Workers Compensation Injures Impact Product/Service Quality

In yesterday’s blog I addressed the value of workers compensation safety from a productivity perspective. While employee safety is just one component of a successful strategy here, there is no longer any doubt that it impacts these issues every day. The equation is simple:

Reduced workers compensation claims equals increased productivity

The flip side of this equation is that, when a workers compensation claim occurs, product/service quality will suffer. An example, one the CompEraser customers experienced a workers compensation claim recently. The employee was working in a department that assembles the final product and incurred a serious back injury. This particular customer, in order to minimize inventory and reduce operational costs, was operating very lean. Their raw product and in-process inventories were maintained at low levels. Also, their finished product inventory was maintained based upon customer demand. Man-hours were managed very carefully so that labor costs were also maintained based upon consumer demand. Everything was running fine until the workers compensation claim occurred. But here is what happened after the injury. First, the assembly department immediately fell behind in meeting its orders. In this case the employee was off work for 2 ½ months. At first the department attempted to make up the shortfall in production by paying overtime but once it because clear that the employee would be off work for an extended period of time they had to bring in a temporary worker. According to the customer this temporary worker was working, at best, at ½ the rate of the injured employee. Quickly seeing this, they then brought on an additional temporary worker. So now you have overtime payroll and two temporary workers to pay for.

Second, the organization’s ability to ship products to waiting customers became a problem. Because finished good inventories were kept low, there was no buffer here. As a result, customers began to complain and some even went to competing companies to fulfill their needs.

Third, product quality itself began to slip. The customer reported an 18% increase in product return rate over the next three months. No only did this add to the strain already placed on the organization, it drove up manufacturing costs.

Finally, according to the customer, once the injured employee came back to work it took that employee approximately 60-days to get back to full capacity and for the department to get back to its pre-injury production/product quality levels.

All of these costs eventually found their way to the customer’s bottom line – and none were paid for by workers compensation insurance. The ripple effect of a worker workers compensation claim can be quite significant. In this case it was calculated using CompEraser’s patent-pending system that the workers compensation claim itself was $22,225 and the indirect, uninsured costs were 4.1 times this figure, or $91,125. In short, the total cost of this injury to the customer was $113,350. This customer operates in to today’s competitive economic environment at a 4% pre-tax profit. Therefore, they must produce $2,833,750 in sales to pay for this workers compensation claim.

I invite you to take five minutes to estimate your TOTAL COST of worker injuries using OSHA estimates in the privacy of your office. It is on-line and available 24-7. To find out more go to www.comperaser.com. These resources also include injury prevention, OSHA compliance, safety training, prompt injury response, workers compensation disability management, plus more. These resources are available 24/7 and used irrespective of which workers compensation carrier you select. Its patent-pending technology also provides unique financial reports for monitoring the effectiveness of your safety and health program on an on-going basis.