Fashion merchandising: garment costing (2024)

Introduction:

Cost typically can be defined as’ the economic value placed upon the resources consumed to make a product.’ Costing is the process of estimating and then determining the total cost of producing a garment, including the cost of materials, labour and transportation as well as the general expenses of the operating the business. Merchandiser has to have thorough understanding of costing. There are several reasons where cost plays the vital role. Merchandiser does the costing mainly for two purposes.

Prising of the garment: If manufacturer selling the garments directly to the end consumers then it’s very important to estimate the cost very accurately. Prising of the garment can be done by manufacturing cost added with estimated mark-up or profit % to it.
Order acceptance: If manufacturer is exporting the garment, the costing is base of the business. On the basis of cost of manufacturing including wages, operating expenses and transportation and freight charges, and profit margin of company, merchandiser claims the cost of unit garment. With this cost merchandiser negotiates with buyer and decides whether to accept the order or not.

In order to do perfect garment costing, one must know about all the activities including purchase of fabrics, sewing, packing, transport, overheads, etc. and also about their costs, procedures, advantages and risk factors. Merchandiser must be aware that there are always fluctuations in the costs of raw materials and accessories, charges of knitting, processing, finishing, sewing and packing, charges of transport and conveyance. The method of making costing will vary from style to style, as there are many different styles in garments.

Components of cost of garment:

In continuation of the other functions Production merchandiser is also required to do the costing of the product. The costing is done by keeping in mind the cost of the various raw materials, operating cost of the company, the competition and expected profit of the organization. At the same time, it is necessary to keep in mind the buyers costing expectations.
The components on which cost of garment depends is as follows

• Fabric
• Trims
• Cut Make & Trim charges
• Value added services: printing, embroidery, washing, applique
• Testing of the garment
• Quality
• Transportation and logistics cost
• Profit of the manufacturing organization

All these components of garment cost depend upon certain parameters which drastically affects above cost parameters. These parameters plays vital role when production merchandiser does the costing of garment; as these parameters are very dynamic and keep fluctuating frequently.

The parameters that affect the garment cost mostly are; Unit of Measurement, MOQ, Incoterm decided between raw material vendor and garment manufacturer, order quantity, etc.

Fabric:

Fabric is generally the most significant factor in costing of garment. Fabric accounts for 60 to 70% of the total cost of basic-styled garments .In many cases, evaluating the quality and the quantity of fabric consumed in the garment indicates better than any other factor the cost of producing it. The cost of fabric depends upon the type of fabric is going to be utilised in the garment. Types of fabrics are

Woven/knitted fabric

Power loom/automatic loom fabric

Fibre/yarn/fabric dyed fabric

Fibre content of fabric i.e. cotton, wool, polyester, silk, blended fabric etc.

Type of dyeing and finish used

GSM/Weight of fabric.

Type of yarn used i.e. ring spun, open ended, or carded/combed etc.

The parameters that affect the fabric cost

UOM: Unit of Measurement (UOM) is a quantity used as a standard of measurement. The Unit of Measurement for woven fabric is normally in meters or yard, while knitted fabric measured in Kilograms or some time it is in yards also. Merchandiser should aware of unit of measurements while finding out the cost of fabric. Sometimes buyer specifies the UOM of fabric.

MOQ: Fabric Minimum Order Quantity (MOQ) is nothing but the smallest quantity of a product that a fabric manufacturer can supply. The MOQ depends on the type of fabric and on capacity of vendor. The MOQ plays the important role while ordering the fabric as it directly affects the cost of garment. If the order of fabric is below the estimated MOQ then vendor charges more cost as compared to regular charges. Merchandisers need to keep the MOQ in mind while doing the costing of small quantity orders.

Order quantity: The cost of fabric may vary with the order quantity, more the order quantity; cost of fabric can be optimised till certain level. But this is again depends on the type of fabric required and fabric manufacturer capacity along with negotiation between fabric buyer and supplier.

Incoterm used: This factor makes the huge difference in fabric cost. While importing the fabric from another country merchandiser need to deal with the supplier for delivery of the fabric on the basis of incoterms like EXW, FOB, CIF, DDP etc. based on which it will be decided that who will bear the cost of transportation and risk. No matter which incoterm is used but all the cost needs to be charged to buyer. If fabric is getting purchased by using EXW incoterm then merchandiser needs to add the transportation cost along with the custom clearance charges along with the price of fabric while calculating the garment cost.

