Range Planning

Range Planning
• Range planning involves compiling a commercially
acceptable and appropriate collection of garments within
financial and design parameters , which takes place before
production and delivery .
• Initially , the range plan is nothing but a list of the garments
that the buyer intends to purchase for a particular season .
It should not exceed the buyer’s budget .
• The buyer should research the following before planning a
range .
– Historical sales figures
– Fashion forecasting
– Directional shopping
– Comparative shopping
• The range plan is a working document
which is presented at pre-selection and
final range selection meeting . The range
plan is updated after the range has been
finalised and then becomes a definitive
list of the products to be offered for a
particular season .
 Compiling a range plan
• The two main sources of reference for range
planning are the retailer’s sales figures from the
previous seasons , and the fashion trend that has
been predicted for seasons to come .
• These two factors must be in context with the
retailer’s potential customers and are often based
upon educated guesswork about which new trends
the customers are likely to identify with .
• The buyer needs to be familiar with the company’s
size range and most stores have a variable sizing
policy , with the buyer needing to decide whether
certain garments should be available in smaller
and /or larger sizes .
• The choice of fabric and the amount of design detail included
within a product greatly influence the cost , and the buyer
needs to be aware of how much design content is affordable
within a garment in order to keep it within the potential
customer’s reach .
• When buying a new season’s range the fashion buyer needs
to plan the following some of which will be guided by the
merchandise department :
– Number of garments to be included in the range .
– Proportion of different types of garment to be included .
– Specific garment styles to be included .
– Fabrics and colourways to be offered in each style .
– Cost prices for each style .
– Selling prices for each style .
– Sizes to be offered across the range and for individual styles .
– Which manufacturer to use for each style .
– Order quantities per style .
 Seasons and Phases
• New ranges are launched for two main seasons
per year . Within the spring/summer and
autumn/winter seasons , buyers develop several
ranges to be launched at various times and
appropriate for the seasonal weather and changes
in fashion trends
• Most fashion multiples take delivery for
spring/summer collections in January ,
merchandised separately from sale stock .The
new ranges are usually displayed in store windows
to notify customers their arrival and to entice them
into the shop .
• Ranges launched at different times within
the same season are usually referred to as
‘phases’ , with typically three phases per
season .

