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May 15, 2013
Exclusive: 2010-2011 Textile Care Processing Cost Benchmarks

CHICAGO — Data compiled from more than 470 domestic and international healthcare and hospitality laundry facilities

CHICAGO — Having received numerous requests for newly revised information on this subject, I have reviewed the volumes of information obtained from both healthcare and hospitality laundry operations worldwide for 2010-2011.

I did my best to convert foreign cost to U.S. cost—both were changing rapidly as of December 2011—and discovered that our foreign counterparts were, in most segments, slightly more cost-efficient and, due to exchange rates, getting more production for the money simply due to the value of certain currencies, lower fringe benefit cost and higher degrees of automation. (I am pleased to report that this gap is closing rapidly.)

There could be numerous explanations, of course, but the primary reason was the vast difference in labor and fringe benefit cost in our country vis-à-vis other foreign locations, primarily those in Europe, Russia and the Far East.

The basis for this analysis was to determine benchmark alignments once various currencies were adjusted to match the U.S. dollar. Both higher and lower extremes in costing for each element were evaluated for accuracy. A group of independent accounting specialists who volunteered its time was utilized to draw the various conclusions reached in the report. Foreign laundry experts assisted in the translation of some information.

Throughout the process of validating accuracy of the data provided and drawing comparisons, the identity of each facility remained confidential. Each facility was simply referred to as a number or letter, depending on the type of operation: healthcare or hospitality. For those with a combination of tasks, every effort was made to categorize each element.

Every facility that supplied information has done so every year since this periodic review began.

2011 FORECAST ON TARGET?

As consultants and various levels of internal management continue to overly complicate laundry operational cost scenarios, as well as depicting systems that may not prove cost-effective, it is apparent that laundry and facility managers, as well as top executives with a renewed interest, require a cost benchmarking rule of thumb that will assist them in selling their operations, i.e. justifying new systems or a new facility, obtaining new customers and, probably most important, comparing variable cost that should influence decisions to continue in-house operations or examine outsourced management, operations, linen rental, transportation, etc.

I remain amazed that folks who seem to be knowledgeable simply complicate data in such a form that it becomes extremely difficult if not impossible to interpret. The same situation applies when reviewing opportunities to automate and modernize operations. It is apparent in some cases that new operations with new systems are not as cost-effective as planned, mostly due to a misunderstanding of previous cost and the industry’s promises to improve on the status quo.

Institutions, general contractors and A/E’s that hire consultants to review laundry facility operations should also continue to rely on internal expertise and experience, I believe. The institutions should also ensure that the consultants and experts selected are experienced in reviewing all applicable operational elements. A consultant with expertise in energy management, for example, may not be qualified to review laundry production or linen distribution.

It is quite apparent that large laundry and linen-rental consortiums that deal specifically with healthcare markets are becoming more competitive. As business tends to escalate, and based on recent information, cost seems to be leveling out to some degree, with the exception of the impact of high cotton cost and, most recently, fuel cost.

My previous forecast that total cost of operations may reach $1.10 per pound processed/delivered by 2013 seems right on target. The rising cost of healthcare insurance benefits enacted as a result of healthcare reform could dramatically increase the cost of operations and associated product and equipment purchases in 2014.

A review of approximately 473 healthcare and hospitality laundry facilities located in the United States and 23 foreign countries with operations that process a combined 276 million pounds annually with varying degrees of efficiency reveal the following benchmark costs (in U.S. dollars) that should be deemed most efficient on the average, even though most every facility demonstrated opportunities to reduce cost, especially in labor-sensitive areas.

Most important to note in this analysis were the plans to reduce labor and utilities cost related to washing, drying, conveyance, and flatwork feeding and finishing. These facilities also reported that major efforts were under way to reduce textile-replacement cost through standardization efforts and by examining best value over lowest cost for an item. It’s unfortunate that the federal government seems to continue to focus on lowest cost rather than the impact of overall cost.

