9 More Tips to Significantly Improve Your Purchasing Profitability

1. Ignore the term “discount”

When you hear this term your warning bells should go off. Ask the questions. Discounted from what? Discounted compared to what prices, over inflated starting prices?

Discounted prices may not be discounted at all. They may be establishing the list price and then telling you about the discount off of this price that they are giving you. What do you care about the list price? You should care nothing about the list price. The only thing about the list price that you should care about is that it’s the price that you will never pay.

Don’t assume a discount is giving you the best price or the best value. You want to compare the prices and all other factors of the sale with other sources. Do not just start dealing with a supplier who claims to give you discounts or calls themselves a discount supplier.

You must compare. A discounted price from one source may be higher than the normal prices of another source. How good is a 30% discount on a product that they list as selling for $100 when you can buy it from other sources for $50? You have actually overpaid for this “discounted” product by 40%. A 30% discount from $100 leaves the price at $70. This is 40% higher than the $50 you can buy it at elsewhere. Quite a deal don’t you think?

2. Never tell a supplier who got the order how much lower his bid was than the other bids

If you do, you can expect a higher price from this supplier the next time you have them bid. No one likes to leave money on the table. The bidding process always contains a certain amount of educated guessing as to what price to come in at. If they find out they came in at a bid that was much lower than the competition, then you can reasonably expect them to increase the price next time.

After all, why come in so much lower than the competition when they can come up in price and
still have a good chance to get the job since they were so much lower last time? If they know
they underbid by 15%, the next time they may feel they can come up 10% and still be well under
the other suppliers.

3. Never tell a losing bidder how much over their bid was

You always want them coming in with their lowest price. If they find out that their bid was only slightly high, the next time they may only lower it slightly. If they think they came in much too high, you may find the next bid they come in with to be much lower thereby providing you with an overall greater savings.

For example, if I know my bid was 5% too high, the next time I bid on this job I may bid 5% less; figuring this will match the winning bid last time and this time that winning bidder will come up somewhat. On the other hand, if I think my bid was much too high and I decide to bid again next time, I may lower my bid by 10% or even much more. The end result could be that you get a much lower winning bid.

4. Never tell a supplier what you now pay for an item

You want a fair process of competition and you want the best possible price. You do not want to give one supplier an unfair advantage over another supplier and you don’t want a supplier coming in just under your current price, when without prior knowledge of your prices, he may have come in much lower than this.

5. When you have an employee that has done an exceptional job in purchasing something at a significant savings, give that employee immediate recognition

Also, let others in the company know of the employee’s fine efforts. Not only should the effort be recognized but you also want to reinforce this type of activity with all employees. You want them striving for this type of sincere, visible recognition. This should be done for both large and small purchases.

6. Use ink jet recharging dispensers instead of buying new cartridges for your ink jet printer

You can purchase the refill kits in most office supply stores, direct mail office and computer supply sources and computer stores. Ink jet printer cartridges are extremely expensive at a cost of $30 and up per cartridge. Re-inking your existing cartridge will cost you 1/10th of that amount. Depending on the number of cartridges you use each year, this can easily save you hundreds or even thousands of dollars a year.

7. Use recycled laser printer cartridges

They are not only environmentally sensitive but they will also reduce your costs in this area by 25% to 50%. This can add up to significant savings over the course of the year.

8. Want a simple way to save 25% or more on your laser and ink jet cartridges?

When your printouts start fading or streaking with inconsistent ink coverage, instead of replacing them, simply take out the cartridge and gently shake it from side to side a few times.

Before I discovered this trick my laser printer cartridge was good for about 2,500 sheets of paper. Now it will print excellent copies for over 3,000 sheets of paper. You see, since most of what you print has margins on it, the ink on the sides of the cartridge is never used. By shaking the cartridge you are moving this ink into the middle where it can be used.

9. Don’t buy a brand name unless you have to

You can easily save up to 50% or more when you purchase generic supplies instead of brand name supplies. If you are buying paper clips why would you possibly want to spend twice as much to purchase a name brand of paper clip? I do not know, but I do know that millions and millions of boxes of brand name paper clips are bought every day.

There are hundreds of items for which you could choose a generic or house brand at a savings of 50% or more, with no loss in quality or usefulness at all.

Always look to purchase generic brands of office supplies. You will almost always pay more for name brands and almost never will this added cost be justified. How could you possibly justify buying brand name pens, pencils, paper, paper clips, note pads, tape, forms, and any one of a hundred other items that are for internal consumption?

At least be willing to try them.Test them on a limited basis and compare the quality and effectiveness of the product to the brand name equivalent. By testing a limited quantity of generic products while continuing to use the brand name product you will have no risk in the event that the generic product proves to be unacceptable.

In many cases, the generic product is actually manufactured by the same company that makes the brand name product. The products are simply distributed and sold under a different label.

