PENNY WISE AND POUND FOOLISH WITH LINENS

Penny Wise is the executive housekeeper at the Sweetrest Hotel, a 500-room property. In October, Penny put together the housekeeping budget for the next year, requesting $90,000 for linens. She based this number on last year's linen use and projected occupancy for next year, with a six percent increase thrown in to allow for cost increases.

Scott Pound is the hotel's controller. When he reviewed Penny's budget in November, he agreed with most of her numbers, but he decided to cut the linen line item to $70,000, a reduction of $20,000. His reasoning? He had to make cuts in the budget to meet next year's profit goal, and linens was an area he felt he could trim. The general manager approved the cut in linens.

When Penny received the approved budget in late December, she was disappointed but not surprised to see the money for replacement linen reduced for next year. Hotel managers throughout the industry are notoriously stingy with linen. As one general manager said to her years ago, "Why should I buy you more? You'll just use it." She could never get him to see that housekeeping would use the additional linen because it was truly needed, not because housekeeping wanted to be wasteful or have an unnecessary cushion.

Although she was almost certain it wouldn't do any good, Penny wrote Scott a memo that explained why she set the linen budget at $90,000 and why cutting it to $70,000 almost certainly invited a late-year disaster. In the memo, she pointed out some of the problems the hotel might experience if a linen shortage occurred. She concluded the memo by suggesting that her original request of $90,000 might even be too low, depending on which groups the hotel attracted next year. Certain groups are harder on linens than others. For example, groups that bring children along are especially hard on linens (sometimes Penny suspects the little tykes snack on washcloths and bath towels!).

After reading Penny's memo, Scott called her and said he appreciated her concerns, but felt the hotel could survive on a $70,000 linen allowance. Maybe when we're putting the budget together next year we'll take another look and beef up the budget line for linens. Penny had heard "maybe next year" so often regarding linens that she didn't get angry about it anymore. She just said OK and quietly hoped the hotel could squeak through one more year without linen becoming a major problem.

The hotel purchased linens at the beginning of each quarter, and Penny made her regular linen purchase in January. Month after month this year, business was even better than expected; by July, Penny discovered that, to maintain linen par levels, she would have to spend money earmarked for both third and fourth quarters to get enough washcloths, bath towels, sheets, and so on. She spent the money and crossed her fingers; maybe business would slow down in the fourth quarter. As a precaution, however, she sent a memo to Scott explaining that she had just spent the last dollar earmarked for linens that year, and it was only Julya linen shortage was likely. Scott sent an e-mail message to the general manager, suggesting that guestroom linen par levels be reduced from four bath towels to three, and from three washcloths to two. The general manager approved the suggestion and Scott passed the word to Penny.

The hotel experienced record guestroom sales in August, September, and October. Occupancy was 15 percent over projected budget levels. Penny knew it was only a question of time before something had to give. At the end of October, the marketing department announced some major last-minute sales; it had just booked a big church group, two college hockey teams, and a beautician convention for November. Considering the groups already booked, this meant all occupancy records for November would be broken.

By mid-November, the housekeeping department resembled a war zone. Every day was more hectic than the one before. Scheduling room attendants was a nightmare, and everyone in the laundry room was working overtime. Penny couldn't walk anywhere in the hotel without being accosted by angry guests wanting more towels or frustrated room attendants wanting more linens. The volume of guest comment cards skyrocketed as guests competed to see how colorfully they could gripe about the linen shortage. Front desk phones never stopped ringing, and the hotel staff never stopped scurrying, rushing stacks of towels still hot from the dryers to whichever room attendant complained the loudest. Each morning Penny anxiously scanned the occupancy projections for December, silently praying that at least one groupthe Eastern Region Cosmetics Association or the American Academy of Podiatrists or, better yet, the National Family Councilwould cancel its meeting. But day after day, the news was "terrible"; no one canceled, and December's business still looked great.

By Thanksgiving, guest complaints got so bad that the general manager called a meeting of the hotel's senior staff. "What's going on here?" he fumed. "Business has never been better, yet we seem to be falling apart. If I hear one more person whine about bath towels, I'll scream. Does anyone have any ideas about how we can get out of this mess?" Discussion:

Q1. Do you think the hotel really saved $20,000 by reducing the linen budget line? Why or why not?

Q2. What short-term solutions can Penny suggest? What long-term solutions?