Other major components under review seem to drive at lowering chemical cost by conducting actual comparisons and focusing on the customer service element that is so critical to this facet of the operation.

The variables between healthcare and hospitality cost were certainly interesting. Hospitality was higher on the average, which was expected, with the average variance being between 6 and 7 cents per pound processed. This was mostly attributed to the higher quality/cost of textiles acquired, which is significant.

PRODUCTION COST BENCHMARKS

Processing Cost: Direct labor costs, including fringe benefits (health insurance, retirement, etc.), which are applicable to the receipt, sorting, washing, drying, ironing, conveying and preparing of textiles for delivery within a laundry processing facility. — 18-23 cents per pound processed

Administrative Cost: Covers personnel in laundry and textile product management, secretarial, contracting administration, general foreman and nonproduction employees/housekeeping (includes fringe benefit costs, such as union dues, health insurance, etc.). On average, fringe benefit costs were running at 24-32% of actual salary cost (in other words, add that percentage to base salary cost). — 3-5 cents per pound processed and delivered

Maintenance and Repair Cost: Labor cost and materials associated with routine maintenance of applicable systems, including processing and ancillary support equipment, carts, etc. — 7-11 cents per pound processed and delivered

Equipment Depreciation: Divide equipment value by 15 years. — 4-6 cents per pound processed

Depreciation of Property and Applicable Property Taxes: Divide aggregate cost of land and building plus annual taxes by 75 years. — 3-5 cents per pound processed and delivered

General Supply Cost: Includes leasing of office equipment, office supplies, covers, pads, hangers, thread, wax, patches, buttons, etc. — 2-4 cents per pound processed

Chemical Supply Cost: Laundry chemicals, water treatment, etc. — 3-5 cents per pound processed

Utility Cost: Electrical, steam, gas, water, oil, sewer, refuse removal, and solar. — 8-10 cents per pound processed

SUBTOTAL: For a most efficient operation, Production Cost should be 48-69 cents per pound processed.

TEXTILE DISTRIBUTION AND REPLACEMENT COST BENCHMARKS

Textile Distribution and Return Cost: Includes drivers, fees, tolls, leasing, fuel, vehicle maintenance/repair, linen room distribution (from cart assembly to end-user locations) labor and benefits, seamstress/repair/marking, uniform distribution, cart depreciation and replacement, and transportation to external customers. — 13-15 cents per pound processed (within this component, fuel cost was 4-5 cents per pound processed)

Textile Cost: Surgical, uniforms, general textiles, drapes and other textiles based on a seven-par maintenance value for healthcare or hospitality. — 17-21 cents per pound processed

SUBTOTAL: Textile Distribution and Replacement Costs should be 30-36 cents per pound processed and delivered.

TOTAL OPERATIONAL BENCHMARKS

The overall operational cost benchmark ranged in 2010-2011 from 78 cents to $1.05 per pound processed and delivered.

While the overall variance in cost ranges is certainly widespread, a manager must carefully and accurately calculate all costs associated with the actual operation—all are different.

A major failing on management’s part is the inability to calculate fringe-benefit cost and include it as part of the outcome. Calculating production cost while forgetting other costs simply raises additional questions. All costs depicted in this benchmark exercise are considered equally important; one without another would have painted an inaccurate picture.

If, for some reason, you think your costs are lower than the benchmark’s lowest range, I encourage you to re-examine and recalculate your numbers. More importantly, make sure you have included all costs so they parallel those listed in this report.

EXPECT COST INCREASES IN TEXTILE REPLACEMENT, TRANSPORTATION

As mentioned in my previous analysis, textile replacement cost and transportation cost for 2010-2011 did reflect marginal increases.

January 11, 2012
Taking Inventory Necessary to Successful Linen Management (Part 2 of 2)

CHICAGO — Taking inventory is often cause for headaches at any laundry facility, and a recent webinar on linen inventorying addressed how to make the process work for each individual system.