The cost of fabric can be calculated by following way

Yarn cost + fabric manufacturing cost (knitting or woven) + dyeing cost + finishing cost= total fabric manufacturing cost

Dyeing cost indicate that if fabric is yarn dyed or fibre dyed or piece dyed respective cost will be added depending upon fabric type. Finishing cost included heat setting cost, normal finishing, compacting (knitted fabric) etc.

Cost calculations of fabric in garment:

Considering the knitted fabric and t-shirt as an end product, then fabric consumption can be calculated as

And for woven fabric and shirt as an end product, then the fabric consumption can be calculated as

These methods are used to calculate the fabric consumption roughly at sampling stage by merchandiser. These formulas will give approximate calculation for pre costing stage of the garment. Sometimes fabric consumption is also done by forming the miniature marker by CAD department. Following are the constraints of fabric consumption

Fabric cuttable width, repeat size, pattern type to be informed to the CAD along with buyer tech-pack in order to calculate exact width and consumption.

The marker efficiency considered 80-85% depending upon the fabric type i.e. solid dyed, stripe, checks fabric.

Efficiency can be changed depending upon the fabric parameters, matching parameters of the buyer, type of style.

The buffer in the consumption should be added to the fabric by merchandiser, generally it is 0.03-0.08% of total fabric consumption.

In case of trim fabric i.e. interlining the 10-20% more buffers is kept while ordering the interlining, in order to maintain the inventory and to avoid the shortage during the production.

Fabric wastage percentage to be added in calculating fabric consumption. Considerable wastage depends on factory practices, type of fabric and type of garment.

Trims

Trims include all materials other than fabric used in the garment. For example most garments have accessories such as threads, buttons, zippers, labels, elastics and miscellaneous items. Quality and quantity of trim and labour required to apply it on garment are directly related to cost of garment. The different trims have different UOM; even same trim can have 2-3 different UOMs that can be summarised as

Table 1 UOM of Various Trims used in Garment

Other factors that need to consider while calculating the trims cost is MOQ, order quantity, lead time and quality of raw material used to make the trims.

Thread: After fabric, thread is another component which needs to be considered for calculating the cost of garments most. The consumption of thread is calculated by IE department. It is dependent upon the type of seam and SPI. While ordering the thread the operation break down and number of sewing M/c for that particular style should be taken in account. Accordingly number of cones of thread needs to order. In order to calculate thread consumption special software’s are also available which gives the accurate thread consumption.

Sometimes thread can be computed as while preparing the sample, initial weight of thread cone is measured and after preparation of sample again weight measured. The difference of weight gives how much thread is consumed, and converting it into meters will give actual thread consumption for that particular garment. While ordering thread it’s important to consider the wastage, normally which is 10-15%.

Labels: Several labels are used in garment i.e. main label, care label, content label, the cost of label depends upon make of label i.e. fibre content, printed, jacquard label, size of labels, colours used in label, etc. for a unit garment label cost may not play a significant role but in case of mass production it plays vital role. The other factors that are important while ordering the labels are MOQ, order quantity.

Zipper: zippers also has several types like metallic zipper, nylon zipper etc. which plays the drastic role in cost of zipper. Merchandiser should be aware of the parameters of zipper for accurate costing and negotiation. MOQ is the parameter which affects the cost of zipper considerably; at certain MOQ only zipper will get at desired price.

Buttons: Buttons can be made up of different types, nylon buttons, plastic buttons, acrylic based buttons, wood, shell, metal. Every type of button has its own MOQ decided by manufacturer of button. Buttons are purchased on gross with the ligne specified.

1 gross = 1 packet =144 buttons= 12 dozens

Polybags: The cost of poly bag is highly dependent on thickness, dimension and raw material used. The poly bag ordered in terms of number of pieces. The cost of poly bag is equally important as it give significant difference when we consider the whole order quantity.

Cartons: Same like poly bag cost of cartons are highly dependent on material used and dimensions. Depending upon these factors cost of cartons is decided, the UOM of cartons generally is number of pieces while cost varies with MOQ. These are procured based on the number of plies, dimensions of the carton and GSM of the paper used to make the carton. Generally the number of plies used in carton box is 3, 7 and 9 ply. For example: 9 ply, 60 X 40 X40, 4 side calico, 1 side print and 180 GSM.

