PAYING FOR CHEMICALS – LET ME COUNT THE WAYS!
By Rich Fitzmorris

Wasn't it only yesterday that a company selling laundry chemicals sold their product for a certain cost per package, and that was it? Today it seems that there are an endless number of ways that chemical companies use to sell their chemicals.

FLAT GUARANTEE BILLING
This method of selling product is based upon the chemical company analyzing the customer’s laundry operation. Recording the
size of the washing equipment. Recording the different types of textiles by classification and their poundage for a given period
of time. Recording the number of loads required for each classification. Estimating the cost per load for chemicals to wash
each classification. After this, the chemical supplier gives the buyer/customer a proposal for doing the laundry for a billing
charge each month that is exactly the same for the length of the agreement. No changes, no arguments.

Pros - This method of paying seems appealing for the buyer/customer because there is consistency in each month's payment, which results in excellent step budgeting. Knowing how much one will be paying for chemicals each month should give the buyer the peace of mind that they are not going to get hit with big bills due to inventories, or the volume of business.

Cons - Well, there is trust needed when information is taken in the survey analysis. There is also the problem that the business in the current year is off from the previous year when the data was taken. Who has control of the chemical usage, the customer or the chemical supplier? If the supplier is more interested in keeping their chemical usage down to increase profits, then what happens to the linen quality and/or life expectancy? There are many more questions as to how this could potentially benefit the supplier. Considerable trust in the supplier is necessary for this program to work.

GUARANTEED COST PER OCCUPIED ROOM (HOTEL/MOTEL) OR OCCUPIED BED (NURSING HOME)
This is very similar to "Flat Guaranteed Billing," except the customer is billed on only the rooms or beds that were occupied during the
previous month. The chemical company does their analysis of the laundry operation, then submits a proposal based upon a set
cost for either the room cost or bed cost. At the end of each month the customer notifies the chemical supplier of the occupancy they had and the supplier than bills them for those numbers.

Pros - This program allows the buyer to budget what they will be spending in washing chemicals for the year. The buyer doesn't pay for chemical usage until after they have actually used them, and in addition, they usually are allowed 30 days to pay that bill. This is step budgeting and an extended payment plan. The buyer/customer doesn't have to watch their costs or watch how the amount of chemicals a company may be using.

Cons - It's easy under this program to choose a chemical company that is promoting a low cost. If it sounds too good, it probably is! Where are the checks and balances in this program? Again, the supplier must be given a high degree of trust. Textile replacement, utilities cost, and labor are vulnerable to this program. The buyer/customer can't be too careful when accepting a chemical billing without knowing for sure how the other laundry costs are effected.

GUARANTEED COST NOT TO EXCEED
This program has the customer buying the chemicals up front with a promise by the chemical supplier that they will be less than the guaranteed cost, or the difference will be credited back to the customer. Generally this program is a guarantee based upon a room cost or bed cost, but could be set up in other programs, such as guaranteed cost per pound of soiled linen, or even clean dried textiles by hundred weight. This method of purchasing chemicals is set in an agreement that at some point the buyer/customer audits the purchases against the set criteria.

Pros - This program gives the buyer/customer the advantage of besting the guaranteed cost, and still having a ceiling cost. In this method the buyer can see the cost of each chemical and how much is being used. Some buyers may be able to tell if their mix on chemicals seems correct (unlike the other programs), and in particular, if bleach is being overused in place of good wash chemistry. Budgets get taken care of for the buyer/customer for the time of the agreement

Cons - There is still the matter of is there enough good chemistry being used across all the classifications to ensure good
quality? Are the utilities and time of cycles being considered? Or is more water and time used to make up the difference to
keep chemicals close to the line on the guarantee. Often these programs have adjustment date restrictions, such as 90 days by
the supplier. Here the buyer/customer must track the inventory and rate criteria and submit a request for a refund within a
certain time frame or lose the benefit if the cost is over the guarantee. Very often this program does not include spotters, stain
removers, and reclaim chemicals. It can be very easy to be confused by this program regarding what is covered in the
guarantee and what isn't.

COST PER LOAD
With this program, the chemical company performs a study on the laundry operation and submits a proposal that averages back to a "cost per load" for the buyer/customer.

Pros - Here a buyer/customer pays only for what they use. If laundry loads are down they pay less, and if the loads are up they pay more. Load counters are installed on the washers or a load counter is part of the chemical dispensing system. Each month the supplier bills for the number of loads for that time period. The buyer is again paying after the use of the product and will use that plus an additional 30 days on most invoices. There is no counting on the buyer's side to come up with rooms or beds occupied, which seems simple and easy.

Cons - Nothing changes here again on the accountability of the chemical supplier to deliver on a total laundry package. Replacement cost of the textiles, utilities, and labor are open for abuse. Who is making sure that the washers are loaded properly? Who has the incentive to improve the operation in the laundry?

BUY PRODUCT DIRECT
With this program the buyer purchases the products out-right, no guarantees, and no limitations. In this program the buyer/customer holds all the cards - total control of the laundry is in the hands of the buyer/customer.

Pros - The buyer selects the supplies based upon what is submitted in a proposal for all cost, including hot water use, total water consumption, utilities, and washer cycle times. They can even require information be provided on the types of supplies to be used. The buyer/customer can monitor all purchases and control the chemical usage by controlling cost. Buyer recognizes that chemicals are the laundries smallest cost in the operation of a good laundry.

Cons - Making a selection based upon all aspects of the laundry, or by whose chemicals are best for the buyer/customer's use, can take more time than just asking for quotations on price. The buyer/customer has to understand that chemicals are not just chemicals, that there are differences in quality and concentration from one company to the next. Generally references and reputation are taken into consideration when buying a product out right. The buyer/customer must have a level of trust with the supplier that chemical costs are important and need to be under control, but also the bigger cost items are in line such as utilities and cycle times.

OTHER CONSIDERATIONS
Laundry cost factors should always be considered when selecting a chemical program, or chemical supplier. Some general cost numbers: Labor Cost 35-55%, Linen Replacement Cost 10-25%, Energy Cost 10-20%, Indirect Cost 5-20%, Chemicals 3-10%

If you have a question you’d like addressed in a future issue of Laundry Today, please email us at question@laundrytoday.com.