1、TRADE IMPACTFOR GOODThe Garment Costing Guidefor small firms in value chainsStreet address:ITC 54-56,rue de Montbrillant 1202 Geneva,SwitzerlandPostal address:ITC Palais des Nations 1211 Geneva 10,Switzerland Telephone:+41 22 730 0111E-mail:itcregintracen.orgInternet:www.intracen.org/publicationsThe

2、 International Trade Centre(ITC)is the joint agency of the World Trade Organization and the United Nations.International Trade Centre The Garment Costing Guide for small firms in value chains The Garment Costing Guide:for small firms in value chains ii About the guide This guide shows small garment

3、manufacturers how to cost both traditional and value-added services they can offer their clients.It also shows how to reduce costs while aligning production processes and being better informed when engaging in contract negotiations.Publisher:International Trade Centre(ITC)Title:The Garment Costing G

4、uide:for small firms in value chains Publication date and place:Geneva,August 2022 Page count:133 Language:English ITC Document Number:SEC-22-65.E Citation:International Trade Centre(2022).The Garment Costing Guide:for small firms in value chains.ITC,Geneva.For more information,contact:Matthias Knap

5、pe(knappeintracen.org)For more information on ITCs Global textiles and Clothing Programme see:https:/www.intracen.org/projects/Global-Textiles-and-Clothing-Programme-GTEX/ITC encourages the reprinting and translation of its publications to achieve wider dissemination.Short extracts of this paper may

6、 be freely reproduced,with due acknowledgement of the source.Permission should be requested for more extensive reproduction or translation.A copy of the reprinted or translated material should be sent to ITC.Digital image on the cover:Shutterstock International Trade Centre(ITC)2022 ITC is the joint

7、 agency of the World Trade Organization and the United Nations.ITC,Palais des Nations,1211 Geneva 10,Switzerland(www.intracen.org)The Garment Costing Guide:for small firms in value chains iii Foreword For many developing countries,the textile and clothing industry is vital.It is a principal manufact

8、uring sector and a first step to industrialization.While garment manufacturing has been lucrative in the past,this is changing.Whats more,COVID-19 has accelerated this change,which has a disproportionate impact on the sector.Garment manufacturing has evolved from a simple manufacturing operation int

9、o a complex service industry.The actual cut and sewing operations are the simplest and least remunerated tasks.First-generation garment producers in Asian cities such as Hong Kong,Singapore or Seoul have transformed from simple product makers to multinationals.They operate globally and invest in eng

10、ineering,advanced information technology and cutting-edge technology.Yet most small and medium-sized garment manufacturers in developing countries,and especially least developed countries,have not adapted to this changing industry.They remain focused on simple cut and sewing operations,provide few s

11、ervices and produce commodity-type garments.They may not know how to develop their services and doubt their customers would pay for them.To stay in business,these companies need to expand their services.All-inclusive costing is an essential step for this expansion.Accurate costing and valuing are th

12、e first step to move up the value chain.Without that,the all-important business case cannot be made.This publication offers guidance to small garment manufacturers so they take an important step towards becoming a preferred supplier to their strategic customers.It also serves as a manual for basic s

13、ervice operators to provide guided training to small and medium-sized enterprises(SMEs),especially with regard to costing services that go beyond sewing operations.The guide forms part of the International Trade Centres(ITC)technical assistance to support the textile and clothing sector in developin

14、g countries.ITC also offers training and coaching on lean manufacturing,yarn and textile knowledge,material sourcing,product development,design and digitalization along the apparel supply chain.This publication was developed within the framework of the ITC Global Textiles and Clothing programme(GTEX

15、)and its application in the Middle East and Northern Africa(MENATEX).Pamela Coke-Hamilton Executive Director International Trade Centre The Garment Costing Guide:for small firms in value chains iv Acknowledgements The International Trade Centre(ITC)commissioned this paper as part of its global texti

16、les and clothing programme.David Birnbaum wrote this publication under the supervision of Matthias Knappe(ITC)Senior Officer and Programme Manager,Fibres,Textiles and Clothing(ITC).Special thanks go to Ram Sareen,Sean Kim and Ganesan KJ from Tukatech for providing technical input to Chapter 2 and Jo

17、sephine Bow,who pre-edited the work.Jayna Kika(ITC),Senior Programme Assistant for Fibres,Textiles and Clothing(ITC),Mariana Alves Tavares and Imane Cherifi International Consultants(ITC),reviewed the paper in its final stages.We would also like to thank Natalie Domeisen and Anne Griffin(both ITC),w

18、ho oversaw the editing and production process,Claire Rispe,who edited the paper,Franco Iacovino(ITC),who provided graphic services,and Serge Adeagbo(ITC),for the printing support.The Garment Costing Guide:for small firms in value chains v Contents About the guide ii Foreword iii Acknowledgements iv

19、Acronyms ix Executive summary x Chapter 1 Basic Costing is not enough 1 Chapter 2 The traditional garment cost sheet 8 Calculating cost factors 10 Job costing 25 Determining profit and loss 30 Chapter 3 Costing for value added services 31 Labour 31 Caputuring value in cost sheets 34 Cost savings 36

20、Addressing supply chain costs 43 Static versus dynamic cost sheets 47 Schedules and capacity 49 Soft cost services 53 Valuing soft services 60 Becoming a strategic supplier 61 Calculating the cost of added service 66 Reducing markdowns 66 Chapter 4 Technology and engineering 71 Developing the SME e-

21、commerce supplier sector 71 From analogue to digital solutions 76 Soft technology alternatives 79 Towards a comprehensive integrated technology 81 On-demand micro-factory 84 Engineering 86 Industry trends 89 The Garment Costing Guide:for small firms in value chains vi Appendix I Manual of services t

22、hat factories can develop 92 Appendix II Production stock,order ready-to-ship 109 Appendix III Post-production order shipped to delivery,duty paid and beyond 112 Appendix IV Comprehensive strategies:Speed-to-market 114 Glossary 115 References 123 Boxes,Tables,Figures Box 1 Continue producing,or inve

23、st in environmental upgrading?2 Box 2 Remain a product maker based on cost advantage,or become a service supplier?2 Box 3 Trapped by the textile mill 18 Box 4 Material sourcing cashmere suiting 18 Box 5 Calculating minutes per piece 23 Box 6 Cost sheet versus job costing 27 Box 7 The ultimate fast d

24、elivery 33 Box 8 Productivity comparison and standard allowed minutes 40 Box 9 Measuring orders against capacity:Sample monthly report 51 Box 10 Ethiopia 54 Box 11 Buying a Porsche 62 Box 12 The worlds greatest factory(slight exaggeration)64 Box 13 A well-known industry story 70 Box 14 Welspun and E

25、gyptian cotton bedlinen 78 Box 15 BF Skinner and Rosie the Riveter 81 Box 16 The womens ready-to-wear clothing industry 90 Box 17 Material sourcing 93 Box 18 Buying the best Box 105 Box 19 19th century technology and modern engineering 108 Table 1 FOB prices by product:10 top exporting countries 5 T

26、able 2 The basic cost sheet 8 Table 3 Basic cost sheet:T-shirt 8 Table 4 Basic cost sheet:Woven jeans 9 Table 5 Basic cost sheet:Bespoke worsted mans suit 9 Table 6 Basic cost sheet:Mens basic V-neck sweater 10 Table 7 The trim sheet 19 Table 8 Calculating labour cost per minute 22 Table 9 Which cus

27、tomer brings the greatest profit 28 Table 10 Which is the most profitable product 28 The Garment Costing Guide:for small firms in value chains vii Table 11 High season versus low season 28 Table 12 Standard cost accounting 30 Table 13 Calculating sewing minutes per piece 31 Table 14 Calculating sewi

28、ng cost per minute 31 Table 15 Cost to value cost sheet 35 Table 16 Investment in capital equipment replaces four workers on a wage of$150/month 37 Table 17 Capital Investment when one machine replaces four workers 37 Table 18 Capital investment when one machine replaces two workers 38 Table 19 25%i

29、ncreased productivity from 40-30 minutes per piece 39 Table 20 Top 10 garment exporters(2019)41 Table 21 Basic cost sheet 44 Table 22 Cost of sample making process for one style:Overseas factory 45 Table 23 Cost of sample making process for one style:Customers home country 45 Table 24 Sample making

30、transferred from customer to factory 46 Table 25 Basic cost sheet 47 Table 26 Chinese fabric versus local fabric 47 Table 27 Ethiopia top 10 garment export products(2018)54 Table 28 Myanmar 15 top export products 57 Table 29 Peak versus trough(2013-2019)64 Table 30 Interim cost sheet 65 Table 31 Ful

31、l value costing:With or without markdown reduction services 68 Table 32 Pick&Pack by e-commerce company versus SME factory 76 Table 33 Cost-to-value cost sheet:On demand micro factory 84 Table 34 Calculating minutes per piece 87 Figure 1 Basic marker:Bespoke worsted mans trouser 11 Figure 2 Marker 1

32、20 cm width 12 Figure 3 One garment,one-way marker 12 Figure 4 Illustrative example of an S and XL size combined,and an M and L size combined 13 Figure 5 Illustrative example of a centre to selvedge colour-shading marker 13 Figure 6 Two-way marker 13 Figure 7 Illustrative example of a one-way nap fa

33、bric 14 Figure 8 Calculating damage allowance 15 Figure 9 Material consumption factors:Wastage and shrinkage 16 Figure 10 Material consumption factors:Wastage and shrinkage 16 Figure 11 PCT total exports by month 29 Figure 12 Garment import market share(2001-2019)42 Figure 13 USA garment imports,wor

34、ld versus China:FOB price per unit 43 Figure 14 Schedule planning 49 Figure 15 Schedule 50 Figure 16 Determining overhead based on capacity 52 The Garment Costing Guide:for small firms in value chains viii Figure 17 Coordination department 52 Figure 18 Global garment export market share(2008-2019):E

35、thiopia 55 Figure 19 EU garment import market share(2008-2019):Ethiopia 56 Figure 20 USA garment import market share(2008-2019):Ethiopia 56 Figure 21 Ethiopia global garment export market share(2008-2019):Myanmar 58 Figure 22 EU garment import market share(2008-2019):Myanmar 58 Figure 23 USA garment

36、 import market share(2008-2019):Myanmar 59 Figure 24 Myanmar garment exports(2008-2019):EU versus USA 59 Figure 25 Japan garment imports market share(2001-2019):Myanmar 60 Figure 26 USA annual garment imports PCT by month(2014-2019)63 Figure 27 Seasonal chart garment imports(2014-2019):Strategic ver

37、sus non-strategic supplier 63 Figure 28 Fabric virtual marketplace 73 Figure 29 Patternmaking,grading and marker making facility 73 Figure 30 Engineering and training facility 74 Figure 31 Traditional Pick&Pack 74 Figure 32 New model Pick&Pack 75 Figure 33 New digital techniques 77 Figure 34 Digital

