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Insufficient Inventory Can Put You Out of Business (Part 2 of 3)

“What aspects of inventorying and securing textiles pose the biggest challenge? What percentage of losses would you consider to be acceptable if the proper controls were in place? And how could an insufficient inventory impact the rest of my operation?”Hotel/Motel/Resort Laundry — Charles Loelius, The Pierre New York, New York, N.Y.
Abraham Lincoln once said, “You can’t do business from an empty wagon.”
Nothing has a greater impact on a laundry’s sales, service, operation and reputation than an inadequate circulating-linen inventory.
The lack of a sufficient amount of linen necessitates operating the plant longer hours than would otherwise be necessary. Labor, maintenance and utility costs increase, while both efficiency and morale plummet. Operating costs increase without the benefit of added revenue.
Laundering the linen more frequently than would otherwise be necessary shortens its life, resulting in higher depletion and additional replenishment cost.
Equally important is that not having enough circulating linen results in decreased fill rates, which negatively impacts revenue as well as dampening customer confidence.
I was once asked to survey an OPL that hotel management had perceived to be inefficient. The laundry was working long hours, incurring much overtime, and was losing the confidence of its core customer, the housekeeping department. What I saw instead was a highly efficient laundry operation that was working longer hours than what would have otherwise been necessary in order to process that day’s soiled linen for same-day delivery to the floors.
[NP][/NP]A complete linen inventory taken the next day revealed that the hotel was operating on less than two pars! The OPL was, in effect, working miracles to supply the hotel with clean linen.
The first step in managing the circulating-linen inventory is recognizing that linen loss will occur. Next, ascertain where linen loss is prone to occur, and develop policies and programs to prevent unnecessary depletion.
How linen is processed, distributed, utilized, returned and monitored will have a direct bearing on both linen loss and replenishment costs.
Planned losses, such as discards and rag-outs, are the result of quality-control programs. Planned depletion, along with a corresponding linen-replenishment program, is necessary to maintain a viable circulating-linen inventory.
At my hotel, I budget to replace one linen par annually. Consequently, I completely turn over my circulating-linen inventory every 31/2 years.
There are two types of linen depletion: actual and artificial.
Actual loss represents a permanent depletion in circulating linen; the linen is not retrievable. Actual loss is the result of disposal, abuse and theft, either deliberate or inadvertent.
Artificial loss represents linen that, while not accessible to circulating inventory, is still retrievable. Artificial loss is caused when the end-user overstocks linen, resulting in an underutilized inventory.
In linen rental operations, overstocking by the customer not only renders linen inaccessible, it precludes generating additional rental revenue by “turning” the linen.
Conducting physical inventories on a regular basis will provide the information needed to determine if the amount of linen in circulation is sufficient. Physical inventories also help in the planning of future purchases, and are essential in determining linen loss.
The first inventory taken provides the baseline from which future losses are measured.
Unexplained losses can be determined by the following formula:
 

First Inventory – Discards + Linen Injections – Second Inventory Unexplained Loss

Conducting physical inventories at the customer’s premises is daunting but necessary to properly gauge linen utilization and loss. Complete inventories should be conducted at least annually. Salient information can also be gleaned from “informal” inventories, shelf counts, and linen-abuse “spot checks” that can be conducted as part of sales, service and goodwill calls.
Linen-loss and -abuse charges, as well as linen-utilization fees, when implemented and enforced, can aid in reducing both actual and artificial linen losses. There is the caveat, however, that enforcing these charges, even if contractually stipulated, may result in strained customer relations.
Regardless of laundry type, it is crucial to involve, educate and monitor the end-users in properly controlling the linen at their disposal.Long-Term-Care Laundry — Gary Clifford, Pines of Sarasota, Sarasota, Fla.
The biggest challenges in inventorying and securing your healthcare textiles are usually inadequate storage space and staff-created losses outside of your control. You can find it extremely difficult to count and control inventory when you are space-challenged, because it can be next to impossible to properly secure your inventory. Sharing space with other departments opens the door for someone to remove your inventory without your knowledge.
[NP][/NP]The only way you can be sure you have control over your own inventory is to get storage space devoted solely to your department. You can be secure in knowing you have control over who accesses your textile stock.
It helps to limit the number of members of your own staff that has keys to your storage and to require that they document the removal of textiles for use.
You also need to obtain the cooperation of the other departments to which you supply linens, so that they help to prevent waste. Not having your nursing department on board to help lower costs is an easy way to ensure your supplies will become decimated. We all have to be a part of the “big picture” and help make the facility as cost-effective as possible. Managers don’t face many challenges bigger than that.
It is hard to determine your department’s acceptable losses without knowing the exact circumstances at your facility. Textile quality, and your chemicals and laundering process, have more to do with increasing rag-outs than you can imagine.
One facility may be able to run at 2-3% losses while another can do no better than 7-8%, just because of the difference in quality of textiles purchased. Lower-quality goods wear out faster. You should take a look at your percentage of losses; if the number is in the double digits, find out why it is so high.
When you operate with insufficient inventory, it impacts all areas. Labor costs increase, as you must process more often when under par needs. Equipment-repair costs are higher, because the equipment runs constantly to keep up with demand. Utilities—water, electricity and sewer—escalate in cost as equipment is run for longer periods. Costs for chemicals also rise as you operate longer to keep clean linen available. You can see that having insufficient inventory creates costs that are much higher than linen replacement.
In today’s tough economy, we are asked to make tough decisions. Look at all areas impacted by your decisions to be certain you are utilizing your resources where they are needed most. It is also important to secure and conserve the sometimes-limited resources you are given. This is the challenge for all of us.Check back tomorrow for Part 3 of this story!
Click here for Part 1 of this story.
 

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