Garment costing for merchandisers

Mohammad Nurul Alam   Senior Merchandiser,   Asmara BD Pvt. Ltd., Dhaka, Bangladesh   alamnur09@yahoo.com / alam@bd.asmaragroup.com  
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Determining the real cost of a garment is not an easy thing to do. Numerous things are related in pricing of a piece of clothing. If costing is not properly done from fiber to finish of the product then there is a strong chance to be over thrown by the competitor. A proper pricing based on proper costing is very important. Price should have to be competitive- not high or not low just to keep the market standard and competitiveness. And so, effective pricing is the most important tools for the merchandiser. Merchandisers need to be aware that there are always fluctuations in the basic raw materials price. Update knowledge about whole supply chain and other cost components related to garments, is essential to make perfect costing.

Figure 1: Ignoring indirect costs could be devastating in garment costing.
Figure 1: Ignoring indirect costs could be devastating in garment costing.

Basic garment product cost

In most cases merchandisers keep focusing on the direct cost that everyone discuses. Some other hidden costs were never that considered. Unfortunately some time indirect or hidden cost can be “real” costs of doing business. All indirect expenses give rise to overhead expenses.

Figure 2: Basic product cost diagram.
Figure 2: Basic product cost diagram.

Direct costs can be determined easily but indirect costs most of time remain unseen. This is the big reason most of the time why people don’t consider them. However the more one can dig into cost factors the more costing gets better.

Key considerations in costing

Costing can be proper & accurate only when some analytical preparation is done. Reading in details and to keep note or highlight on critical points is important. If further clarification from buyer is require, it must be taken. Assuming anything or costing with vague understanding can be big disaster. So analyzing & understanding the product is very important during pricing. Below area should be studied to avoid difficulties.

  1. Garment design analyzing.
  2. Component check.
  3. Productivity analyzing.
  4. Analyzing risk factor.
  5. Machine type check.
  6. Finishing of the product.

Tips for effective costing:

  1. To be updated on the prices of raw materials.
  2. Knowledge & understanding on the buyer’s demand.
  3. Wrong calculation of fabric & other materials in pricing makes buyer worried so need to be aware & keep proper concentration when pricing. If possible it is good to take other’s assistance.
  4. Small factor in pricing must not be overlooked. Sometime these small items can be big factor to reduce margin on garment making.
  5. If not possible to satisfy buyer for any requirement then better to keep alternative source. Solution has to be in many options so that buyer can pick the suitable one.
  6. Price has to be logical & competitive. If Buyer understands that they are sourcing from any unreliable or wrong unit then business flow may not be same. Because trust level has to be clear on product & ethics.
  7. All the raw materials may not fluctuate in price but some particular materials can be big change after costing so better to give particular period of time for price validation.
  8. Careful study is very important for all details from buyer’s requirement. Fabric construction, special finish, garment trims or test requirement.
  9. Any kinds of critical process need to discuss with the expert so that problem will not be in production.
  10. Availability of trims or materials has to be determined. During price confirmation the materials may be available but later on found not available.
  11. Worker efficiency on product making need to be calculated properly otherwise (Cost of Making) CM will get high.
  12. Reviewing the price with someone is more effective to avoid error even if not find anyone to review better to discuss with the subordinate. At least it will help to reduce percentage of error.
  13. Take time, study & review the market price on each component.
  14. During price negotiation every discussion has to be written so that it can be a good reference for any kind of refusal.
  15. Payment mood, terms of delivery is the most important matter to discuss during price confirmation.
  16. Lead time has to be considered with all the public holiday.
  17. China New Year closing is a big issue for Bangladesh to purchase materials. Sometime this gets highly alarming matter to meet the delivery date.
  18. Some customer has big and complicated sample requirement & this makes high cost on final product. So the cost of sampling has to include in the price.
  19. For example ‘carton sticker’ is a small expense; such cost can be included within other expenses. But this is not effective way to determine the cost. Suppose 100 carton not a big concern in costing but if it is 10000 carton sticker then this can be a matter.
  20. Explain difficulties of product to buyer & if possible showing the alternative for reducing price can be effective.

In conclusion now the world is open, competitors are standing beside Bangladesh. Though new competitors are not big but total quantity of these small competitors could be a big threat.  The overhead cost is getting high so now price should be super sharp to get order. Only effective costing can show the way to survive in this big market.

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