Cost control – How does it’s works?

Dhaka 23.11.2012

GHERZI GARMENTING

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Breakdown of cost (Turkish producers of knit products T-shirt, polo’s complex designs)

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Breakdown of cost – (Turkish producers of woven bottoms products – complex washed designs)

On top of the cost, an average of 5 -10% profit margin will be applied

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Breakdown of cost (Bangladesh producers of knit products T-shirt, polo’s basic designs)

Raw material -fabric 60%

Raw material -accessories 6%

Manufacturing 20%

Special operations 6%

Administrative 3%

Waste 5%

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WHAT TO DO TO GET PROFIT ?

1. Instead of bargaining with clients over the prices you better concentrate on reducing your costs !

2. Optimize the existing activities and processes

3. Invest and change the technologies

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HOW TO OPTIMIZE EXISTING PROCESS ? – concentrate on major costs

1. Fabric costs – FABRIC IS MONEY !!!!

2. 2nd quality ratio – OFF QUALITY IS LOSS !!!!

3. Manufacturing costs – especially sewing

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Fabric costs

Set up Wastage levels for cutting

room• End Losses• Wastage

levels linked with fabric quality (4 POINT SYSTEM)

• Marker efficiencies

• Extra quantity cut by cutting room against the PO quantity

Cutting technologies

• Overlapings• Replacing

defected pieces

Delivery of exact quantity of

fabric to the cutting room

• Calculation of the exact quantity of fabric needed to cut the exact quantity of pieces

• Releasing from the fabric warehouse the exact quantity of fabric

• Make cutting room manager responsible of any mistake in fabric missusage

FABRIC OPTIMIZATION

procedure

• Corelation between usable fabric widths and markers

• 2 cm increasing in marker width means 1 % fabric reduction

Reducing LANDED COSTS• Usually the

biggest interest from the managers side in bargaining

• Considering always the LANDED COST comparison instead of using the exWORK price comparison

Less than 7% of the personnel is responsible for more than 55% of the costs

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2nd quality ratioProduction costs Pricing – 2% Production – 7%Fabric consumption 1.25 mts/pcs 1.25 mts/pcsFabric landed cost 3 USD/mts 3 USD/mtsSAM 22 min/pcs 22 min/pcsMinute cost 0.05 USD/min 0.05 USD/minAccessories cost 0.25 USD/pcs 0.25 USD/pcsWashing cost 0.45 USD/pcs 0.45 USD/pcsAdministrative costs 10% 10%

6.10 USD/pcs 6.10 USD/pcsProfitability 20% ???2nd quality 2% 7%SELLING PRICE 7.32 USD/pcs 7.32 USD/pcs

Profitability

2nd quality

Pcs to be produced in order to deliver 100 to the clients

102 pcs 107 pcs

Costs of producing 622.2 USD 652.7 USDValue cashed from client 732 USD 732 USDUNIT COST 6.22 USD/pcs 6.52 USD/pcsProfit 109.8 USD 79.3 USD

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Production Manufacturing costs

Cutting

• Get the update cutting technology (semiautomatic spreading & automatic cutting head

• Eliminate helpers

Sewing

• Eliminate helpers / Target the Indirect/direct ratio

• Use devices for productivity enhancement

• Improve workstation engineering / get the automatisation machinery

• Focus on sewing efficiency

Finishing & Packing

• Avoid ‘pilling’ the goods

• Avoid double work

• Have the REPAIR TEAM set in place

Generalities

• Indirect / direct ratio targeted

• Using ERP systems for Production Planning

• Concentrate on reducing faults during the process / reinforce the Quality Assurance team

More than 70% of the personnel is responsible for less than 20% of the costs

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Sewing cost – case study

Stages No of people

No of working

minute daily

SAM Overall efficienc

y

Daily output

BEFORE 70 600 35 50% 600Stage 1 – Transformed helpers into sewing operators 70 600 26 50% 800

Stage 2 – Introducing devices for enhancing the productivity (folders, lasers, APG tables, trolleys)

70 600 24 50% 875

Stage 3 – Implementing automatisation machineries (welt pocket setting, back pocket face settings, darts, overlock serging, J seam) & Cancel the overtime

70 480 22 50% 760

Stage 4 – concentrate on increasing overall efficiency 70 480 22 75% 1.145

First concentrate on eliminating the losses

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Shape up your production based on realities

Progressive Bundle system

LEAN system

Modular system

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Cost Control system – where is Bangladesh focusing?

THERE IS ANY

PROFIT ?

PRICING• Past history

performances• Estimations of future

evolutions (prices or performances)

COST CONTROL• Based on reality• Real fabric & accessories consumption• Real LANDED PRICE of fabrics and

accessories• Real SAM• Real overall efficiency• Real working time spend for that order• Real 2nd quality level

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How you implement Cost Control mecanism?

Splitting Factory into

PROFIT CENTRES

Calculating exactly the monthlycost per each

PROFIT CENTRE

Calculate the COST

PER ORDER linked with

the monthly cost

Share the results with the TEAM – Distribute

responsibility

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How we achieve cost control at the level of the company?

DELEGATE

• Merchandisers to calculate correctly the price and get the correct price with the customer

• Purchaser to fit with the LANDED COST

• Cutting to respect technological discipline and obtain the consumption

• Production to achieve efficiency, and respect the 2nd quality

• Management to respect the cost cutting policies

PUSH

• Give clear targets to reach

• Motivate people with bonuses to reach those targets

• Be with them and help them to solve problems

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Conclusions

It is not hard when YOU KNOW what you have to do !

Profit IS THERE but you need to be able to see it

Transferr the cost responsibility to the middle management. Make them accountable

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THANK YOU !!!

Consultant to Garmenting & Textile Industry

www.gherzi.com www.facebook.com/gherzi.garmenting