Barbara Williams has more than 30 years of experience in the textile industry. As a consultant with Standard Textile Co., she frequently speaks about linen process improvements, linen management, and cost-reduction programs for healthcare operations.

During the webinar sponsored by the Association for Linen Management, Williams stressed the many rewards of taking a regular inventory and touched on a few challenges a laundry facility faces during the process.

Your Inventory Involves What?

The major items that most healthcare laundry facilities count during an inventory are adult patient linen, nursery/pediatric linen, surgical linen, surgical apparel, other staff apparel, pillows, mops and napery. Each facility will need to determine what is important to count, and it isn’t necessary to count everything at the same time. For instance, Williams says, some facilities will count the adult patient linens and the nursery linens, then tally the surgical linen and apparel at a different time.

Where to Conduct an Inventory

Determining where linen is kept is a necessary step before beginning an inventory. Healthcare facilities will need to count linens in patient rooms as well as in ancillary departments. This involves linens on the beds, on the patients and staff, exchange carts, utility carts, in bathrooms, drawers, closets, exam room, cabinets, stretchers, and even on chairs and windowsills.

Staff may again be an issue when determining where linens are stored. In some cases, Williams says, facilities will do what is called a bed-standard method of counting. “Staff members know the actual standard of what is put on a bed, (and) they then take that times the number of beds in a unit,” she says. “And they still take a quick walk-through to see what extras are in the rooms.”

A linen room count and the laundry count need to be conducted as accurately and efficiently as possible. The laundry will be the largest, and it is the most important to get right, Williams says.

Remember to include off-site locations such as clinics. And while many facilities no longer utilize a storeroom, include that location—if applicable—in an inventory.

Who Conducts an Inventory

Where many healthcare facilities ask their nursing staff, including personal care aides, to conduct linen inventories, only 10% of the webinar participants indicated they utilize this population. The majority of participants—40%—use linen distribution or environmental services staff. The more people involved, the better, according to Williams. She says many inventories are conducted by a combination of nursing staff and environmental services staff.

Another possibility is to use laundry personnel, which 30% of webinar participants acknowledged they do. This demographic will be crucial in counting linens in the laundry areas as well as picking up soiled linens and marking them as counted or uncounted.

The use of temporary personnel to help with inventorying is another possibility, but the training required could deter this practice.

The Process of Inventorying

Williams suggests that a 30-day plan be put into place before an inventory. Preparations include identifying the areas and products to count, identifying the facility and areas within a facility that will be involved, and identifying the staff responsible for the counting and recording of linens.

Lists, instructions, forms, signs and schedules are imperative when communicating with staff about an upcoming inventory and while an inventory is being conducted. Education, such as in-service meetings and training, will be another key to success.

Before an inventory begins, the staff involved will need to communicate the date and time of the project, present the procedures to any involved personnel, and communicate with off-site laundries and with customers or patients. A list of names, phone numbers and e-mail addresses is important to communication before, during and after an inventory.

Inventory Day Arrives

Williams provided a list of inventory day events, including sending final communications to all units involved. Collect and pick up all soiled linens in bulk carts and mark as “uncounted,” and verify that these steps have been completed. Close laundry chutes during the inventory.

When the count begins on each unit, teams of two—one to count and the second to record the results—are recommended.

It would be a good idea, Williams says, to establish an “Inventory Central,” or a place, person, or phone extension that those involved in the task can contact for questions and concerns.

When an inventory is complete, either collect the forms or have them returned to Inventory Central. At that time, it would be a good idea to review the forms to confirm numbers and that any comments can be understood. Tabulate results.

Remove signs, and be sure to communicate the cut-off point with all involved. Lastly, Williams recommends an enthusiastic show of appreciation to all those who helped with the inventory.

After the Inventory

When an inventory has been successfully completed, it is time to generate statistics and results; generate the total inventory and the inventory dollar value; calculate replacement or depletion rates; and calculate mysterious disappearance.

