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					On Property Laundry (OPL) versus Outsourced Laundry

Hotels have traditionally washed their own commercial laundry products in
house or known by another term, “On Property Laundry” or OPL. In the recent
years some have opted to outsource their laundry needs, due to high labor and
equipment replacement costs.

Why have hotels continued to hold on to the belief that laundry
should be done on property?

1. There is a belief that the cost of operating a commercial laundry is based only on
two lines on a P&L statement:
a. Labor Cost- The cost of the immediate staff in the laundry room (Direct
labor)
b. Chemical Cost- the cost measured per load on the auto dispenser. This is
calculated on a certain pound per load
2. Hotels invest in laundry equipment including washers, dryers, pumps, water
softeners and in some cases racking, hangers, folders, computers and scales to
track the loads.

What hotels typically overlook or take for granted as “part of doing
business”

1. Water. The actual cost per load. The assumption that every load is in proportion
to the amount required for a certain size load. In general, the type of equipment
found in OPL uses large quantities of water per pound of linen washed.
2. Recycling. Unless there is a system in place to recapture the water from a
load, water is used one-time and discarded. With the water, temperature and
chemicals are also discarded.
3. POTW. Public Owned Treatment Works. A pollution prevention program
designed to minimize water usage and environmental impact of phosphorus into
the environment.
4. Fuel. Both gas and electricity are used in large quantities in on-property
laundries. More often than not these utilities are not metered separately and as a
result, it is impossible to monitor their actual cost in relation to the laundry
5. Maintenance and Repairs. Once the bulky equipment is in place it cannot be
replaced easily. In some cases the equipment is put in place and the walls are
put up locking in the equipment. This results in replacing parts, some becoming
obsolete resulting in “patchwork on the equipment.
6. Depreciation. Since laundry equipment is a high ticket item there are mixed
opinions of the depreciation value. Most properties are not familiar with the actual
value of the laundry equipment. In some cases, on-premise laundries with fully
depreciated equipment, do not account for cost of replacing this equipment in
their P&L thus skewing the operating cost.
All cost
7. Insurance, Workers Compensation, Taxes, Licenses, Permits.
components that are not a direct revenue enhancer.
8. Space. A square foot of a hotel real estate, especially in metropolitan areas is
costly. Committing a large footprint for laundry equipment instead of revenue
center can be an intangible cost difficult to quantify.
9. Better linen. In today’s competitive market hotel brands are fighting for higher
occupancy levels. This results in bigger and better quality linens in order to
differentiate them and gain a competitive advantage. As a result, on-premise
laundries need to increase their capacity and / or upgrade their equipment to be
able to process the new bedding packages: therefore, more capital investment is
necessary,
10. Occupancy. When a hotel does the theoretical on the cost of laundry it is difficult
to calculate future market conditions such as economy, city wide conventions,
sporting events, seasonal trends, weather and numerous other factors down to
the same days occupancy. Typically, on-premise laundries tend to maintain the
same staffing regardless of the occupancy level and they are somewhat inflexible
to reduce it following occupied rooms. As a result, during slow periods, the cost
to launder increases per occupied room.
11.Par Levels. Properties should carry between three to six par depending on
average rate of stay, linen counts per bed, pools, beaches, spas, etc. On
Premises Laundries typically run with smaller pars diverting the linen cost to man
hours required to recycle and do a quick turnaround getting the linen back on the
floors.
12.Controls. There is a belief that if the linen is within the walls of the hotel it is
secure. Outsourcing will result in damaged or lost linen. Most line losses are a
result of customers helping themselves to “souvenir linen”.
13. Weighing the linen. Short cuts are common in OPL where loading dirty linen into
a washer is “guesstimated” versus using a scale for every load or short loading
the machine compared to manufacture or chemical supplier recommendations.
14.Going Green. A big theme for founders and clients but hard to get certification
when dumping water and chemicals into the sewer system at large levels.

Breaking it Down: Why outsource your laundry?

Outsourcing the laundry allows properties to focus on their core business and at the
same time, reduce costs, replace a fixed-cost operating structure with a variable
cost model (“Pay as you go”) incurring in laundry cost only for occupied rooms and
therefore, matching expenses to revenue and eliminate need to spend capital in tooling
the laundry room.