38、 supply chain from product development to in-store delivery 78 Figure 35 Micro-factory 82 Figure 36 Micro-factory with multi-tasked sewers 83 Figure 37 Customer-initiated material sourcing 93 Figure 38 Supplier initiated material sourcing 94 Figure 39 Customer initiated fabric design 95 Figure 40 La

39、b dips and strike offs 96 Figure 41 Sample fabric 97 Figure 42 Blocking mill space 98 Figure 43 Design assists 99 Figure 44 Quality assurance 101 Figure 45 Design integrity 1 102 Figure 46 Design integrity 2 103 Figure 47 Quality assurance(QA)versus quality control(QC)104 Figure 48 Ensuring on-time

40、delivery 105 Figure 49 Ornamentation:Supplier developed 1 106 Figure 50 Ornamentation:Supplier developed 2 107 Figure 51 Ordering trim 109 Figure 52 Trial orders 111 Figure 53 Logistics 112 Figure 54 Open account 113 Figure 55 Traditional lead time 114 The Garment Costing Guide:for small firms in va

41、lue chains ix Acronyms Unless otherwise specified,all references to dollars($)are to United States dollars,and all references to tons are to metric tons.CEO Chief Executive Officer CIF Cost Insurance Freight CM Cut and make CMT Cut,make,trim CSR Corporate Social Responsibility DDP Delivery Duty Paid

42、 FOB Free on board GPS Global Positioning System HTS Harmonized tariff schedule ILO International Labour Organization ITC International Trade Centre LDC Least developed countries LDP Landed duty paid MBA Master of Business Administration OTEXA Office of Textiles and Apparel QA Quality assurance QC Q

43、uality control SME Small and medium-sized enterprise UNCTAD United Nations Conference on Trade and Development WTO World Trade Organization The Garment Costing Guide:for small firms in value chains x Executive summary Textile and clothing companies face similar issues when determining the cost and v

44、alue of their garment manufacturing operations,no matter where they are.Most small and medium-sized garment manufacturers in developing countries remain focused on simple cut and sewing operations,providing low value services,and producing very basic commodity-type garments.As a result,these compani

45、es often do not know how to develop their services or believe that their customers would not pay more for them.Accurate costing and valuing are the first step to moving up the value chain.Most manuals teach garment costing as a list of costs:material,trim,and cut and make(labour+factory overhead+fac

46、tory profit),which add up to free on board(FOB)cost.This guide provides manufacturers with a view on costs that garment makers find along the value chain and that are beyond manufacturing.In addition to traditional garment cost sheets,it provides garment manufacturers with a key tool for planning an

47、d decision-making.It explains how to measure and calculate overhead costs,introduces job costing which allows companies to retroactively calculate the exact cost of an executed order enabling factories to compare their profitability vis-vis their clients and determine which styles generate higher pr

48、ofits.It also describes costing to increase productivity,through labour training and better organization.Technology and engineering are reshaping the garment industry.This guide offers innovative ideas for small factories to become strategic suppliers to e-commerce businesses.For example,through clo

49、ser collaboration with their customers,they can issue smaller production runs and improve speed-to-market.Finally,the guide also contributes to a wider discussion on how to balance risks and rewards between manufacturers and brands or retailers.This will help to avoid situations similar to those wit

50、nessed during the COVID 19 pandemic,where brands and retailers were unilaterally cancelling orders,postponing shipments or requesting price reductions.The Garment Costing Guide:for small firms in value chains 1 Chapter 1 Basic Costing is not enough There are many books on garment costing.This one is

51、 different,if only because most of what we know about costing is incomplete or incorrect.Often,factory owners consider costing as a list of elements,material,trim and cut and make(CM),i.e.,labour+factory overhead+factory profit,which together add up to the free on board(FOB)cost.The challenge is tha

52、t the FOB itself is not relevant.Whatever the cost,the price a buyer will pay is determined by value.This is particularly challenging in the world of garment sourcing,because the buyer has often already negotiated the price of the fabric at the mill and has designated every trim supplier and price,l

53、eaving only the CM to discuss.Factories that provide only the CM are finding it increasingly hard to compete.To make money,factories have to provide value in excess of their cost.To do so,they need to go a step beyond their normal operations to find out what the buyer really wants,establish how much

54、 it will cost to deliver and how much the buyer is willing to pay.The capacity to understand and tap into the value demanded by the buyer makes the difference between factories that are fighting day-in,day-out to keep their heads above water,and factories,both big and small,that understand the secre

55、t and are building a viable and sustainable future.This guide is a manual for cost-to-value costings.It shows how to quantify both cost and value and in so doing,increase both the profit accrued by both the factor and the buyer.And it does so using data that factories normally already collect.The fu

56、ndamental problem Our industry is faced with a fundamental problem:increasingly the decisions made are based on an outdated model on reducing costs and therefore do not deliver the solutions required for a service-oriented industry that should focus on value.We blame this on incompetent management.W

57、here once CEOs held their position for a decade or longer,their life expectancies are now just two or three years.We blame this on our inability to keep up with an ever-changing industry.We continually search for better data and more sophisticated analysis to tell us what is going on in our own comp

58、any.Whereas in fact,the real problem lies with the decision-making process itself.We operate in a world where managers are increasingly more educated,with access to ever-more sophisticated tools,and yet often reach their most important decisions by asking veterans of the industry,also known as lets-

59、ask-cousin-Phil.The industry today has many Cousin Phils.They may indeed be someones cousin,a senior manager,a well-known expert,or an international consultancy.What they all share in common is their ability to provide plausible solutions to every problem.The problem is that the solutions they propo

60、se are based on past experience within a given context of operation,such as the quota system.These solutions do not necessarily take into consideration future developments in the textile and clothing industry,nor do they necessarily consider a service-oriented approach as is being advised.The Garmen

61、t Costing Guide:for small firms in value chains 2 Here are two examples of how decisions are often made in the garment industry.What is true of from the customer perspective is equally true for the supplier.Box 1 Continue producing,or invest in environmental upgrading?A senior executive at a major l

62、eatherware company is concerned about consumers ever-growing environmental concerns.Since leather is probably the fashion industrys greatest source of pollution,the executive thinks that perhaps his company might do well to take a proactive approach:Communicate with the end consumer;Show that his co

63、mpany works with the very best tanneries in Italy,Spain and France,while avoiding the very worst;Open a new division producing vegan leather clothing,shoes and handbags.Before going further,the senior executive goes to the president of the companys leading brand.The president is adamant:Are you craz

64、y?I have been in this business 25 years and I can tell you that our consumers dont focus on pollution.They care more about design and status.If you open up this can of worms you will put us all out of business!And he is right.At least until the moment he is wrong,at which point the whole company fol

65、ds and Cousin Phil goes on to write his best-selling book about his adventures in the leather trade.Box 2 Remain a product maker based on cost advantage,or become a service supplier?A factory owner operating in a cheap labour country believes he should evolve his business from being a simple product

66、 maker to a more sophisticated service provider.This will require some worker training and employing better educated technicians and managers,but he believes the services will more than pay for themselves.Before going further,our factory owner goes to the head of the national industry organization.T

67、he head is adamant:Are you crazy?I have been in this business 25 years and I can tell you that our customers dont care about services.They only care about low FOB price.Take my advice,concentrate on keeping costs down.That is how our industry was established and it is what will keep us going in the

68、future.In this case,the head of the industry organization is creating a self-fulfilling prophecy.With this approach,both buyers and suppliers will agree buyers come for inexpensive basic zero-service goods.If they want higher value fashion goods with services,go elsewhere.The problem is that both lo

69、cal factories and concerned outsiders dont like it when customers continually fight for lower CM prices.On the other hand,since low CM price is the only thing these factories offer it is hardly surprising that customer/factory negotiations would be focused entirely on the subject of CM price.The Gar

70、ment Costing Guide:for small firms in value chains 3 Despite the many changes that have occurred over the years,senior managers often still look to established experts who often continue to have this singular focus on cost-cutting.In the future,managers will be asked to make the decisions on a wider

71、 understanding not just of cost but of the factors that drive value.How factories and customers have changed their approach This book provides information about where the industry is headed and the direction factory owners should be taking to be at the cutting edge.To understand how this has evolved

72、,it is important to understand the three models the modern global garment industry has operated within since the 1950s.Competitive model In the early days,when products were limited to cheap,basic commodities such as T-shirts,cotton casual trousers,basic woven shirts and underwear,customers expectat

73、ions were inevitably extremely low:a decent garment shipped on time at a low,low price.Very quickly,supplier selection became a zero-sum game where the lowest FOB price won the order.Because there were many more factories than customers,factories became disposable tools if low prices forced one fact

74、ory to go out of business,there were two more ready to take its place.In turn,factories took the same position with regards to their workers.Because workers were for the most part semi-skilled semi-literate women,they too were seen as disposable tools.If 10 workers quit,there were 20 more ready to t

75、ake their place.It was the era of the zero-service factory,where suppliers were equipped to do nothing more than cut and sew.Today,65 years later,despite sophisticated modern technology,many customers still remain firmly trapped in the competitive strategy mentality.Cooperative model In the mid-1970

76、s,the move from commodity to fashion created an opportunity for change on both the customer and the supplier side.Customers(retailers and brands)began to recognize that while pushing down factory manufacturing prices might bring price reductions of 50-70 per unit,transferring product development wor

77、k to the factory and developing fast turnaround could save up to ten times that amount.Where once factories were limited to the status of product makers,they could now upgrade and become service suppliers.Both the customer and supplier recognized that in order to meet the needs of the industry,they

78、had to cooperate with each other to develop the necessary services.Under this new strategy,the zero-sum competitive model slowly began to go out of fashion,reduced largely to factories producing only commodities or subcontractors.At the top of the pyramid were the full-service transnational giants a

79、nd the specialist factories able to achieve strategic-supplier status.Collaborative model This model is still in a nascent state.New industry customers,particularly large and smaller e-commerce companies,are the catalyst for this latest model in which the entire supply chain is hollowed out.In the c

80、ooperative model,the customer gave the supplier increased responsibilities.In the collaborative model,the role of the customer is reduced to the first stages determining what the consumer wants and providing the factory with the original design and the final sales and marketing stage.Everything else

81、 is ceded to the factory.In this new model,both the customer and supplier side recognize that neither can move forward without the other.Consequently,the relationship between the customer and supplier is a true partnership.Where originally this concept was limited to newcomer customers,we now see a

82、growing realization that what is relevant to e-commerce is equally relevant to the industry as a whole.The Garment Costing Guide:for small firms in value chains 4 The great factory question:I want to provide services,but will my client pay?Here comes the great factory question:I want to provide new

83、services.I want to develop the necessary skill sets.I am willing to make the necessary investment in terms of time and money,but my customer will not pay.This has been a common refrain from managers for decades.And at one point it was true.However,over the last 20 years,some factories have evolved t

84、o provide new services and are able to charge premium prices,because their customers recognize the need for these services and will pay for them.Now the apparel industry is moving into a service driven industry and factories that are unable to evolve will be under intense competitive pressure.Buyers

