Q1. MD.

Mehadi Hasan ID: 2021110004003

Q1) a) Identify any ten cost drivers for the organization and justify your choice with
explanation in brief.

Ans.

Bangladesh is the third largest apparel supplier, recently lose its coveted title to Vietnam. Since
the last few years, the Bangladesh readymade garments sector has been facing multiple
challenges such as rise in production costs, labor wages, utility rates and covid situation. This
is making survival difficult for small and medium factories as price of their products does not
match production costs. This prevents exporters from covering their operational cost leading
to a drastic decline in profit margins.

Bangladesh RMG exporters have been focusing more on product costs to achieve desired profit
margins. However, buyers recently introduced the open costing approach for price fixation. As
per this approach, manufacturers in the ‘A’ category bargain for fair price whereas those in the
‘B’ category bargain for lower price targeting their unused capacity utilization. This makes the
product a loss making proposition and shortens its lifecycle in the Bangladesh market.

Identify cost drivers for RMG

Every Bangladeshi RMG company has its own cost structure involving cost elements like
material cost, salary and wages, utility cost. Bangladesh RMG sector needs a proper cost
analysis to push up earnings depreciation of assets, spare part and repair maintenance, other
manufacturing overhead, administrative and selling expenses, finance cost, etc. incurred in
different cost centers responsible for making the company cost-effective.

Hence, it is important for the owners of these cost centers to identify their cost drivers. They
need to price their products through a standard costing procedure like the CPU (cost per unit)
which has a basic formula that says that total cost of production plus total output is equal to
cost per unit.
Q1. MD. Mehadi Hasan ID: 2021110004003

Following are the 10 cost driver with activity of an RMG sector:

S.L Activity Cost Driver

1 Machine Setup No. of Production Runs
2 Purchase Materials No of orders Placed
3 Warehouse Items in Stock
4 Material Handling No. of Parts
5 Inspection Inspection per items
6 Quality Testing Hours of Test Time
7 Receiving Martial No. of Receiving Orders
8 Packing No. of Packing Orders
9 Store Delivery No. of Store Delivery
10 Line-Item Ordering No of Line Items

Importance of cost driver:

 It is evident to know the cost of the product before entering the market to pre-identify
whether the company can make profits out of the products they propose to sell.
 Cost driver is essential to identify the cost allocable to various products as the cost is
allocated based on the activities being performed, and only those costs should be
assigned to a product that includes a particular activity in its productions.
 It makes that allocation possible, and only then, the real cost of the product being
manufactured will be determined. Then the management would take the final decision
on either to enter the market or not, whether to produce the product or not.

Combine techno-finance knowledge

Bangladesh RMG factories also need combine techno-finance knowledge for perfect costing
of their products. For this, manufacturers need to train non-finance professionals in finance and
financial professionals in technical issues. A combination of techno finance knowledge will
make the price bargain with buyers.

Some buying houses have introduced open costing approach. This entails standard, buyers to
have a costing team having technical and finance people. However, not just the technical people
deal with open costing from the buyers’ side. The query and format of these technical people
is not up to the standard of company cost structure and accounting standard procedure. Hence,
Q1. MD. Mehadi Hasan ID: 2021110004003

buying houses should have a costing team having technical and finance professionals to make
the open costing procedure smooth and acceptable for garments manufacturer.

In Bangladesh, all marketing professionals should know the actual cost of their factory. Actual
cost shows the actual output, wastage, actual cost structure. Every company should compare
the standard cost and actual cost frequently and identify for continuous improvement through
process innovation. From the principal of CPU (cost per unit) to optimize the cost, Bangladesh
has to work on efficiency. Higher efficiency will help the country absorb the fixed cost resulting
in lower CPU.

Involve government and professionals institutes

One drawback of the Bangladesh RMG sector is the lack of proper future analysis. As buyers
deal with a number of manufacturers simultaneously for capacity building and future order
placement, they usually opt for cheaper products. Hence, most of the RMG factories do not get
the expected orders which leads to underutilization of factories. In such a situation, factories
opt for low cost products to make maximum utilization of the plant.