1. Cost Reduction

Laundries are expensive to operate and most of them do not have the volume to
purchase highly efficient equipment nor do they have the room for support equipment
such as water and energy recapturing equipment.

If you consider that a typical 400 room hotel with an average of eleven pounds of
linen per room, running 65% occupancy would have to process an average 1,043,000
pounds of linen per year, then, the resources needed are significant.

Outsourcing the laundry would help eliminate many of the necessary costs to run and
OPL. In some cases, these costs are difficult to identify, as they are part of the hotel’s
cost structure and are not easily associated with the laundry process itself. These costs
would include:

a. Water: A large central commercial hospitality laundry processing a million
pounds per week using today’s modern tunnel based wash isle and recycled
water systems uses about 0.25 gallons of water per pound. This usage is
based upon recycling 75% of the fresh water requirement of 1 gallon per
pound on light soiled linen. As a result, a hospitality laundry processor uses
250,000 gallons of water per week.

On the other hand, if the 1,000,000 pounds of hospitality linen were to be
processed in a hotel OPL, 2,500,000 gallons of water would be required
(assuming the work load is processed in conventional machines using 2.5
gallons per pound). That is 10 times the volume of water alone to do the exact
same work. Thus outsourcing of commercial laundry is very sustainable in
regards to water conservation.

POTW’s and water utilities who are hesitating to allow new commercial
linen supply operations to build new central laundries in their municipality
thinking that the water demands will increase. The reality is that the new
central commercial Linen Supply laundry will actually decrease hydraulic
loading [waste water flow] to the local POTW tenfold when these linens are
processed in one tenth the water.

You can take this math one step further and look at the cost implication of
operating an OPL using 2.5 gallons per pound processing say 1,000,000
pound per year with $10.00/ 1000 gallon water cost. The OPL is going to
spend $25,000 on water per year to process the 1,000,000 pounds where
the new Linen Supply plant is going to spend $2,500 to process the same
1,000,000 pounds. Even is the new Linen supplier did not implement water
recycling in its new operation the water cost would be $10,000 annually vs.
the $25,000 spent by the OPL [assuming 1 gallon per pound in the tunnel
plant operating without a recycled water system] The water cost difference in
these two laundries if the outsource laundry has a recycle program is $2.25
per 100 weight.

b. Fuel: Over the last few years bench marks have clearly been established
for commercial laundries regarding fuel usage per unit. Fuel being measure
in therms per in 100 lbs of clean linen. Most well run operations with heat
recovery system in place, and working, or water recycling systems in place
recycling at least 65% of the water the fuel usage is less than 2.2 therms per
100 weight. Many commercial operations are now reporting less that 2 therms
per 100 weight on a regular basis and some are in fact demanding plants
monitor and report therms per 100 weight and establish budgets reflecting
therms per 100 weight be in the 1.75 range depending on location.

OPLs typically do not measure fuel consumption because they either operate
the laundry on a central steam system or natural gas supply that is not
separately metered for the laundry. Because most on premise laundries are
designed and installed without energy and water recovery systems their gas
consumption runs in the 4 to 5 therms per 100 weight range. Going back
the 1,000,000 pound OPL example and assuming $1.00 per therm natural
gas cost the OPL is going to spend $45,000 on natural gas associated with
laundry where the Linen Supply central laundry is going to spend $20,000
to process the same 1,000,000 pound account or a difference of $25,000
annually. Here the cost difference has the potential of $2.50 per 100 weight.

c. Electricity: A conventional wash isle of washer extractors is going to
use about 15 KWH per 100 weight where the Linen Suppler with modern
equipment is going to use about half that or 7.5 KWH per 100 weight. Again
using the 1,000,000 pound account example the Linen suppliers electrical
cost are going to be $6,000 versus $12,000 for the OPL assuming and
average of 8 cents per KWH. That’s a difference of $1.20 per 100 weight VS
$.60 per 100 weight or a difference of $.60 per 100 weight.

d. Labor: There are certain costs associated with OPL that cannot be avoided
regardless of occupancy levels. The biggest cost factors are the pounds per
operator hour. For the sake of this exercise we will use a total hourly labor
cost of $15.00 and again go back to the 1,000,000 pound annual poundage
OPL. A typical OPL laundry using conventional equipment operates at labor
efficiency in the 50 to 65 pounds per operator hour range where the Linen
Supplier normally will operate in the 100 pounds per operator range. That’s
an annual labor cost difference of over $80,000 per year on labor alone or
$23.00 per 100 weight VS $15.000 per 100 weight.