Share the results with management, with the nursing staff and with other staff members. And most importantly, Williams says, take action on the results.

“Assess your inventory needs by comparing your inventory with your demand,” she says, “and adjust linen orders accordingly. Retrieve any ‘dead’ or hoarded inventory and review security measures.

“Today, we’re in a budget crunch, and we really need to protect our linen assets.”

Click here for Part 1.

June 28, 2011
Exclusive: 2009-2010 Textile Care Processing Cost Benchmarks

CHICAGO — Having received numerous requests for newly revised information on this subject, I have reviewed the volumes of information obtained from both healthcare and hospitality laundry operations worldwide for 2009-2010.

I did my best to convert foreign cost to U.S. cost—both are changing rapidly—and discovered that our foreign counterparts were slightly more cost-efficient and, due to exchange rates, getting more production for the dollar simply due to the value of certain currencies.

There could be numerous explanations, of course, but the primary reason was the vast difference in labor and fringe benefit cost in our country vis-à-vis other foreign locations, primarily those in Europe, the Far East and Africa.

The basis for this analysis was to determine benchmark alignments once various currencies were adjusted to match the U.S. dollar. Both higher and lower extremes in costing for each element were evaluated for accuracy. A group of independent accounting specialists who volunteered its time was utilized to draw the various conclusions reached in the report. Foreign laundry experts assisted in the translation of some information.

Throughout the process of validating accuracy of the data provided and drawing comparisons, the identity of each facility remained confidential. Each facility was simply referred to as a number or letter, depending on the type of operation: healthcare or hospitality. For those with a combination of tasks, every effort was made to categorize each element.

Every facility that supplied information has done so every year since this review began 12 years ago.

2009 Forecast on Target?

As analysts, consultants and various levels of internal management continue to complicate laundry operational cost scenarios, it is apparent that laundry and facility managers, as well as top executives with a renewed interest, require a cost benchmarking rule of thumb that will assist them in selling their operations, i.e. justifying new systems or a new facility, obtaining new customers and, probably most important, comparing variable cost that should influence decisions to continue in-house operations or examine outsourced management, operations, linen rental, transportation, etc.

Institutions that hire consultants to review certain aspects of a facility’s operation should continue to rely on internal expertise and experience, I believe. The institutions should also ensure that the consultants selected are experienced in reviewing similar operational elements. A consultant with expertise in energy management, for example, may not be qualified to review laundry operations, production or textile distribution.

It is quite apparent that large laundry and linen-rental consortiums that deal specifically with healthcare markets are becoming more competitive. Based on recent information, cost seems to be leveling out to some degree, with the exception of the impact of high cotton and polyester costs and, most recently, fuel cost.

My 2009 forecast that total cost of operations may reach $1.10 per pound processed/delivered by 2011 seems to be on target. The rising cost of healthcare insurance benefits enacted as a result of healthcare reform will dramatically increase the cost of operations, i.e. internal cost and associated product (chemicals, textiles and laundry equipment purchases).

A review of more than 400 healthcare and hospitality laundry facilities located in the United States and 14 foreign countries with operations of varying degrees of efficiency reveal the following benchmark costs (in U.S. dollars) that should be deemed most efficient on the average, even though most every facility demonstrated opportunities to reduce cost, especially in labor-sensitive areas.

Most important to note in this analysis were the plans to reduce labor and utilities cost related to sorting, washing, drying, conveyance, and flatwork feeding and finishing. These facilities also reported that major efforts were under way to reduce textile-replacement cost through standardization and life-cycle determination efforts, i.e. examining best value over lowest cost for an item.

Other major components under review seem to drive at lowering chemical cost by conducting actual comparisons and focusing on the customer service elements and control systems that are so critical to this facet of the operation.