• Most trend conscious stores launch new

ranges every six weeks , resulting in stock
being constantly updated and offering
customers a very wide choice of products .
 Sales History
• Patterns have probably been established of the type of
fashion merchandise which the retailer’s customers have
purchased in the past . This sales information will probably be
available within the buying office or from the merchandise
department .
• Bestsellers from recent seasons need to be replaced with
new yet equally profitable merchandise . It is important for the
buyer to judge how much , and in what ways , a best selling
style should be amended to prolong its appeal in future
seasons . If the same style is offered to more than one
seasons sales may be lower as many customers have already
bought the garment , but , on the other hand , if the style is
changed substantially it may lose the appeal which made it a
bestseller .
Directional and comparative shopping
• During directional shopping trips several
key garments are usually bought in a
standard size so that they can be fitted in
a model back at head office , and some of
the measurements can be used for
specifications for the retailer’s own styles
.The samples may also be bought for
colour or fabric reference and could end
up being cut into swatches for next
season’s colour palette .
• The number of garment styles in the range including each
colourway on offer is referred to as the number of options .
After initially planning the range the buyer should check it
again to avoid duplication in terms of price , colour , style and
fabric . ‘
Options and colourways
• The ratio of tops to bottoms is a key factor in the planning of a
successful range . Generally more tops than bottoms should
be offered as tops tend to be cheaper . , and therefore the
customer is likely to buy more tops than trousers or skirts .it is
possible to achieve this by offering tops in a wider variety of
colourways than the rest of the range , or by increasing the
number of styles of top .
 Sizing
• The selected range of sizes in which garments
are available vary between retailers, and
between ranges within a store.
• The standard size range is 10-16 in UK
• A choice o only 4 sizes can be restrictive and
many stores stock sizes from 8-18 with 6
termed as petite and 20 as oversized
• As fashion retailing business becomes
increasingly competitive buyers have
constantly to seek ways to stay ahead of the
field and the decision about which sizes to
stock can be a critical factor in success of the
range
• Fashion buyers need to review which sizes to
offer in complete garment ranges or individual
styles
• Size 12 is selected as it is one of the mid sizes
in range and provides less risk in grading
procedure
• For men’s wear size 42 is used for standard
fittings and for children wear range from 2-
10,size 7-8 is often used for samples
 Calculating retail prices
• Many retailers in UK charge customers to find
that many retailers in UK charge the customers
2.5 to 3.5 times more than the price the
manufacturer charged them for a garment
• The extra margins include overheads such as
store rents, rates, electricity, head office costs
and staffing
• Each company has its own target margin and set
a formula for achieving it.
• The buyer has to estimate the price that the
customer will be prepared to pay, based on
previous experience, whilst gaining a suitable
profit margin for the company.
• It has become conventional for many store in
UK to round up prices to nearest 99 pence.
• Since 1990’s however the trend has been for
fashion stores at higher price levels to sell
garments priced at exact pounds
• Most buyers calculate the margin based on
the following principle:
• Selling price-cost price=margin percentage
• In some companies buyers are expected to
calculate the average cost and selling price of the
range in order to anticipate the expected margins
and consequent profits
• It is calculated by adding price of every option
available in the range and dividing it by total
options available in the range.
• By doing this buyer can identify which garments
aren’t making enough profit margins and has the
opportunity to replace such styles before placing
the orders
 Classifying Fashion Merchandise Within
Range Plan

Classic, Core & Basic Products

• Retailers retain classic products within a range for more then a season
either exactly the same form or by retaining the styling & amending the
fabric or color.
• This often applies to men’s wear & even image conscious chains like GAP
sell basic trouser styles for two or more seasons in classic colors like stone
while introducing more fashionable colors on a seasonal basis.
• At the younger end of the market there are classic products which vary
only slightly in styling from one season to the next including jeans and t-
shirt. Classic products tend to achieve their status by combining comfort
and practicality with aesthetic appeal, like loafer shoes.
• Classic products can achieve a relatively long
product life-cycle lasting several years
compared with most fashion items which
would usually be stocked for a maximum of six
months.
• Depending on the retailer, classic products are
also referred to as “core” or “basic”
merchandise
 FASHION PRODUCTS AND FADS
• A fad is a very short term fashion but one which
achieves high sales figures within that period.
• Fad tends to be adopted more by the younger
customers at the cheaper end of the market. It’s
popularity often fueled by press coverage of a
celebrity wearing designer items.
• While most clothing products which are
considered fashionable are stocked for one or
more season.
• A minority of these products move on to
become classic items.
• An item stocked by a retailer as a fashionable
product yet another store aiming at a younger,
more fashion conscious customer may include
the very same garment in its basic range.
 FACTORS WHICH AFFECT PERFORMACE OF A
FASHION RANGE
• The two factors are
– Internal factors
– External factors
 INTERNAL FACTORS
1. Promotion – advertisement and display
2. Available budget
3. Companies buying policy
4. Takeover/acquisition
5. Management decisions
6. Restructuring
7. The performance of companies other
departments
 EXTERNAL FACTORS
1. Current trends
2. Economic factors
3. Ranges on offer from competitors
4. Customer buying decisions
5. Supplier performance
6. Weather
Costing Principles
 Costing Principles
• Pricing strategies can be effective only if the underlying cost
bases are accurate.
• This requires precise accumulation and allocation of all costs
that are reported in a company’s financial statements.

