Profit in Garments and Textile Industry, Activity-Based Costing, Standard Proactive Costing2018-03-08T18:10:40+00:00

The textile industry pipeline has a widespread variety of product styles and possibilities, company sizes, organizational characteristics and technologies. In spite of that fact, all of them share the textile chain complexity. The resources optimization and lead-time optimization have become enterprise priorities. In that sense, the total cost of a product must be known at the early design stage, with the maximum of accuracy in order to simplify the trial and error process.

The first problem for cost estimation is the total cost allocation of the product. In fact, the total cost has now more indirect cost components, which is a non-negligible share percentage. because all the activities are being done at different places, the actual supply chain is more complex, and this fact has changed the product cost structure.

The cost calculation in the textile industry is still almost exclusively based on the production cost data. A current industrial practice is to estimate the indirect costs (overheads and general sales and administration) as multiplication of the production cost by an index factor. Specifically, in the textile and garment industry, showed consecutively that the indirect cost allocation does not have the same behavior and variations as the direct cost. In fact, direct cost usually varies with the level of output, standard time and raw materials consumption. However, the design cost and the indirect cost (overheads sales and administration expenses) cannot be estimated as direct cost factors. In other words, these indirect costs do not necessarily follow the same patterns for all products. For that reason, more accurate cost allocation methods as Activity-Based Costing (ABC) has been introduced, but seems not to be yet widely used in the textile and garment industry. Some criticisms indicate that the main reason for this will be that ABC is more complex and time consuming that traditional costing systems.

During the process of order confirmation, the importance of confirming market requested price is too often neglected. This may very well lead to accepting orders for items priced under variable cost and rejecting orders, which their price maybe under our average full cost, but well above the variable cost. Order confirmation is NOT only about on-time delivery, important as it is, accepting or rejecting the sales price is the real key to profit.
Much energy, systems and resources are invested in on-line calculation of delivery dates while cost calculation remains a marginal preoccupation, being left to the accountants who calculate actual costs after product has been produced and shipped, an effort which has no effect on the bottom line (Post Mortem as opposed to proactive costing).

Standard proactive costing, based on the standard manufacturing database at the most detailed product detail level and accurate margin calculation, may well be your key to success, the key to profit in textile and garment industry.

The challenge is to know the variable cost and margins of an order before order and sales price is approved, considering detailed product details lead times, sales costs, detailed manufacturing cost and order quantities.

Infocost have full strength of costing professional equipped with SAP management accounting expert knowledge to help the textile industry and organizations in achieving the required cost control and optimization measures,
May it be target costing, standard costing, actual costing, activity based costing, profitability analysis, make or by decision, planning and budgeting, recovery reporting, costing sheets and many more MIS and decision making tools.

PoV of Infocost on Automtive Industry

“The textile industries coverage includes following production chain;

Natural pulp / Chemical >> Fiber/Tow >> Yarn >> Dyed Yarn>> Greige Fabric>>Garments

Under pipeline of textile each of the above stage or processes are Industry in itself,

We recommend Parametric cost estimation

Today, parametric models are widely used throughout the world, and often are used as a primary or, in some cases, the sole basis for estimating. They are especially useful at the earliest stages of design in a program where detailed information is not yet available. The parametric model is a series of Cost Estimation Relationships (CER) ground rules, assumptions, relationships, variables and constants that describe and define a specific situation. The main advantages in using CER are:

It allows the user to provide quick estimates without a great deal of detailed information. The CER are based on actual product cost history, and reflects impacts on cost growth, schedule changes, and engineering changes.
There are three main decisional steps directly correlated to costing estimation:

  1. Product design phase: At this stage, before the complete definition of the product, parametric models can correlate costs to the main characteristics of the design the product, in order to obtain an accurate cost estimation.
  2. The definition of manufacturing strategy: It allows to understand the influence of different possibilities in an “offshore” strategy, in terms of lead time, production configuration and location, lot size, risk assessment and complexity of the product. This estimation must take into account all the cost components for each supply chain possibility, in order to:
    • Build and evaluate different scenarios or variants.
    • Make economical evaluation of several suppliers.
    • Make strategic investment and technological choices.
  3. The quotation and negotiation process: The process can be done taking into account the internal process complexity, or aggregated capacities in industrial clusters. Also, it must include other variables consuming resources such as: delivery time and delivery place, replenishment frequency, change in business environment conditions and risk evaluation.

Our Works

Our Director and founder Mr. Sarat Agrawal was instrumental in the process of designing and implementing the costing system for Welspun Textiles, a unit of Welspun Group, during the SAP costing implementation.

Welspun Textiles has all the process of textile production chain, such as, Yarn, Weaving for Towel, Bedsheets, Rugs, and many more commercial and industrial textile products,

Other textile industries where we have the experience and association of working are;

  1. Siyaram’s Silk Mills Limited, Mumbai: GST implementation in SAP
  2. Jayashree Textiles, Rishra (WB): Designing and study of the Costing System in SAP
  3. Thai Acrylic Fibre, Thailand: Costing and Profitability system implementation