e. Other hidden cost of an OPL laundry: Factors such as the continual “short
loading of machines” and the inability to use modern day material handling
systems, soil sort systems and inventory control systems add to OPL
inefficiencies driving costs well above the perceived costs of operating the
OPL. Accessing the above measurable cost alone, the OPL spends at least
$13.35 per 100 weight more than the Outsource Laundry Supplier on utilities
and labor alone ($8.00 [labor] + $2.25[water] + $2.50 [fuel] + $0.60 [KWH]).

Finally, when assessing the actual cost to run a laundry, please consider the
following:

• Management payroll
• Maintenance, repair and equipment replacement
• Taxes, Licenses & permits.
• Space utilization: Can the OPL space be turned into a revenue producer
instead of a cost? Spa, Workout room, etc.

2. “Pay as you Go” Model:

The other win with outsourcing laundry is that it is in essence a “pay as you go”
program. Outsourcing laundry replaced an internal laundry fixed price cost with a
variable cost where there is only a cost per occupied room and thus cost per occupied
room is fixed, reducing expenditures and controlling budgets. With this system, you
can match the laundry expense to the revenue of selling the room. This is particularly
important during low occupancy periods.

3. No Capital expenditure: By outsourcing, hotels will eliminate the capital expense
necessary to buy the equipment to run the laundry. As a result, they can use this
scarce resource in revenue generating investments.

What can be perceived as the downside?

Customers doing their own OPL have figured out they can reduce cost by keeping par
levels down. Par levels are calculated by the number of beds, bed linen required to set
bed (including sheets, pillow cases, duvet inserts, duvet covers, blankets and comforter)
plus bathroom towels. The average room uses eleven pounds of linen. A hotel has
to decide the minimum pars they can get by with so they are able to turn and reset a
room but not have excess linen sitting idle as this also ties up monies that can be used
elsewhere. Recent economic conditions have placed many hotels in a position where
they feel they do not need to buy linen if the hotels are not running at 100%. Ideally
there should be a minimum of three pars. One on the bed, one in the linen closet, one
dirty. An additional par would add safety stock covering spikes resulting from multiple
room occupancy, conventions or service level requirements.

Outsourcing linen requires a customer to look at their pars to account for linen
transitioning to supplier, plus linen that is in the process of being washed or returned.
Do not want to have staff waiting for the truck to arrive.
Customers should evaluate their savings from outsourcing laundry and apply some of
the savings towards periodic increases to par levels.

Another perceived downside is when the linen leaves the hotel. Will it come back in the
same quality it was sent out? Will it be damaged? Will it be stolen? Will my towels end
up at the competitors? Who is responsible for the linen should it get damaged while in
the possession of the supplier?

All of these concerns can lead to anxiety and a feeling there is a lack of control over the
hotels investment. Outsourced laundries are modern, often using high quality tracking

systems, monitoring a single washcloth all the way through the process. In addition,
linen companies adapt to the uniqueness of textile and handle wash and drying to
meet the textile requirements extending the life of the textile. There is a tolerance level
of less than 1% for loss or damaged linen when in the possession of an outsourced
laundry company.

What happens to the space if the laundry gets shut down? Removing the equipment is
costly. Finding someone to want to buy it or depending on the age selling it for scrap.
Laundries require gas, electricity and water. Multiple hook ups need to be removed
reducing the chance of an accident. The footprint of a laundry can be ideal for spas,
retail space, conference or board rooms or restaurants. All are revenue opportunities.

Then there is the tough decision of what to do with the laundry staff. Many will be
long term associates. If the space is going to be turned into a revenue center those
associates may fill the need since they understand the employer and may only need
to be trained on the requirements of a new job. Others may need to be let go: An
unfortunate reality in today’s economy.

In Conclusion

In today’s modern business world, profits are driven more by cost control and cost
reduction than by increasing revenue and selling prices. The competitive nature of
business today will not leave room for the inefficient operator whether it is the Linen
supplier or the OPL. When Hotel managers get down to evaluating the real cost of
operating an OPL, the correct decision to outsource linen supply will be easy and best
for the customer.

				
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posted:2/25/2012
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