85、 that have adopted the cooperative model recognize that important costs come from the areas where a zero-service factory is unable to play a role.By cooperating with a full-service factory,the buyer can still considerably reduce their costs,even after paying the full-service factory a premium for th

86、eir value-added services.As the customer increasingly benefits from the services provided by suppliers,so their demands for value-added services grow to the point where almost all pre-production,production and most post-production is given over to the supplier.This is known as the collaborative mode

87、l.These three models reflect the changing customer/supplier relationship:from the competitive,where the supplier is seen as a disposable tool;to the cooperative,where the supplier is seen as an important asset;to the collaborative where customer and supplier join together in partnership.Evolution se

88、ldom takes place uniformly.The global garment industry follows the same pattern.Some businesses remain trapped in an already outmoded competitive system.Others,having moved ahead to the more efficient cooperative system,will in turn become trapped when the industry moves on,making the previous,seemi

89、ngly more efficient system outmoded.Finally,there are those who recognize that the future lies with the collaborative system,where customer and supplier become locked together to create greater value and increased profits for both sides.Fairness between the customer and the factory There is a growin

90、g argument that customers(retailers and brands)should pay their factory suppliers a fair FOB price.This discussion began in lower labour rate industries up to the point at which they were often paying prices that were below factory costs.The data is clear,and many factories have been forced to close

91、 because of low FOB prices.The conclusion is that the fault lies with the customer and therefore they should be forced to pay a higher FOB price.However,when we look at this problem using a cost-to-value analysis,we see a different picture.The problem is not that customers are paying these factories

92、 less,but rather that customers are paying everyone else more.The data is equally clear.Customers pay a lower price because the value provided by the failing factories is worthless.Consider the following data from the United States of America Government Office of Textile Apparel,that analyses 10 of

93、the Bangladeshs most important exports for 2020,comparing their FOB prices with those their 10 biggest competitors for each product.In each case,supplying countries such as Bangladesh,Pakistan,and Cambodia are consistently paid below world average prices.While supplying countries such as Vietnam,Ind

94、onesia,Turkey and Mexico are repeatedly paid above world average rates.The problem does not lie with the customers.They are willing to pay higher prices to some countries but rather less to supplying countries that are unable to meet their needs.The Garment Costing Guide:for small firms in value cha

95、ins 5 Table 1 FOB prices by product:10 top exporting countries 6203424516 Mens woven cotton trousers Bangladesh$7.01-9.20%Pakistan$7.10-8.10%World$7.72 0.00%Sri Lanka$8.00 3.60%India$8.41 9.00%Indonesia$8.74 13.30%Cambodia$8.81 14.20%Mexico$8.97 16.30%Vietnam$10.38 34.50%CAFTA-DR$10.76 39.30%6203424

96、511 Mens cotton jeans Pakistan$6.60-21.50%CAFTA-DR$7.53-10.50%Bangladesh$7.81-7.20%Lesotho$8.19-2.60%World$8.41 0.00%Mexico$8.82 4.90%Cambodia$8.90 5.80%India$9.13 8.50%Egypt$9.53 13.30%Vietnam$11.55 37.30%6204628021 Womens cotton trousers World$5.22 0.00%Cambodia$5.26 0.80%Pakistan$6.35 21.70%Bangl

97、adesh$6.43 23.30%India$6.71 28.50%Egypt$6.80 30.30%Vietnam$7.51 44.00%Jordan$8.21 57.30%Sri Lanka$8.67 66.10%Indonesia$9.14 75.10%Turkey$15.84 203.60%6204628011 Womens cotton jeans Bangladesh$7.56-14.00%Jordan$8.07-8.10%Pakistan$8.36-4.90%Sri Lanka$8.60-2.10%World$8.79 0.00%Cambodia$8.83 0.50%Vietna

98、m$8.94 1.80%Egypt$8.94 1.80%Indonesia$9.81 11.60%Turkey$14.16 61.20%Mexico$15.25 73.60%The Garment Costing Guide:for small firms in value chains 6 6205202051 Mens woven cotton shirts Bangladesh$5.45-26.50%Indonesia$7.30-1.40%World$7.41 0.00%Philippines$7.58 2.30%Vietnam$8.50 14.70%Sri Lanka$8.66 16.

99、90%India$9.38 26.60%Malaysia$10.29 39.00%Madagascar$11.39 53.70%Mauritius$11.53 55.70%CAFTA-DR$12.24 65.20%6205302070 Mens made fibre(MMF)woven shirts Egypt$4.86-32.00%Bangladesh$5.43-24.10%Madagascar$5.52-22.80%Vietnam$6.93-3.10%World$7.15 0.00%CAFTA-DR$7.84 9.60%India$7.86 9.90%Indonesia$8.33 16.4

100、0%Cambodia$8.83 23.50%Mexico$8.91 24.60%Jordan$11.53 61.20%6109200012 Mens cotton T-shirt World$1.20 0.00%Bangladesh$1.47 23.10%Pakistan$1.53 27.80%CAFTA-DR$1.64 37.40%Mexico$2.02 69.10%India$2.14 78.60%Cambodia$2.18 82.50%Jordan$2.83 136.50%Vietnam$3.32 177.80%Peru$8.46 607.30%61091000040 Womens co

101、tton T-shirts Bangladesh$1.64-21.60%Cambodia$1.82-13.10%CAFTA-DR$1.83-12.40%Pakistan$2.00-4.10%Indonesia$2.08-0.50%World$2.09 0.00%Mexico$2.23 6.60%India$2.36 12.90%Vietnam$2.86 36.90%Peru$7.27 247.80%The Garment Costing Guide:for small firms in value chains 7 6202929061 Woven cotton jacket Pakistan

102、$8.27-18.70%Bangladesh$10.10-0.70%World$10.17 0.00%Vietnam$11.96 17.60%Sri Lanka$12.95 27.40%Cambodia$15.68 54.20%India$15.93 56.60%Indonesia$16.08 58.10%Mexico$34.11 235.30%Thailand$48.86 380.30%6212109020 MMF bras Bangladesh$3.19-18.00%World$3.89 0.00%Indonesia$4.29 10.20%India$5.18 33.20%Myanmar$

103、5.40 39.00%Thailand$5.69 46.30%Cambodia$5.86 50.60%Vietnam$6.06 55.90%Sri Lanka$6.06 56.00%CAFTA-DR$6.32 62.50%Source:US Government Office of Textile Apparel for 2020 The Garment Costing Guide:for small firms in value chains 8 Chapter 2 The traditional garment cost sheet There are three types of cos

104、t analyses:Costing:The total sum of all cost factors for a specific style.This may include hundreds,even thousands of separate items,we may never know all of them and we will certainly never replicate the complete costing.In a sense this is a limit.Cost sheet:The list of items that we create.This ma

105、y include only seven to eight cost factors,but it should be a reasonable estimate of the per unit cost of that particular style.Typically,the cost sheet is used by the factory as a tool to negotiate the FOB price with the customer.It is therefore created at the very beginning of the of the order pro

106、cess.Job costing:The sum of all costs for a particular order divided by the number of pieces shipped.This gives us the actual cost per unit.It is calculated only after the order has been produced and shipped.Table 2 The basic cost sheet Basic cost sheet Fabric 60%$6.00 Trim 10%$1.00 CM 30%$3.00 CM b

107、reakdown FOB 100%$10.00 Labour$0.64 Net Profit$0.50 Overhead$1.86 Note:We will be using this basic cost sheet throughout the book.Please bear in mind that the actual figures are not relevant,it is the methodology that counts.The examples below are based on a wage of$150 per month and productivity at

108、 50%1.Almost all garment cost sheets-from handkerchiefs to overcoats-follow the same pattern.Table 3 Basic cost sheet:T-shirt T-shirt Fabric 43.5%$0.80 Trim 10.9%$0.20 CM 45.7%$0.84 CM breakdown FOB 100.0%$1.84 Labour$0.19 Profit$0.09 Overhead$0.56 Note:This is one of the simplest basic commodity it

109、ems.The cost sheet is based on 12 minutes production time.The only deviation is that T-shirts generally require two fabrics:circular knit single jersey,flat knit 1X1 rib.1 Productivity percentages are based on China=100%The Garment Costing Guide:for small firms in value chains 9 Table 4 Basic cost s

110、heet:Woven jeans Woven jeans Fabric 60.2%$4.80 Trim 10.7%$0.85 CM 29.1%$2.32 CM breakdown FOB 100.0%$7.97 Labour$0.48 Profit$0.40 Overhead$1.44 Note:This is very close to the standard basic costing.In some cases,jeans have a leather or fabric badge.This costing does not include the badges.Table 5 Ba

111、sic cost sheet:Bespoke worsted mans suit Bespoke worsted mans suit:Italy Fabric 10.0%$300.00 Trim 1.0%$30.00 CM 89.0%$2 681.25 CM breakdown FOB 100.0%$3 011.25 Labour$1 075.00 Profit$800.00 Overhead$806.25 Note:This is top of the line.Although the cost sheet has the same categories,the amounts are v

112、ery different.-Direct labour accounts for over 33%of FOB.-Fabric,calculated at 3 metres at$100 per metre is just 10%of FOB.-Trim,which includes special and expensive items accounts for just 1%of FOB.Bespoke clothing is different.For example,we are taught that trading higher value products increases

113、profit for both the brand and the factory.This is true for the great names,such as Tom Ford,Armani and Brioni,who can charge$10-20,000 for a suit,but most of that is eaten up by overhead.Even these great names rely on accessories and lower price goods for their profit.The small Italian Satoria is ev

114、en worse off.In their operations,the tailor earns more than his boss.There is one major garment type,however,that does not follow the normal cost sheet,the sweater.All other cost sheets start with dyed and finished fabric ready for the needle.The sweater,by definition,is knit-to-shape.As a result,th

115、e sweater factory resembles a vertically integrated operation.It begins with yarn,which it then knits into the garment parts:back,front and sleeves.The factory determines the type of knit fabric:Gauge(number of stitches to the inch)Stitch(the type of knit)Weight The actual make is also very differen

116、t;knitting can be undertaken in three ways:Computerized(as with this garment)Machine Hand The Garment Costing Guide:for small firms in value chains 10 The pieces are joined by a process called linking or looping.Table 6 Basic cost sheet:Mens basic V-neck sweater Mens basic V-neck sweater Merino 2/48

117、 14-gauge 253 gg Yarn 44.4%$7.34 Trim 5.1%$0.85 CM 50.4%$8.33 Labour$2.92 Knitting$1.28 FOB 100.0%$16.52 Overhead$3.43 Looping$0.81 Net profit$1.98 Finishing$0.59 Washing$0.24 Traditionally,cost sheets serve two purposes:Externally:To negotiate FOB prices with the customers.However,customers no long

118、er negotiate price based on factory cost,but rather on the value the factory can provide.Internally:To help factory management make the best decisions.It is in this area that the basic cost sheet provides its greatest value.The good news is that every factory already has the information required.Cal

119、culating cost factors Cost factors are important because factories and their customers use this information to make decisions.However,these cost factors do not directly relate to the cost sheet,because when we create the cost sheet we have no detailed knowledge of the cost factors.For example,we can

