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Measuring Cost Per Pound? Include All Expenses (Part 2 of 3)

“When a manager or operator measures their plant’s performance by cost per pound, what factors—labor, purchasing, utilities, maintenance, rewash/ragout, or others—must they include in their calculations to arrive at the most accurate figure?”Chemicals Supply — Matt Koloseike, Procter & Gamble Professional, Cincinnati
There are several cost drivers in commercial laundry. Examples include labor, which constitutes almost half (46%) of the costs, and linen replacement, which accounts for 22%, according to the Uniform and Textile Service Association’s 2006 On-Premise Laundry Processing Costs Study*. I would like to discuss one of the most overlooked areas in commercial laundry—the rewash rate.
The average rewash rate for commercial laundry should be approximately 3-5%; laundry managers often do not track or measure appropriate rewash levels in their program. Unfortunately, this rate has important cost implications to the overall laundry operation.
If left unmonitored, it could significantly increase overall expenditures in a commercial laundry program. Laundry managers can be required to dose more chemicals and run machines for longer durations when rewash percentages exceed industry standards.
[NP][/NP]The additional costs associated with this unanticipated work are not typically calculated in cost-per-pound or cost-per-load calculations. Therefore, it is important for laundry managers to work directly with their chemical suppliers to understand their rewash rates. During this consultation, chemical suppliers can help managers achieve rewash rates within an acceptable range.
Most laundry chemical suppliers can work directly with laundry managers to build proper wash programs, and usually have standard procedures for rewash and the treatment of common laundry stains.
Since staining is a key factor in high rewash levels, it is always important to check for stains prior to the soiled linens entering the washing machines. It is also important to treat stains while they are fresh.
Allow appropriate time for all stain-removal treatments to work prior to actually entering the wash cycle. Five minutes is the standard for such stain-removal treatments to work, but please consult with your chemical supplier about your individual operation.
On colored fabrics, always check stain-removal treatments for colorfastness on an inside seam to help prevent any unintended consequences.
Of course, some linens require special attention beyond stain-removal treatments. Instead of immediately running them through the normal wash cycle again, the best approach is to separate them and save them for a specially designed rewash program. This program should be designated and determined by your laundry chemical supplier. This level of collaboration will also give the laundry manager an opportunity to account for and track the actual rewash rates.
By treating stains, closely monitoring rewash levels, and ensuring appropriate machine programming, every laundry manager can maximize overall performance while controlling costs.*Cost data was derived from OEM and Bureau of Labor Statistics data and UTSA estimates. Indirect costs include depreciation, maintenance, and equipment amortization over the equipment life. Linen replacement includes normal replacement, damage, abnormal wear and upgrades. Total cost does not include overhead expenses determined through specific allocation methodologies.Healthcare Laundry — Dianna Aracich, Wheeling Hospital, Wheeling, W.Va.
When measuring your plant’s performance by cost per pound, there are many variables to consider so that you obtain the most accurate figure.
[NP][/NP]I would like to tell you it’s as simple as taking your actual operating budget and dividing it by pounds processed, but that would be too easy, as well as inaccurate. There are numerous variables involved that are not line items in your operating budget.
Labor costs are wages and fringe benefits. Fringe benefits can include everything from healthcare to union dues, and equal 30% or more of an employee’s wages. It’s imperative that you include all benefits when calculating salaries, because labor is the largest portion of your expenses.
Direct labor costs include in-house soiled-linen pickup, washing, drying, sorting, ironing, folding, and preparing linen for delivery. Linen room labor costs are for in-house delivery personnel and a seamstress. Since everyone in my plant works production as needed (including me), this is all included in direct labor cost in my budget.
Administrative costs are related to management, secretarial and any other nonproduction personnel, as well as any linen management program you may pay for if not included in your vendor’s linen contract.
Maintenance/repair costs include labor and materials for routine maintenance of your building and equipment. Be sure to include depreciation for all.
There are costs for general supplies such as ironer padding, transport-cart liners, sewing supplies, copies, and so on. Chemical supply costs include laundry chemicals and water treatment. Plus, don’t forget the utilities: electricity, water, gas, steam, sewer and trash removal.
There is textile replacement cost for replenishing your linen supply due to wear or loss.
If you manage an OPL that also has off-site customers, you must include costs related to distribution and return, drivers, fuel, fees, vehicle maintenance/repair, and any lease agreements.
Cost varies depending on type of operation—healthcare or hospitality, OPL or commercial. There are a number of different variables to consider, and none is less important than the others.
If you are going to measure your operation’s performance by pounds processed, make sure to take every expense into consideration. Do your homework and make sure the amounts and percentages you use are accurate for your location.
A manager must carefully calculate all costs associated with his or her operation, whether it appears in the laundry’s budget or someone else’s, in order to get the true cost.Linen Supply/Commercial Laundry — Tamica Goree, Ph.D., STG Linen Services, Glendale, Ariz.
Every cost should be assigned to every unit produced, or at least given to each to be carried in the inventory, to be matched with the revenue it earns when sold. However, the expense of computing such costs on such a precise basis outweighs the benefits for this extra accuracy.
[NP][/NP]Since the ultimate objective is overall net income, at least some of the operating expenses have to be captured for performance. The gross profit is usually given the most attention because it is the area that is subject to considerable management control.
For this reason, it is management’s decision on what to monitor beyond the gross-profit line so that deviations are analyzed and the operation achieves greater control over costs. If one were to break down all cost elements that go into assessing profitability, the factors would be price per load.
This is a more accurate measurement for assessing your business impact. If you examine your total cost of washing per load, including electricity, water, natural gas, chemicals and labor, you will generate a good gross-profit number to work from. The key then is to lower your cost per load as much as possible, working with vendors and using appropriate wash/cycle times.Check back tomorrow for Part 3 of this story!Click here for Part 1 of this story.
 

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