Meeting targets is a win-win situation for everybody in the supply chain from manufacturer to consumer, opine Ankur Saxena and Ishwar Kumar.
The Indian apparel industry has grown up in past few years but at the same time it is facing stiff competition from the countries where labour rate is lower, which is making its survival a bit tougher. The way to survival in context to Indian apparel industry is either following the product layout or the adoption of concept of quick response (means small order).
To follow the concept of quick response, it is very vital to meet the targets in apparel manufacturing. Achieving the targets will not only help to serve the customers better but also help to increase the profit significantly. The article explains this phenomenon with the help of case studies. However, to understand the case study it is very important to understand the concept of costing which is given in the next section.
Costing in apparel industry
Costing is a very subjective area and every factory has adopted different methods to calculate their costing, which depends upon their overheads and usage of resources. After studying different costing methods used in different factories, following major heads has been found, which companies are using for their costing:
1.Direct material cost
2.Direct labour cost
3.Overheads
Direct material:
This is one of the most easily traceable costs in garment. All the materials which are physically available or easily traceable in a garment are considered as direct cost. eg. fabric in shirt, steel in car, buttons in trouser, etc.
Direct labour:
The wages of the people who are directly contributing or woking on the garment or product are part of direct labour. Eg., sewing operator salary, salary of bus driver in transport business.
Direct expenses:
The expenses, which are directly contributing to a product, are called direct expenses. eg. Royalty paid.
Prime cost:
addition of direct material, direct labour and direct expenses is known as prime cost as per the industry practices prime cost is around 60 per cent of total garment cost. Prime cost can economically be identified with a specific saleable cost per unit.
Production Cost Prime Cost Overhead Cost (Indirect material Indirect Labour Indirect Expenses).
Overhead cost:
Overhead defines indirect cost as ´expenditure on labour, materials or services which cannot be economically identified with a specific saleable cost per unit´. Or in other words any expenditure over and above prime cost is known as overhead. Overhead costs are very company specific and can be classified in three different ways as per the need and situation
- Functional classification
- Classification with regard to behavior of the expenditure
- Element wise classification
- Functional classification
Manufacturing overhead:
It is the indirect expense of operating the manufacturing divisions of a concern. Eg:- Depreciation of fixed goods, electricity charges, rent, rates and taxes on works.
Administration overhead:
It is the indirect expenditure incurred in formulating policy, directing the organisation, controlling and managing the operations. Eg: – Salaries and wage of clerks, secretaries and accountants and office rent.
Selling overhead: It is the cost of seeking to create and stimulate demand and of securing orders and comprises the cost of soliciting and recurring orders for the articles. Indirect cost that associate with marketing and selling (excluding distribution). Eg:
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Distribution overhead: It is the expenditure incurred in the process, which b