120、 estimate material consumption long before we can determine actual material consumption and use that estimate on our cost sheet.We can calculate the actual cost only after the order has been produced and shipped.That calculation is the job costing fabric cost2.Fabric costing Width Besides consumptio

121、n and cost per metre,fabric width is the primary factor determining fabric cost.While today,most fabric width is 150 cm,some is still available in 120 cm and even 90 cm.This creates complications.The narrower the fabric width the greater the consumption,but the narrower the width the lower the cost

122、per metre.As a result,in some cases the factory may determine that the added consumption is offset by the lower fabric cost.Cost per metre versus number of widths per garment.If,for example,the fabric width is 150 cm,it might be possible to fit a complete garment in a single width equalling 1.4 metr

123、es.However,if the fabric width measures 120 cm,this may not be possible.In which case we might have to move to a second width,with result that 1.4 metres becomes 1.8 metres.Range of width.Fabric widths are not precise,e.g.150 cm is actually a range from 145-155 cm.If the fabric is expensive,it must

124、be sorted by width,i.e.145-149 cm or 150-155 cm.2 Fabric cost=consumption in metres x cost per metre The Garment Costing Guide:for small firms in value chains 11 Markers A marker is like a giant jigsaw,where all the pattern pieces are placed together to ensure the lowest consumption.The marker may c

125、onsist of a single garment,or as many as 12 garments.As a rule,the marker must include all sizes.A simple marker(each size separate)is made up of four pieces.For example,the marker for a pair of trousers is 5.6 m(1.4 x 4).Figure 1 Basic marker:Bespoke worsted mans trouser Source:Ram Sareen Tukatech

126、The Garment Costing Guide:for small firms in value chains 12 Figure 2 Marker 120 cm width Source:Ram Sareen Tukatech Note:120 cm Three legs=1 width requires 4 widths 1.2 m=4.8 m Three small piece sets 0.2 m=0.6 m Total 5.4 m Divided by 3 garments=1.8 m Source:Ram Sareen Tukatech Figure 3 One garment

127、,one-way marker Source:Ram Sareen Tukatech Complex marker Where pattern pieces for different sizes are placed together to reduce consumption.For example,the leg pieces for size S are placed together with size XL,and the pieces for size M are placed together with size L.In piece-dyed articles there c

128、an be a problem of length-to-length shading.For example,in a 12-piece marker the leg pieces may be placed 15 metres from small pieces;and in some instances,there may be shade variations within a single piece.While width-to-width shading can be considered a generic flaw,length-to-length shading,unles

129、s extreme,is considered acceptable with the result that pattern pieces for the same garment,when placed far apart,may render the garment damaged.The Garment Costing Guide:for small firms in value chains 13 Figure 4 Illustrative example of an S and XL size combined,and an M and L size combined Also,a

130、n example of a length wise colour-shading marker Source:Ram Sareen Tukatech Figure 5 Illustrative example of a centre to selvedge colour-shading marker Source:Ram Sareen Tukatech Two-direction marker Considerable savings can be derived by placing pattern pieces in different directions.For example,si

131、nce the trouser leg pattern is wider at the top(the hip measurement)than at the bottom(the ankle measurement),many markers place four leg patterns up-down-up-down.Figure 6 Two-way marker Source:Ram Sareen Tukatech The Garment Costing Guide:for small firms in value chains 14 One-direction marker Ther

132、e are exceptions that require one direction only:Fabric with a one-way nap,such as velveteen and corduroy are one direction markers only.If you move your hand up,then down the legs of corduroy trousers you will note that moving in one direction feels smooth,while moving in the opposite direction fee

133、ls rough.This difference is also apparent in the shade of the fabric.Up,against the nap,will seem darker than down,with the nap.Ironically the U.S.wears these fabrics nap-down,while the European Union wears them nap-up.There is no logic,or even reason for this,it is just cultural and because mixing

134、the two will invariably result in shading.Prints,jacquards and yarn-dyes are also often only worn in one direction.Figure 7 Illustrative example of a one-way nap fabric Source:Ram Sareen Tukatech Exotic marker variations In todays industry,technology allows the customer to determine marker yardage f

135、or any style thus taking away one of the main sources of factory profit.However,there are ways for factories to circumvent these limitations.Multiple style markers:Customers often order multiple styles in the same fabric.For example,a jacket and a pair of trousers.Putting these styles all together o

136、n a single marker can deliver remarkable hidden savings.All customer orders allow leeway for under and over shipment,e.g.3%short or 2%over.Provided the factory does not exceed these limits,multi-product markers can be a source of hidden profit.Skimping:In some instances,even very small changes in pa

137、ttern width may result in remarkable savings.For example,the pattern seam allowance may be 1.5 cm.A small reduction to 1.3 cm may bring real gain when you multiply to 0.2 cm by eight seams,with the result that the marker that was planned to accommodate four legs to the width,may now allow five legs

138、per width.While technically not allowed,the customers quality control will never discover the change particularly when the seam has been overlocked.Material consumption additional factors:Damage,wastage,shrinkage When we consider total fabric consumption,we have to recognize that marker yardage is j

139、ust one part of total consumption.Other factors such as damages,wastage and shrinkage must also be considered.The Garment Costing Guide:for small firms in value chains 15 Fabric damage All fabric has damages,and the fabric buyer must accept a reasonable number of these.Of course,generic damages,such

140、 as width-to-width shading,excessive shrinkage,pilling,and banned chemicals and dyestuffs render the entire order damaged and therefore unacceptable.For this reason,fabric buyers require specific tests to be carried out by recognized impartial organizations.One such organization is the American Asso

141、ciation of Textile Chemists and Colourists(AATCC),which offers a complete list of tests.Each damage adds to fabric consumption.Size of damage:A damage of 1 cm requires 3 cm additional fabric.Clearly,if the damage extends for 3 m the factory will require 3 m additional fabric.Based on the overlap,nor

142、mally calculated at 0.5 m per damage:Once the damage has been cut away it is necessary to ensure that when the fabric is cut it includes complete pattern pieces.For example,the trouser leg is 1.4 m.If the fabric damage occurs where the marker has the trouser leg,the trouser leg must be recut,requiri

143、ng 1.4 m of fabric,plus overlap.Figure 8 Calculating damage allowance Note:There comes a point where the number of damages renders the fabric piece unacceptable.For example:10 damages 0.5 m per damage=10%of a 50 m piece.Source:David Birnbaum For some fibres,notably better-quality wool,the mill will

144、mark each damage with a white thread on the selvage at the beginning and end of each damage and provide a replacement.Each piece will have a hangtag showing gross and net metres,e.g.,52/49 m.When that option is not available,it becomes the responsibility of the garment factory to inspect the fabric.

145、Typically,the factory will inspect 10%of the fabric.If the damage rate exceeds acceptable limits,the factory will inspect 100%of the fabric.There is a cost to inspection.As a rule,the warehouse is included in overhead costs.The normal 10%is paid by the factory as part of its overheads.The question a

146、rises therefore,who pays the cost of added inspection due to damages.There is no simple answer.Most factories will absorb the cost of added inspection,although,where the customer has ordered the fabric directly from the mill,they should be held responsible to some degree.In the case of damaged fabri

147、c,there are far greater costs than added inspection,such as problems with scheduling and delivery delays,etc.In these instances,the factory will discuss the matter with the customer.In real life,the customer will seldom pay;however,they will owe the factory a favour.Do not rely on inspection on the

148、cutting table.Yes,laying out the fabric 10-20 m at a time where the lighting is very good saves time.However,remember the first rule of cutting!If you cut it,you own it!The Garment Costing Guide:for small firms in value chains 16 Wastage As you lay out the fabric on the cutting table you invariably

149、come to the end of the roll.Very often,the end of the fabric occurs in the middle of a pattern piece.If the marker includes spaces where there are no pattern pieces,the solution is easy.Simply end the fabric from the old roll on the space and begin the fabric from the new roll on the same space(allo

150、wing for a small overlap to avoid the fabric slipping apart).Figure 9 Material consumption factors:Wastage and shrinkage Source:Davis Birnbaum The problem occurs where there is no space at all.Here,the overlap must be extended to the point where fabric from both the old and new rolls includes comple

151、te pattern pieces(together with parts of pattern pieces that are scrapped).Shading Figure 10 Material consumption factors:Wastage and shrinkage Source:Davis Birnbaum The Garment Costing Guide:for small firms in value chains 17 Shading is the second factor related to wastage.Different fabric pieces m

152、ay have slightly different shades.These shades may not be noticeable on the fabric but will appear when the trouser leg has two different shades.The most common cause of this issue is dye-lots.Fabric dyeing normally takes place in closed vats,or other containers.The size of each vat is specific to t

153、he weight or number of metres of fabric.Therefore,if you are ordering 750 m of the colour blue,the dyer may use three vats:500 m,200m and 50 m.Each vat will yield a different shade,so fabric pieces are marked by dye lot.The factory cannot mix dye lots.Sometimes,as in the case of denim,each piece may

154、 have a different shade.Here,you must ensure that all the pattern pieces for each garment are cut from the same piece of fabric,thus increasing wastage.Shrinkage All fabric shrinks.Greige Goods shrink more than finished fabrics but finished fabric does shrink.Indeed fabric-finishers will build a 2%s

155、hrinkage into all fabrics.The factory must test the fabric for shrinkage and having done so must either allow for it in the finished garment length or allow for it in the pattern.Material cost:Price per metre We generally think of fabric cost in very simple terms,and we are generally correct:Factory

156、 orders fabric;Fabric supplier delivers fabric;Factory pays for fabric.Consider three common scenarios:Customer designates fabric supplier.Traditionally,customers bought garments and the factory supplied all the materials.However,well over 30 years ago customers moved from garment buying to garment

157、sourcing,whereby the customer negotiated directly with the fabric supplier and agreed the price.This leaves the factory paying for the fabric at the agreed price,and any additional fabric costs,such as local transportation,taxes,etc.are recoverable from the customer.Factory purchases locally dyed an

158、d finished fabric.Here,the only additional cost arises when the fabric is bought ex-factory and the factory pays the cost of local transportation.Factory purchases fabric produced in another country.As a rule,most factories will order through the mills local agent,who arranges delivered duty paid(DD

159、P)terms.The only exceptions here are when major factory groups have their own overseas buying offices(usually located in Hong Kong)staffed with fabric specialists.There are some exceptional cases,where the factory purchases fabric and must oversee the fabric-making process.This can become extremely

160、complex and is fraught with risks.Here,the factory may have to deal with four factors:Nature of the fibre;Nature of the fabric;Nature of the textile industry;Where the factory is located;Where the customer is located.The Garment Costing Guide:for small firms in value chains 18 The following two case

161、 studies give you some idea of the problems and risks involved.Trim costing For costing purposes,trim is defined as any other processes or materials(other than top fabric,which is listed separately)where payment is by unit,e.g.,pieces,metres and kilograms.For example,embroidery can be trim,direct la

