Question: I want to know how the Industrial Engineer does costing with efficiency level. Please let me know in brief how it has done. ...asked by Sharif.
Industrial Engineers normally calculate direct labor cost (sewing) of the product. Labor cost per unit directly related on the line efficiency (performance). When line efficiency increases, production of the line increases. See the graph on the bottom right. So, the cost per garment goes down when line efficiency increases.
Normally engineers calculate per minute labor cost at 100% line efficiency based on operators’ monthly salary. Labor cost per minute increased as line efficiency goes down. Many engineers make a matrix of line efficiency Vs. labor cost per minute ( See the following table for an example of such matrix).
Once they have labor cost per minute against line efficiency as shown in right table, minute cost is multiplied by garment SAM value to calculate garment cost. Using the simple formula you can also calculate labor cost per minute of your factory.
I have written an article on minute cost calculation method in past. Find it here.
Example: Suppose you have a line of 30 operators and all are salaried workers. So, you pay fixed amount to your workers instead of their performance level. Right? At present line perform at 30% and daily output is 300 pieces and if daily salary of the operator is USD 5.0, per piece labor cost becomes (30*5/300 ) or USD 0.5 per unit.
Suppose efficiency increased upto 60%, at this efficiency level line will make double garments i.e. 600 pieces per day. In this case the operator's daily salary remains the same. So per garment labor cost now become = USD (30*5/600) = USD 0.125
Here I have shown you straight method. Average line efficiency of a product varies depending on the following factors.
Industrial Engineers normally calculate direct labor cost (sewing) of the product. Labor cost per unit directly related on the line efficiency (performance). When line efficiency increases, production of the line increases. See the graph on the bottom right. So, the cost per garment goes down when line efficiency increases.
I have written an article on minute cost calculation method in past. Find it here.
Example: Suppose you have a line of 30 operators and all are salaried workers. So, you pay fixed amount to your workers instead of their performance level. Right? At present line perform at 30% and daily output is 300 pieces and if daily salary of the operator is USD 5.0, per piece labor cost becomes (30*5/300 ) or USD 0.5 per unit.
Suppose efficiency increased upto 60%, at this efficiency level line will make double garments i.e. 600 pieces per day. In this case the operator's daily salary remains the same. So per garment labor cost now become = USD (30*5/600) = USD 0.125
Here I have shown you straight method. Average line efficiency of a product varies depending on the following factors.
- Order quantity per style
- Product construction difficulty level
So, the cost of the garment varies accordingly.