CHICAGO — Having received numerous requests for newly revised information on this subject, I have reviewed the volumes of information obtained from both healthcare and hospitality laundry operations worldwide for 2009-2010.
I did my best to convert foreign cost to U.S. cost—both are changing rapidly—and discovered that our foreign counterparts were slightly more cost-efficient and, due to exchange rates, getting more production for the dollar simply due to the value of certain currencies.
There could be numerous explanations, of course, but the primary reason was the vast difference in labor and fringe benefit cost in our country vis-à-vis other foreign locations, primarily those in Europe, the Far East and Africa.
The basis for this analysis was to determine benchmark alignments once various currencies were adjusted to match the U.S. dollar. Both higher and lower extremes in costing for each element were evaluated for accuracy. A group of independent accounting specialists who volunteered its time was utilized to draw the various conclusions reached in the report. Foreign laundry experts assisted in the translation of some information.
Throughout the process of validating accuracy of the data provided and drawing comparisons, the identity of each facility remained confidential. Each facility was simply referred to as a number or letter, depending on the type of operation: healthcare or hospitality. For those with a combination of tasks, every effort was made to categorize each element.
Every facility that supplied information has done so every year since this review began 12 years ago.
2009 Forecast on Target?
As analysts, 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 top executives with a renewed interest, require a cost benchmarking rule of thumb that will assist them in selling their operations, i.e. justifying new systems or a new facility, obtaining new customers and, probably most important, comparing variable cost that should influence decisions to continue in-house operations or examine outsourced management, operations, linen rental, transportation, etc.
Institutions that hire consultants to review certain aspects of a facility’s operation should continue to rely on internal expertise and experience, I believe. The institutions should also ensure that the consultants selected are experienced in reviewing similar operational elements. A consultant with expertise in energy management, for example, may not be qualified to review laundry operations, production or textile distribution.
It is quite apparent that large laundry and linen-rental consortiums that deal specifically with healthcare markets are becoming more competitive. Based on recent information, cost seems to be leveling out to some degree, with the exception of the impact of high cotton and polyester costs and, most recently, fuel cost.
My 2009 forecast that total cost of operations may reach $1.10 per pound processed/delivered by 2011 seems to be on target. The rising cost of healthcare insurance benefits enacted as a result of healthcare reform will dramatically increase the cost of operations, i.e. internal cost and associated product (chemicals, textiles and laundry equipment purchases).
A review of more than 400 healthcare and hospitality laundry facilities located in the United States and 14 foreign countries with operations of varying degrees of efficiency reveal the following benchmark costs (in U.S. dollars) 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 to note in this analysis were the plans to reduce labor and utilities cost related to sorting, washing, drying, conveyance, and flatwork feeding and finishing. These facilities also reported that major efforts were under way to reduce textile-replacement cost through standardization and life-cycle determination efforts, i.e. 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 elements and control systems that are so critical to this facet of the operation.
The primary variable between healthcare and hospitality cost was certainly interesting. Hospitality was higher on the average, which was expected, with the average variance being between 4 and 6 cents per pound processed. This was mostly attributed to the higher quality/cost of textiles acquired, which is significant. Other facets of discovery revealed that operational cost of healthcare and hospitality operations were similar in all other areas.
Production Cost Benchmarks
Processing Cost: Direct labor costs, including fringe benefits (health insurance, retirement, etc.), which are applicable to the receipt, sorting, washing, drying, ironing, conveying and preparing of textiles for delivery within a laundry processing facility. Cost: 19-26 cents per pound processed.
Administrative Cost: Covers personnel in laundry and textile product management, secretarial, contracting administration, general foreman and nonproduction employees/housekeeping (includes fringe benefit costs, such as union dues, health insurance, etc.). On average, fringe benefit costs were running at 20-30% of actual salary cost (in other words, add that percentage to base salary cost). Cost: 5-7 cents per pound processed and delivered.
Maintenance and Repair Cost: Labor cost and materials associated with routine maintenance of applicable systems, including processing and ancillary support equipment, carts, etc. Cost: 6-8 cents per pound processed and delivered.
Equipment Depreciation: Divide equipment value by 15 years. Cost: 4-6 cents per pound processed.
Depreciation of Property and Applicable Property Taxes: Divide aggregate cost of land and structures plus annual taxes by 75 years. Cost: 2-4 cents per pound processed and delivered.
General Supply Cost: Includes leasing of office equipment, office supplies, covers, pads, hangers, thread, wax, patches, buttons, etc. Cost: 1-2 cents per pound processed.
Chemical Supply Cost: Laundry chemicals, water treatment, etc. Cost: 2-3 cents per pound processed.
Utility Cost: Electrical, steam, gas, water, oil, sewer, refuse removal, and solar. Cost: 7-8 cents per pound processed.
SUBTOTAL: For a most efficient operation, Production Cost should be 46-64 cents per pound processed and delivered.
Textile Distribution and Replacement Cost Benchmarks
Textile Distribution and Return Cost: Includes drivers, fees, tolls, leasing, fuel, vehicle maintenance/repair, linen room distribution (from cart assembly to end-user locations) labor and benefits, seamstress/repair/marking, uniform distribution, cart depreciation and replacement, and transportation to external customers. Cost: 11-16 cents per pound processed (within this component, fuel cost was 4-5 cents per pound).
Textile Cost: Surgical, uniforms, general linen, drapes and other textiles based on a seven-par maintenance value for healthcare or hospitality. Cost: 16-19 cents per pound processed.
SUBTOTAL: Textile Distribution and Replacement Costs should be 27-35 cents per pound processed and delivered.
Total Operational Benchmarks
The overall operational cost benchmark ranged in 2009-2010 from 73 cents to 99 cents per pound processed.
While the overall variance in cost ranges is certainly widespread, a manager must carefully and accurately calculate all costs associated with the actual operation—all are different.
A major failing on management’s part is the inability to calculate fringe-benefit cost and include it as part of the outcome. Calculating production cost while forgetting other costs simply raises additional questions. All costs depicted in this benchmark exercise are considered equally important; one without another would have painted an inaccurate picture.
If, for some reason, you think your costs are lower than the benchmark’s lowest range, I encourage you to re-examine and recalculate your numbers. More importantly, make sure you have included all costs so they parallel those listed in this report.
Expect Cost Increases from Cotton, Polyester, Fuel
Based on preliminary information as of this publication date and per discussions with those who regularly analyze costs, textile replacement cost and transportation cost for 2010-2011 (starting in June 2010) could reflect significant increases. Textile replacement could jump 10-20% due to cotton and polyester becoming more expensive, and managers could see a 5-12% hike in fuel depending on location.
The 2009-2010 survey only reflected minimal cost increases for reusable textiles when compared to 2008-2009. Many end-users, especially those in Europe and Asia, indicated they had purchased in large quantities in an effort to save resources, knowing what level the cotton-price increases could reach.
Have a question or comment? E-mail our editor Matt Poe at [email protected].