162、bour or both,i.e.:Embroidery thread is always listed as trim;When embroidery is given out and payment is by the piece,the process is also listed as trim;When embroidery is given and each worker is paid by the day,the process is included under direct labour.Box 3 Trapped by the textile mill In some c

163、ountries,mills only produce Greige Goods,leaving the factory to supervise and pay the costs of all successive processes:Cost of Greige Goods;Cost of transportation from the fabric mill to the dyer/printer/finisher;Cost of dyeing/printing/finishing;Cost of transportation from the finisher to the garm

164、ent factory.These are but the opening acts of the drama.Having paid the mill for the Greige Goods,the factory must suffer the losses caused as a result of any fabric damages.Regrettably,many of these damages,such as width-to-width shading,pilling,barre shading and irregular shrinkage do not become a

165、pparent until the fabric has been dyed and finished.Furthermore,many if not most dyeing/finishing plants are SME operations with old and poorly maintained machinery,adding additional risks.When the finished goods are delivered late,damaged,or both late and damaged,the factory is faced with a number

166、of no-win scenarios:Should the factory produce the goods and risk cancellation for late delivery?Should the factory produce and ship damaged goods?Garment factories in these countries may have a reputation for great product development,but fabric quality has often been a risk.There are products wher

167、e the fabric supply chain is so complex that only the most experienced professionals would dare become involved.Box 4 Material sourcing cashmere suiting Here is the supply chain:Bayantsagan Mongolia for the greasy cashmere fibre auction;Transportation+duty/tax;Italy for best quality yarn spinning+to

168、p dyeing or yarn dyeing;Transportation+duty/tax;China for fabric weaving;Transportation+duty/tax;Multiple countries for garment making.This is not a product for the inexperienced.The Garment Costing Guide:for small firms in value chains 19 The trim sheet The trim sheet is a tool.As with any tool its

169、 value is in what it does and how well it does it.As we see below,the trim sheet serves multiple purposes providing value for each.All data listed in the trim sheet must be available,but not necessarily at the outset of the process.Available at the outset:o Item:lining o Suppliers name(or code numbe

170、r):L101 o Quality number of the item:B601 o Description:100%rayon,150 cm,colour ecru 105 o Unit:metre o Price:$2.70 Available on receipt of colour/quantity breakdown:o Purchase order number:L101-100 o Order quantity required:2,500 o Order quantity in-house:700 o Order quantity total:1,800 o Estimate

171、d days:21 Available on receipt in-house:o Quantity received:1,926 o Estimated days:21 o Actual days:30 Table 7 The trim sheet Trim sheet Sketch or photo 1 Date 2 Style#3 MO#4 Description 5 Customer A B C D E F G H I J K L 6 Item Supplier Qual#Description Unit Price PO Order quant Est days Quant rec

172、Actual days 7 Require In house Total The Garment Costing Guide:for small firms in value chains 20 Product sub-material 1 Lining 2 Interlining 3 Interlining 4 Tape Ribbon Lace edging 5 Thread 6 Thread 7 Button 8 Button 9 Snap 10 Hook and eye 11 Zipper 12 Elastic 13 Shoulder pad Labels and packing 14

173、Main label 15 Content label 16 Care label 17 Hangtag 18 Hanger 19 Tissue 20 Polybag 21 Carton 22 Other 23 Other 24 Other Ornamentation 25 Embroidery 26 Beading 27 Washing The Garment Costing Guide:for small firms in value chains 21 The trim sheet serves a wide range of potentially valuable purposes,

174、among the most important being the ability to move from manual to computer generated trim orders.Saving time.Large factories that produce 500+styles per month require substantial staff to place and follow up trim orders.Avoiding unrecognized errors.In the old days,when the trim buyer ordered 6”zippe

175、rs instead of 7”zippers,the incorrect items disappeared into a desk drawer,and the zippers could be reordered with no one the wiser.Those days are over.Providing important information on a timely basis.If the trim item is running late or the quantity received is incorrect,management is alerted in a

176、timely fashion.The good news is that the data necessary for computer generated trim orders is the same data required for the old manual ordering system.Labour(cut and sew)costing The basic cost sheet can be divided into two parts:Material:o Fabric o Trim CM:o Labour o Overhead o Profit Material is c

177、overed in the previous pages.For costing purposes,we define labour as wages and benefits paid to workers who are directly involved in the manufacturing process:Cutters Bundlers Sewers Inspectors Pressers Packers This does not include supervisors who are classified as staff and are therefore included

178、 in overheads.Labour cost for each style is calculated by the number of minutes required to produce one garment of that style multiplied by the workers wage per minute.For example,a sewer paid$150 for a 26-day month,working nine hours per day would be paid 1.1 per minute.Therefore,the sewing cost fo

179、r a garment requiring 40 minutes would equal 43.If the worker were paid$300 per month,the sewing cost would total 86.The Garment Costing Guide:for small firms in value chains 22 If the factory increased productivity by 25%,reducing sewing time from 40 minutes to 30 minutes,the sewing cost per unit w

180、ould be 64.(This is covered in detail below).Table 8 Calculating labour cost per minute Wage per month Per day Per hr Per min Per unit$150.00 26 9 60 40$5.77$0.641$0.011$0.427 Wage per month Per day Per hr Per min Per unit$300.00 26 9 60 40$11.54$1.282$0.021$0.855 Wage per month Per day Per hr Per m

181、in Per unit$300.00 26 9 60 30$11.54$1.282$0.021$0.641 To this we have to add the labour cost per unit for cutting,bundling,pressing,inspection and packing.We can obtain a remarkably good estimate of these costs from the factorys accounting department.They have records for total wages paid each month

182、,for each department.By dividing total wages by total sewing,they can tell you the ratio between sewing costs and all other costs.For example,if sewing wages are twice other wages and sewing costs per unit are 43,then the total cost of all other wages equals 21.5 per unit.Management should:Audit the

183、se figures each month;Aggregate labour costs for each style shipped that month;Calculate total wages paid;Allow for work in process.This last factor raises potentially difficult issues.At the end of any time period there are orders that are undergoing processing.We therefore need a simple method for

184、 allocating value to work in process.While any method is arbitrary,provided the method remains unchanged the results make little difference in the long run.The Garment Costing Guide:for small firms in value chains 23 Box 5 Calculating minutes per piece This is one of the most important factors,deter

185、mining many areas in a factory managements decision-making process.Labour cost Scheduling Productivity Factories are told that many companies use a method known as standard allowed minutes.This is a garment industry extension of a method first developed by Henry Ford in 1919.It is based on Fords fam

186、ous query,“Why is it every time I ask for a pair of hands,they come with a brain attached?”Fords solution was to take uneducated people with minimal training and make them a productive workforce by making each person an extension of the machine.Simply put:The production process(sewing in our industr

187、y)is divided into specific operations.The number of minutes required for each operation is determined,originally by someone physically standing at the machine with a stopwatch,and more recently by a computer.The sum of minutes for all operations equals the number of sewing minutes for the garment.Ho

188、wever,the garment industry presents special problems:Down time:o Before introducing a new style,the line must stop production for line balancing.Lost time:o The introduction of any new style requires workers to go through a learning curve.o Introducing a new style does not automatically lead to prod

189、uction starting up on all machines on the line.The work must pass through all the sewing steps before the entire line is engaged.The most serious problem here is that the number of minutes added because of down time and lost time is fixed and is unrelated to the size of the order,with the result tha

190、t the smaller the order greater the number of minutes added to each garment.Of course,this problem did not affect Henry Ford and his model-T factory,because that factory was designed to produce only one model of car,six days a week,52 weeks of the year,forever.What was true of Henry Ford and his mod

191、el-T factory was equally true of Levi Strauss and their 501-jeans.Their factory was also designed to produce just one model,six days a week,52 weeks a year,forever.The 501 Production Manual was probably the all-time,very best example of standard allowed minutes.It closely mirrored Fords original con

192、cept,taking uneducated people with minimal training and transforming them into a productive workforce by making each person an extension of the machine.There was a limitation however.Both were based on a commodity product.As both automobiles and clothing moved from unchanging commodities to ever cha

193、nging fashion,the factory designed to produce only one model,six days a week,52 weeks per year,forever developed severe liabilities.In the case of Levi Strauss,their failure to recognize the existence of designer jeans almost wrecked the company.Between 1997 and 2001,sales volumes fell from$7 billio

194、n to$4.2 billion and have never recovered.Today there are no universal garment designs.The closest we have are the cheap labour industries producing low-end,mass-market commodities,where factories operate with semi-skilled workers.However,an easier more rigorous method for calculating the minutes pe

195、r piece exists,and we have all the necessary data.It begins with an understanding that due to line balancing,a sewing line can only produce one style per day:The factory knows the specific dates the line sewed the order.The factory knows the total wages paid to the line sewer during that period.The

196、factory knows after allowing for overtime and absenteeism the number of hours(and minutes)required to produce the order.Total minutes divided by number of pieces equals minutes per piece.Total wage divided by number of pieces equals sewing cost per piece.No stopwatch no computer no down time no lost

197、 time.The Garment Costing Guide:for small firms in value chains 24 Overhead costing We define overhead as all costs other than material trim,labour,and profit.The following is a non-exhaustive list of overhead costs that frequently occur in garment factories.Accountant Motorcar expenses Advertising

198、Packing materials Consumable stores Penalties Contingent liabilities Pest control Corporate social responsibility(CSR)Printing and stationary Courier local Professional fees Courier overseas Repairs building Donation Repairs furniture and fixtures Electricity and water Repairs machinery Entertainmen

199、t Repairs office equipment Finance costs Repairs production area plant Finance costs-interests Salaries(includes all fringe)Food and drink Stationery,office Gasoline Stationery production Insurance Telephone e-mail Legal fees Rubbish collection Local travel Travelling overseas Loose tools Depreciati

200、on Magazines and periodicals Provision for staff bonus Memberships(trade organizations)Provision for taxes Motorcar expenses Provision other The problem occurs when we try to allocate overhead on a per unit basis.The accounting department has a complete record of total overheads for a period,just as

201、 they have a complete record of total direct costs for the same period.Because labour per unit and overhead per unit are both based on time,the ratio of labour to overhead will provide a reasonably accurate determinant for overhead per unit.This ratio is one of the single most important factors,not

202、only determining product cost,but more importantly analysing the value of a number of specific methods to reduce garment costs.There are two important differences between overhead in industrialized countries and overhead in less developed countries where garment export production usually takes place

203、.In industrialized countries,productivity increases are usually between 1%-3%simply because developed countries have developed education and technology over a period of generations,while less developed countries now have almost immediate access to these technological and educational assists.The resu

204、lt is that productivity increases of 25%-60%in garment producing countries are not uncommon.In industrialized countries,overhead may typically be 50%-70%of labour costs,while garment exporting countries overhead may be 250%-600%of labour costs.The Garment Costing Guide:for small firms in value chain

205、s 25 o Low wages:The worker in a garment exporting country that may be paid$150 per month,could be paid twenty times that amount in an industrialized country.o High overhead:Operating costs in garment exporting countries are not necessarily relatively lower than those in industrialized countries.For