Industry professionals in Bangladesh are aware of this costing issue. They need to engage
government and professional training institutes to change this training or education system.
Their target-oriented initiatives will help the industry to overcome these challenges.
Q1. MD. Mehadi Hasan ID: 2021110004003

b) Draw a value chain and supply chain for the specific product your company produce
and briefly explain each of the functions of the chain.

Ans.

The most important value-added areas in the RMG sector are design, marketing, branding and
retailing processes. On the other hand, the low value-added areas are within manufacturing.
The RMG sector company often represents a large proportion of the suppliers work stream.
The supplier is reliant on the overarching company, that company then holds power over the
supplier. Conversely, a small supplier represents only a minor percentage of a large retail
companies operations. Particularly large firms may even dictate some national or global rules
and arrangements affecting trade.

A supply chain is a system of organizations, people, technology, activities, information and

resources involved in moving a product or service from supplier to customer. Supply chain
activities transform natural resources, raw materials and components into a finished product
that is delivered to the end customer. Consumer (who buys the product for ultimate use) is the
most vital point for value chain in garments industry. All the works have been done for meeting
the consumer needs in the. In this supply chain, there is another part that provides the service
& worked as helping hand for the manufacturing organization.

Lam and Postle (2006) have reviewed the concept of supply chain management in textile and
apparel supply chain management in Bangladesh. They discussed the strengths and problems
faced by the Bangladesh textile apparel supply chains. They argued that Bangladesh apparel
industry is generally not aware of the concept of supply chain management and industrial
benchmark for both manufacturing and retailing industries in Bangladesh.

Nuruzzaman and Rafiq (2005) took an attempt to develop more effective supply chain for
Bangladeshi RMG to enjoy competitive advantage in the global apparel business through
analyzing the current supply chain and investigating the relationship among the players in the
supply chain.

In the RMG sector, the Manufacturer - Raw materials Supplier relationship is different. In this
Industry the main raw materials are fabrics (Cloths) and few accessories are like button, collar
etc. About 80% of the suppliers of accessories are local and accessories suppliers are not
responsible to Increase l time. Bangladesh garment manufacturer need more time is getting
higher due to import of fabrics mainly from China, Indonesia and India, The total average time
Q1. MD. Mehadi Hasan ID: 2021110004003

to import fabrics from abroad is 50-65 days and this is the main reason for long lead time
(BGMEA research cell). In the process of import of fabrics from the foreign suppliers lies the
main reason for long lead time. The process is visualized in below two chart.
Q1. MD. Mehadi Hasan ID: 2021110004003

Supply Chain in RMG Sector

Value Chain

A value chain is a business model that describes the full range of activities needed to create a
product or service. For companies that produce goods, a value chain comprises the steps that
involve bringing a product from conception to distribution, and everything in between—such
as procuring raw materials, manufacturing functions, and marketing activities.

Research & Development

Design of Products and Process

Production

Marketing

Distribution

Customer Service
Q1. MD. Mehadi Hasan ID: 2021110004003

Research & Development:

Research and Development (R&D) must be a significant division like merchandising,

production, and quality, finishing and packing in RMG factories, in order to be successful
industrialist. It develops and plans much ahead of other functions and process. It performs a
vigorous role to overall innovation.

Design of Products and Process:

Design is a process of constructing ideas and information into the model and bringing it to
reality with upgrading and development. While designing, understand customer’s requirement,
our capacity and impact of the design.

Design is an integration of all the elements including color, feel, touch, shape, pattern, ratio,
balance, and measure and comfort ability. While selecting designs, we should consider the
physiological comfort fabric, accessories and garments.

Production:

It is dependable of a serial and progressive process of converting and assembling ram material
like yean fabric and accessories into final and finishing garments. It includes sampling, finished
fabrics cutting, sewing, washing, finishing, and quality, checking and packing.

Marketing:

Marketing involves in research, promotion, selling and distributing it is important elements in

value chain and replenishment. We should develop products, once we have learned about
marketing strategy. Sales lead to the selling of garments and marketing is the process of getting
customers and wearers interested in our garments, which are getting sold.

