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Joint Venture Warrants a Long, Hard Look (Part 1 of 4)

Another institution in our area is proposing a joint venture on a new laundry facility to serve both of our institutions and perhaps some smaller outside accounts. Where should I begin in identifying the pros and cons of such a venture, and how can I estimate the impact that a joint facility could have on my overall operation?EQUIPMENT MANUFACTURING: Ed Kirejczyk III is the president of EDRO Corp., East Berlin, Conn. He's been employed in various sales and marketing positions there since 1990 and been involved in designing EDRO's shipboard washer-extractors, water reuse systems and washer control technology.
Begin by hiring a consultant who specializes in both laundry operations and business ventures. There are some excellent resources available in the industry. An un-biased, objective viewpoint of the situation is critical to its success.
With the high capital required for investments in a building, equipment and support infra-structure, as well as staffing and employee costs, spending some upfront time and money planning such a joint venture could uncover hidden pitfalls or expose further synergistic opportunities.
The financial stability of both institutions should also be considered. The structure of a joint venture, both location and ownership, would be best assembled by an outside, independent third party.
As no two situations are alike, there are no clear answers or straightforward solutions. Some of the pros that come to mind with maintaining two independent facilities are topped by a convenience factor and more control over quality (be it good or bad). However, having the ability to process laundry 24/7 usually comes at a higher cost. Labor and associated staffing expenses are perhaps the most predominant since these costs are by far the largest operating expenses.
The procedures necessary for machinery operation and upkeep, as well as added utilities and resources, are usually not as efficient in smaller, on-premise laundries as in central plants. With a joint laundry facility, you gain efficiencies with better use of machinery, labor and space.
In addition, since you can plan for excess processing capacity, adding extra accounts should be at a nominal expense and prove to be profitable from a processing standpoint. However, besides giving up the conveniences of an on-premise facility, logistics, transportation and increasing linen supply become issues.
It would be quite prudent to spend the necessary resources to fully investigate the opportunities and look before you leap.HEALTHCARE LAUNDERING: Sue Klein is the marketing manager for Shared Service Systems, Omaha, Neb., a central healthcare laundry that serves customers ranging from large urban health systems to small rural hospitals. She's been active in the International Association of Healthcare Textile Managers (IAHTM).
Hospital floor space is at a premium these days. Regulations associated with handling healthcare soiled linen are increasing. The opportunity to reclaim square footage and potentially reduce expenses is attractive to many. However, there are some important decisions to be made for the health of the facilities.

  • One of the most basic will be whether your new venture will own the linen or only process linen owned by others. With the average annual healthcare linen purchase per occupied bed costing more than $1,200, providing linen for even a 100-bed hospital will necessitate an investment of more than $120,000. Linen is an asset to a facility, whether you provide it or the facility does.

Linen standardization is an important issue. We’ve come across linen as diverse as candy cane stockings for babies, oxygen tank covers made by ladies’ auxiliaries and “moon pants” for proctological procedures. By combining inventories, how many items will you end up with? Can you standardize on a minimum number of common items? What investment will need to be made in additional linen?

  • Will you limit your operation to only healthcare? Or, will you also process linen from restaurants, hotels, packing houses, etc.? While it may be attractive to process a wide variety of linen, be aware of the differences in wash formulas to continue to adequately clean healthcare linen.
  • Where will you operate? Will you combine your current work force? Is there adequate transportation to the location to ensure you’ll have the labor pool you need? How are both operations compensated? Are there performance incentives? What’s the speed at which both labor pools work? We’ve seen in-house operations with 40-50 pounds per operator hour, while others achieve 90 or more. Will you retain the talent you need and want?
  • Governance must be decided. Will this be a cooperative venture where there is a “buy-in” for institutions, or will this be a true central laundry with revenue goals?

A co-op may be an attractive option, with each institution providing its own linen plus an initial and ongoing investment toward operating costs and assets. Will the co-op be operating “at cost” with no expectation of revenue? Or, are there “managing facilities” that buy in and smaller “customer” facilities for which the co-op provides a cost-plus processing service?
A central laundry may be a more straightforward business venture with a governing board of directors. How will the proceeds be distributed? Will profits be allocated based on volume? Is it equally expensive to process each of the members’ laundry? Are replacement costs similar across all facilities, or do some facilities “lose” more linen than others? Will costs be calculated as facility-specific or through a general fund?

  • Whether a co-op or a central facility, the linen has to be delivered to the customer-members and picked up again after use. Your organization is now in the trucking business!

You must learn, monitor and abide by signage, weight and federal transportation regulations. Several factors define your routes and their frequency. For instance, how long is your truck, and how much clean and/or soiled linen can it hold? Will you transport clean linen with soiled? How will you keep the separation required? Will you deliver only in bulk, or will you offer exchange cart service?
Where’s the dock compared to the linen rooms? How much time will that add to your schedule? Are there physical delivery risks within the facility? Is there adequate access for your size truck? Will you limit your service to hospitals only, or will you provide a smaller, more maneuverable truck or van to provide clinic service?
Clearly, combining operations can afford some true economies of scale, which may spell attractive profits for facilities involved. In healthcare, remember that the patient-customer has only a few ways by which to judge the quality of the facility. Linen – its appearance, availability and quality – is one of the most visible.
While viewed from an expense-saving standpoint, many decisions surrounding linen provide a positive impact on the bottom line of cash-strapped hospitals. However, don’t shortchange one of the areas most important to patients and their families or, in the end, your operation may have removed its nose to spite its face.
 

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