206、 example,it costs more to turn on the lights in Mumbai than in Manhattan.In fact,in some garment exporting countries electricity may equal 5%of the garment FOB price.As a result,while the benefit of increased productivity in industrialized countries is reduced labour cost,the benefit in garment expo

207、rting countries is reduced overhead.With the proper tools and commitment by management,a productivity increase of 25%in a garment exporting country can be achieved within a year,with the result that net profit could increase from 5.0%to 9.5%.Even if management increased wages by 25%,profit would sti

208、ll increase from 5%to 7.5%.(See Chapter:Intrinsic costs).Profit Profit remains after all costs have been covered.While these Figures are only estimates and should not be taken as real,it is fair to say that 5%net is a good profit,provided it is net i.e.money in the bank.Cost sheets and data that mak

209、e up these cost sheets are important tools.To be of value the data must be complete and 100%accurate.In business,we often provide less-than-accurate information for a variety of reasons.Job costing Every factory should produce two cost sheets:The basic cost sheet,which is created at the outset,befor

210、e negotiating with the customer.Because it is created at the beginning of the process,the cost sheet is at best an inaccurate estimate of the styles per unit cost.The job costing,which is created after the order has been completed.This is the accurate listing of all costs.It is one of the most impor

211、tant tools in a companys toolBox,because it is created at the end of the process once all cost items are known.As job costing uses the actual real costs for each order,style or customer,one needs to determine these real costs.This would be easy to do if all the fabrics and trims ordered were consume

212、d for the specific order.However,this is never the case.Overheads also vary depending on the season and time of year.We therefore need to find accurate estimates for fabric and trim leftovers,as well as overheads.Job costing:Fabric In real life,there are difficulties with each of the items listed ab

213、ove.Lets first consider the fabric,where there are two interrelated problems.How does a factory account for leftover fabric?Imagine 50,000 metres is delivered and after cutting all orders for that fabric,there are 600 metres left over.The factory initially has two choices:Add the leftover fabric to

214、the fabric costs of the various styles on a pro rata basis;Add the additional fabric to the inventory,thus listing the fabric as an asset.To make a rational decision,you have to look at the fabric type.If the fabric is 125 g white jersey and the factorys business is T-shirts,of course the leftover f

215、abric can be added to the inventory;If the fabric is chartreuse rayon shirting with puce polka dots,which no future customer is likely to want,the factory has no choice but to add a pro rata cost to each unit produced.The Garment Costing Guide:for small firms in value chains 26 The second issue is h

216、ow to prorate the added cost of fabric across the styles that use the same fabric.This is the basic joint cost problem.There are again two choices:Apportion the cost of the fabric on the basis of consumption.For example:Total order 200 pieces each Short 100 m 2 styles:o A coat that consumed 3 m o Tr

217、ousers that consumed 1.5 m You would allocate as follows Coat 67 m o 67/200=3.33 m Trousers 33 m o 33/200=1.665 m Apportion the cost of the fabric on the basis of FOB price For example:Coat FOB price$30 Trouser FOB price$10 Allocate as follows:Coat 75 m/200=3.375 m Trousers 25/200=1.625 m Job costin

218、g:Trims Trim costing is more straightforward.While joint cost problems involving fabric are relatively unusual,those involving trim are extremely common and complicated.With the possible exception of customers labels,the cost of all purchased trim should be applied to the order.The leftover trim is

219、not included in the inventory for accounting purposes.However,it does exist and might be usable for future orders3.Job costing:Labour The factorys records will show how many sewers worked on the style,the number of days the sewers spent on it and the total wages received.Ancillary labour cutting,bun

220、dling,QC,pressing,packing,etc.must be added to this.The factorys accounts department has records of total wages for the designated period.If,for example,wages for the period totalled$1,000,of which sewers received$667,then for the purpose of wage calculations,ancillary wages may be estimated to equa

221、l 50%of sewing wages.These calculations should be based on a one-year period.This will prove to be very important.Job costing:Overheads There are two problems here:Breaking down overheads:As we have seen above,the factorys accounts department can provide data for total overheads for the period.The p

222、roblem is how to break down this total to overhead-per-unit.The simplest and most practical solution is to relate overhead costs to labour.We know that more sophisticated 3 Before ordering trim for any order,we should first check existing inventory and subtract the in-house quantities from any new t

223、rim orders.The Garment Costing Guide:for small firms in value chains 27 styles take longer than simpler styles,making overhead costs greater.We also know that labour costs per unit reflect the degree of difficulty.Therefore,we can calculate overheads as a proportion of labour.Seasonality:This is a m

224、ore complex problem.A factory is a closed-room operation with a maximum level of production.At some point production reaches 100%of capacity.At the same time,because our industry operates on a seasonal basis,there are months when production falls below capacity.Therefore,the annual average must be l

225、ess than 100%of capacity and as a result,we cannot base overheads on 100%capacity.Working with the accounts department,the factory can come up with a reasonable estimate for overall annual capacity.A reasonable overall annual Figure might be 70%,a Figure that we will be using for all subsequent calc

226、ulations.Keeping the job costing as it is this will still show the profit(or loss)for each style but will not show the total profit(or loss)for the company when carrying out profit and loss statements,we have to calculate the ratio of total overhead for each month against total overhead for all job

227、costings for the month and increase overhead accordingly.The job costing is a very important management tool.It provides important information not available elsewhere.Box 6 Cost sheet versus job costing The factory has an order for 10,000 pieces.Basic sheet:10 000 pieces Fabric(2 metres$2.00 per met

228、re)60%$60 000 Trim 10%$10 000 CM 25%$25 000 CM breakdown FOB 100%$100 000 Labour$6 410.26 Overhead$18 589.74 2.9 Total cost$95,000 Total revenue$100 000 Net profit 5.00%$5 000 However,the job costing,done once the order has been completed,tells a different story.Job costing:10,000 pieces Material 60

229、%$61 000 Trim 10%$9 300 CM 30%$2 8478 CM breakdown FOB 100%$100 300 Labour$6 169.87 Overhead$22 307.69 4 Total cost$98 778 Total revenue$100 300 Net profit 1.50%$1 522 The Garment Costing Guide:for small firms in value chains 28 Table 9 Which customer brings the greatest profit Customer Customer nam

230、e Total sales Gross profit Net profit Able$1 000 12.5%4.0%Baker$800 30.0%12.0%Charley$700 20.0%6.0%Delta$550 5.0%-3.0%Echo$400 16.0%1.0%Frank$320 16.0%2.0%Table 10 Which is the most profitable product Product(circular knit-cut&sew)Product Total sales Gross profit Net profit T-shirt$1 000 10.0%2.5%Po

231、lo shirt$700 15.0%4.5%Fashion Blouse$500 30.0%8.0%Dress$550 40.0%15.0%Table 11 High season versus low season Percentage garment exports by month Month 01 02 03 04 05 06 07 08 09 10 11 12%of Annual 8.6%7.3%5.2%5.8%6.6%8.4%10.8%11.8%11.1%10.2%7.3%6.9%Value($.000)859 735 522 582 656 836 1 081 1 179 1 1

232、13 1 021 729 687 10 000 In a world without seasons,business volumes would remain constant at 8.33%each month,because 8.33%times 12 months equals 99.99%.We can see from the table that exports in March were 50%more than in August,with the result that the overhead per unit more than doubled.Material:th

233、e factory ordered 30,000 metres of our well-known chartreuse shirting with puce polka dots but received 30,500 metres.The outstanding 500 metres was written off,with the result that the added cost of the leftover fabric(500 m$2.00 per metre)had to be added to the cost of material,making the total fa

234、bric cost$61,000 rather than$60,000.Trim:the factory enjoyed a 7%saving here because trim was available from existing stock at no cost.Labour:the factory did well here as well.The cost sheet listed production time at 40 minutes,but the actual production time was 38.5 minutes.Overhead:this was the bi

235、g loss.The cost sheet was based on$1.86 per unit(2.9 times labour)but due to the fact that the order was produced during a slow period,when total orders were less than capacity,the overhead increased from$1.86 per unit to$2.23 per unit.The Garment Costing Guide:for small firms in value chains 29 Fig

236、ure 11 PCT total exports by month Source:David Birnbaum The loss incurred during the low season is a major problem facing every factory and reducing that loss is everyones goal.There are two strategies for overcoming it,both are based on the fact that even in low season every customer has orders to

237、give out.The factorys goal therefore is to take a greater share of those orders.Become a strategic supplier:Every customer has factory suppliers that are so important that the customer will give that factory steady business.You must become a strategic supplier.Reduce your price:The lower your price,

238、the more competitive you become and the more business you will receive.To succeed,you must accept reality.In the low season you will lose money;by reducing your price you will still lose money,but less.Branch factories Factory groups with multiple branch operations should treat each branch as an ind

239、ependent unit.This allows management to compare the performance of one branch over another.There are important factors to consider:You do not want to subsidize the branch with work performed by the home office.For example,if the company provides product development,the added cost of product developm

240、ent should be added to the branch factory cost sheet.You do want the branch that performs special services to benefit from those services.For example,if the branch offers fast turnaround,both the added cost and profit should be included in the branch factory cost sheet.If the branch factory offers v

241、alue to the customer completely apart from its operations,such as close proximity or duty-free access,those benefits should be included in the cost sheet.Subcontractors For the purpose of costings,the relationship between the factory and the subcontractor should be the same as factory agent,with the

242、 subcontractor playing the role of a separate factory.As with any agent-factory relationship,gross profit should be calculated as a commission.Once again,you do not want to subsidize the work of the subcontractor.It is therefore important that all work provided by the parent company be part of the o

243、verhead to be deducted from the gross profit.As the industry progresses and the role of the supplier becomes increasingly important,qualified factories no longer have to accept any order,from any customer,at any price.In this new model industry,the factory will have choice.The data obtained from you

244、r job costing is indispensable when making the right choice,whether choosing one customer over another or one product over another.Equally important,the decision may be based on the customer and/or product that will provide orders in low season.5%6%7%8%9%10%11%12%0070809101112The Garment

245、Costing Guide:for small firms in value chains 30 Determining profit and loss There are two ways to determine profit and loss:Standard accounting:aggregates all items,e.g.,total revenue,total material cost,etc.Unit cost accounting:aggregates all job costings.Table 12 Standard cost accounting REVENUE

246、Total$7 355 000 Sales discounts$434 000 Sales returns$790 000 Net revenue$6 131 000 Cost of sales Opening inventory$5 204 650 Purchase materials$3 105 000 Purchase discounts$54 750 Purchase returns$566 750 Closing inventory$4 588 750 Total cost of goods$3 099 400 Gross profit/loss$3 031 600 EXPENSES

247、 Salaries/wages$600 000 Admin Electricity/water/phone$65 000 Rent$50 000 Insurance$25 000 Repair&maintenance$28 500 Office supplies$27 500 Depreciation equipment$6 250 Depreciation vehicles$50 000 Misc.$27 500 Total expenses$879 850 Other income/expenses Exp finance charges$1 500 Total$11 000 Net pr

