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Measuring Cost Per Pound? Include All Expenses (Part 3 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?”Equipment Manufacturing — Joe Gudenburr, G.A. Braun, Syracuse, N.Y.
I will curtail my comments regarding the methodology for determining costs per pound simply to say that all costs need to be evaluated and understood fully by management to truly understand the health and financial viability of its operation.
I visit many operating laundries each year in every market segment of our industry. This affords me a great opportunity to assess where said facilities are exceeding, meeting, or underperforming when it comes to operational cost management.
There are many plants that are lean, and have a keen eye on the factors that can and do impact operating costs, either favorably or unfavorably. However, in most every case, there is always room for improvement. In some cases, there is a great deal of room. In others, it is simply a matter of fine-tuning.
Given the abbreviated nature of our responses, I will try to focus my comments on key areas of emphasis that can provide a significant return to the bottom line.Preventive Maintenance
I think everyone has the intention of doing maintenance, and having a well-established program. However, too often, the maintenance program is nothing more than a reactionary protocol to a “down” situation.
All of us have had to trim our spending over the past few years. In some cases, plants have decided to cut maintenance staff/spending. This is a shortsighted approach to operational wellness. I have yet to see a plant that took this approach live to say that it provided a favorable return to the bottom line via enhanced operating capacity, efficiencies or product quality.
[NP][/NP]It is also important when looking at establishing a preventive (and eventually a predictive) maintenance capability that the plants design into their capacity-planning model the time needed to support maintaining equipment.Training
We experience a high level of staff turnover in our industry. Additionally, as we automate our business and processing, the skills needed to operate and maintain the equipment have escalated.
I often see great employees with nothing but the finest intentions; however, in many cases, they simply don’t have the skills, or, more often, have not been afforded the training opportunity to develop the skills needed to maintain today’s automated solutions.
Automation will contribute to the bottom line, but only if it is understood and maintained. When it is “jumpered out,” or not put to use, you simply have an asset that will not provide the return on investment that you had hoped for when you purchased it.
It is vital that we all re-evaluate our staffing needs, and develop training programs to keep our team members at their best. It will provide a return!Formula Optimization
Formulas apply to every processing node within a plant, not just to conventional washers or tunnels. We often find equipment that is installed properly but is not being used to its fullest potential.
The phrase “speed kills” applies here as well. When our operators have been conditioned for years to be the best expediters in the world, it is difficult for them to set up a process and allow it to run without manual intervention. We see this more often in plants that have not made the leap from manual to automated, or may have made the leap but failed to embrace the concepts associated with automating the work environment.
This becomes an even greater issue when you are dealing with a plant that runs multiple shifts. Before you know it, you have automated equipment running in manual mode, and all of the benefits from allowing the established process settings or formulas to run are negated by tribal knowledge and will.
Some examples are:

  • Tunnel Formulas — Can a tunnel be run at 90-second transfers? Yes. Should it be done? Possibly, depending on the product mix, the plant’s drying capability, and its extraction performance.
    More often than not, a plant would be better served by running a little slower to get improved wash quality and better extraction, which will allow the process to stay in balance. How does this affect costs? This measured approach typically reduces rewash, increases volume/poundage processed, and reduces the energy consumed by drying and/or ironing.
     
  • Drying Formulas — Operators often take it upon themselves to take a machine drying to temperature and switch it to drying by time, essentially shifting its operation from automatic to manual. We find that such a change extends drying time and reduces the capacity and efficiency of the dryer. Intentions are good, but failing to connect the dots holds the process back from its true capability.
     
  • Finishing Formulas — An ironing line’s capacity is based on the ironer’s capability. Running the feeder too fast or ratcheting up the folder beyond 20 feet per minute of the ironer in hopes of getting more through the line does not benefit the user. Additionally, the human factor limits the volume that can be processed per hour. It is important to balance the system and staffing levels to make certain that both work together in harmony.

Finally, it is important that you evaluate your performance based on net pieces through said system as opposed to total pieces fed. What counts is what exits the door packed the first time.
Running our operations efficiently allows us to absorb fixed operating costs and optimize financial performance. When we keep our process rooted in the basics, equipment maintained and staff members trained and gainfully challenged, there is no reason why we can’t achieve a continuous path to reduced operating costs.Textile/Uniform Rental — Kurt Rutkowski, Universal Linen Service, Louisville, Ky.
In measuring our plant’s performance as it relates to cost per pound, we primarily use total clean pounds divided by revenue. In evaluating the overall business performance, we weigh other factors and set goals for improvement. Labor, purchases, equipment efficiency and utilities are areas that can influence the numbers but dilute the actual plant performance.
[NP][/NP]Is a plant more efficient when it does COG (customer-owned goods) rather than straight rental? For us, the answer is no. Taking other factors into consideration would inflate or dilute the numbers, giving a false sense of productivity. Simplifying gives you a fair, accurate comparison. A more accurate measurement could be pounds per operator hour, but this can also be thrown off when there are changes in the product mix.
We take into account revenue, clean pounds produced, labor, chemical cost, merchandise, customer retention, new sales, utilities, and maintenance to establish trends, identify issues and increase our overall efficiency. Calculating a true cost per pound at your facility would take all of these factors into account.
A plant that strictly produces COG work has no product cost or costs relating to ragout, while a rental plant has product costs plus costs related to ragout and loss. Both can have the same efficiency and be equally compared when using the simplified method of clean pounds divided by revenue. One or the other may be more profitable, but in measuring performance I would suggest keeping it simple.
We managers need to focus on being consistent and providing a report basis that is easy to understand and is readily available. The most accurate numbers will come from consistent reporting.Consulting Services — Charles Berge, American Laundry Systems, Haverhill, Mass.
What do you measure now? I would have to assume that you are measuring poundage, since that is the main component of any laundry operation. Now, in order to get an accurate cost per pound, you have to include all of the expenses in the laundry: labor (including the office staff), utilities, maintenance, rewash/ragout, and anything else for which you incur costs.
[NP][/NP]Anything that you pay for needs to be factored into the equation. This would include delivery, as long as you are responsible for the payroll and vehicle maintenance.
You should be measuring all costs. Why? Well, the importance of this is simple. If you have a sales force—or maybe you are the sales force—you have to know what your core costs are to produce one pound of laundry. If not, then you risk the chance of bringing in new business under your cost.
No laundry operation can operate at a loss for long. If your costs total 50 cents per pound, why would you consider selling an account at 45 cents per pound?
One thing that I am seeing more of today is small laundry operations pursuing additional business so they can help offset the facility’s laundry costs. I will always applaud the facility that wishes to expand its operations, but the proper management tools must be available to make it work. These tools consist of having access to all costs associated with the laundry and tracking them on a regular basis over time.
I have seen operations make the mistake of not knowing their actual costs and then bleed a slow death as one account ruined everything.
Break out the spreadsheets and take a close look at your operation to see what your true costs are. Make sure that you’re getting the proper poundage reports from the plant so your numbers are accurate from the start.
If you decide to take on a business below cost because you want get a foothold into a market, make sure you can manage it closely and bring down your cost per pound to stay profitable.Click here for Part 1 of this story.Click here for Part 2 of this story.
 

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