Hand tags: Hand tags or price tags are used as packing material, the cost of hand tags are dependent upon material used, printing on it, and MOQ.

Shanks and rivets: Generally these trims are made up of metallic, the UOM of rivets and shanks is gross and No. of pieces respectively. The cost of shanks and rivets is dependent upon the MOQ and material used.

Hangers: Hangers are made up of generally hard plastics sometimes wood, the cost of hanger is depend on material used, size, print and colour on it. Generally transparent hangers are more costly than coloured one.

Taps and Velcro: Tapes are purchased based on the width and mobilon tapes are purchased in kg. Thus increase in width by 100% increases the cost by 80%. For satin tapes increase in width by 150% increases the cost by 250%. Another factor that affects cost is MOQ.

Trims charges are generally calculated as for the different type of sourcing and mode of transportation.

If shipment is by air then the trim cost + 15-25% more cost is quoted to buyer, depending on the freight charges

If shipment is by sea then trim cost + 10-15% more cost is quoted to buyer depending upon freight charges

If domestic sourcing is there then, the local taxes. Transportation charges is bound to add in the total trim cost

These additions are done by merchandiser, depending upon the business outlook.
Other charges included during the costing by merchandiser

CMT cost:

COST OF MAKING
The cost of making done “in house” is based on the total cost per hour multiplied by the number of hours it takes to make the style and divided by the number of units produced if the making is done by a contractor; the contractor adds profit on to this amount.

Labour cost per minute= (Monthly salary of an operators/Total minutes available in the month) at 100% efficiency
CM cost = (SAM of the garment * Minute cost of the labour)/Line efficiency (%)

Value added services:

This is cost added to of special process like embroidery, printing, washing used to impart the type of look buyers wants. These are associated cost of garment manufacturing are wet processing chemicals, washing and contracted operations.

Wet processing chemicals include bleaches, detergents, softeners, neutralizers, wetting agents and resins. Complicated wet process finishes contribute a significant amount to the price of a product. Merchandizer must know in detail about each of these operations, sourcing, contracting requirement and time involved. Cost of these varies depending on different styles. For example-Embroidery costing requires derivation of thread consumption, additional cost of hand embroidery is involved etc. printing cost is dependent on no. of colours for printing, MOQ, and type of print.

Example of garment costing:

The example of garment cost is given by assuming the following dimensions for polo neck T-shirt, no. of pieces = 4000, salary of the operator =6000 Rs./month=120$/month no. of working days = 26, line efficiency considered= 50%, sewing SAM= 15 min., Cutting SAM= 7 min. 1$=50INR
Chest = 60 cm, Length (HSP to waist) = 75 cm, Sleeve length = 25 cm
Fabric used is 2/60s 100% cotton S/J fabric. GSM is 180
The fabric consumption can be calculated as

= (75 + 25 + 2) X (60 +1) X2X 180/10000
= 0.224kg + 0.08(weight of cuff and collar)

CMT charges are calculated as:
Total available capacity per month (in minute) = 26 working days*8 hours/day*60=12,480 minutes
Labour cost per minute= (Monthly salary of an operators/Total minutes available in the month) at 100% efficiency
= 6000/12480
=0.480 Rs.

Sewing cost = (SAM of the garment * Minute cost of the labour)/Line efficiency (%)
=15* 0.480/50

=0.288$
Cutting cost = (SAM of cutting * Minute cost of the labour)/cutting efficiency (%)
= 7*0.480/50
=0.134$
Trimming cost is considered as 0.06$as it depends upon how many operators are there for trimming.
Production cost of garment (CMT) = sewing cost+ cutting cost + trimming cost
= 0.288+0.134+0.06
= 0.482$

FOB cost of garment

Conclusion:

Production merchandiser is responsible for doing the costing; hence knowledge of costing is must for merchandiser. Apart from costing knowledge merchandiser must be aware of fluctuation of cost of different components of garment, time to time. The costing is very dynamic process; at international level negotiation is done only on cost of production or most popularly known FOB of the garment. Hence, merchandiser should be very careful while negotiating the cost of garment with the buyer. Sourcing is common practice globally in garment business, production merchandiser is playing buyers role for fabric/ trim manufacture on the other hand he/she plays suppliers role for garment buyer. Production merchandiser must take care of both roles, when it comes to cost as well.