248、ofit/loss$2 162 780 Unit cost accounting profit and loss Creating a unit cost accounting statement is relatively easy.You create a database that consists of the data in the job costing sheet.Once you have the database in place,you can obtain virtually unlimited information at the push of a button,fo

249、r example:profit and loss from October 17 to December 11.You can even customize your database by simply adding one more Box.If you are in the casual trouser business for example,you can add:Denim Other cotton fabric MMF fabric You employ one technician with IT knowledge,and you are ready to go.You c

250、an get the answer to questions such as:How much business did we do with ABC during the period April-November this year compared with last year?What was the profit per unit,for both periods?The Garment Costing Guide:for small firms in value chains 31 Chapter 3 Costing for value added services Labour

251、Calculating sewing cost is relatively easy and is dependent on two factors:the number of sewing minutes per piece and the sewing cost per minute.With one major exception,all sewing departments are made up of lines consisting of between 20-80 machines operated by semi-skilled,single-tasked sewers.Wit

252、h the exception of poorly managed factories(for reasons explained below)a line can produce only one style at a time.For example,an order of 10,000 woven cotton shirts produced in a line consisting of 50 machines,requires 13.5 days sewing time=40.5 minutes per piece.Table 13 Calculating sewing minute

253、s per piece No.days No.hrs No.min No sewers Min per pc 13.5 10 60 50 40.5 135 8 100 405 000 10 000 A sewer is paid$150.00 per month.Based on a 26-day month and a 10-hour working day,the sewer is paid approximately$0.01 per minute.Therefore,a garment requiring 40.5 minutes sewing,costs$0.389 per piec

254、e in terms of direct labour.Table 14 Calculating sewing cost per minute Wage month Per day Per hr Per min Per unit$150.00 26 10 60 40.50$5.77$0.577$0.010$0.389 Wages How wages are calculated is almost as important as how much the worker is paid.For the most part,the decision is based on how the fact

255、ory values the worker.Typically,wages are calculated three ways,as well as some more complex methods.Monthly pay Daily pay Piecework Monthly pay As a general rule the factory draws a distinction between staff who are paid a salary(by the month)and workers who are paid a wage(by the piece,the day or

256、the month).However,there is an important exception.Some factories will calculate wages on a monthly basis in order to show the authorities that their wage rates are above the minimum set by law.Of course,many of these same companies go into the grey economy by subcontracting orders to factories wher

257、e wages are well below the minimum.The Garment Costing Guide:for small firms in value chains 32 In the long run,these factories trap themselves at the bottom of the industry because they are unable to train their workers.As one factory owner put it,“Why should I train my workers?The moment they are

258、trained they will run away to work at a factory where wages are higher.”However,better trained workers create higher value,not only for the company but also for themselves.To keep the higher-valued worker,you have to pay them based on their value to the company.We think of this as a phenomenon limit

259、ed to the least developed countries,when in fact it is universal.Daily pay When considering daily versus monthly pay there is always a question of benefits.Does daily pay include any form of social security benefits?If not,how would this be reflected when comparing daily pay to the monthly salary?In

260、 theory,this is a very complex question because different countries have different rules governing different sectors and different categories of workers.The reality is much simpler.Factories providing information to the social security office do not always list their entire workforce.As a result,the

261、 whole question becomes moot.The factory need not pay benefits because as far as government is concerned,those workers not listed do not exist.For the most part,two worker categories are paid on a daily basis:Workers brought in for short periods to perform special tasks;Unskilled workers,such as thr

262、ead cutters,who might work for a few days or weeks and then quit.However,there is a third group that relates to a complex wage system.Piecework Piecework is illegal in many countries because factories may set piecework rates at an unfairly low level,while other companies may set quotas at unreasonab

263、ly high levels.However,at the very top,factories that view their workers as important human capital,will set piecework rates sufficiently high to keep their existing workers and encourage other qualified workers to join their factory.The result is a complex system including both daily pay and piecew

264、ork.Complex systems Successful factories divide workers into three groups:A B C.A potential sewer is hired and unlike the low-end,which will invest 2-3 weeks in training,the high-end factory will invest as much as 2-3 months.During this time the sewer is paid on a daily pay basis.C-class sewers:afte

265、r training,the worker joins a line,where they are still paid on a daily pay basis.However,while wages are paid on a daily basis,they are also calculated on a piecework basis.B-class sewers:at a certain point,typically 2-3 months on the line,the wage based on piecework exceeds the daily pay.At that p

266、oint,the worker shifts from daily pay to piecework.At some factories,the worker is actually reimbursed for the difference.On the other hand,workers that fail to achieve B-class status often have to leave.A-class sewers:in every factory there are sewer-superstars,either because of their ability to ca

267、rry out difficult work to high quality,e.g.,blazer-jacket sleeve setting;or because of their amazing speed.Piece rates for A-class sewers are adjusted to the point where often they earn more than their supervisors.The complex system works because factories have and keep the very best workers.Above t

268、he top:multitasked teams.The Garment Costing Guide:for small firms in value chains 33 If a factory organises itself with lines based on semi-skilled,single task sewers and their business is fashion garments at the designer level,their business will invariably fail,because:Smaller quantities reduce t

269、he number of machines in the line to the point where it can no longer be balanced;Quality demands become so high that the line cannot produce to the required standard or level.At that point the factory must change from single-tasked lines to multi-tasked teams.Box 7 The ultimate fast delivery We are

270、 a multitasked-team factory operating in Hong Kong,producing dresses for designer labels,My most important customer was Oscar,the leading couture designer in the United States at the time.I was not making their high-priced stuff dresses retailing for$5,000-$10,000 but rather their cheap,prt-porter d

271、resses retailing for$400-$600.One Sunday morning,Oscars partner Jerry telephoned me.He had a problem.They had an advertisement running the following Saturday for Saks 5th Avenue showing a style that we had not yet produced.Could we produce 550 pieces of the order,to arrive not later than Friday morn

272、ing New York time?The manager pointed out that all he could guarantee is everything up to the moment the finished goods left the factory.The ultimate question was therefore,could we produce 550 dresses in 24-hours?The manager called a meeting of senior staff and asked them.There was no question,the

273、job could be done.Wasnt this the worlds greatest factory?Any doubt of their super-competence would be an insult.How much do you want?The worlds greatest factory workers required 30 minutes to reach a consensus:triple pay.The following day was a day off Again,triple pay.Of course,everybody cheated.Th

274、e cutters worked from Sunday through to Monday morning.The goods were printed plaid and had to be blocked and nailed to the table.The factory day began at 9:30,but everybody arrived at 6:30.Even the manager had a role to play.His job was to provide cakes,soft drinks and tea.On Tuesday morning at 8:0

275、0 the truck pulled up to take the goods to the airport.Oscars partner was suitably impressed and offered to pay a bonus,which the manager of course refused.After all,we were the worlds greatest factory.The total cost was under$8,000,but the reward was worth millions.Once again,we proved to ourselves

276、 that we were indeed the worlds greatest factory.For us,doing the impossible was all part of a days work.You too can create the worlds greatest factory The Garment Costing Guide:for small firms in value chains 34 The multitasked team requires an entirely different structure,one that is totally indep

277、endent and is self-managed.The closest example would be that of a sub-contractor who uses your machines.In a well-organized team system,the factory no longer pays wages but rather,as with any sub-contractor,pays one amount for the entire order,which the team divides up as it sees fit.Caputuring valu

278、e in cost sheets The unlearning experiences It is worth repeating once again:our industry faces a serious problem.Increasingly,the decisions we make do not always deliver the solutions we expect.The purpose of this book is to encourage a new way of approaching the decision process.Ironically,this bo

279、ok provides no new information.Everything outlined here is well known to professionals on both the supplier and customer sides.The real problem is that in order to understand these new concepts,we must first put away our current ideas of how the industry operates and how we must operate in the indus

280、try.We may not be able to calculate costs accurately,but as we have seen above,the job costing will provide a reasonably close estimate of costs.Price may not be calculable because it is based on value,which is subjective and may not even be rational.And in any case,a buyer is not necessarily intere

281、sted in cost.You go to a pharmacy to buy toothpaste,or a car dealership to buy a car.You do not care how much Colgate or Porsche paid for materials and manufacturing;you only consider that The item is worth the price.What is true for you when you buy toothpaste,or a car is equally true when you buy

282、50,000 woven shirts.The only difference is that for cost to value analysis Cost and value must be calculable.The challenge of the basic cost sheet The reality is that there is no such thing as a cost sheet because there is no such thing as the cost of any style.The cost of any style cannot be fixed

283、because other external factors can change the cost:The factory:Each factory will have its own unique costs because each factory has its own unique structure and system think productivity.The order:Quantity directly affects cost.The cost per garment for an order of 100 pieces is greater than the cost

284、 per garment for an order of 1,000 pieces;while an order for 1,000 pieces is greater than the cost per garment for an order of 10,000 pieces;and an order for 10,000 pieces is greater than the cost per garment for an order of 100,000 pieces,and so on ad infinitum.Date:The cost per garment in low seas

285、on is less than the cost per garment for the same style in high season when the factory faces capacity issues,availability of materials,etc.What you pay for an item may not be the total cost.To take the simplest case,you may pay 10 for a zipper,but as we will see below,the cost of that zipper may be

286、$10.00.This is not theory.The cost to value cost sheet The cost to value cost sheet is all about change.It is divided into two parts:the before and the after.This table shows the cost to value cost sheet format.Because there is not before and after,both sides of the table are identical.When we apply

287、 the format to different factors the changes will become apparent.For the purposes of calculation,wherever possible we will use these same cost factors and assume the product to be a woven cotton shirt.The Garment Costing Guide:for small firms in value chains 35 Table 15 Cost to value cost sheet No

288、added services Added services Cost factors Cost Price Cost factors 1 Material$6.00$6.00 2 Trim$1.00$1.00 3 CM labour$0.64$0.64 4 CM overhead$1.86$1.86 5 CM total cost$2.50$2.50 6 Added cost 7 Total cost$9.50$9.50 8 Added profit 9 Factory profit$0.50$0.50 10 Total FOB cost$10.00$10.00 11 Agent commis

289、sion 5.0%$0.50$0.50 5.0%12 Freight$0.25$0.25 13 Duty 16.2%$1.62$1.62 16.2%14 Clearance$0.10$0.10 15 Transport$0.15$0.15 16 Total delivery duty paid(DDP)$12.62$12.62 17 Product development cost centre 20.0%$2.52$2.52 20.0%18 Distribution cost centre 5.0%$0.63$0.63 5.0%19 In-store$15.78$15.78 20 Marku

290、p 75.0%$47.03$47.03 75.0%21 Retail$63.10$63.10 22 Markdown 35.0%$22.09$22.09 35.0%23 Net retail$41.02$41.02 24 Net retail profit 40.0%$25.24$25.24 40.0%An explanation of the rows in the cost to value cost sheet:1-10:the basic cost sheet;6:added costs for the work.Every new service increases factory

