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What types of errors have occurred in cost calculation and how these errors can be resolved?

Textile Today Question of the Month

According to a study of the Fair Wear Foundation (FWF) based in Amsterdam, 39 percent of the Bangladeshi garment exporters accept prices below their production costs for the sake of business relations with international buyers, also for the errors in cost calculation or to one-up their competitors. In consequence, the overall prices of Bangladeshi garment items declined by 7.79 percent between 2011 and 2016.

What types of errors have occurred in cost calculation and how these errors can be resolved? How do you see the tendency of manufacturers to one-up their competitors (other local manufacturers)?

Md. Moshiul Azam (Shajal), Vice President, BGMEA and Managing Director, Fame Sweaters Ltd.

Moshiul-Azam-Vice-President-BGMEA

It is not about an error in cost calculation, though it is true that in many cases garment exporters have to accept prices below production cost and there has always been a constant price pressure from buyers’ end. In the last 40 years, the apparel manufacturing industry has grown tremendously in terms of capacity and mostly in low- value items. Our manufacturers are mostly focused on bulk production and scale economy is our biggest source of competitive advantage.

So, buyers can take price advantage easily of the industry as factories need to fill up their capacity to run at least break even. If our factories do not get the order confirmation on time, do not receive many forecasts ahead of time to go or sales/marketing, such under-quoting prices will prevail until we cannot enhance our bargaining power and reduce our dependence on commodity items in bulk volume.

Afzalul Alam, Managing Director, ZAS Apparels (Pvt) Ltd.

Afzalul-Alam-ZAS-Apparels

I totally agree with this study. I think big garments owners take low price order due to their huge capacity. Banks are continuously supporting them financially. As a result, big entrepreneurs are becoming bigger in capacity whereas, small entrepreneurs are shutting down their factories. We need a price-fixing policy to save small and medium category factories. As well as, owners of overcapacity factories should diversify their apparel products to come out of this situation.

Omar H. Chowdhury, Managing Director, Hydroxide Knitwear Ltd

Omar-Chowdhury--Hydroxide-Knitwear

The main buyers of RMG (readymade garments) from Bangladesh such as H&M, ZARA, Walmart etc. are losing their buying powers due to fast fashion trends and other factors happening globally. The demand for high-end clothing is increasing. Conventional RMG products are losing their demands along with the price. As a result, our overall RMG exporting industry is gradually decreasing. Online business is booming in foreign countries rather than retail businesses. And the sad thing is we, the factory owners are not being able to forecast the future trends to take initiatives according to the prediction.

Almost every factory is facing an order crisis due to its big investment. We have to increase our negotiation power with buyers. We have to go for value-added diversified fashion products from basic items to show our positive strength with buyers.

Hasin Arman, Director, MB Knit Fashion Limited, Co-Chairman-The Standing Committee of Crisis Management, BGMEA

Hasin-Arman-Director-MB-Knit-Fashion

It is a matter of sorrow to see 39% of the total factories of Bangladesh are accepting orders below their production price. It is very true; it is also true that apparel entrepreneurs are also helpless. So, I personally see some reasons behind it; having less knowledge about the costing is one of them. If someone is considering to have 200 pieces of production per hour a line while summing up their CM (cost of making/manufacturing); but later on found that their workers can actually produce 130 pieces per hour, they are straight losing from CM. Having more wastage than the calculation in the supply chain is another reason.

To solve these issues, having accurate data from the factory’s IE Department and knowledge of the SMV calculation are must while doing the costing. Trying to reduce the cost and the wastage is most important.

Uzzal Dakua, Merchandising Manager, Echotex Limited

Uzzal-Dakua-Merchandising-Manager-Echotex-Limited

 

Day by day raw materials cost is increasing while price going down the hill. When we submit costing to the buyers, we must have to submit with running raw material price. Due to poor negotiations skill, we could not meet up the right price from the buyers. Merchandising department is a major part of a factory who is responsible for order inquiry receive, development, costing, order analysis, production execution, and shipment and up to payment receiving. So merchandisers should know all material up-to-date pricing to make a garment.

Md. Anwar Hossain Plabon, Manager Merchandising, A-One Polar Ltd

Anwar-Hossain-Plabon-Manager-Merchandising-A-One-Polar

Most of the garment factory owners don not do direct marketing to buyers. They are depended on their marketing team. As one of the pioneers of the knit sector, our owners are doing marketing and visiting buyer’s offices up to market trends. Now we are doing semi-fancy items from basic items. When you give costing to buyers with sales our efficiency, design studio, R&D for fair price product. I think factory owners should go visit abroad for marketing and branding their factory. Besides, factories need to invest more in product development rather than copying from other factories. Day by day fashion is changing so the marketing strategy should be different.

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