9 Big FAT Garment Lies

In 2007, we hosted our last of 5 AAPN CAFTA SUMMIT conferences. Barbara Zeins, who serves on our Board and is President of Gerson & Gerson in New York, was on the agenda. She gave the following talk. I am afraid I have lost the original, therefore some of the notes are mine, not hers. Nonetheless, she blew the top out of the assumptions so many make about sourcing.

You see, Barbara imports massive numbers of designer little girls dresses. (see for yourself by clicking here) She works with hundreds of retailers. More than almost anyone we have ever met, she exercises true Full Value Costing. She is one of the brightest and most practically academic minds in the industry so it occured to me this morning to share the following with you. HAVE a great weekend!

9 Big FAT Garment Lies
1. Vendors are substitutable – well, they aren’t. You can’t throw them away. Vendors are as different as brands and retailers. If you source your product strictly on the basis of lowest material and CMT costs, you will wind up producing in some very strange places and paying a very high cost.

2. There is no cost in setting up a new vendor – baloney. It often costs over $100,000 to set up a new vendor. Look at companies who churn through vendors. They’re easy to find. They’re at the bottom of the list of their market’s profitable companies, chasing something elusive they will never find, the perfect permanent low bidder.

3. Costs are linear, increasing in direct proportion to quantity produced – “The direct costs of making the garment compose less that 15% of the total number of operations (activities) and take up less than 15% of the manufacturing period, yet almost all importers exclude the remaining 85% of manufacturing costs from their calculations.”

4. Last years performance is a good prediction of next year’s performance – maybe last week’s performance is, but not last year’s.

5. Your people are a variable cost -- when there is a downturn in business just lay them off - “job security” is an oxymoron today. In “the day”, when some managers were actually old, when intuition and experience ruled relationships that had taken years to forge, the work got done and surprises were absorbed and worked through, together.

6. Customization is always expensive – Not when ‘customization’ means stopping what is not selling before you commit to the color or style and ramping up production of what’s hot, close by and quickly.

7. All costs are either fixed or variable – “In most situations, SMDA expenses (selling, marketing, distribution, administration) have become an increasing percentage of sales. They are not fixed costs. They are not even variable costs. They are super-variable costs”, Kaplan & Cooper, Cost & Effect

8. As long as you are competitively priced you will survive – “Managers searched for cheaper suppliers, wherever they happened to be..…purchased in bulk to obtain volume discounts, built large automated warehouses to house and move those purchases, and deployed extensive inventory control systems and scheduling resources to… expedite items… from unreliable suppliers”, Kaplan and Cooper, Cost and Effect

9. The only way to lower product costs is through cheaper labor or materials – “Direct labor based overhead allocation systems made sense 50-80 years earlier, when they were designed, because direct labor was then a high fraction of the company’s total manufacturing conversion costs”, Kaplan and Cooper, Cost and Effect

 

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