# How to Check Health of a Garment Unit by Measuring Manufacturing Cost per Piece

In the earlier post, I covered checking the health of a garment factory by measuring the Cost Per Minute (CPM). In this article, I will show you how to check the health of a garment factory by measuring the cost per piece.

We will also assess the impact of order quantity and frequent style changeovers on product costing using a case.

### What is the Cost Per Piece?

Cost per piece is the total cost incurred by a factory for producing a garment. It is a KPI used to monitor profit/loss in order execution. It is highly applicable in factories that are doing job work. In that case, they are paid Cost of Making which includes cutting, sewing, finishing, and packing. Trim cost is also included sometimes if the vendor is responsible for ordering trim. The cost per piece for an order is calculated using this formula.

Cost /Piece = Cost of Making of full Order/ Total Order Qty

### Garment cost components:

To calculate the total cost incurred in an order and then calculate the cost per piece, you need to know the cost components. The primary cost components in garment costing are shown here. In this article, we will show the activity-based costing (ABC) method for calculating cost per garment.

#### Cost Components (General):

1. Cost of Cutting
2. Cost of Sewing
3. Cost of Finishing
4. Cost of Packing
5. Trim Cost
6. Overhead Cost (Fixed & Variable)

#### Cost Components (Order Specific)

1. Changeover Cost/Time
2. Learning Curve and Efficiency Loss due to it
3. NSR Trainings
4. Testing
5. Quality Training
6. Operator Hire & Training

### Activity Based Costing

This is a much more realistic approach than the above two. Every activity creates a cost, and these costs can be associated directly with the product, customer, or supplier for which the activity is being done. All the factory overheads here as allocated to activity centers like design, MIS, merchandising, quality, and distribution.

Example: Cost per piece calculation
We will discuss the first approach with a hypothetical example. Here I have taken cost elements of manufacturing and daily production. Considering 25 days in a month.

 Case 1- No Style Changeover Daily Production (Trousers) 2544 Average SAM per Piece 36 Daily Minutes Produced (Daily production x SAM) 91584 Daily Minutes Available (Manpower x Shift hours x 60) 128000 Average Daily Efficiency 72% Expense Heads Total Monthly Expenses (INR) 1 Labour Charges 3886862 2 Over Time 573291 3 Incentive 159000 4 Retention Bonus 25649 5 Consumable 69281 6 Hire Charges 6680 7 Power and Fuel (Electricity & DG) 623168 8 Repair & Maintenance (Machine, DG, etc.) 80058 9 Personal Expenses 953842 10 Finance Expenses 55375 11 Administration Expenses - Allocate 85 % 161604 Total 6594808 12 Production Quantity (per line per month) 63,600 13 Cost Per Piece (Production) 103.69

In the second scenario, I will take multiple orders in a month since there are frequent order changes. I have tried to demonstrate the implications of small orders in manufacturing and why there is a need for MOQ (minimum order quantity). While planning or budgeting we need to consider losses due to changeover, otherwise plan vs actual will have a huge gap.

 Case 2- 10 Style Changeovers in a Month Daily Production (Trousers) 2104.89 Average garment SAM 36 Daily Minutes Produced 75776 Daily Minutes Available 128000 1st Day Efficiency after CO (Line Setting & Learning Curve) 40% Average Efficiency (Month) 59% Expense Heads Total Monthly Expenses (INR) 1 Labour Charges 3886862 2 Over Time 573291 3 Incentive 159000 4 Retention Bonus 25649 5 Consumable 69281 6 Hire Charges 6680 7 Power and Fuel (Electricity & DG) 623168 8 Repair & Maintenance (Machine, DG, etc.) 80058 9 Personal Expenses 953842 10 Finance Expenses 55375 11 Administration Expenses - Allocate 85 % 161604 Total 6594808 12 Production Quantity (per line per month) 52,622 13 Cost Per Piece (Production cost) 125.32

### Conclusion:

This is prominent from above the examples that style changeover is a high factor impacting manufacturing cost and productivity in a factory. In a factory, when there are smaller orders, there will be more style changeover. So, you can relate the impact of order volume on garment cost per piece.

If you are checking the health of a factory, you can compare the monthly cost per piece for the running orders with the benchmark cost per piece. It would be easier to calculate the average cost per piece for a single product category. If you are working with multiple product categories, compare it with the cost per standard minute.

Less the cost per piece better the heath of a factory and vice versa.

Cost per piece and line changeover time need to be closely monitored. Style loading sequence must be planned by PPC so that similar styles come one after another. This will reduce the need for new machines and new skills. It will also reduce sudden jumps in manpower shortage or abundance.

Post updated on: 10/05/2023
Publication date: 15/09/2020

### Shashi P Mishra

Shashi is a graduate from Dr. B R Ambedkar NIT, Jalandhar. He is currently working at Target as Senior Production Engineer. His areas of interest are Industrial Engineering, Industry 4.0, and quality management systems. He loves writing article on his interested topics.