One note here, do not assume that a generic name item is always lower priced than a brand name item. In the vast majority of the cases this will be true, but nevertheless you must compare prices to ensure this. There will be times when the brand name may actually cost less than the generic item. This is especially true when a manufacturer or distributor is offering specials or running a sale. Never assume anything.

This edition of The Welch Report has been provided by Derrick Welch the author of ‘In Pursuit of Profits: How to at Least Double your Profits Without Increasing Your Sales’. Including 1,000 Cost Control, Expense Reduction, and Income Producing Strategies You Can Start Using Today To Dramatically Increase Your Bottom Line.


4 Green Cleaner That Work Like Wonders

If you are all about green cleaning and you wish to stop using harsh chemicals for your home, you best turn to safer solutions. There are quite a few options you have since people have found the use for some 100% safe and natural products. The best part is you likely already own these in your home, maybe you just didn’t consider their cleaning prowess. Following is a guide on how to use some of these eco-friendly cleaners to great success:

  • Bicarbonate of soda (baking soda) – if you are all about domestic cleaning, then baking soda should be high on your list of solutions you use around your home. In fact, you may want to reconsider the uses of baking as being merely an ingredient you use in your cooking efforts. It serves wonders with its deodorising qualities, as it absorbs unpleasant smells in the fridge, carpet or mattress. Put baking soda in a cup and leave it in your fridge, or sprinkle a generous amount of it on the carpet or mattress and you will see the difference it makes. What you can also use baking soda for is stain removal. Mix a paste of water and baking soda to clean stubborn stains on your sink, cooker, worktop or pans. You will find baking soda also works wonders for unclogging drains when paired with vinegar.
  • White vinegar (distilled) – vinegar is another eco-friendly cleaning solution that you should use around the home. One notable use it sees is removing limescale in the bathroom or kitchen. Instead of spraying with some strong chemical, you can use vinegar. Spray directly on the problem area, let it sit for a while and then wipe. You can even use it on the showerhead when it gets too soiled. Tie a bag with vinegar around it and let it sit overnight. Rinse, and you will find the item looking as good as new. Vinegar is also an excellent way to neutralise unpleasant smells.
  • Lemon juice – other than using on your fish, lemon juice can be a wonderful cleaner. It contains natural bleaching agents, which, unlike traditional bleach, will not make your head dizzy. It is also a nice way to sanitise the chopping board and garbage bin. Rub the area with half a lemon and add some salt as a scouring agent. You will find the area not just clean but also refreshed with a pleasant scent. You can brighten your whites with a cup of lemon added to your wash load.
  • Washing soda crystals – the thing about soda crystals is that they are biodegradable, come with zero bleach, phosphate and enzyme content and are therefore 100% safe to use on fabric. Washing soda is an excellent choice if you don’t want to use strong chemicals. It is a decent solution for ink, blood, grass, coffee and red wine. You can apply on fabric and non-fabric stains, such as on pans, chopping boards and cups.


Strategy Choices and Long Term Plans

Ask ten business people what strategy is, and most will give the same answer: Strategy is a long-term plan. My undergraduate students give a similar reply on the first day of my strategic management class. Besides, many folks use the word to inflate the importance of their activities. One business executive bragged, “I am excited because after one year we finished working on our five-year strategic plan.” Though difficult, we did it. His strategic plan was an end-a goal. He presented it to his board of directors and then moved to another major project. That’s not understanding strategy and strategic management.

Strategy is About Choices

I learned strategy as a teenager in college when I learned to play chess. Soon I discovered chess is a strategy game. Each person starts with a goal to capture the other person’s king. Each must understand the value and role of individual chess pieces, particularly how each moves. The pawn advances one space, the knight in an inverted L-shape, the bishop diagonally to as many consecutively open spaces as available, while the queen goes in every direction to any sequentially available space.

You cannot play chess haphazardly; stay focused on your goal. Before each move, ponder how the other player might respond, and consider a likely counter. When the opponent moves unexpectedly, revisit your overall approach.

What’s the strategy in chess? It’s your choices to achieve your goal to beat your competition. That’s strategy in a nutshell–choices to get to your goals. And strategy is not static, but dynamic. Once you decide your overall approach (strategy) to capture your opponent’s king, if she plays an unanticipated move, review your strategy and adjust as needed. Never choose a game-plan to checkmate the king and follow it blindly, change as needed. Learn the opponent’s patterns (past) and use it (present) to develop your overall approach (future). Likewise, never do a “strategic plan” and file it. Update it to show current available choices to meet the mission of the business.

Strategy and Negative Choices

I learned three valuable lessons about strategy during my 32-years business career. First, strategy allows you to commit resources optimally. Second, whenever you commit resources to one area, you deny other areas those resources. This is crucial to keep in mind. Although obvious, sometimes we do not spend enough time looking at this negative choice.

