How to Calculate Product CM Cost at the Time of Order Booking?

One of my popular posts, Garment CM cost estimation using SAM or SMV gives partial answer of this question. I have explained it further to make it clear how you can quickly calculate CM of a product at the time of order booking or initial stage of product development.

Garment Sample
image courtesy: Jabong.com

CM is referred to fabric cutting and garment sewing (making) labor cost per unit. Actually, all labor costs like cutting, sewing, pressing, folding and packing are included into CM. If one asked you what would be the CM of a product, you may find it is very difficult to answer with correct figure due to complexity in calculation. But if you follow logical method and keep your database ready and updated you can determine CM of a product with no time. Preparation of a database is onetime job and you need to update regularly or when updating is required.

Following steps will help you to determine product CM cost. Sewing process has much variation in terms of work contents (time required to make a garment) than cutting and finishing process. So for cutting and finishing process there is less variation in labor cost per unit. 

 

Step 1: Make database for labor cost per pieces for cutting and finishing

Just get last six months labor wages for cutting and finishing departments (excluding staffs) and total units cut and finished in lat six months. Calculate labor cost per pieces for cutting and finishing department.

Cutting labor cost per piece = Total salary paid to cutting labors in a time period / Total pieces cut in that time period 

Finishing labor cost per piece = Total salary paid to finishing labors in a time period / Total pieces packed in that time period. 

If you want accuracy in cutting and finishing cost then calculate product wise labor cost per piece.

Step 2: Determine sewing labor cost per minute 

Per minute cost of a factory depends on line efficiency. And average line efficiency of a style depends on style run (order quantity). First thing first, to calculate sewing labor cost create database for average style efficiency according to order quantity. See Table-1 for example. This database needs to be updated regularly. To calculate efficiency of a style use following formula -

= (Order qty. * Garment SMV * 100) / (Total man hours spent to complete the style * 60)

Instead of quantity you can use actual total production quantity in the style.

Table-1: Line efficiency at different order quantity

Order qty.	Average style Efficiency
100-500	30%
501-1000	35%
1001-3000	40%
3001-8000	50%
8001-10000	55%
10000 plus	60%

Once you have average efficiency based on order quantity calculate sewing labor cost per minute. Collect updated list of minimum wages for skilled labor or get average employee rates from Human Resource (HR) department.

       Cost per minutes = (Minimum wages of high skilled labor / 480)/Efficiency%

See following Table-2, where it shows style efficiency is 55%, minimum daily wages (for high skilled operator) INR 340 and work shift time 8 hours (480 minutes). So, cost per minutes is INR 1.29

Table -2:  Factors to calculate sewing labor cost per minutes

Order qty	Minimum wages (high skilled)	Minutes/day	Efficiency level	Labor Cost/minutes
8001-10000	340	480	55%	1.29

 

Step-3: Calculate CM cost of the product

SMV is one very important component for product cost calculation. For the correct SMV of a product, consult with industrial engineering department. Or create your database for product SMV with style variations. Once you get product SMV add certain percentage on it as buffer.

Sewing labor cost per piece = Product SMV X labor cost per minute (@ predefined efficiency)

Product CM = (Cutting cost + Sewing cost +Finishing cost) 
For safety, add allowances on the calculated CM prior to offering cost to your buyer.

Cutting rate per unit	Finishing rate per unit	Sewing SMV	Cost allowances	CM (INR)
2	4	14	5%	25.23

In the above example, cutting cost is INR 2, finishing cost INR 4 and sewing SMV taken 14 minutes. Later, 5% allowances are added to the calculated cost to reach to final CM cost.

To make the calculation easier I have made CM cost calculator on an excel sheet. This sheet can be downloaded via Social Payment. I mean, please click either the Facebook Like button, the Google +1 button or send a tweet to download the excel sheet.