As the prospect of recession nears, laundries must ensure that they are maximising revenue by managing costs efficiently without compromising quality or service.
At such times businesses may try to raise more revenue, which means either putting up prices or increasing sales efforts to produce higher volumes.
Offering large promotional discounts seems to be a current trend along high streets but if this strategy works and more customers send in more orders, laundry and drycleaning businesses may find that they are doing more work for the same income.
Let’s assume that the business works on a 40% profit margin (gross profit before overheads) and the normal price for cleaning a coat is £10, which incurs £6 costs and produces £4 profit. If it runs a 2-for-1 offer, its total costs will be £12, so the business loses £2 each time and works harder to do so.
Fortunately, not all customers take advantage of these special offers and over the long term they may bring in new customers. However, on the cost basis detailed, a business must clean one extra item at the full price for every special offer, just to break even.
As an alternative to seeking more income through increased volume, many businesses choose to try and cut costs internally.
Unless such cost cutting is managed correctly, it can lead to a drop in quality and service levels and so to dissatisfied customers who turn to the competition. Savings then become academic.
Every cost cutting measure must be examined for its impact on overall quality and service standards.
Reviewing the management of distribution and van routes could prove a good area for making savings. Keeping a vehicle on the road incurs driver’s costs, fuel charges, maintenance, insurance and so on. These all help to erode profit margins. Typically, a 5ton vehicle will cost around 65p per mile, excluding labour.
As launderers widen their delivery routes to get new customers, vans may make a daily round trip of 250 – 300miles per day so the daily costs can quickly grow to over £165 per day, or £42,250 per anum.
The first step is to look at the locations and the frequency of deliveries to each customer. Start with those furthest from the laundry and see if the customer could accept a less frequent delivery.
Even some large hospitals are able to manage with their stock holding over weekends and will accept a delivery on Saturday and then one on Monday. Reducing delivery schedules to alternate days, can cut transport costs by more than £320.00 per week – or £16,640 per year, for each vehicle.
Many software packages allow the transport manager to choose the fastest or most efficient routes for all customers. But the driver must stick to these routes.
The programs will give accurate mileage targets between the plant and each customer, which then makes it easier for the transport manager to check the odometer on the van each day to ensure it corresponds with the target mileage and take action when a driver regularly exceeds targets.
Regular fuel economy checks on all vehicles are also worthwhile. Most manufacturers will produce some target figures for fuel economy. Always fill the fuel tank to full capacity and record the mileage at each refuelling. It is then simple to calculate the fuel efficiency.
There are three reasons why fuel use might significantly exceed the vehicle’s target.
The van needs urgent maintenance and the engine needs tuning.
The driving habits need attention, for example, excess speed, leaving the engine running during deliveries or racing the engine at high revs before changing gear.
There is a fuel leak – either onto the road or into someone’s fuel tank.
If the business cannot afford a software package to calculate mileage and fuel economy, then a computer spreadsheet program and simple database will quickly show which vehicles need attention.
The table here gives a very simple example of how the fuel economy can be checked so that any sudden change in efficiency can be identified and corrected.
If, say, this sample vehicle has a target of 7.5 miles per litre, it should have used 165.9litres to travel 1,244miles. But it has used 180.8litres, a loss of 14.9litres or £13.71 in diesel in one week or £712.92 per annum (based on UK prices at 23 December 2008).
With good, effective route planning, reviewing individual customers’ collections/delivery frequency and by monitoring fuel consumption, it should not be difficult to make marked reductions in distribution costs.
The same principles can be applied inside the laundry. The aim is to ensure the optimum use of plant and equipment. For example, is every washer being loaded to the correct capacity? How often are the auto-weigh scales on the batch washers or the floor-mounted scales for the washer-extractors checked for accuracy.
Laundries often use the same amount of water, steam, energy and chemicals for each wash, regardless of the weight of the load. Some might argue that a machine that is underloaded by 25% will use less water and energy. While this true, the reduction in water is only in that absorbed by the fabric during the wetting-out stages of the first wash, roughly equivalent to 2.8litres of water for a kilogram dry weight of 100% cotton.
The basic costs for any wash process will be spread over the total weight of the load. So if a table linen process in a 100kg washer-extractor that is loaded to full capacity is £12, the cost per item, working on an average of 450g per piece, is 5.4p.
If the same process is operated with a 75kg load then the cost per piece increases to 7.2p. A laundry processing 50,000 pieces per week could potentially lose 1.8p per piece, or £900 per week or £46,800 by underloading.
It is therefore essential that all the scales are checked for accuracy and that only full loads of work are processed in the washer, even if this means occasionally mixing classifications that would normally be separate or mixing the tail end of one lot with the start of the next.
