Calculate Labour Cost Accurately Using a PMTS System

Accurate labour cost calculation is possible when you establish accurate SAM for all garment operations. I have worked with a couple garment factories in setting up their piece-rate for sewing floor workers. Based on my observation, I will share the traditional method of labour costing and show you how garment factories can adopt a better method for accurate labour costing for their styles. The true labour cost of a garment can be established by using a PMTS system.

What is Labour costing?

Labour cost is a component of the total garment cost. Labour cost includes direct labour cost of the workers involved in making the garment - cutting, sewing, and finishing activities. When a manufacturer takes an order, they need to provide garment costing (FOB) as well as the direct labor costing to the buyer. Even if garment manufacturers don’t need to share the labour cost with their buyers, they need it for their internal garment costing purpose.

“The labour costing is in fact the background of the negotiations for the production/execution price. I’m convinced in the benefits of the transparency with it and timeSSD offers this transparency by sharing the operation lists which provides the data-driven negotiation support.” – said by Laszlo Szabo of timeSSD

The traditional method of direct labour costing

Normally, apparel suppliers calculate piece-rate for sewing operations based on the operation SAM (the standard time for operations). Later, total piece-rate per garment is calculated based on total garment SAM. The accuracy of the labour cost depends on the accuracy of the garment SAM.

When someone follows this method of workers' piece-rate and garment labour cost calculation, they need to know the operation SAM at the time of the garment costing stage (which comes prior to actual production). It has been observed that industrial engineers know the SAM of most of the operations for the new style. But operations those are new, they need to wait for production start and time study. If you have already in the garment manufacturing business, you know the situation of doing time study for the operators, for whom you are going to measure their time for their payment.

This question engineers must ask themselves how many operators would really be working at their normal speed when you are timing sewing operators? You are not sure whether the Time Study based SAM is accurate.

Where factories used to follow the age-old method, they let operators work for a few days on the new operations. After 5-6 days, engineers check average cycle time from their daily production. And establish the average cycle time of the operation and decide the piece-rate of an operation. Later they pay operators by the newly developed piece-rate for their total production. For the following orders, they convert the average cycle time into SAM for that operation. This not the accurate SAM of the garment operation.

By following this method in calculating for average operation cycle-time and piece-rate calculate, both company and operator loss their potential efficiency.

What is the alternate solution then?

The alternate solution is using a tool through which you can establish the accurate SAM for all the new operations in the new model at costing stage. In the apparel industry, PMTS systems are widely used for the same purpose. Many brands and organization recommended PMTS systems for fair labour costing for apparel industry workers.

Fair labour costing means – operator should earn the fair money for the work they do and employers earn the right CM by selling the garment.

How a PMTS system helps in establishing labour costing

Using the PMTS system you establish the accurate SAM of the operations in a garment. Product SAM can be established in advance by using MTM2 based elements database.

You know the hourly rate of your factory (hourly salary for employees based on minimum labour wages). There are differential rates per operation depending on the complexity of the operation and material type.

Labour cost per operation = (Accurate SAM of an operation x Labour rate per minutes)

Then calculate labour cost for the style by summing up the labour cost of all operations.

Laszlo suggests - We should separate the labour costing in two components.

MPO = The minute price how is paid the operator; MPO is known by the operator and from here is coming to the brut salary of the operator … but to this should be added the overheads of the company and the profit, all together <= MPB
MPB = The selling minute price dedicated for the buyer (this usually is established by brands in an interval for each country in each year)

Some of the PMTS software solutions has a component that calculates the labour cost and provides you with accurate labour cost according to the given parameters for product pricing.

PMTS based labour cost is Fair labour cost

In Time Study based SAM, you rate the operator as per their working speed. The rating is a subjective parameter. It may vary from person to person. So, the SAM may not be an accurate one.
When you establish SAM using a PMTS system by imitating workers hand and body movement and workstation layout and use the best possible method, you get the accurate standard time for the given style.

Watch this video to understand the rating factor used in Time Study

Why PMTS based labour costing is better than traditional labour costing

When the Labour cost is calculated from PMTS data, you feel confident in terms of accuracy level of labour costing.
In time-study based labour cost, you are not confident whether it is accurate or not.
By using PMTS, you will get the labour cost of a new style before sampling stage. On the other way, you cannot do that.
You can build an SMV database and use the same for new orders.
Quick garment costing.
Building trust with the buyers and brands though giving them transparent and accurate costing (“Transparency is the lobby of the trust”)
Employees will be happy and trust the manufacturers when they get accurate and fair wages for their work.

Conclusion:

In a previous article, I discussed why you need a PMTS system. In this post, you saw that PMTS solution is a tool for fair labour costing with transparency and trust. To learn more about the PMTS software and its solutions, you can contact timeSSD team.