Garments Costing in Textile Production Cluster

Annual Business Planning (ABP) predicts numbers of styles from target buyers and their ‘order volume’ too. ABP assists in their Pre-costing
by knowing (weighted) average of SM, FOB and RM consumption including fabrics.

Key Concepts in ABP and Pre-Costing

1. SMV (Standard Minute Value): This represents the time (in minutes) required to produce one garment, based on standard operations. It’s a critical input for calculating labor costs and production capacity.
2. FOB Price: The price of the garment at the point of shipment, excluding freight and insurance but including production costs and margin.
3. RM (Raw Material) Consumption: Includes fabrics and other materials used in production, quantified as a ratio or total cost.
4. CM (Cost of Making): This is the cost associated with manufacturing the garment, calculated as:
   • CM = (SMV × Minute Cost) + Net Margin
   • Minute Cost is the cost per minute of labor, factoring in wages, overheads, and efficiency.
   • Net Margin is the profit component added to the CM cost.
5. Total Garment Price: Sum of RM cost (including fabrics) and CM cost.
6. Efficiency: The actual performance compared to the standard (pre-costed) SMV. Higher efficiency reduces the actual SMV, lowering labor costs.

ABP’s Role in Pre-Costing

ABP predicts the number of styles and order volumes from target buyers, enabling pre-costing by estimating:

Expected SMV: Time required per garment, which helps calculate labor costs.

FOB Price: Agreed selling price with buyers, which determines revenue per garment.

RM Consumption: Weighted average of material usage (e.g., fabric, trims) to estimate material costs.

CM Cost and Achievement: CM cost is the labor cost per garment, while CM achievement reflects the actual margin earned after production.

By estimating these, ABP helps calculate the producing/delivering hour (the hours needed to manufacture garments) and the earning per hour sold (revenue generated by selling the produced hours at the agreed FOB price).

Technical Assessment of Pre-Costing

Pre-costing involves calculating the CM and total garment price before production begins. The goal is to ensure profitability by balancing RM costs, CM costs, and margins. The technical assessment focuses on optimizing these costs through:

1. Reducing SMV at Execution Stage:
   • Streamline operations (e.g., improve sewing techniques or workstation layout).
   • Use time-saving technologies or automation.
   • Train workers to increase skill levels, reducing the time per operation.
   • Example: If SMV is reduced from 10 minutes to 8 minutes per garment, the labor cost (SMV × Minute Cost) decreases, increasing CM.
2. Reducing RM Cost:
   • Optimize fabric usage (e.g., better marker efficiency to reduce wastage).
   • Negotiate better prices with material suppliers.
   • Use alternative materials with similar quality but lower cost.
   • Example: Reducing fabric consumption by 5% directly lowers the RM cost, improving the overall margin.
3. Increasing Efficiency:
   • Efficiency compares actual production time to the standard SMV. Higher efficiency means producing more garments in the same time, reducing the effective CM cost per garment.
   • Example: If pre-costing assumes 80% efficiency but actual efficiency is 90%, the labor cost per garment decreases, boosting CM.
     
     
     

Formulas Recap

CM Cost = SMV × Minute Cost

CM = CM Cost + Net Margin

Total Garment Price = RM Cost (including fabrics) + CM

FOB Price = Total Garment Price (aligned with buyer’s agreed price)

Efficiency Impact: Actual SMV = Standard SMV ÷ Efficiency (e.g., at 90% efficiency, a 10-minute SMV becomes ~11.11 minutes in planning but can be lower if efficiency improves).

Practical Example

Suppose:

SMV = 10 minutes per garment

Minute Cost = $0.05

Net Margin = $0.50 per garment

RM Cost = $5.00 (including fabric)

Efficiency = 80% (planned)

Calculations:

1. CM Cost = SMV × Minute Cost = 10 × $0.05 = $0.50
2. CM = CM Cost + Net Margin = $0.50 + $0.50 = $1.00
3. Total Garment Price = RM Cost + CM = $5.00 + $1.00 = $6.00
4. FOB Price = $6.00 (assuming it matches the buyer’s agreed price)

Optimization:

• If SMV is reduced to 8 minutes (via process improvements):
  • New CM Cost = 8 × $0.05 = $0.40
  • New CM = $0.40 + $0.50 = $0.90
  • New Total Garment Price = $5.00 + $0.90 = $5.90
  • This saves $0.10 per garment or allows for a higher margin.
• If efficiency increases to 90%:
  • Effective SMV = 10 ÷ 0.9 ≈ 11.11 minutes (planned), but actual production time decreases, reducing labor costs.
• If RM cost is reduced by 5% (e.g., $4.75 instead of $5.00):
  • New Total Garment Price = $4.75 + $1.00 = $5.75, improving competitiveness or margin.

Key Takeaways

ABP enables proactive planning by forecasting styles, order volumes, and costs, ensuring alignment with buyer expectations.

Pre-costing relies on accurate SMV, RM consumption, and efficiency estimates to set profitable FOB prices.

CM Optimization can be achieved by reducing SMV, lowering RM costs, and improving efficiency, all of which increase margins or allow competitive pricing.

Technical Assessment involves analyzing these variables to fine-tune costs during execution, ensuring CM achievement exceeds planned levels.

Expected SMV
 FOB/ Garments Price

Basically, we determine ‘producing/delivering Hour’ needed to earn by selling produced hour.
So, the expected level of earning by selling ‘Hours’ can be determined at an agreed price with buyers.

 RM Ratio
 CM Cost
CM Achieve
 Consumption

Cost of consumed RM include fabric + CM = Total Garment Price
CM = CM cost + Net Margin
CM = (SM X Minute Cost) + Net Margin

Technical Assessment of Pre-Costing (Technical Costing)
CM can be increased by
1. Reducing SM at execution stage and
2. Reducing RM Cost
Similarly, CM cost can be decreased by higher “Efficiency” than that of the Pre-Costing