when they feel good about the relationship they’ve established with the sales person – people trumps process. It is our natural tendency to buy based on emotion and then to justify our decision with left brain logic. Therefore, we need to engage the customer’s right side in order to connect with them in a way that causes them to desire our solution.

So how can we better engage the right side of the brain?  It’s been said that the right side of the brain buys and the left side returns. We’ve been taught as sales professionals to focus on the benefits of our products and services. Stating the benefits and features of products and services engages the left side of your brain. The left side wants the details. The left side is also where your short term memory resides. Since the right side of your brain is where long term memory resides, wouldn’t it make more sense to engage your long term memory when it comes to selling? The way to engage the right side of the brain is by reaching its emotions, feelings and imagination and making the entire selling process memorable. When we use words like imagine or discover it engages our right brain to envision what results we would like from someone’s products or services. A great example of this is the commercial by George Zimmer, CEO of  The Men’s Warehouse where he says in his ad “you’re going to love the way you look, I guarantee it!” That hits the right brain and attracts us to take him at his word.

Stu's Four People You Should Know

Customers are attracted to uniqueness in your offerings and how it can impact their future. Imagine, discover, experience, enjoy are all words that engage us to think of the result of buying from you. We can connect with customers by taking them where they want to be and that means more than conveying features and benefits. It’s about trust and building long term relationships.

Another important phase of the selling process is identifying your customer’s personality style and anticipating their behavior during the sales process. Who will ask the tough questions, who will buy mainly on trust, and who buys impulsively? A colleague of mine, Kevin Daum is the author of ROAR (an acronym for working with customers) which can be found in Barnes & Noble. Kevin has a unique approach to selling to the four different buyers by relating them to the four sons from the Passover Seder – with a slight modification. They are the Wise buyer, the Cynical, the Simple and the Disinterested. His book is a story told by a friend sitting in one of the best Delicatessens of New York City. Kevin also shares how to build a powerful value proposition for your business. I highly recommend Kevin’s book – it has strong correlations to the “Four People You Should Know” process which I use. 

The next time you’re in a selling situation, consider your prospect – which side of the brain are they using and how can you better serve it.

Good selling!

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Landed Cost is an important term in the import of goods.  It means that there is a lot more than purchase price that must be taken into consideration in the foreign sourcing decision.  You might be paying $1.00 for an item Ex Works, an INCO term meaning just outside the foreign supplier’s plant door, but after all the applicable fees and costs are paid, that product may cost $2.50 by the time it gets to your door.

Allow significant lead time when placing an overseas order. It can take two or three months for ocean freight alone.  Add problems with customs, documentation and any number of other glitches and receipt after placement of order can be several months.  The costs of air freight is much higher but it’s faster and less risky and even cost justified for small volume, high value commodities.

There are also legalities to observe. Burdensome government forms and filings, and regulatory compliance can be daunting. The importer is responsible for ensuring that imports comply with safety codes and all other applicable laws.

The purchase price is only one component of the cost of an import.  Depending upon a host of supply chain variables, the purchase price could be a small part of the total landed cost.  

These are some of the costs that must be considered beyond purchase price.  (Some may not apply) 

• Ad valorem duties and taxes (VAT)
• Anti-dumping fees
• Automated Export System (AES) filing fee, Letter of Credit (L/C) fees, or other method and cost for payment
• Commissions
• Customs clearance
• Currency exchange costs
• Documentation fee
• Duties
• Export clearance and forwarding fee

• 

  online training in purchasing, negotiation, and sales

  Foreign    

  • Documentation fees
  • Inland transportation charges
  • Inspection fees
  • Loading charges
  • Vendor packing charges
• Fuel surcharge and service fee
• Fumigation
• Handling and freight transfer fee
• Harbor maintenance fee for ocean shipments
• Hazardous materials surcharge
• Import clearance fees
• Inspection fees
• Insurances            this is important and often mishandled
• Interest
• International transportation charges (air, ocean, and ground transportation)
• Merchandise processing fees (if any)
• Messenger fees
• Ocean
  • Freight
  • Wharfage
  • Container fees
• Security manifest fee
• Storage fees incurred on freight (demurrage)
• State sales or other taxes or fees within that might be applicable for that product or business operation
• Warehousing, deconsolidation, storage, and distribution fees
• US Customs and Border Protection (CBP) examination
• Other government agency examination fees such as Food and Drug Administration, Environmental Protection Agency, etc 

Given this daunting complexity, it is little wonder that most companies starting off in foreign procurement choose to use agents to help navigate through foreign trade.  As organizations become more experienced and the volume of imports increases, the next logical step is to become the “Importer of Record”.