• These costs are summarized in

– Cost of Goods
– General Operating Expenses
 I. COST OF GOODS
• Cost of goods is all expenses involved in the manufacture of
an apparel product.
• If a company is sourcing its products through domestic or
international contract manufacturers ,as in the case with most
private brands, the cost of goods is based upon the contract
agreement.
• If a company is buying a finished package including labor and
material , the landed duty paid(LDP) price becomes the cost
of goods.
• If a company is contracting for cut , make and trim (CMT) only,
the cost of goods would be the CMT price + the cost of
materials.
• If a company is using its own factories for manufacturing it
must determine the costs of goods based upon the company
cost basis as defined by its accounting system.
• The cost of goods is summarized under the following
categories:
– Direct materials
– Direct labor
– Manufacturing overheads
 Direct materials
• Direct materials include:
– Fabric
– Thread
– Trim
– Findings
• The prototyping process provides an opportunity of
determining the quantities of each direct material.
• The results are recorded in the bill of materials as a part of
developing a design sheet.
• Fabric is the most costly material in most garment styles.
• Accurately determining the amount of fabric required for a
new style is essential.
• The next most accurate method is to create a cutting marker
using the appropriate size scale.
• The size scale is the ratio of sales per size for a style .
• To accurately determine the average amount of fabric needed
for a garment style requires creating a marker for the style
using the size scale and the fabric width.
• With the help of computer aided pattern design software
(PDS) and marker making system:
– Sample pattern set can be created for each size
– Material utilization and percentage of fabric utilized is
calculated.
• Material utilization is analyzed against the company standards
for similar styles.
• Another factor that must be considered by merchandisers
when determining fabric costs is minimum order quantity.
• For other direct materials such as threads, trims and buttons
,MOQ must also be considered.
 Direct Labor
• Direct labor includes those costs that change the condition or
physical appearance of raw materials.
• Examples of direct labor functions are
– Cutting
– Bundling
– Folding
– Sewing
– Finishing
• Labor standards should be determined for each style.
• These standards are calculated in time units as Standard
Allowed Minutes(SAM) for each operation required to
produce a specific style.
• SAMs include allowances for personal time, reduction in
production performance due to fatigue and normally
expected work delays which are classified as personal fatigue
and delay(PF&D) time.
• SAMs can easily be converted to costs by applying earning
objectives .
• For operations that are on piece rate , the operators are paid
a fixed price for each piece they produce.
• For costing purpose, the advantage of a piece-rate payment
system is that the direct labor cost per unit is fixed as opposed
to hourly wage system where the labor cost per unit varies
depending on worker productivity.
• Operator training ,machine down time, waiting for work and
overtime premiums are examples of cost adjustments to
account for off-standards manufacturing time.
• The amount of off-standard direct labor cost is considered as
a % of earned direct labor which is then included in the
overall factory overhead %.
 Manufacturing Overhead
• Manufacturing overheads includes all the costs of
manufacturing except direct materials and direct labor.
• These costs may be variable or fixed.
• Examples of variable costs are machine oil, sewing needles,
machine parts and portion of power.
• Examples of fixed costs are property taxes, depreciation of
factory facilities, light, indirect labor and building
maintenance.
• Many companies combine both the overhead costs in one
overhead pool, which is allocated to products either on a per
unit basis or as a % of direct labor.
II. GENERAL OPERATING EXPENSES
• All costs over and above included in the total cost of goods of
a product are general operating expenses, which are referred
to by some companies as general and administrative costs
(G&A).

• These costs can be broken down into following types of costs:

- Marketing and Selling Expenses

- Distribution Expenses
- Distribution Expenses
- Administrative Expenses
 Marketing and Selling Expenses

• Marketing and Selling Expenses includes all costs required to

secure a garment orders and deliver the garments to the
customers.