The third noteworthy lesson is some choices will not turn out as expected and will be impossible to reverse in the short to medium term. When this happens, if you made a mistake, admit it, look at available choices early, and understand this is part of the strategic journey. You will not get every decision right. Strategy is not static, but dynamic.


Money Has a Cost

When I speak about the “cost of money” I am talking about just that. Allow me to explain it here to avoid boring you by repeating the same definition whenever I talk about it. All money has a cost

Money is either used to make you money or you have lost the opportunity for your money to make you money. Or at least to make you as much as it could.

If you are borrowing money to operate your business this money has a price. The price, of course, is the interest you are paying on the money while you are borrowing it. If you have money that you are holding in the form of cash in a low interest bearing account or short term investment, this money may also be costing you money.

How? Simple. Let’s say you are in a good cash flow situation and you have a cash balance of $50,000. You know this money will be needed for operational expenses in the near future so you let it sit in your business checking account or a short term liquid investment account. Let’s say you are earning 1/2% interest during this time.

It might seem that this money is working for you making you money, and indeed it is. But the question is whether or not this is the most effective use of that money. If your money is in one place it cannot be in another at the same time. Obvious right? Well, if your money is tied up in the bank you must ask yourself – is this the best place for it? Is there another use you could put this money to in order to earn more money?

For example, can you pay some bills off early and take a trade discount of 2%. I will cover this in future articles but for now think and understand money has a cost. If your $50,000 sits in the bank earning 1/2% interest you will earn $250 per year. Now I know I have not factored in compound interest but I want to give a simple example of how you should think.

If you have the cash sitting for 30 days you will have earned 1/12th of this $250 or $21. But what if you had used that $50,000 to pay off bills early and get a 2% discount? A 2% discount on $50,000 is $1,000. A simplistic example to be sure, but even using this you have increased the return on your money significantly.

Leaving your money in the bank had a cost to you. A lost opportunity cost. An opportunity to use this money to make you more money. But you must consider your cash flow, no matter how effectively you might otherwise use your money, you only have so much of it to use and therefore the availability of cash must be considered.

Money does have a cost. If I have used $10,000 to pay an invoice early that offered me a 1% discount I have saved $100. If I used that same money to pay a bill early that offered me a 2% discount I have doubled my return on the use of that money as I have saved $200.

Do you see my point? Now put aside any cash flow questions for a minute while I make another
point.

Now what if I did not pay any bill off early, but instead put that $10,000 in an investment for 12 months paying me 1%? Have I not done well by earning $100 on my money? It would seem so, but this is not the case.

By paying off an invoice early to take advantage of an early payment discount, you will save much more than the discount. When you earn a 2% discount by paying an invoice early, you are earning a return far greater than 2%. Unless you understand this there will be no way you can properly determine whether the best use of your money is to pay the invoice off and take the discount or not.

The formula is simple so don’t despair. Here is the formula:

365 x discount rate
Effective annual interest = —————————————
Number of days payment must be
made ahead of the due date to earn this discount.

So if a supplier offers you terms of “2/10 net 30” what is the effective rate of interest? Well, first
of all, he is offering you a 2% discount if you pay in 10 days. The normal terms are 30 days. This
means that to get the 2% discount you must pay 20 days early.

For this example we are assuming that you would normally comply with the 30 days terms.

For the sake of this example let us say the amount of the bill in question is the same $10,000 we have been talking about. This is what your formula looks like:

365 x.02
Effective annual interest = ————– =.365
20

Your effective annual interest rate is 36.5%. Obviously, even if you had to borrow the money to pay off this invoice your rate of return will be well worth it.

Do not think I am suggesting paying off discounted invoices as the only option you want to look at. I have simply chosen this often overlooked strategy as an example.

You must always consider all your options for using your money. The goal is to seek out the most profitable option available to you at any given time.

Never forget that money has a cost. How you use it can make a great deal of difference to your bottom line.

This edition of The Welch Report has been provided by Derrick Welch the author of ‘In Pursuit of Profits: How to at Least Double your Profits Without Increasing Your Sales’. Including 1,000 Cost Control, Expense Reduction, and Income Producing Strategies You Can Start Using Today To Dramatically Increase Your Bottom Line.


Questions Are the Key to Success in Business and Life

It was Kipling who gave us what was perhaps the greatest advice for business success and, in fact, success in life that has ever been given. He told us the key to success in all areas when he said “I had six honest serving men. They taught me all I knew. Their names were: where and what and when and why and how and who.”

The late great Earl Nightingale suggested we add two more friends to this group. They are, which and if.

Whether you are seeking to find ways to increase sales or control and reduce costs, questions are the key. Whether you are striving to improve your customer service or the quality of your product, or your life, questions are the key.

Asking the questions and developing the answers are the keys to any and all success you will have in business and in fact life.

Questions like:

If we do this, what happens?

Why do we do it this way?

Why don’t we do it this way?

Who else can we sell to?