Editor’s note: Stu Schlackman is a frequent contributor to this blog

"Shorten your sales cycle & increase your win rate through competitive excellence"

Selling complex solutions always comes down to people buying from people with whom they have a relationship. Relationships are built on trust. Trust is developed by showing commitment, follow through and delivering quality solutions that provide value to the customer. It’s that simple right? Well, kind of. The sales professional’s greatest challenge is getting from the initial meeting down the path with the prospect that will give us the opportunity to prove our worthiness each step of the way. The problem is we don’t always get that chance in the challenging world of sales.

As Dr. Michael Cox states the number one skill needed today in business is people skills and emotional intelligence. Of course you’ve heard it many times that the best sales people have great people skills. Having great people skills is about having the ability to read the other person’s emotions and behavior and taking this into account during the flow of the conversation during the sales meeting. It’s also having the ability to identifying how they prefer to communicate and understanding what’s important to them. Emotional intelligence is the assessing, expressing and management of feelings while interacting with others.

Travis Bradberry in his book Emotional Intelligence 2.0 talks about the four components of emotional intelligence. The first one is “Self Awareness”. Self awareness is the understanding of who you are. What you assess to be your strengths and shortcomings as a person. Most of us are already aware of our attributes but the challenge is to know when to leverage them and when to hold them back. For example, if you like to start a sales meeting with small talk and you have a prospect that also enjoys socializing before getting down to business, most likely you will be off to a good start. But if the prospect wants to get right down to business and you continue with small talk, most likely the outcome will not be as favorable as the first scenario.

Click here for Bob's book and CDs

There are three important components we need to understand when it comes to self awareness and selling. First, we need to understand our preference when we communicate in a sales meeting. Communication is about speaking, listening and asking questions. Which one is your strength and where can you improve? Some sales people like to go into present mode while others prefer to start by asking questions. We need to assess what the customer prefers.

Second, we need to assess the communication style of the prospect. It always helps to walk in with an agenda to set the expectations for the meeting. Ask the prospect if the agenda is acceptable and get their permission as to how you would like to proceed. This will give you an indication as to whether or not you’re on the right track and it will give you a hint to their preferred style of communication. Assess if the prospect is flexible or rigid, casual or formal. Do they like to control the conversation or prefer you to? We need to learn to adjust our approach.

Third, you need to put the prospects communication style first. Let them lead with what’s comfortable for them. It never makes sense to try to gain control of a conversation with a prospect that enjoys talking. Let them talk. If they prefer to ask questions, let them ask and invite more follow on questions.

The first meeting is always the most critical when meeting a prospect for the first time to gain trust and respect and for the opportunity to be invited back. The best approach we can take is to view the prospect from their point of view and not ours. That’s critical to improving your emotional intelligence.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: in the spirit of cost savings, one of the most fertile areas to cultivate is workers’ occupational health and safety.  If humanitarian reasons are not enough motivation for some employers to act, here are some compelling economic reasons.  This story was first published in the industry magazine, Occupational Safety & Health” in 2001.  Little has changed in the interim.

“Business is good, profits are up, and we have an acceptable industry average level of injuries and illnesses!”  Such complacency reflects an attitude afflicting employers large and small alike. Such thinking costs businesses billions in lost profits.  For example, in an article in Warehousing Management,  OSHA estimated that Work related Musculoskeletal Disorders (WMSD) alone costs between $15 and $20 billion each year, accounting for $1 of every $3 spent on workers compensation claims.  The late Illinois Senator, Everett Dirkson is said to have observed…“Take a billion dollars here and a billion dollars there, pretty soon you’re talking about real money”.  The billions in lost profits due to WMSDs would seem to qualify to most of us as real money.

Environmental Health and Safety (EH&S) pros value the human, economic and intangible benefits derived in a safety-oriented environment.  We believe in spreading this gospel throughout the business world.  The major obstacle is typically the question of how to persuade management to invest in a concerted EH&S effort.  The answer is to demonstrate that economic benefits such as large Return on Investment (ROI) necessarily accrue to the bottom line because of this investment.  That is, by phrasing our argument in financial terms, the language of business, we overcome the inevitable resistance encountered in selling to EH&S proposals to the decision makers.

In terms of dollars and sense, Occupational Safety & Health reported in June 2000 “…an OSHA recordable accident costs $25,000 to $30,000, while an injury resulting from repetitive motion can run up to $100,000”. (Occupational Health and Safety, June 2000, p. 103, Safety Incentive Programs~Effective Business Tools, Stevens Publishing Corp)  By proactively avoiding costly workers compensation claims, we ‘find’ money that would otherwise go down the expense drain.  As any accountant or entrepreneur knows, it isn’t what you earn but what you save that counts.  Every dollar saved through EH&S intervention translates directly to a dollar in profit, without the dilution of costs and expenses.