• Examples: advertising, sales travels and entertainment,

showroom expenses, finished goods warehousing and
shipping.
 Merchandising, Design or Product
Development Expenses
Costs associated are:
• Merchandising: development, execution and delivery of the
product line
• Product Development: design and sampling, product
engineering, quality assurance, specification, writing, sourcing
and costing

PD is most difficult to budget since constantly changing

market demands alter PD costs and global sourcing
requirements.
 Distribution Expenses
• Distribution Expenses includes:
- Warehousing the finished goods inventory
- Picking and packing customer orders
- Shipping

Quick response and just-in-time manufacturing systems are

dramatically reducing distributions costs for many companies
by shrinking warehouse space and allowing some
manufacturers to pack and hold garments directly from the
production floor.
 Administrative Expenses
• Administrative Expenses include Executive, Organizational and
Clerical costs.

- Executive compensation and accounting

- Secretarial
- Legal
- Public Relations
- Human Resource Expenses
Costing Strategies
 Costing Strategies
• Effective Costing and Pricing Decision are
combined work of merchandiser and the
accountant.
• Cost Accounting bridges the gap between
financial accounting and managerial accounting.
• Managerial Accounting : providing information to
those who are inside the organization
• Financial Accounting : providing information to
those who are outside the organization
 Cost accounting strategies
• Direct Costing
• Absorption Costing
• Blending Costing
 Direct Costing
• Direct Costing or Variable Costing
• First Costing Strategies used by apparel Company
• Applies only variable costs directly related to
labor and materials as product costs or cost of
goods.
• Gross Margin or Fixed Cost per garment includes
non variable factory expenses like marketing,
product development, and general and
administrative costs.
 Direct Costing
• Direct Costing or Variable Costing
• It is easy to use because it requires measuring
only the variable expenses directly related to
materials and labors and accumulates the rest
of the cost in one large cost pools unlike
Absorption Costing.
• Manufacturing Overhead : Direct Material +
Direct Labors.
 Absorption Costing
• Absorption or Whole Cost Method
• In this strategy the cost of goods for each style
includes variable materials, labor and fixed and
variable factory overhead i.e. allocated as a
percentage of direct labor.
• The gross margin contribution including general
and administrative costs is applied on per unit
basis.
• Provides a more equitable distribution of
manufacturing overhead.
 ABC
• Activity Based Costing : A Multi-Stage Process.
• It assigns manufacturing overhead and
general operating expenses to multiple cost
pools rather than simply being assigned to
departments.
• Cost pools represent activities(supervision, machine
maintenance, pattern design, fabric selection, material management, advertising,
engineering, operator training, production planning, quality assurance, market
) and are assigned to styles based upon
research
the activities required by each style.
 Costing LeVels

Constant style changes require constant

feedback and adjustments for whichever costing
strategy a company chooses to adopt. Multi-
level costing process includes:
• Quick costing (Cost estimating)
• Costing for sale (Cost calculating)
• Production costing (Cost monitoring)
• Accounting costing (Cost reporting)
 Quick Costing
• Preliminary cost estimates used by merchandising
to evaluate different style alternatives during the
early stages of product development.
• Cost engineers use summarized standard cost
data, previous garment cost sheets, and fabric
requirement approximations to prepare cost
estimates for a proposed new style.
• These estimates allow merchandisers to focus
attention of the design team on styles with a
greater likelihood of adoption.
 Costing for sale
• Involves accurate cost calculations used by merchandising
in consideration for adoption and the ultimate pricing of a
style.
• This level of costing is based upon an actual garment
sample to also take into consideration alternative
construction possibilities to lower the cost.
• Fabric requirements are calculated from a test marker using
appropriate size scale, actual fabric widths, and actual
completed pattern sets.
• Labour costs are calculated from detailed predetermined
time standards or proven piece rates.
• Fixed and variable costs are calculated to further determine
eventual wholesale selling price.
 Production costing
• Measure of actual variable manufacturing
expenses for labour and materials.
• It depicts the actual cost of production excluding
overhead and gross margins, this serves as a
monitoring function for the manufacturing
process and provides feedback for quick costing
and costing for sale.
• Adjusted piece rates are substituted for any
calculated standards and actual material
utilization is calculated from the cutting process.
 Accounting costing
• Measure of the actual costs derived from final
adjustments to all elements of the the cost
control process.
• This level of costing measures cost of goods,
both variable and fixed portions of
manufacturing overhead, as well as variable
and fixed general operating expenses.
• It is the basis of evaluating profit or loss for
the company for a specific accounting period.
• A bill of materials generated during development of
prototypes for a specific style showing all materials
required by quantity and cost with allowances for
wastage and handling..
• A bill of labor is created by engineering showing
each manufacturing operation required to produce
the style with SAM and cost per unit.
• A cost sheet is established by bills of materials and
labour with factors added for seconds, handling,
freight, excess costs, fringe benefits, indirect labour,
factory overhead, selling and operating costs.
• Provides calculation of total cost of goods that is
compared to various selling prices to determine
potential gross margins, retail selling prices and
retail markup potential.
KEYWORDS
1. Absorptions costing : A method of costing a product in which all fixed
and variable costs are apportioned to cost centers where they are accounted
for using absorption rates. This method ensures that all incurred costs are
recovered from the selling price of a good or service.
2. Accounting costing
3. Activity-based costing: An accounting method that identifies the activities that a
firm performs, and then assigns indirect costs to products. An activity based
costing (ABC) system recognizes the relationship between costs, activities and
products, and through this relationship assigns indirect costs to products less
arbitrarily than traditional methods.