The primary variable between healthcare and hospitality cost was certainly interesting. Hospitality was higher on the average, which was expected, with the average variance being between 4 and 6 cents per pound processed. This was mostly attributed to the higher quality/cost of textiles acquired, which is significant. Other facets of discovery revealed that operational cost of healthcare and hospitality operations were similar in all other areas.

Production Cost Benchmarks

Processing Cost: Direct labor costs, including fringe benefits (health insurance, retirement, etc.), which are applicable to the receipt, sorting, washing, drying, ironing, conveying and preparing of textiles for delivery within a laundry processing facility.  Cost: 19-26 cents per pound processed.

Administrative Cost: Covers personnel in laundry and textile product management, secretarial, contracting administration, general foreman and nonproduction employees/housekeeping (includes fringe benefit costs, such as union dues, health insurance, etc.). On average, fringe benefit costs were running at 20-30% of actual salary cost (in other words, add that percentage to base salary cost). Cost: 5-7 cents per pound processed and delivered.

Maintenance and Repair Cost: Labor cost and materials associated with routine maintenance of applicable systems, including processing and ancillary support equipment, carts, etc. Cost: 6-8 cents per pound processed and delivered.

Equipment Depreciation: Divide equipment value by 15 years. Cost: 4-6 cents per pound processed.

Depreciation of Property and Applicable Property Taxes: Divide aggregate cost of land and structures plus annual taxes by 75 years. Cost: 2-4 cents per pound processed and delivered.

General Supply Cost: Includes leasing of office equipment, office supplies, covers, pads, hangers, thread, wax, patches, buttons, etc. Cost: 1-2 cents per pound processed.

Chemical Supply Cost: Laundry chemicals, water treatment, etc. Cost: 2-3 cents per pound processed.

Utility Cost: Electrical, steam, gas, water, oil, sewer, refuse removal, and solar. Cost: 7-8 cents per pound processed.

SUBTOTAL: For a most efficient operation, Production Cost should be 46-64 cents per pound processed and delivered.

Textile Distribution and Replacement Cost Benchmarks

Textile Distribution and Return Cost: Includes drivers, fees, tolls, leasing, fuel, vehicle maintenance/repair, linen room distribution (from cart assembly to end-user locations) labor and benefits, seamstress/repair/marking, uniform distribution, cart depreciation and replacement, and transportation to external customers. Cost: 11-16 cents per pound processed (within this component, fuel cost was 4-5 cents per pound).

Textile Cost: Surgical, uniforms, general linen, drapes and other textiles based on a seven-par maintenance value for healthcare or hospitality. Cost: 16-19 cents per pound processed.

SUBTOTAL: Textile Distribution and Replacement Costs should be 27-35 cents per pound processed and delivered.

Total Operational Benchmarks

The overall operational cost benchmark ranged in 2009-2010 from 73 cents to 99 cents per pound processed.

While the overall variance in cost ranges is certainly widespread, a manager must carefully and accurately calculate all costs associated with the actual operation—all are different.

A major failing on management’s part is the inability to calculate fringe-benefit cost and include it as part of the outcome. Calculating production cost while forgetting other costs simply raises additional questions. All costs depicted in this benchmark exercise are considered equally important; one without another would have painted an inaccurate picture.

If, for some reason, you think your costs are lower than the benchmark’s lowest range, I encourage you to re-examine and recalculate your numbers. More importantly, make sure you have included all costs so they parallel those listed in this report.

Expect Cost Increases from Cotton, Polyester, Fuel

Based on preliminary information as of this publication date and per discussions with those who regularly analyze costs, textile replacement cost and transportation cost for 2010-2011 (starting in June 2010) could reflect significant increases. Textile replacement could jump 10-20% due to cotton and polyester becoming more expensive, and managers could see a 5-12% hike in fuel depending on location.

The 2009-2010 survey only reflected minimal cost increases for reusable textiles when compared to 2008-2009. Many end-users, especially those in Europe and Asia, indicated they had purchased in large quantities in an effort to save resources, knowing what level the cotton-price increases could reach.