Here is one example. According to Management Review published by the  American Management Association, “Another measure of success: in the early 1990s, Plasticolors (a manufacturer in Ashtabula, Ohio) workers’ compensation costs were between $115,000 and $125, 000 a year.  Currently, compensation costs are about $12, 000.” 

Here is another  example from a feature article on insurance in Engineering News Record, (ENR, Sept 14, 1998, p19, Insurance-Boston may get big dividend, McGraw-Hill Publishing,) “Central Artery/Tunnel (Boston, MA) officials had originally estimated a 75% loss ratio for W/C and a 65% loss ratio for CGL…but those numbers have nose dived, due to a consolidated safety program that includes…job hazard analysis, written safety plans and mandatory employee training…Our loss ratios for W/C (Workers’ Compensation) is 23% and for CGL, it is 12%says the CA/T risk manager…We anticipate full recovery of all insurance premiums.”

As to the ROI matter, visit the Washington State Department of Labor and Industries website.  The Ergonomics link explains how the Ergonomics standards will affect Washington employers.  As part of its sales job, LNI promotes its cost-benefit analysis.  The $80.4 million dollar predicted annual cost to employers is expected to generate $340.7 million dollars in benefits (savings), or a 424% ROI – an impressive point expressed in attractive business language.  Further, the state run mandatory W/C insurer is even offering a grant to fund pilot projects for employers mounting proactive programs in advance of the phased-in Ergo regulations’ effective date.  This grant is found money in the extreme, for the EH&S enabled company.

online training in purchasing, negotiation, and sales

Most case studies identify large, measurable decreases in W/C premiums as noted above.  Other benefits proceeding from EH&S, to which business labor and government all mutually agree include:

Reducing

• Medical expenses, including rehabilitation
• Worker retraining and replacement costs
• Federal, state and local fines and sanctions
• Legal fees and administrative costs

          Increasing

• Productivity and morale, due to lower injury risk
• Job tenure and worker turnover
• Worker participation and input in safety and productivity
• Empowerment in employees leading to greater company spirit 

The second impediment is the “and we have an industry ‘average’ level of injuries and illnesses” rationalization.  The ‘average’ employer does not fully appreciate the earnings erosion induced by the lack of a EH&S programs.  Indeed, few managers realize how their W/C premiums are calculated.  Just as the driver with moving violations and accidents pays more for auto insurance, the employer with a dismal safety record pays significantly higher premiums. 

As to that ‘average’ employer, the manual rates for W/C coverage apply.  Even if we pay the manual rate, we pay too much! (See Glossary Primmer)  Favorable experience, due to well run EH&S programs will drastically lower experience rating, and therefore premiums.  For the self-insured employer, fewer and less expensive claims mean that earnings climb as each accident is avoided.  Moreover, the average employer never reaps the benefits available only to the EH&S minded employer. 

Thus, the law plainly favors employers displaying a sense of responsible EH&S leadership and rewards them with financial and legal bonuses not otherwise available.

Upon investigation therefore, it becomes undeniably obvious that no “too expensive” excuse justifies rejecting the EH&S investment.  Ironically, this good news must be convincingly communicated to those in position to profit by the EH&S investment.  They must be fluent in terms such as Loss Reserves, Experience Modification Factor, Frequency, Severity, Primary and Excess Losses.  If not, then recognize that much work needs to be done.  So, where and how do we do we begin? 

This business lane on ramp to EH&S ignores to the humanistic factors of life and health.  Does this mean that people are not important to the process, or are secondary to profits?  On the contrary, people are the ultimate focus.  We merely take the quickest route to getting the job done.  The finest EH&S program in creation does nobody any good if stays on the wish list.  This financial approach provides a solution to the EH&S issue that management can buy and workers can embrace.  Once initiated, and properly maintained, it provides superb worker protection while serving up bonus profits as a by-product.  What is better than that?

Glossary Primmer

Credit and attribution is given to

Workers’ Compensation Answer Book, Mark S. Rhodes, Esq., Gordon L. Ohlsson, ESQ, Panel Publishers, a Division of Aspen Publishers, Inc, 1997

ABC’s of Experience Rating, NCCI

[2] Workers’ Compensation Answer Book, Mark S. Rhodes, Esq., Gordon L. Ohlsson, ESQ, Panel Publishers, a Division of Aspen Publishers, Inc, 1997

[3] ABC’s of Experience Rating, NCCI, www.ncci.com