4. Adjusted-gross margin (AGM) : : Adjusted gross margin goes one step further
than gross margin because it includes these inventory carrying costs, which
greatly affect the bottom line of a product’s profitability. For example, two
products could have identical, 25% gross margins. Each, however, could have
different associated inventory carrying costs. Once these factors are included,
the two products could show significantly different margins and profitability. This
can help identify products and lines that are underperforming.
1. Cost of goods – all expenses involved in the
manufacture of an apparel product
– If a company is sourcing from contract manufacturers,
CoG is based on contract agreement
– If company buys finished package, LPD price is CoG
– If company contracts for CMT , CoG is CMT price plus cost
of material

CoG can be divided in 3 categories

– Direct material
– Direct labour
– Manufacturing overhead
1. Blended costing : BLENDED COSTS is the cost of pre-
set multiple items or processes that result in more
than one end result or product. In a sense it is a form
of cost averaging rather than stand-alone costing of
one given product or identified process.
2. Cost accounting : Cost accounting is regarded as the
process of collecting, analysing, summarising and
evaluating various alternative courses of action
involving costs and advising the management on the
most appropriate course of action based on the cost
efficiency and capability of the management.
1. Direct costing : : A price that can be completely
attributed to the production of specific goods or
services. Direct costs refer to materials, labor and
expenses related to the production of a product. Other
costs, such as depreciation or administrative expenses,
are more difficult to assign to a specific product, and
therefore are considered indirect costs.
2. Direct labor – includes those costs that change the
condition or physical appearance of raw material, eg.
Cutting, folding, sewing, etc.
3. Direct material – includes cost of fabric, thread, trim
and findings
4. 807
1. Financial accounting : Reporting of the financial position and
performance of a firm through financial statements issued to external
users on a periodic basis.
2. General & administrative expenses (G&A) : Expenditures related to the
day-to-day operations of a business. General and administrative
expenses pertain to operation expenses rather that to expenses that can
be directly related to the production of any goods or services. General
and administrative expenses include rent, utilities, insurance and
managerial salaries.
3. General operating expenses : also called G&A
• Gross margin (GM) : A company's total sales revenue minus its cost of
goods sold, divided by the total sales revenue, expressed as a percentage.
The gross margin represents the percent of total sales revenue that the
company retains after incurring the direct costs associated with producing
the goods and services sold by a company. The higher the percentage, the
more the company retains on each dollar of sales to service its other costs
and obligations.
1. Gross margin return on inventory (GMROI) : An inventory profitability evaluation ratio that
analyzes a firm's ability to turn inventory into cash above the cost of the inventory. It is calculated
by dividing the gross margin by the average inventory cost and is used often in the retail industry.
2. Income statement : A financial statement that measures a company's financial performance over
a specific accounting period. Financial performance is assessed by giving a summary of how the
business incurs its revenues and expenses through both operating and non-operating activities. It
also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal
quarter or year.
3. Landed duty paid (LDP)
4. Maintained (margin) markup
5. Managerial accounting : is concerned with providing information to managers i.e. to those who
are inside an organisation and who are charged with directing and controlling its operations.
6. Manufacturing overhead - refers to indirect factory-related costs that are incurred when a
product is manufactured. Eg. electricity used to operate the factory equipment, depreciation on
the factory equipment and building, factory supplies and factory personnel (other than direct
labor). This cost is added to the cost of the product and thus recovered.
7. Markup (gross margin) –
– Markup is the amount (usually expressed as a percentage) that is added to the cost of a good to set the
selling price. For example, if an item costs $10 and the markup percentage is 50 percent, you add $10 (50
percent) or $5 to get a price of $15.
– The margin of a good that has a $15 price and a cost of $10 is the price minus the cost (in this example, $5).
– Margin and markup have different uses. Generally, a markup formula is used to set the price of a product.
It's a simple and easy way to guide sales personnel and managers. Margin is more useful for analyzing sales
and expenses.
8. Material utilization – percentage of fabric utilized in cutting the garment parts for a given marker
9. Minimum order quantity - It is the minimum size of an order specified by a supplier.
1. Payment terms - The conditions under which a seller will complete a sale. Typically,
these terms specify the period allowed to a buyer to pay off the amount due, and
may demand cash in advance, cash on delivery, a deferred payment period of 30 days or more, or
other similar provisions.
2. Personal, fatigue, and delay (PF&D) – SAMs include allowances for personal time, reduction in
production performance due to fatigue, and normally expected work delays are classified as
PF&D
3. Piece rate - Wage determination system in which the employee is paid
for each unit of production at a fixed rate.
4. Pricing - Method adopted by a firm to set its selling price. It usually depends on
the firm's average costs, and on the customer's perceived value of the product in comparison to
his or her perceived value of the competing products.
5. Production costing – it is the measure of actual variable manufacturing expenses for labour and
material.
6. Profit and loss statement - A financial statement that summarizes the revenues, costs and
expenses incurred during a specific period of time - usually a fiscal quarter or year.
7. Pull-through marketing - A financial statement that summarizes the revenues, costs and expenses
incurred during a specific period of time - usually a fiscal quarter or year.
8. Quickie costing – or quick costing involves preliminary cost estimates used by merchandisers to
evaluate different style alternatives during early stages of product development.
1. Size scale – progressive classification of sizes
available for product
2. Standard allowed minutes – time required for an
average operator, fully qualified, trained, and
working at normal speed, to perform the
operation.
3. Subjective pricing -
4. Variable costing – same as direct costing
5. Whole cost method – same as absorption
costing
6. Wholesale net selling price
7. Wholesale selling price
Sourcing, Global Sourcing &
Sourcing Options
 Sourcing
• The process of procuring products to meet a
company’s marketing objectives.
• Determines where, when and how a
company’s products will be manufactured.
• Classified on the basis of origin of contractors
1. Domestic Sourcing
2. Offshore Sourcing (Global sourcing)
 Domestic Sourcing

