Profitable rental, a tale of two classes

3 August 2003



Richard Neale identifies a management style that has made those who adopt it into an elite class able to deliver profits even at the keen prices that customers demand


M aking reasonable margins while working with the severely pared down pricing found in the current textile rental market requires a new kind of management skill and discipline.

As a result, an upper class and an under class are emerging with clear differences in management style, and very different financial performances.

The under-class operators are accepting loss-making months, praying for a return to a decent profit in the good months and passing on price pressure from their customers to their own suppliers.

At industry meetings they curse suicidal price cutters and fellow renters who give in too easily to the pressure from their large customers. They concentrate almost entirely on the output end of their businesses and skimp on everything, including labour and management time.

Ruthless product costing

But the upper class actually makes a profit most months and is very happy in the good months. Its members have completed fairly ruthless product costing exercises so they know accurately where their resources are going. They have initiated effective cost management programmes through which their teams are steadily working.

So, when they quote a keen price, they do so knowing they can deliver not only an adequate service but also a hefty contribution to overhead.

These "upper class operators" will listen to the moans about suicidal prices and happily agree, perhaps throwing in a few false rumours to wind up the under class even more. But what is it that sets these elite businesses apart?

First, they have in place management systems that give their teams daily and weekly cost consumption figures expressed either per kilogram of work delivered or per thousand pieces delivered. Without this data there is no point in trying to manage because it becomes a bit like trying to fly Concorde without a speedometer.

Clear targets, realistic timescales

Secondly, these businesses have a very clear idea of what their costs should be. As a result they can set their teams clear cost targets and allocate realistic timescales for achieving them. While they may not be able to predict the market much better than the rest, they do try to do so and use the market information they have effectively.

Then, they sit down with their teams and work out how to move from their present cost base to one which will enable them to survive and prosper. They are tremendously encouraged by the large gap between the cost targets reviewed frequently in LCN and their actual performance because they reveal so much to go for.

They involve all their suppliers in the exercise without necessarily revealing all of their hand and have the confidence to believe that every problem has a solution if you ask the right questions of the right people.

Usually, they want only fairly simple solutions or those that require simple actions, at least on the laundry's part. They concentrate on those that need little or no capital investment so that the business generates a revenue stream before there is any pressure on cashflow or net margin with lease or interest payments.

This profitable class identifies who should take responsibility for the different parts of the operation.

As a sector we pretend to be very demanding of our suppliers, particularly our detergent suppliers. In practice, we only get a fraction of the support we could have if only we asked for help in a slightly different way and if only we gave the supplier a better back-up.

But do not confuse delegating responsibility with abdicating it. These more profitable operators know they cannot simply pass over total responsibility for wash cost and wash quality to the detergent supplier. That would be abdicating responsibility, and such abdication is ineffective and results in high water costs, high effluent charges, high energy costs and mediocre quality.

Class indicators

There are several indicators that a laundry belongs to this "upper class".

The plant will have sample points and dip controls that work consistently from machine to machine. It has flowmeters that are clean and visible, and staff are trained to check parameters regularly.

Temperature indicators are properly calibrated on a regular basis and loads are weighed so that generally machines are processing full loads.

Seals are replaced when needed and leaks are rectified at the end of each working day. These checks and routines are not difficult and they are fundamental to sound cost management.

The detergent supplier is asked to cost the wash process not on the chemicals alone but on all of the costs built into the wash programme. So water consumption becomes important to the detergent supplier and it has an immediate incentive to work with the laundry to minimise dips and flows. This frequently leads to a slight reduction in chemical dosage and an increase in quality.

New products can then be built into the cost management programme and there have been advancements in terms of low temperature washing. Oily workwear can be washed at 60C and even 40C.

We are not yet ready for low temperature washing of work that has to be thermally disinfected, because the UK Department of Health does not yet recognise thermo-chemical disinfection as an acceptable alternative to temperature alone.

Nevertheless, this development has an immediate place when serving customers outside the food and healthcare sectors.

Every detergent supplier now has a range of test pieces. Using these to assess and compare quality is the best way to implement trials of new products

Test piece value

Unfortunately most of the industry has yet to recognise the value of test pieces for managing quality versus cost at the sharp end, and those that are doing this very successfully are keeping quiet.

The table above shows some typical cost data for the upper class and for the under class. Labour is calculated at a gross cost to both companies of £5 per operator hour and an average piece weight of 400g is assumed throughout.

The under-class operator is still processing at 80p per operator hour and suffering a labour cost of 15.6p/kg whereas his upper class competitor (who has finally got all labour saving systems working) is achieving 7.8p/kg.

Similarly, sloppy control of water consumption results in 18-litre/kg for the under-class business, even though it has a tunnel washer which is theoretically set up at 8-litre/kg.

The upper class operation now typically achieves achieves 6-litre/kg.

Skillful management

In such skillfully managed plants, careful control of the membrane press and calender tuning has finally stabilised the energy consumption 1.6 kWh/kg, following successful utilisation of all of the waste heat in the condensate main and the adoption of a modern detergent system for the tunnel washer.

The 2.3kWh/kg achieved by the under class business would have been very respectable five years ago. But now such consumption rates make the plant uncompetitive.

At the under-class operation, chemicals consumption runs high, simply because the plant is poor at controlling water.

This results in chemicals becoming diluted to the extent that overdosing is need to compensate. The detergent supplier is understandably quite happy to do this and it is not really its responsibility to sort out the plumbing and controls.

  In a final comparison between the two types of management style, the less careful manager still relies on squeezing the price he pays to the linen supplier while still achieving only 100 rental cycles to failure (ctf).

Plants with keener management skills calculate ctf on a three-month moving average and they are now just topping 180ctf, mainly through meticulous control of bleaching and specific rewash controls and processes.

The end result is that the underclass produces a total cost from these components of 27.9p/kg (11.2p/piece), whilst the upper class can achieve 14.4p/kg (5.8p/piece) and so they can still survive on prices which make others wince.



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