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 2010-2011.
I did my best to convert foreign cost to U.S. cost—both were changing rapidly as of December 2011—and discovered that our foreign counterparts were, in most segments, slightly more cost-efficient and, due to exchange rates, getting more production for the money simply due to the value of certain currencies, lower fringe benefit cost and higher degrees of automation. (I am pleased to report that this gap is closing rapidly.)
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, Russia and the Far East.
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 periodic review began.
2011 FORECAST ON TARGET?
As consultants and various levels of internal management continue to overly complicate laundry operational cost scenarios, as well as depicting systems that may not prove cost-effective, 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.
I remain amazed that folks who seem to be knowledgeable simply complicate data in such a form that it becomes extremely difficult if not impossible to interpret. The same situation applies when reviewing opportunities to automate and modernize operations. It is apparent in some cases that new operations with new systems are not as cost-effective as planned, mostly due to a misunderstanding of previous cost and the industry’s promises to improve on the status quo.
Institutions, general contractors and A/E’s that hire consultants to review laundry facility operations should also continue to rely on internal expertise and experience, I believe. The institutions should also ensure that the consultants and experts selected are experienced in reviewing all applicable operational elements. A consultant with expertise in energy management, for example, may not be qualified to review laundry production or linen distribution.
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, and based on recent information, cost seems to be leveling out to some degree, with the exception of the impact of high cotton cost and, most recently, fuel cost.
My previous forecast that total cost of operations may reach $1.10 per pound processed/delivered by 2013 seems right on target. The rising cost of healthcare insurance benefits enacted as a result of healthcare reform could dramatically increase the cost of operations and associated product and equipment purchases in 2014.
A review of approximately 473 healthcare and hospitality laundry facilities located in the United States and 23 foreign countries with operations that process a combined 276 million pounds annually with 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 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 efforts and by examining best value over lowest cost for an item. It’s unfortunate that the federal government seems to continue to focus on lowest cost rather than the impact of overall cost.
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 variables between healthcare and hospitality cost were certainly interesting. Hospitality was higher on the average, which was expected, with the average variance being between 6 and 7 cents per pound processed. This was mostly attributed to the higher quality/cost of textiles acquired, which is significant.
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. — 18-23 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 24-32% of actual salary cost (in other words, add that percentage to base salary cost). — 3-5 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. — 7-11 cents per pound processed and delivered
Equipment Depreciation: Divide equipment value by 15 years. — 4-6 cents per pound processed
Depreciation of Property and Applicable Property Taxes: Divide aggregate cost of land and building plus annual taxes by 75 years. — 3-5 cents per pound processed and delivered
General Supply Cost: Includes leasing of office equipment, office supplies, covers, pads, hangers, thread, wax, patches, buttons, etc. — 2-4 cents per pound processed
Chemical Supply Cost: Laundry chemicals, water treatment, etc. — 3-5 cents per pound processed
Utility Cost: Electrical, steam, gas, water, oil, sewer, refuse removal, and solar. — 8-10 cents per pound processed
SUBTOTAL: For a most efficient operation, Production Cost should be 48-69 cents per pound processed.
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. — 13-15 cents per pound processed (within this component, fuel cost was 4-5 cents per pound processed)
Textile Cost: Surgical, uniforms, general textiles, drapes and other textiles based on a seven-par maintenance value for healthcare or hospitality. — 17-21 cents per pound processed
SUBTOTAL: Textile Distribution and Replacement Costs should be 30-36 cents per pound processed and delivered.
TOTAL OPERATIONAL BENCHMARKS
The overall operational cost benchmark ranged in 2010-2011 from 78 cents to $1.05 per pound processed and delivered.
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 IN TEXTILE REPLACEMENT, TRANSPORTATION
As mentioned in my previous analysis, textile replacement cost and transportation cost for 2010-2011 did reflect marginal increases.
Have a question or comment? E-mail our editor Matt Poe at [email protected].