Advantages :
• Accommodating additional outputs
• Added product-line flexibility
• Coping with peak production requirements
• Quick response and through-put cycles
 Global sourcing
US apparel companies were initially attracted to Japan,
Taiwan & South Korea. From 1960s to 1990s, apparel
companies were sourcing from more than 200 countries
around the globe
• Low labor rates
• Strong political and social ties with US following World War II
• Presence of large English speaking populations
• Easy movement of goods in/out of the country due to
developing infrastructure
• Positive attitude of government towards industrialization and
foreign investment
 Sourcing : Role of a Merchandiser
• Merchandiser plays a key role in sourcing functions. In
some companies they may have total responsibility for
sourcing decisions where as in others they may be just
coordinating.
• Whatever the company structure, its imperative that all
those involved in the merchandising function
understand the mechanics of global sourcing.
• No matter what role the merchandiser and product
manager play in sourcing from direct line responsibility
to coordination with a specialized sourcing or
production executive, merchandising and sourcing
share a common goal- get the right product to the
consumer at the right price and at the right time.
 Sourcing options
There are three options of sourcing :
• Internal
• External
• Combination of both

The decision taken differs for each company

and is based upon parameters like financial
sources, level of manufacturing expertise and
strategic objectives.
 Internal Sourcing
• Internal sourcing is the manufacturing of
apparel products in company’s own
domestic/international plants.
• Requires substantial capital investment for
plant and equipments
 Advantages
• Control over the flow of raw materials and trim
items as well as production schedules and
deliveries.
• Quality standards are more easily established
and monitored in company-owned facilities.
• Response time through electronic data
interchange with retailers and textile suppliers
can be optimized since priorities are established
and controlled by the owner of the facility
 Technological Solutions towards
increasing domestic production
• Automated sewing systems
• Computer Aided Design
• Computer controlled cutting systems
• Unit Production System (UPS) – Eton
• Modular Manufacturing Systems (MMS)
 External Manufacturing
External manufacturing is used when a company
does not have or chooses not to use its own
manufacturing facilities and uses an outside
contractor.

