panel of experts

You are here

Pitching for New Outlays in Tight Financial Times (Conclusion)

“My laundry really needs new equipment and goods, but COVID-19 has made finances very tight. How can I pitch these needs to upper management for the best chance of approval?”

Healthcare Laundry: Tammy Barrett, HHS Environmental Services, Bonita Springs, Fla.

This is something I am currently addressing with both of my hospitals. We are needing blanket warmers installed on several units, and I know the budget is tight. 

My best selling point is to present to the administration the education and science I have discovered in my career experience. We will save in processing charges and possibly lost linen charges if we use the warmed blankets the proper way.

This will add to the patient experience as it is proven to be the best patient practice. This can also increase patient satisfaction scores.

Yes, this is an upfront cost; it will, however, turn into year-over-year savings.

Equipment Manufacturing: Charles Spencer, G.A. Braun Inc., Syracuse, N.Y.

Whenever budget season was upon us, my former boss would tell the story about his previous employer. “They couldn’t spell ‘capital,’” he would say, referring to the many years their plants went with minimal reinvestment of new equipment. 

While the story made me laugh, it always gave me plenty of incentive to find ways to justify what I felt we needed. I’m happy to say that we were very successful, and to his credit, we became somewhat of “spelling bee” champions when it came to spelling “capital” at that company. 

All kidding aside, we focused on the return on investment (ROI) and stayed away from eye candy … my term for things that look nice for a plant tour but don’t have any real value to the bottom line.

I would define a good capital purchase as anything with an ROI of under two years or less. That ROI cost analysis should always be the savings or possible improved revenue of the equipment or goods and all associated costs to install, implement and finance it, as compared to the status quo. No change. 

If you’re pitching new equipment or goods for any other reason, it may be justified; however, an ROI should always be given. If a piece of equipment is becoming obsolete due to lack of parts availability for example, maybe the ROI is much longer, but the risk of long-term downtime is growing as the equipment ages and parts are harder to find.

Even in that circumstance, there needs to be some value assigned to this and it’s always our job to find that value and relate it to the decision-makers. That said, we should always be willing to adjust our budgets to reflect the “value” of capital purchases, and expect and welcome the responsibility that comes with justifying the equipment or goods and its performance.

Here’s a cheat sheet in no particular order, as the importance of these may vary with the specific purchase:

  1. Labor Savings
  2. Utility Savings:  Gas/Steam/Water/Electric/Sewage
  3. Increased Revenue
  4. Increased Safety/Risk Aversion
  5. Maintenance Labor Savings
  6. Maintenance Parts Savings
  7. Cost Aversion: Purchasing X, will allow you to avoid purchasing both Y and Z

I hope you find these things helpful, and perhaps you can even add a few items to my list? Meanwhile, best of luck on your next round of capital requests!

Textiles: Cecil B. Lee, Standard Textile, Cincinnati, Ohio

Justifying the need for new equipment, linen or other goods can be justified in any season.

Let’s address finances first. We continue to exist in a low-interest financial environment. If the need exists to borrow dollars, I don’t see where the time will get better to borrow. 

The thing about new equipment is that it normally reduces daily production costs, which aids in increased dollar availability or cash flow.

If the need is for additional linen to serve customers and to eliminate the overtime being worked to process additional linen to cover a gap, it should be purchased.

Overtime can cost more than the purchase of additional linen. More important, you pay for linen as a one-time event, while overtime to cover linen need gaps is ongoing. Add up the overtime costs daily and compare them to the cost of the additional linen needed. 

Regarding equipment, while it is possible to replace a piece of equipment in isolation with anything else without any gains, most of the time there is a gain.

A 12-year-old cross folder that drops linen excessively and has poor and inconsistent folds is costing you money. Just count the drops and reruns over the course of a few hours. Basically, the difference in your feeder and fold counts makes the point. 

If you are feeding 900 pieces per hour (or 15 pieces per minute) and it is dropping five pieces per minute, you are losing a third of your work and it is costing you. This is how you justify purchases. 

You also experience savings from wasted energy, wear and tear on pads and other equipment in the process.

Upper management needs analytical reasons to justify purchases. When you can numerically justify needs, you have served your facility well.

Fundamentally we are talking about return on investment. Why does the laundry need a new piece of equipment or additional linen? What does the new purchase cost? How long will it take to pay for itself? What are the savings from what we are currently doing?

Regarding COVID-19, as you know, we are currently challenged in replacing employees. If equipment can help you by not having to replace a departing employee, there is a savings that will reduce the time for investment payback.

This is how you justify purchases. Good luck with your efforts.

Miss Part 1 with suggestions from experts in equipment/supply distribution and consulting services? Click HERE to read it!

Have a question or comment? E-mail our editor Matt Poe at [email protected].