Where else can we get this?

What can we do to reduce costs?

What can we do to improve productivity?

What can we do to improve quality?

What can we do to improve our service?

How else can that be done?

How can we do it better, faster, cheaper?

How can we improve quality, service, and profits?

How can we cut costs?

If we do this, will we improve quality?

If we do this, will it improve service?

If we do this, will it increase profits?

Which provides us with better quality?

Which is best for our customer?

What do we get in return for this cost?

Who else can provide what we need?

Why are we paying that much?

Why do we not deal with another company?

Why are we dealing with them?

How many other bids have we gotten?

What if?

How can we replace that with equal or better quality for less?

What are other companies charging for that product or service?

What are other companies paying for that product or service?

Will this process or step add value to our product or service or does it produce added profit?

When would this investment pay off?

You see my point I am sure. You must ask questions and seek out the answers. You must also justify the answers.

You must never stop asking. If you are not continuously asking the questions and reacting to the answers, you are either assuming or stagnating. Either one can be deadly to your business.

You must review every phase of your business. You may be very surprised when you see how little effort it will take to find huge savings and to make major improvements in how you conduct business.

You can always improve how you do things. You must find ways to conduct business more efficiently, eliminate needless steps, improve quality, increase productivity, reduce errors, increase sales, ways to increase profit in a business, reduce expenses, and control costs.

Let me give you one small example of how an assumption proved to be very costly at one company. One of the many products this company offered was a holiday label strip. This was simply a strip of peel off labels to affix to holiday presents showing “to” and “from”. Banks around the country would buy them and give them out one strip at a time to their customers around the holidays.

For years this company shrink wrapped these in packages of 250 and sold them in a minimum quantity of 1,000. The shrink wrapping was time consuming and costly. I asked them why. Why did they need to be shrink wrapped? How did they know if this was important to the customer? What, if any, difference did packaging make to their customers?

They asked the questions and found the answers. The answer in this case was that the customer either couldn’t have cared less about the packaging or did not like the shrink wrap as it simply meant more work for them to unwrap. After years of doing it the way they always did and assuming that was what the end user wanted, they found out differently. They now bulk package. They save between $20,000 and $30,000 per year and their customers are either happier or neutral about this change.

Did this company sacrifice quality in any way to save money? No, they improved productivity, improved customer satisfaction, and, by doing so, improved profitability.

Ask the questions. They are the key to the door of improvement.

You should constantly be reviewing every area of your operation to seek ways in which you can improve. Use common sense. From office expenses to customer service, from distribution and production to quality control and shipping, you will be shocked at how little effort it will take to improve your operations, reduce waste and redundancy, and realize huge savings.

From the way you sell things to the way you buy things, it is up to you to improve things. Improvement is always possible in everything we do.

You possess the greatest power ever created and it sits right between your two ears. You own it, free and clear. All you need to do is put it to work.

This edition of The Welch Report has been provided by Derrick Welch the author of ‘In Pursuit of Profits: How to at Least Double your Profits Without Increasing Your Sales’. Including 1,000 Cost Control, Expense Reduction, and Income Producing Strategies You Can Start Using Today To Dramatically Increase Your Bottom Line.


Reasons to Use the Injection Molding Technique

Primarily, injection molding is a manufacturing process. In this process, molten material is injected into a special mold. Usually, this technique is ideal if you want to fabricate plastic parts. You can do the molding irrespective of the size, complexity or application of the final product. This process is really simple as the plastic is melted and injected using an injection into a specially designed mold. In this article, we are going to talk about why engineers use the injection molding method in the here and now. Read on to know more.

More details

With the help of injection molding, you can add a lot of details to a product. Since high pressure is applied, the molten material gives a better shape to the product. So, this technique is a great choice if you want to add a lot of detail to your desired products. This is one of the main reasons this method is popular.

Sturdiness

In this approach, fillers are put into the mold, which reduces the material density and increases the strength of the product. For certain products, it’s possible to adjust the strength. Other techniques don’t offer this freedom.

With time, the systems start working better. So, it’s possible to make a lot of products in a short period of time.

Automation of the process

Since this technique makes the whole process automatic, you can make quality products. Computer-aided manufacturing and CAD helps a lot in making the molds for different types of products.

One major benefit of automation is that it helps in making a suitable design and allows reduced costs. Actually, the cost comes down because the whole process is done with the help of powerful robotic machines. The final product is clean and smooth. The costs of making the product are not that high. So, the reduced costs provide a lot of return on investment for the business owners.

Speed

The whole process is fast and can be completed in no more than a few minutes based on the mold complexity. Compared to injection molding, other techniques tend to consume a lot more time. So, the faster speed saves a lot of money.

Eco-friendly

The process is good for the environment. In plastic injection molding, there is minimal destruction to the surroundings. Since the resources are efficiently used, the environment will not be negatively impacted. Excess plastic is easy to recycle at the end of each job. So, there is nothing left to throw away.