Distribution:

Distribution entails making a product available for purchasing by dispersing I through the
market. It involves transportation, packing and delivery. Distribution is a fundamental to a
company’s sales. A Distributor is defining as someone who purchases products, stores them
and then sells them through a distribution channel. They are between manufacturers and retailer
and final customer.
Q1. MD. Mehadi Hasan ID: 2021110004003

Customer Service:

Based on feedback from the customers, suppliers, we can update and upgrade the product with
better quality. It is an essential process of RMG factories, as we need to operate the productions
unites in the long run. Dissatisfaction in the initial stage will hit the people, which can be
retrieving easily. We should improve the product based on customer’s reactions. It forms a
loop and circuit, it helps to generate an idea, and it’s continuing process.

Supply Chain

supply chain management links all the supply interacting organizations in an integrated two-
way communication system to manage high quality inventory in the most effective & efficient
manner. The supply chain management reflects those actions & values responsible for the
continuous improvement of the design, development & management processes of an
organization’s supply system, with the objective of improving its profitability & ensuring its
survival, as well as the profitability & survival of its customers & suppliers.

Suppliers Distribution Retail Final

of Raw Manufacturing Packaging
Company Company Consumer
Material

Suppliers of Raw Material:

Raw materials are the input goods or inventory that a company needs to manufacture its
products. The RMG industries in Bangladesh mostly depend on imported raw materials.
Bangladesh imports raw materials for garments like cotton, thread color, Yarn, fiber, etc. This
dependence on raw materials hampers the development of garments industry. Bangladesh
imports some 60% of its woven fabrics from China, according to an assessment report of the
Bangladesh Trade and Tariff Commission (BTTC). The report says some 15-20% of raw
materials and 80-85% of dyeing chemicals and accessories of the knitwear sector comes from
China
Q1. MD. Mehadi Hasan ID: 2021110004003

Manufacturing:

In apparel industry fabric takes maximum lead time because of its manufacturing process.
Because fabric is a planar textile structure produces by interlacing yarns, fibers, or filaments.
In Bangladesh, we use two types of fabric (Woven, Knitted). At present, we must procure 90%
of woven 60% of knitted fabrics from foreign supplier because of buyer nomination and our
in-house limitation of manufacturing facilities. All the fabric items are in input process because
garment production mostly depends on fabric.

Packaging:

In RMG Industries Fabric items are accessories and packaging material, which are needed
during apparel production i.e.: Label, Thread, Button, Zipper, Elastic, Hangtag ticket, Draw
cord, Eyelet etc.

Distribution Company:

Ensure the minimum required number of orders and income of the suppliers where supplying
country governments of having the limited financial capacity to handle the challenges of
enterprises and workers through the social support scheme and support through public demand
said the economist. Countries, which have fiscal constraints like Bangladesh would benefit if
the buyers considered it and redistribute RMG work orders. Also need proper distributive
approach in value chain and ensuring buyer-led initiative with increased cooperation among all
stakeholders.

Retail Company:

The retail company in the sector of the ecommerce that sells finished goods to consumers. This
include both digital and physical location and sale of products. In RMG the following are
common types of Retail Company

 Brand Shop
 Super Market
 E commerce

Final Consumer:

Analyzing and understanding the consumer’s and their behavior is the keystone of success in
marketing. It includes all the physical, mental and emotional processes and concerned behavior
which are discernible before, during and after each purchase of goods and services. For the
Q1. MD. Mehadi Hasan ID: 2021110004003

research purpose, one questionnaire was constructed to collect data from 120 respondents by
using random Sampling method. The major findings of this study show that Consumer Buying
Behavior is influenced by five factors namely price, style, comfort, quality, availability. From
the beginning to end of this study an attempt has been made to practically comprehend those
emotional or rational appeals, which drive the purchase decision toward the Readymade
Garments (RMG). Also, confident demographic and psychographic profiles have been studied
and certain relation has been developed.

A chain is as strong as all its rings are. A chain is as weak as one of its ring is weak i.e.one
single ring is more than enough to make the whole chain system dysfunctional. With the
development of the service sector and enhancement of industrial wage, cutting and stitching
operation was shifted to more profitable destinations. In the value chain of the RMG business,
production lies at the bottom, whereas this is the most critical and complex part of the business.
Services like research and development, design, purchasing all these pre-production intangible
functions and marketing, distribution, sales, etc. postproduction intangible activities in RMG
business carry a higher value than production - only tangible activity in the business chain.