Understanding the Liabilities Hidden in Your Uniform Program
Eight weeks ago, you laid off 35% of your field personnel, closed two plants altogether and idled three others.
Why, then, did your uniform rental spend go way up in each of the next two months?
The liabilities you’re paying for now have been there all along – you probably just haven’t accrued for them
Let’s start with the basics.
The vast majority of uniform service programs are rental propositions, so the merchandise isn’t yours—it belongs to your supplier. In the contract you signed three years ago, there was a clause surrounding the return of said merchandise both upon the full termination of the agreement and upon the termination of individual wearers (or groups of wearers) from the program. The clause probably included a requirement that the goods be returned to the supplier in “good and usable condition,” or something to that effect.
Now, after laying off 1000+ uniform wearers and closing and idling facilities, you’ve got a multitude of uniform-related problems:
- Many of your people have lost their uniforms (or simply aren’t particularly motivated to return them, post-layoff);
- Three years into your agreement, not many of the garments your people are wearing live up to the “good and usable” standard;
- Your contract details billing will occur weekly and may include a minimum weekly revenue clause;
- Site closure is considered a breach and you are exposed to the liquidated damages terminology contemplated in your contract.
For your people wearing the most basic uniforms—the 65% polyester/35% cotton blended work clothing—you’re seeing loss and damage charges amounting to ~12 weeks’ worth of your typical program rental charges.
For employees with more expensive or specialty uniforms—flame resistant clothing, high visibility garments, cleanroom products, etc.—it’s double that. Your idled facility is now billing at 75% of the initial installed weekly revenue and one closed location essentially got hit with a six-month bill, all at once.
To make matters worse, you don’t really have good evidence of what happened with the terminated employees; the uniform supplier came out and picked up the merchandise, and the next thing you knew, you were getting these massive invoices. Even if your site-level contacts counted garments along with their route-person during turn-in, the decisions surrounding what constituted “damage” were arbitrary and made back at the uniform supplier’s plant.
This happens all the time
Even in a thriving economy, the painful realization of the back-end liabilities lurking in uniform programs is a frequent thorn in the side of category managers and P&L owners.
The following is a commonplace sequence of events: buyer finds 25% savings on her $2MM/year program, and she commits to a supplier transition to capitalize on the $500K savings opportunity. With the transition already in motion, though, she learns that her outgoing supplier has a little parting gift for her—a $650K invoice for lost and damaged product. Her year-one savings number is more than wiped out by this cost.
But in times like these—when crisis strikes the economy and layoffs, closures, and downsizing are daily occurrences—these back-end liabilities rise to a whole new level of importance. Just when customers are most needing P&L relief, their uniform rental costs are—at least in the short term—going the wrong way and blowing up budgets.
What can customers do to minimize the impact of these back-end liabilities?
First and foremost—and realizing it’s probably a bit late in the game to do anything about this—the terms in your agreement surrounding back-end liabilities matter. A lot. By putting the right terms in place in these areas, you can dramatically shrink your exposure to these charges while enhancing your ability to utilize the marketplace as a true free agent. But of course, you’re dealing with the problem today, and the terms are what they are.
Secondly, you would like to be out in front of these situations long before they occur. Planning ahead and strategically communicating with your operators and supplier contacts is a critical element to optimal management of program downsizing events. But again, this is easier said than done. A massive crisis just descended upon us in a hurry.
In normal times, it would be vastly easier to share the best-practices playbook for these scenarios. These are not normal times, though, and the uniform suppliers are not behaving predictably.
So far, when presented with bad news relating to layoffs, idle plants, and site closures, we’ve noted a wide range of supplier responses, from legitimately helpful to strongly combative. The response has not been consistent even within a single supplier. With respect to layoffs alone, some supplier representatives have shown a willingness to put uniform wearers “on hold” (no rental charge for the time being but also no demand of product return and the associated loss/damage charges) while others have insisted on far more cost-prohibitive approaches to these situations.
Bottom line: these are complex situations with costly pitfalls lurking everywhere. And odds are, your hair is on fire at the moment as you work to source critical goods and services. It’s time to bring in the experts to help you stay focused on your most mission-critical tasks. We will navigate the rough waters within your uniform program—identifying savings, leveraging opportunities, and minimizing the damage in difficult times.
In the meantime, you’ll be working on more pressing matters.