There are two approaches to apparel

manufacturing
• Cut, Make & Trim (CMT)
• Full Package (FP)/ Original Equipment
Manufacturing (OEM)
 Cut, Make & Trim (CMT)
• In CMT, apparel company provides designs, fabrics and trims
whereas contractor provides labor and supplies.
• Easier for small contractors to start with CMT
• A variation is offshore assembly (807 program) which allows
components cut in US to be shipped outside the country for
assembling and then returned to the country without incurring
duties on components. Duty is charged only for the value added in
the offshore assembly process plus the cost of shipping.
• There is also a Special Regime Program 807a that allows garments
made from parts cut in United States and made of fabric formed in
United States to qualify for guaranteed access to US.
 Advantages of CMT
• Flexibility - since outsourcing company
provides raw materials which allows flexibility
in product and style changes
• Reduce Investment – initial investment is
fabric cost & quality inspectors, production
follow – up personnel
• Control - over design and fabric resources
maximizes material utilization and minimizes
threat of copying (knockoffs)
 Full Package Sourcing
• In full package sourcing, contractors provides
fabrics, trims, supplies and labor
• Also known as OEM in Asia
 Advantages
• Limited Investment required by outsourcing
company
• Limited Technical Knowledge – allows out-
sourcing company to focus mainly on product
development and marketing.
• Limited Commitment to a contractor – so
allows outsourcing company to make drastic
style changes from season to season
SOURCING DECISIONS
 FACTORS IN THE SOURCING
DECISIONS
• Cost elements • Quality
• Capacity • Competition
• Minimums • Distance
• Labor skills and • Government regulations
equipment assessment • Political and economic
• Infrastructure environments
• Throughput time and • Human rights
lead time
 COST ELEMENTS
Personnel and service costs required to import products,
generates the following expenses:
• Computer and telephone links
• Courier service to rush samples and approvals.
• Buying office, agent, or staff
• Legal consultants
• Merchandising and manufacturing technical specialists
• Customs brokers
• Banking specialists
• Freights and traffic specialists
• Oversight by the company executives
 CAPACITY
Capacity is an important consideration when a
potential sourcing alternative is being
evaluated. A good sourcing executive should
evaluate a potential contract partner for:
• Financial capacity
• Plant space capacity
• Available workforce available
 MINIMUMS
• Domestic and offshore contractors do not accept
orders for fewer than a specified no. of units per
style and color, particularly critical for smaller
manufacturers of fashion oriented apparel who
cannot afford high risk associated with issuing
large orders.
• Minimums vary by country and contractor.
• Maturity in sophistication, production capabilities
and quality in areas leads to minimums becoming
higher and higher.
 LABOR SKILLS AND EQUIPMENT
ASSESSMENT
• Performance in apparel manufacturing depends a great
degree on the skills of the sewing operators and the
adequacy and quality of the equipment.
• Formal contractor evaluation form can be used to
analyze the capabilities of the contractor.
• Careful assessment of operator training, method
analysis of each operation, and equipment evaluation
are critical to making a quality sourcing decision.
• Certain products require specialized sewing skills and
equipment as well as other factors that may influence
the sourcing decision.
 INFRASTRUCTURE
When an apparel company is considering a new global
