2006-2007 Benchmark Cost Review

Details

Created on Monday, 21 July 2008 12:19

Written by Staff

As various levels of internal management continue to complicate and re-engineer laundry operational cost scenarios it is apparent that laundry and facility managers require a revised cost benchmarking rule of thumb that will assist them in marketing their operations. For example, justification for new systems, new product reviews, a new facility, obtaining new customers and probably the most important, comparing variable cost which should reflect decisions to continue in house operations or to examine the parables of outsourcing management, operations, linen rental and transportation. It is quite apparent that large laundry and linen rental consortiums that deal specifically with healthcare and hospitality markets are becoming more competitive as business trends escalate.

A review of numerous healthcare and hospitality laundry facilities located world wide with variable degrees of efficiency reveal the following benchmark costs that are deemed most efficient on the average, even though each and every facility demonstrates opportunities to reduce cost especially in labor sensitive areas. Most important were the plans to reduce labor and utility cost related to washing, drying, conveyance, flatwork feeding and finishing. These facilities also reported that major efforts were in the process to reduce textile replacement cost through standardization efforts and by examining best value over lowest cost for an item. 

Other major components under review seem to drive at lowering chemical cost by conducting actual comparisons and focusing on the customer service element that is so critical to this facet of the operation. As mentioned in this report the cost to operate a laundry facility has dramatically increased due to many factors, primarily energy costs and fringe benefit costs.

These cost are reflective of actual cost, not estimates, not wishful thinking but real cost. The key here is bring into reality what real laundry operational cost are, they are real cost that impact customers, clients and institutions that support these operations. The days of processing textiles at .30 cents a pound have been gone for many years, assuming they were ever really around, hopefully this review will drive managers to fully examine all cost associated with their operation.

With the exception of labor costs, it is important to note that geographic trends in cost that appeared obvious in previous reports seem to have less impact in this reporting segment, i.e. variance in cost were level in most geographic locations which seems to indicate the broad range of the increase in fuel and fueled based operational segments i.e. no matter where you live it’s getting more and more expensive to operate a laundry.

Processing Cost: 
Direct labor costs including fringe benefits that are applicable to the receipt, sorting, washing, drying, ironing, conveyance and preparing textiles for delivery within a laundry processing facility. 
.19-.23 cents per pound processed. 
Increased from 2006-2007.

Administrative Cost: 
Laundry, Linen Management, Secretarial, contracting administration, general foreman and non-production employees/housekeeping.
.04-.07 cents per pound processed and delivered. 
Increase from previous report.

Maintenance and Repair Cost: 
Processing and ancillary support equipment, carts etc.: Labor cost and materials associated with routine maintenance of applicable systems: 
.05-.08 cents per pound of laundry processed and delivered. 
Increase from previous report. This could over the long term cause major difficulties as this key ingredient continues to receive less attention than may be required. Contracting maintenance is on the rise..

Depreciation of Equipment: 
Equipment value divided by 15 years: 
.05-.07 per pound processed. 
Increased as a result of recent capital investments in 2006 and the increase in capital equipment replacement.

Depreciation of Property and applicable property taxes: 
Land and Building aggregate cost plus annual taxes divided by 75 years:
.05-.08 cents per pound processed and delivered. 
Increased as a result of tax increases.

General Supply Cost: 
Leasing of office equipment, office supplies, covers, pads, hangers, thread, wax, patches, buttons etc. 
.02 .04 cents per pound processed. 
Increased from last report. Fuel impact.

Chemical Supply Cost: 
Laundry chemicals, water treatment etc. 
.02-.035 cents per pound processed. 
Increase from last report. Fuel impact

Utility Cost: 
Electrical, Steam, Gas, Water, Oil, Sewage, Refuse Removal, Solar: 
.09-.14 cents per pound processed. 
Significant Increase as a result of fuel costs

SUB-TOTAL: 
Production Cost for a most efficient operation should be:
.46 to .51.5 cents per pound processed and delivered. Facilities in the northern states had significantly higher labor cost and utility cost than the remainder of the country. 
This represents a 09% increase over the 2005-2006 findings.

Clean Textile Distribution and Soiled Delivery Cost: 
Drivers, fees, tolls, lease cost, fuel, vehicle Maintenance and Repair Cost: 
.07-.11 cents per pound processed and delivered

Textile Operations: 
Linen Room Distribution labor and benefits, Seamstress, Uniform distribution, cart replacement. 
.05-.07 cents per pound processed.

Textile Cost: 
Surgical, uniforms, general linen, drapes, all other textiles based on a PAR maintenance value of 7:
.13-.18 per pound processed.

Sub-Total:
Textile Distribution and Textile Replacement Recurring Cost: 
.21 - .27 cents per pound processed
Significant increase based on fuel, fabric availability for textiles and manufacturing cost and a demand for higher quality.

Over-all Operational cost bench mark range: 

.65- .87.5 cents per pound processed.

Variance of (.22.5 cents) continues to be at a larger margin than previous reports indicate.

While the over-all variance in cost ranges is certainly wide spread and a significant increase over previous reports has occurred based on rising fuel cost, insurance premiums and health care benefit costs, the manager must carefully and accurately calculate all cost associated with an operation. 

One major failure on the part of management is the inability to calculate fringe benefit cost and include this cost as part of the final outcome. Just calculating production cost and forgetting other cost simply will raise additional questions by those in the know. For example all depicted cost in this benchmark exercise are considered equally important, one without the other simply paints an inaccurate picture.

Now more than ever the ability to purchase equipment, chemicals and textiles that can reduce laundry operational cost becomes essential. As indicated in my report last year, it is projected that unless major revolutions occur, especially reductions in energy costs, that the cost per pound to produce and deliver textiles to customers will reach the $1.00 per lb. threshold by the year 2010 not 2015 as originally estimated.