Finishing

At the end of the process, the end products are smooth and refined. Since there is almost no finishing required, manufacturers don’t have to spend additional money on the inspection. The final product is free of flaws.


4 Ways to Dramatically Improve Your Purchasing

1. Have an Open Door Policy

Competition is one of the keys that drive your ability to control and reduce your costs, therefore, you should have an open door policy for dealing with vendors. By this I do not mean that you should see every sales rep that comes knocking on your door. After all, using your time efficiently is an important factor in increasing your productivity which leads to reduced costs.

What I am saying is, use some common sense in choosing who you see and when you see them, but make sure that you or your people are seeing a revolving base of suppliers and vendors. You want competitive bids for the products and services that your company buys.

If you or your purchasing department are only reviewing prices from the same nucleus of vendors over and over, you are never going to approach anything even close to total cost control. If you are only dealing year in and year out with a base of regular suppliers, you are not going to know if you are getting the best value from your current sources and you will not know if you can get a better value from another source.

In order for those that are doing the purchasing to get the best value, they must constantly be considering new sources, new products, new services, and new procedures.

What if a new product has come on the market that lasts twice as long as the one you have been buying and costs half as much? If your regular supplier does not offer this product and you do not keep up with the product lines of other sources, you may not even find out it exists.

Never let your people only deal with the same group of suppliers and certainly not with a single source. They must keep an open mind and this requires keeping an open door.Remember, competition is a vital weapon in your battle to control and reduce your costs.

2. A Great Source of Ideas

An additional benefit of dealing with a core of normal suppliers and a revolving base of secondary suppliers is that you will be exposed to many other ideas. These suppliers will be an excellent source of input regarding your competition, market demands, industry trends, new products, and new processes. They can provide your people with new ways to look at things and new ways to do things. They may give you ideas that can be used to increase sales, improve productivity, reduce costs, or reduce errors.

It is the business of these people to sell to your industry and related industries. Therefore, in many ways it is their business to know about your industry. Consider the best suppliers and sales reps to be much more than a vendor; view them as a resource and don’t hesitate to ask them questions.

They can, and should, be an excellent source of new, creative, and innovative ideas.They can provide you direction that will prevent you from making purchasing mistakes by sharing knowledge with you and, they can help in many other ways.

Let me give you a firsthand example. A sales rep called on one company I worked with that sold printing material and informed us about a new printing plate that provided better image reproduction, lasted 25% longer, and cost about 15% less than the ones we had been using. We gave them a trial run and found all these claims to be true. We changed to these plates exclusively.

We had many reps calling on us and yet only this one was an authorized distributor of these plates. None of the other reps could have sold us these plates even if they had wanted to. Had we only been working with a single source or small base of regular reps, and had we not asked questions and developed a relationship with this rep, we may never have known about these plates.

This is just one of dozens of examples I could give you. I have secured sales leads from reps, I have been given tips that improved production and reduced rejects, I have obtained employee leads from reps, and I have been given new product ideas by reps. Don’t overlook these no cost sources of invaluable information.

3. Dual Signatures

You should require dual signatures on all purchase orders over a preset amount. This will give you added protection not only against fraud but also against bad buying practices. Furthermore, if something happens to one of the parties signing you will have a second party available that is familiar with the purchase.

In this case I would suggest that the purchase order form contain a slot for a second signature and the printed words that indicate that all purchase orders over the preset amount you establish are not valid without the second signature.

4. Centralize Purchasing Efforts

This is the best way to realize maximum control and cost savings. It makes very little sense to have each department or division ordering what they need on their own. It makes very little sense for different branch locations to be ordering what they want on their own. It makes no sense to allow each person who needs something to order it on their own.Not only is control lost, but you are also losing the economies of purchasing; having one source do all the buying will enable you to combine purchases for the best overall prices and terms.

This will also allow you to work with a smaller, more select group of proven, best value suppliers to further ensure that you are getting the best value and maximum leverage in your dealings with these suppliers. Centralised purchasing provides these significant benefits to you as opposed to decentralised purchasing which robs you of these cost control and reduction efficiencies – replacing them with wastefulness and duplication.

Note: I am aware that the costs associated with processing purchasing requests for small quantities and low cost items from various departments or divisions can often exceed the savings realized on the purchase itself. Therefore, you may wish to establish a minimum level of purchasing that you will let various departments engage in to eliminate the internal costs and delays. This topic is too complex to cover in any detail here. I merely mention it for your consideration.

This edition of The Welch Report has been provided by Derrick Welch the author of ‘In Pursuit of Profits: How to at Least Double your Profits Without Increasing Your Sales’. Including 1,000 Cost Control, Expense Reduction, and Income Producing Strategies You Can Start Using Today To Dramatically Increase Your Bottom Line.