supplier, it must carefully analyze the infrastructure and
other factors including the following:
• Availability of quality raw materials, trims, findings, and
packaging supplies increases in importance as full
package becomes the dominant method of offshore
procurement. A qualified laboratory should analyze
them.
• Availability and reliability of electric power, material
suppliers, and shippers should be determined.
• Roads and transportation can also be a critical factor in
moving raw materials and finished products as well as
getting workers from remote villages to factory sites.
 THROUGHPUT TIME AND LEAD
TIME
• Frequent change in fashion results in improving service and
delivery with faster throughput times by the merchandiser.
• Factor affecting throughput time is the type of production
system used, which affects factory throughput time.
• Throughput time can vary from hours for domestic internal and
external manufacturing, to weeks for 807 assembly operations
and months for CMT or full-package import programs.
• Better international factories are usually fully booked and
hence order must be placed well in advance with these
factories which may add weeks and months to the total
throughput time.
 QUALITY
• Low cost cannot compensate for poor quality
and the effect poor quality will have affect on
a company’s reputation.
• Careful audit of the quality in a factory under
consideration as a sourcing partner is vital.
• Sample garments do not always reflect the
production quality at a factory.
• Visit to the plant to inspect production in
process is the only way to assess its ability to
achieve the required quality standards.
 COMPETITION
• Constant pressure to find the next “ideal” sourcing location.
• Important to keep an eye on the competitor when it comes
to selecting the next sourcing opportunity.
• Leaders must find “virgin territory “- one that has low-cost
skilled labor, is capable of meeting quality requirements, has
a stable government, has qualified local management, has
sufficient quota, has a good infrastructure, and is easily
accessible by air and sea.
• Follower must know when to jump into a new sourcing
arena.
• Downsides- later deliveries, quality disasters, or even
government seizure of plant, equipment and product.
• Company must have a sophisticated, multilingual,
development staff skilled in operator training, method
 DISTANCE
• Farther the production facility, the greater
the travel and shipping expenses and
longer the process period.
• Although, increase in sourcing has not put a
halt to the constant search for cheaper
labor, no matter what the distance.
 GOVERNMENT REGULATIONS

• Quota
• Duty
• North American Free Trade Agreement
(NAFTA)
• Caribbean Basin Trade Partnership Act (CBTPA)
• African Growth and Opportunity Act (AGOA)
• Central America-Dominican Republic-United
States Free Trade Agreement
• Bi-Lateral Free Trade Agreements
 POLITICAL AND ECONOMIC
ENVIRONMENTS
• Countries under the watchful eye are
China, Cambodia, Sri Lanka , Bangladesh,
Lao and Vietnam as the political and
economic environments and the affects on
infrastructure are major factors in their
development as low-cost global apparel
resources.
• Major issue in recent years is protection of
IPR.
 HUMAN RIGHTS
Human rights are the basic rights of all human beings to be
treated lawfully, humanely and ethically. Human rights issues
that are of specific concern to the apparel industry are:
• Child labor
• Forced labor
• Health and safety
• Freedom of association and the right to collective bargaining
• Discrimination
• Disciplinary practices
• Working hours
• Compensations