Costing is the deciding factor of the prices and the important thing to be followed in all important stages like purchase, production, marketing, sales, etc. Very good knowledge and experience is very much essential for doing successful marketing and sales. Also update knowledge about everything related to textiles, is essential to make perfect costing.
Costing at the detailed product level may be your key to survival, are we selling
enough goods above variable cost to cover fixed costs and to create profit?
The textile pipeline has a widespread variety of product styles and possibilities, company sizes, organizational characteristics and technologies. In spite of that fact, all of them share the textile chain complexity. The resources optimization and lead-time optimization have become enterprise priorities. In that sense, the total cost of a product must be known at the early design stage, with the maximum of accuracy in order to simplify the trial and error process.
The first problem for cost estimation is the total cost allocation of the product. In fact, the total cost has now more indirect cost components, which is a non-negligible share percentage. because all the activities are being done at different places, the actual supply chain is more complex, and this fact has changed the product cost structure.
The cost calculation in the textile industry is still almost exclusively based on the production cost data. A current industrial practice is to estimate the indirect costs (overheads and general sales and administration) as multiplication of the production cost by an index factor. Specifically in the textile and garment industry, showed consecutively that the indirect cost allocation does not have the same behaviour and variations as the direct cost. In fact, direct cost usually varies with the level of output, standard time and raw materials consumption. However, the design cost and the indirect cost (overheads sales and administration expenses) cannot be estimated as direct cost factors. In other words, these indirect costs do not necessarily follow the same patterns for all products. For that reason, more accurate cost allocation methods as Activity-Based Costing (ABC) has been introduced, but seems not to be yet widely used in the textile and garment industry. Some criticisms indicate that the main reason for this will be that ABC is more complex and time consuming that traditional costing systems.
During the process of order confirmation, the importance of confirming market
requested price is too often neglected. This may very well lead to accepting
orders for items priced under variable cost and rejecting orders, which their
price maybe under our average full cost, but well above the variable cost. Order
confirmation is NOT only about on-time delivery, important as it is, accepting or
rejecting the sales price is the real key to profit.
Much energy, systems and resources are invested in on-line calculation of
delivery dates while cost calculation remains a marginal preoccupation, being
left to the accountants who calculate actual costs after product has been
produced and shipped, an effort which has no effect on the bottom line (Post
Mortem as opposed to proactive costing).
Standard proactive costing, based on the standard manufacturing database at
the most detailed product detail level and accurate margin calculation, may
well be your key to success, the key to profit.
The challenge is to know the variable cost and margins of an order before order and sales price is
approved, considering detailed product details lead times, sales costs,
detailed manufacturing cost and order quantities.