6 Ways to Improve Your Purchasing Activities

1. Only Authorized Personnel Should Purchase Anything

If you allow anyone who needs anything to purchase whatever they need, even if it is small quantities of office supplies, you have a serious problem. All purchases must be authorized and funneled through one central purchasing group or individual. This is the only way you will be able to control the process and this is the only way you will be able to maximize your purchasing power.

2. Can Buying or Producing in Bulk Result in Significant Savings?

Yes, but only if this is the most effective use of the money and if what you purchase or produce will be called for and used in a reasonable period of time. By buying or producing unrealistic quantities to drive unit costs down, without reasonable expectations of use or sales that demand these quantities, you are losing money.

If you think “who would do this?” let me give you an example. I know one company that prints small folders for sale to banks. They wanted to realize a lower unit cost to make the selling prices more attractive. However, they had no basis to project sales on and soto realize a low per unit cost in production they produced 250,000 folders. This enabled them to offer the product at a low unit cost.

All sound good so far? Well, over the next 5 years, they sold a total of 10,000 folders. The other 240,000 were thrown out. Quite a savings, don’t you think? They also ran the risk of spoilage and product obsolescence.

They should have found a way to project sales. They should have used that projection to base production and pricing on anticipated sales and then they should have run only a small test quantity until projected sales turned into actual sales. Never forget that unless what you are buying is needed and can be used in a reasonable period, any price you pay is too high!

3. Remember Lead,Don’t be Led

If certain conditions of the sale are objectionable to you, don’t purchase. If any areas of the contract are unclear, get clarification. If any areas of the contract are objectionable to you don’t sign or strike out that section and have the sales rep initial the change along with you. If an addendum is needed to have a written record of things not in the contract then add one.

Just because the rep says something is standard, or that the contract is preprinted, or tells you that is how the company operates, so what? You are the customer, you dictate terms. You must understand the positioning in this relationship. Nothing happens until you say so. The key part of that sentence is until “you say so”.

4. Analyze All Purchasing Patterns At Least Once a Year

You must ensure that your purchasing patterns are the most effective ones for your buying habits. You should be looking at quality, prices, and delivery. The goal is to get the best of all three. Find out if your purchases are being delivered on time. Is the quality of the items acceptable? Are you buying in the right quantities based on your annual usage?

The right quantities are the quantities that yield the lowest price per unit. In other words, are you buying an item every 3 months when instead you could be ordering it every 6 months and realize a 15% to 25% savings based on the higher volume? Ask the questions. They are the key to your program of total Business Cost Control

5. Don’t Fall Prey to Unsolicited Phone Sales Calls

These are the types of scams that cost businesses millions of dollars each year. The calling party will offer overpriced, poor quality products. The sales pressure is very high and can range from pushy and aggressive to very friendly and sneaky. These people could sell a mongoose to a snake. I think many of them must be retired politicians. Before you know it, one of your people has given approval for a product that you do not need or want. Tens of millions of dollars are lost in this manner each year.

Think of this as a predator and prey relationship. Guess which one you are.

Your best defense? Hang up. If anything sounds fishy it probably is. They will offer close-out specials, deals on over buys, canceled orders they are liquidating, and any one of a hundred other scams to make their offers not only sound legit, but like a very good deal.

Demand that any and all offers be submitted to you in writing. Since you do not allow any order to be placed over the phone, and since you require purchase orders to be written and cross checked before any bill is paid, you should be safe from these types of scams. You are utilizing these types of procedures, aren’t you?

Even if you needed, or normally bought, such items you can be darn sure the price of these is much too high and the quality is sub-par at best. Often they will also offer a free gift just for the party approving the order and will even send it to their home just so it is between your employee and the scam company.

They do this for two reasons, first, it sweetens the pot in an effort to get the sale and second, it gives the sales company strong leverage if your company tries to void the sale by refusing to pay for the merchandise or trying to return it.

If the person who approved the purchase tries to send it back or refuse payment, the first question they will be asked is how did they like the free gift. They are being reminded that they took something to buy something. They are indirectly being threatened that others will be told and they may get in trouble.

6. Get Everything in Writing

I know that this sounds obvious and is anything but new advice, however, you will be amazed at the number of times your people, and even you, do not abide by this rule. You must know all costs to effectively evaluate your purchase.

You must know the performance expectations. You must know the ongoing consumable cost. You must know maintenance costs. You must know training costs. You must know shipping costs. You must know anything and everything that applies to whatever it is that you are considering purchasing.

You can’t afford a misunderstanding over what you are buying, how many you are buying, what you are paying, what the terms are, when delivery is scheduled, or any one of a number of other concerns. You must get this all in writing from the suppliers and you must reference these terms on your purchase order or change any terms that are not satisfactory to you on your purchase order.

The only way to know these things for sure is to get them in writing. What you are told by the sales rep means nothing. Don’t assume anything. Get it in writing. Having it in writing gives you recourse if you find something to be different than you were promised.

