- Written by Ken Tyler
After numerous requests for newly revised information on this subject, I have gone through the volumes of information obtained from both healthcare and hospitality laundry operations world-wide.I did my best to convert the rapidly changing foreign cost to rapidly changing US cost and discovered that our foreign counter parts were most likely slightly more cost efficient. There of course could be numerous explanations but the primary example was the vast difference in labor and fringe benefit cost in our country visà- vis other foreign locations, primarily those in the Far East.
As analysis, consultants and various levels of internal management continue to complicate laundry operational cost scenarios. It is apparent that laundry and facility managers as well as a renewed emphasis by top executives require a cost benchmarking rule of thumb that will assist them in selling their operations. For example, justification for new systems, 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, transportation etc. I am continually amazed that folks who seem to be knowledgeable simply complicate data in such a form that it becomes very difficult if not impossible to interpret. In my opinion this is like calculating miles per gallon, not how many pebbles exist on Mars.
It is quite apparent that large laundry and linen rental consortiums that deal specifically with healthcare markets are becoming more competitive as business tends to escalate. Based on recent information cost seems to be leveling out to some degree, therefore my previous forecast that we may reach a $1.00 per pound processed by year 2010 may be somewhat premature.
A review of over 200 of 340 healthcare and hospitality laundry facilities located in the United States and in 12 foreign countries with variable degrees of efficiency reveal the following benchmark costs that should be deemed most efficient on the average, even though most every facility demonstrated 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.
The primary variable between healthcare and hospitality cost were certainly in the textile cost associated i.e. hospitality was higher on the average which was expected, the average variance was between .03 and .04 cents per pound processed, which is significant.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–.28 cents per pound processed.
Administrative Cost: Laundry, Linen Management, Secretarial, Contracting administration, General foreman and Non-production employees/housekeeping: .05–.07 cents per pound processed and delivered, also includes fringe benefit costs (union dues, health insurance etc.) on the average fringe benefit cost were running at 30–40% of actual salary cost. In other words add your salary cost and then add that percentage.
Maintenance and Repair Cost: Processing and ancillary support equipment, carts etc.: Labor cost and materials associated with routine maintenance of applicable systems: .05–.07 cents per pound of laundry processed and delivered.
Depreciation of Equipment: Equipment value divided by 15 years: .04–.06 per pound processed.
Depreciation of Property and applicable property taxes: Land and Building aggregate cost plus annual taxes divided by 75 years: .02–.04 cents per pound processed and delivered.
General Supply Cost: Leasing of office equipment, office supplies, covers, pads, hangers, thread, wax, patches, buttons etc: .01–.015 cents per pound processed.
Chemical Supply Cost: Laundry chemicals, water treatment etc.: .02–.027 cents per pound processed.
Utility Cost: Electrical, Steam, Gas, Water, Oil, Sewage, Refuse Removal, Solar: .06–.07 cents per pound processed.
SUB-TOTAL: Production Cost for a most efficient operation should be: .44–.632 cents per pound processed and delivered.
Textile Distribution and Return Cost: Drivers, fees, tolls, lease cost, fuel, vehicle maintenance and repair cost: .04–.05 cents per pound processed and delivered.
Textile Operations: Linen room distribution labor and benefits, seamstress, uniform distribution, cart replacement: .04–.05 cents per pound processed.
Textile Cost: Surgical, uniforms, general linen, drapes, all other textiles based on a PAR maintenance value of 7 for either healthcare or hospitality: .13–.17 per pound processed.
SUB-TOTAL: Textile Distribution and Textile Replacement Recurring Cost: .21–.27 cents per pound processed
Over-all Operational cost benchmark range: .65–.902 cents per pound processed
While the over-all variance in cost ranges are certainly wide spread, the manager must carefully and accurately calculate all cost associated with the actual operation. All are different. 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 will paint an inaccurate picture.
If for some reason you think your cost are lower than the benchmarks lowest range I would encourage you to revisit and recalculate, but more importantly make sure you have all your costs included that will parallel this report.
Ken Tyler is the vice president of government operations for Georgia-based Encompass LLC, a manufacturer and marketer of woven and nonwoven products for the healthcare and hospitality industries. His experience includes managing the entire textile and laundry operations for the U.S. Department of Veterans Affairs (VA) for 23 years.
Tyler planned and managed the design and construction of some 57 VA laundries and consolidated operations that resulted in cost benefits reaching $250 million. He retired from the VA in 2000, ending 35 years of government service.
Today, Tyler serves on the Government and Healthcare committees of the Textile Rental Services Association (TRSA) and an industry liaison group for the American Society for Healthcare Environmental Services (ASHES). He is also an industry adviser to the General Services Administration, a member of The Joint Commission’s Environment of Care Industry Task Group and an advisory subcommittee member to the Healthcare Laundry Accreditation Council (HLAC).
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