The Need for Open Labor Costing in Apparel Sourcing Business

This is a guest submission from Charm Rammandala.
We all understand the need for a universally accepted system to cost apparel to ensure buyers as well as manufactures feel comfortable. Even though, it is being in discussion for over two decades, still we find both buyers as well as manufacturers complaining about the challenges they face when it comes to negotiating prices.
Just recently I had a discussion with a friend who runs a buying office. He explained to me how some leading buyers/retailers such as NEXT and M&S use online auctions to decide prices and to find manufactures. I am sure if you ask them they will tell it’s a totally acceptable method to find most competitive manufacturer. However, I would argue this is not the right thing to do.
Lets discuss why I said that. My friend was explained how much pressure and a tense situation it was to be in front of the computer and bid. Every time he put a lower price, somebody else from another company would outbid him. So if you want the order, naturally you have to quote a lower price. This goes on until buyer feel she got the price she wanted. Now what guarantee is there that the final price agreed is the right price? How we ensure manufacturer earns sufficient amount to pay its employees without cutting corners?

It is hugely important to build a trusting relationship between a buyer and a manufacture. Open costing should be the way to do business where both parties feel they are in control. It is very important buyers fully converse in standard minute value and how it is calculated.

Unfortunately, we find still most of the buyers who are negotiating prices rely on few costings received from several different manufacturers around the world and giving unrealistic target prices to manufacturers. Obviously, manufacturers and buying officers who are desperate for orders quote unrealistic prices and end up cutting corners once order is placed. This leads to all sorts of problems which includes low wages, below rate overtime pay and in some cases trying to employee underage kids.

On the other side of the story, we find often manufacturers quoting above average prices and trying to overcharge the buyer. Most of manufacturers are very reluctant to give open costing and just submit CMT or FOB price.

The buyer has no idea what was the SMV or even fabric consumption of the costing. These practices do not help to build trust. So no wonder why buyers like NEXT rely on on-line auctions to find buyers. However, we need to start putting pressure on both buyers as well as manufacturers to be fully transparent to ensure the correct price paid for the items. This will actually help both parties to work closely and build a long-term business relationship.

About the Author: Charm Rammandala is the founder & CEO of IStrategy USA. He counts over two decades in fashion supply chain in diverse roles as Lean Manager and Model himself. He is an expert in rolling out programs in Lean apparel manufacturing and Sustainable labour costing. His former positions included being the first Lean Technologist at George Sourcing Services UK Ltd.

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