This edition of The Welch Report has been provided by Derrick Welch the author of ‘In Pursuit of Profits: How to at Least Double your Profits Without Increasing Your Sales’. Including 1,000 Cost Control, Expense Reduction, and Income Producing Strategies You Can Start Using Today To Dramatically Increase Your Bottom Line.


6 Ways to Significantly Reduce Worker’s Compensation Costs

1. Be involved in your yearly workers’ compensation audit

This is the time each year when your insurance carrier will verify payrolls and risk classifications. You must verify all figures to ensure proper payrolls within each risk classification within the period in question and to challenge any risk classifications that you think are wrong.

Mistakes are very common in both these areas. Just because they say so does not make it so. There are hundreds of classifications they can assign. You can, and should, challenge any questionable classifications. You must educate yourself as to what the classification options are and which ones are being applied to each of your employees.

How else will you be able to determine if the assigned classifications are proper and whether or not you have other options? If in doubt challenge. Many are wrong and errors will almost always be in the favor of the insurance company.

Errors that you pay for in the form of higher rates.

I did this with one company and saved thousands of dollars per year in premiums by having a group of workers reclassified (correctly) into a risk of under $.40 per hundred dollars earned versus the previous classification of $5.90 per hundred dollars of payroll. An incorrect classification, I must add, that had existed for over 20 years.Think of how much this cost the company in incorrectly charged premiums for 20 years.

Rates per employee can vary tremendously. Improper rate classifications can very easily cost you hundreds, thousands, or even tens of thousands of dollars or more per year depending on your size, payroll, and industry. If there is any doubt as to the proper rate classification you can safely bet the insurance company will classify your employee at the highest rate classification they can. Higher risk classifications will result in higher premiums.

Their goal is the exact opposite of yours. Never assume otherwise!

2. If appropriate, request split rate classification

In today’s employment world many employees perform multiple jobs. This can result in a number of possible rate classifications. You want the lowest rate classification possible. Your insurance company will try to assign the highest possible rate classification.

But what if your employee spends 40% of his time in a higher rate classification function and 60% of his time in a lower risk rate classification? Why should you be paying based on 100% of his time in the costlier rate function? In this case, one rate might be $3.59 per $100 of earnings while the other possible rate might be $2.25 per $100 of earnings. This is a significant difference.

By obtaining a split rate you should be able to reduce the workers’ comp Cost Reduction Strategy of any employee who splits jobs by 10% to 50% depending on the rate differential and the ratio of time spent on each job function. If your current carrier will not split rates and your state allows it, look for one who will!

3. Fight bogus workers’ compensation claims

Even though it seems that employers have fewer and fewer rights every year you still have some. Fighting a questionable claim is one of them. Get involved. Dispute it if you have any doubt as to the validity of the claim or if you doubt it was work related.

It has been estimated that false claims of injuries on the job or job related represent 20% to 25% of all claims. In the last ten years alone the average workers’ compensation rate has increased 150%. This means huge cost increases to you. You must do something about it.

The workers’ compensation system was designed to help workers during periods of legitimate injuries, not allow them to take advantage of the system. Every claim will affect your rates. Your rates can triple with just one claim. Fake claims happen every day. Let me just give you one example I know of:

A fellow was playing softball on Sunday. He slid into home plate and tore his knee up. He was a quick thinker. He did not go to the hospital. Instead, he suffered through the night and went to work at his job in the warehouse before everyone else the next morning. When the other employees arrived they found him lying next to a pallet holding his knee in pain. What do you know, the poor fellow had “fallen off the pallet” and wrenched his knee. He was out of work for over 2 years.

4. Request certificates of insurance

Make sure all outside contractors or workers of any kind that are not on your payroll, but are doing work for you or on your premises, have certificates of insurance.If an injury occurs under these conditions and they do not carry their own insurance, they may be able to file against yours. Don’t just take their word for it that they have coverage. Demand that a copy of their current insurance certificate be given to you for your files. No certificate, no job. Very simple.

5. Facilitate clarity

Make sure that both your insurance company and the physician involved in the case are aware of the employee’s job duties.You do not want a determination of whether or not an employee can return to work to be based solely on the employee’s version of what his or her job entails. I have seen this happen on more than one occasion. In one case in particular, the employee had indicated that the bulk of his job was heavy lifting when in fact the heaviest thing he lifted on the job was his paycheck. Had a return to work determination been based on this employee’s description of the job this employee might never have returned to work. You don’t suppose that was his objective, do you?

6. Written statements are key

Time has a way of distorting what happened as does a few phone calls from the injured employee. As soon as any accident happens, make sure that you get written statements from all witnesses while the incident is still fresh in their mind.You must have this information if you have any chance of fighting a bogus or questionable claim.