291、cost;8:added profit(value).Every new service provided,against which the factory is entitled to higher profit;11-19:the cost of items up to in-store arrival.Here there is one important consideration:17:the product development cost centre.Customers can calculate the total cost of product development f

292、or any particular period because they have the data,e.g.total wages,total overhead,total material costs,etc.However,the customer cannot break down these costs on a per unit basis.This is because the cost of each factor,such as sample making,is fixed and therefore changes with the number of units in

293、the order on a per unit basis.The cost of product development also changes with each product type.For example,it is greater for an overcoat than for a handkerchief.The solution is to relate the product development cost with DDP,since changes in DDP are similar to changes in product development.The c

294、onclusion may not be 100%accurate;however,the The Garment Costing Guide:for small firms in value chains 36 customer only cares that the aggregate is approximately the same as the total product development cost for the period.20-24:cost of items up to retail sale of last piece.Cost factors:this is th

295、e data on which the calculations are based.For example,agent commission=5%.For the purposes of this guide,the Figures are arbitrary and should be replaced with real data.Duty:16.2%reflects the United States of America duty HTS 6205.20.20 for mens cotton woven shirts.Cost savings Every effort on the

296、part of management to increase profit by reducing costs can be divided into two parts:Added cost:the investment of time,effort,and capital;Added value:the profit derived from the investment.When the cost of the investment is paid for by the company and the value received goes back to the same compan

297、y,we define this as intrinsic cost savings.These cost savings can be based on work either by the customer or the supplier,but because they are intrinsic costs these cost savings are transferable to the other side.Work carried out by the factory benefits only the factory,whereas work carried out by t

298、he brand or retailer customer benefits only that customer.The customer side Cost savings may come from different areas:Expansion to new markets;Added products;Introduction of new technology;Garment cost reduction.The factory side Cost savings may come from different areas,the two involving increased

299、 productivity are the most relevant to our work:Capital investment in high-tech equipment;Capital investment in worker training.Investment in high-tech machinery Assume a machine that costs$25,000 will do the work of four sewers.This sounds pretty good.With enough investment,a factory with 200 sewer

300、s could be reduced to 50 sewers.But lets take a closer look at the numbers.Lets assume the following:The cost of the machine will be amortized over a period of 5 years=$5,000 per year;Interest at 5%=$625 per year;The Garment Costing Guide:for small firms in value chains 37 Cost=$5,625 per year;Cost

301、per month=$468.75.Table 16 Investment in capital equipment replaces four workers on a wage of$150/month Machine cost Annual amortization Interest Cost per annum Per month 5 years 5.0%$12.00$25 000.00$5 000.00$625.00$5 625.00$468.75 To calculate the capital cost per minute,we divide the total number

302、of working minutes per month(10 hrs/day x 26 days/month=15,600 minutes).This comes to 3cts/minute.The capital cost of a 40-minute garment is therefore$1.20.Capital cost per unit(40 min/per garment)Per month Per minute Per unit$468.75$0.03$1.20 Table 16 shows how the investment in one machine that re

303、places four workers breaks even on a per-unit basis.For the cost sheet,we use material and trim costs multiplied by four,because we are talking about the work done by four workers.Capital investment stays at$1.20,because there is only one machine.We then should calculate the sewing labour cost per u

304、nit.Here we go back to the 15,600 minutes/worker,per month,divided by the$150/month wage.This works out at 0.96/minute or 38 per 40-minute garment.Sewing labour only represents part of the CM total labour,about 60%.The rest is made up of labour from other departments(cutting,pressing,packing,etc.),w

305、hich is not affected by capital investment calculations.CM overhead remains the same because the number of units produced is unchanged,only the number of workers decreases.Table 17 Capital Investment when one machine replaces four workers Without capital investment After capital investment Cost fact

306、or Cost Cost Cost factor Material 60%$24.00$24.00 Trim 10%$4.00$4.00 Capital investment$0.00$1.20 CM labour sewing$1.54$0.38 CM labour other$0.77$0.77 CM overhead*$6.69$6.69 FOB$37.00$37.04-$0.04*CM overhead calculated at industry average of 2.9 x total CM labour But there are other issues to consid

307、er.How many factories in developing countries have access to funds for capital investment?To make matters worse,we havent even factored in the cost of maintenance yet.Furthermore,the 50 remaining workers would not be illiterate,semi-skilled sewers,but rather university graduates with engineering deg

308、rees.And if we are located in one of the least-developed countries,we have The Garment Costing Guide:for small firms in value chains 38 to ask ourselves whether we could find qualified engineers in our area,and if so,how much would we have to pay them.There is a good reason why new technology is onl

309、y successful in factories located in industrialized countries.Imagine you are one of these factory owners.You face the same problems.Wages are rising and unlike your counterpart located in a developing country,who can no longer afford to pay his workers$150 a month for a 60+hour week,you are paying$

310、3,000 a month for an eight-hour day,five days a week.Your situation is very different.In your case the machine is cheaper than the worker.Your$25,000 capital investment is almost paid off when it replaces one worker.You begin to see real savings when it replaces two workers.Table 18 Capital investme

311、nt when one machine replaces two workers No capital investment With capital investment Cost factor Cost Cost Cost factor Material 60%$12.00$12.00 Trim 10%$2.00$2.00 Capital investment$0.00$1.20 CM labour sewing$17.79$8.89 CM labour other$8.89$8.89 CM overhead$26.68$26.68 FOB$67.36$59.66 Factory savi

312、ngs$7.70 From these calculations,it is obvious that many manufacturers in high labour cost countries will benefit from the current high-tech revolution.But there are exceptions.For example,for products such as sweaters and hosiery,computerized machinery can reduce the number of workers to the point

313、where capital investment could be amortized profitably even in the least developed countries(LDC).Similarly,manufacturers in middle-income countries can invest profitably in some high-tech machinery,such as computerized laser cutting and computerized garment sorting,to provide pick and pack services

314、.Investment in worker training There is a vast difference between productivity in industrialized countries and the garment exporting countries located in the developing and least developed countries of the world.In industrialized countries,a 2-3%increase in productivity is considered to be very good

315、 news.While,in many garments exporting countries productivity remains very low.However,a garment that requires 40 minutes in most countries can be produced in 20 minutes in China.We have seen productivity increases of 25%are possible in low productivity countries in a few short months provided the f

316、actory has access to world-class engineers and is willing to make the investment.In industrialized countries,where labour rates are high and overheads relatively low,the benefit of higher productivity is reduced labour costs.In most garment producing countries,where labour rates are very low and ove

317、rheads relatively high,the greatest benefit of increased productivity is reduced overheads.For the purpose of our calculations,we will assume the following:Labour cost=64 per garment(40 minutes at 1.6 per minute);Productivity at 50%=40 minutes per garment(based on China=100%);Pieces per machine,per

318、day before productivity increase=15(600 mins/day 40 minutes per garment);The Garment Costing Guide:for small firms in value chains 39 After 25%increased productivity=32 minutes per garment and 18.75 pieces per machine,per day;Cost of training=$250,000 or$2,083.33/month(amortized over 12 months);A 25

319、0-machine factory at 30 minutes per garment has a capacity of 130,000 units per month(250 x 26 days x 20 units/machine/day);Estimating average production at 75%capacity,the factory will produce 97,500 units per month;Cost of training per unit($2,083 97,500)=21.Based on a cost of$250,000 for the trai

320、ning,the cost rises by 21 per unit.At the same time,labour cost falls by 25%per unit,or 13.More importantly,since overhead is calculated as a factor of labour,the overhead per unit also falls by 25%,equalling 61 total overhead savings.Furthermore,once the training has been completed,the cost of refr

321、esher training in subsequent years falls considerably.Table 19 25%increased productivity from 40-30 minutes per piece No worker training With worker training Factor Cost Cost Factor Material 60%$6.00$6.00 Trim 10%$1.00$1.00 CM labour$0.64$0.48 75%CM overhead$1.86$1.40 75%CM total cost$2.50$1.88 Adde

322、d training cost$0.00$0.21 Total cost$9.50$9.09 Total revenue$10.00$10.00 Profit 5%$0.50$0.91 9.1%The Garment Costing Guide:for small firms in value chains 40 One of the most difficult concepts related to productivity is reduction of overheads.We can understand that increased productivity results in

323、reduced labour cost because by reducing the number of minutes from 40 to 30,we can produce a greater number of garments within the same time.What is true of labour is equally true of overheads per unit.The total overhead for the period remains the same,but since the number of garments produced in th

324、e period rises,the overhead per unit decreases.There is yet another advantage to training workers to increase productivity.In a world where there is constant pressure for higher wages,factory management may decide to return the 16cts of cost savings to the workers,effectively increasing wages by 33%

325、.The factorys profit would be reduced to 75cts,but it still represents 7.5%of FOB and is 50%higher than their 5%profit previously.There is an argument that worker training fails where high worker turnover exists.This is a valid concern,after all you do not want to invest in worker training that will

326、 benefit your competitor.However,it does beg the question,why are you losing workers in the first place?What should you be doing to retain them?Increasing worker productivity does not depend on developing new skill sets alone,but more importantly,on worker empowerment.In this scenario,the worker bec

327、omes the factorys greatest capital asset,and it is for precisely this reason that investments are being made.We recognize that cost sheets must provide both comprehensive and accurate information.There is yet another equally important consideration.Full value cost sheets may involve thousands of mat

328、hematical relationships and millions of pieces of data.This is easy for the computer,but most people need everything boiled down to a one-page report that answers a specific question in a readily understandable manner.So ideally when the salesperson comes to sell you a robotic piece of machinery,as

329、the factory owner you should be able to go to your computer with a simple request:Box 8 Productivity comparison and standard allowed minutes The search for an international standard of number of minutes per garment:This standard does not exist.Professionals have unintentionally created an artificial

330、 index of productivity where China equals 100,against which all other industries and factories can be measured.We have to ask ourselves:What China?Is this the highly efficient factories of the Shanghai area and Pearl River Delta,or is this the inefficient factories of Gansu and Anhui?What factories?

331、Is this the modern high-tech operations or the old ramshackle state-owned enterprises(SOE)?The origin of the China=100 myth comes from professionals who many years ago were sent by Hong Kong,Taiwanese and Korean factory groups to set up factories in the Pearl River Delta,adjacent to Hong Kong.Their

332、efforts led to very successful and highly efficient operations,with the result that when these same professionals were retained to set up factories elsewhere,their goal was to replicate their successes in China.Product(Average)(Range)1 T-shirt 8 6-12 2 Polo shirt 15 10-20 3 Dress shirt 21 17-25 4 Ta

333、ilored trousers 35 25-50 5 Hoodie 45 35-55 6 Blazer jacket 101 70-135 7 Blouse 18 15-45 8 Bra 18 16-30 The Garment Costing Guide:for small firms in value chains 41 You:“Irving,this guy wants to sell me a machine for$250,000,which will take the place of four workers.Should I buy it?”Irving,the computer:“Are you out of your mind?Replacing just four workers gets you nowhere.The machine would have to