7 Ways to Reduce Your Insurance Costs

1. You must shop around for your insurance coverage

Blindly staying with the same company year after year will rarely, if ever, result in the best coverage for the best rates. I suggest that you bring in 3 agents each year, or at least every two years, to review your insurance needs, recommend coverage, and provide costs.

I would bring in a regional independent agent, a major independent, and a carrier’s agent directly. By doing this you are accomplishing a number of things. First, you are shopping for the best costs. But, secondly, and as importantly, you are seeking to find out what coverage each will recommend. This will help you find out if your current coverage is adequate, if you are over covered, or under covered. If all three companies recommend the same levels of coverage then you are probably safe. If two of the three recommend higher or lower levels of coverage than you have then you better find out why and see if you agree.

You do not need to be an insurance expert as long as you deal with someone who is. You want to avail yourself of their expertise and by undergoing this process at least every two years this is exactly what you will be doing. You want each to give you a complete written proposal including recommended coverage, explanations for these recommendations, and costs for each. Without costs for each area of coverage, you will have no way to effectively evaluate one company against another and you will lose the option to pick and choose policies for different areas of coverage from one company to another.

Remember, you do not need to have all your coverage with one company. In fact, unless the individual costs are all best with one company, or unless one company has a special package plan for your type of business, you probably should not keep all coverage with one company.

There is no reason why you can’t have business coverage with one company and auto coverage with another, etc. In fact, unless you are being given significant discounts for doing so, the only reason that would cause you to buy all coverage from one company, even though some policies may costmore, would be laziness or convenience which is often nothing more than another form of laziness.

I know of one company who had not undertaken a competitive review of their insurance for over 20 years. When they did they saved themselves $30,000 a year or almost 15% in this case.

2. Make sure you are not over insuring

It will do you no good to insure something for $100,000 when the replacement value is only $75,000. The agent and company you more than they have to. They will not rebate premiums if you have overvalued something and therefore over insured.

It is up to you to know the value. If you cover equipment for $10,000,000 maximum at replacement value and the total replacement value is only $5,000,000 that is your problem. You should know or have a darn good idea as to the real replacement value. The opposite of this is also true, do not underinsure. Make sure you know whether you are insured for replacement value.

This is an area where a lot of gray area exists. This is one more good reason for conducting annual reviews. By conducting these you will get opinions and advice from a number of different sources and an inconsistency is much more likely to surface. Remember, do not just ask agents and companies to provide bids on current coverage but to evaluate your operation and recommend coverage and provide costs.

3. Ask your agent what you can do to reduce your insurance costs

They won’t tell you unless you ask. By asking you are expressing concerns over costs. Dissatisfaction over costs should be construed by the agent as a sign you are going to look elsewhere for coverage. The agent suddenly has a great incentive to try to reduce your Business Cost Control.

4. Look for agents or carriers that specialize in your type of business

Start by asking any association you belong to for suggestions. Also, ask competitors, suppliers, and even the Chamber of Commerce. If special plans exist for your type of business you should be able realize significant savings due to bundled types and levels of coverage. You will find that needed levels of coverage are built into the plan and that if purchased separately they would cost you a great deal more each year. I was able to save over $1,200 a year by finding a plan designed to cover companies in my industry.

A note of caution however, just because an agent tells you they are offering a great plan for your type of business don’t assume this is true. You should still get at least three quotes. The agent with the special plan may be just calling it that to sell you when indeed it is not that special at all.The plan may be designed for your type of business but it is overpriced, or contains elements that might be germane for most types of businesses in your industry but are not needed for your business at all.

5. Make sure that your insurance covers replacement value not current value

It may seem that you are saving money by covering for current value but if you have a claim and need to replace the lost or damaged equipment you will quickly find out that you have been very short sighted. The current value will in most cases be a fraction of the cost you will need to replace the item. Don’t cut corners in this area. Make sure you have replacement value or at least coverage equal to what the cost of very good used equipment would be.

6. Remember, premiums are just another name for payments

Your goal is to control these payments; buy only what you need, and get the best value for your purchase. Request written recommendations on coverage and costs and make the agent justify these recommendations to you. Insurance agents are sales representatives. Insurance is their product. Don’t forget this. Plain and simple, like any other purchase you consider they should justify this purchase to you.

7. Whenever you have a claim get your own estimate

Don’t do what most companies do and just take whatever they tell you the claim is worth. This is not an open and shut case;just because they say so, does not make it so. By securing your own estimate you can either verify the insurance company’s estimate and know you have a fair settlement or you can disagree with their costs and fight for a higher settlement. If you just accept their estimate you may find the actual loss involved to cost more, much more in some cases.

This edition of The Welch Report has been provided by Derrick Welch the author of ‘In Pursuit of Profits: How to at Least Double your Profits Without Increasing Your Sales’. Including 1,000 Cost Control, Expense Reduction, and Income Producing Strategies You Can Start Using Today To Dramatically Increase Your Bottom Line.