Sales revenue = price per item multiplied by the number
sold.
Haute couture is a higher price to absorb variable and overhead
costs but the sales revenue may be lower than mass produced
products.
Mass produced garments lower selling price so more may sell.
Cost savings can occur because processes can be repeated.
9. Economic Factors Pricing Products
Mass produced products need market penetration so price needs
to be low.
Retailers pay a higher price for fast delivery for exclusive
products or small orders.
Higher prices makes consumer think the product is higher
quality so increase sales.
Ranges can be sold by a loss leader set a an artificially low
price to promote sales.
Manufacturers and retailers allow for a % of mark downs (sold
in sales) to sell off products at the end of the season.
10. Economic Factors Pricing Products
Factors deciding price include:
Style, fashion, function of the product.
Innovation or exclusivity.
Value of fabric / components silk, kevlar.
Value of work content lined, hand stitched.
Competition from other manufacturers.
11. Sources, Availability and Costs of Materials
Cost of materials depends on:
Type
Quantity required.
Fabric price per metre is based on current price plus estimates
of increases and reductions for large quantities.
All sewn product manufacture requires a continuous supply of
raw materials eg fibres, yarns, fabrics, components.
Cost of raw materials is based on supply and demand.
Those in short supply cost more than abundant raw
materials.
Raw materials difficult / expensive to process cost more.
Transportation of raw materials adds to cost.
12. Sources, Availability and Costs of Materials Natural Fibres
Come from renewable and reliable sources eg cotton and
wool.
Prices of natural fibres are mainly stable.
Cotton is grown in 80 countries.
Price of luxury fibres eg mohair and cashmere varies according
to supply.
Cashmere (Mongolian goat) is harvested yearly and is in short
supply so expensive.
One person can produce two tons of natural fibres per year
companred to 22 tons of manufactured synthetic fibres.
13. Sources, Availability and Costs of Materials Natural Fibres
- Cotton
75% of total market share of natural fibres.
Australia is the lowest cost producer of cotton.
Polyester is cheaper (but not natural).
Many countries subsidise the growing of cotton.
14. Sources, Availability and Costs of Materials Natural Fibres
- Wool
Decline in consumption since 1990.
Pure new wool is still prestigious.
Consumers wear less wool garments eg suits.
Wool lost market share with the collapse of wool consumption in
Soviet Union and Eastern Europe.
Woolgrowers of Australia and New Zealand have put money behind
marketing wool to retain market share.
15. Sources, Availability and Costs of Materials Natural Fibres
- Linen
Flax is a niche market textile.
Not used in medical and industrial textiles now.
90% of linen market is consumer good. 10% is industrial.
Linen is used in designer collections.
Recent improvements in finish will improve market appeal.
16. Sources, Availability and Costs of Materials Natural Fibres
- Silk
Prospering in India and China.
Slow but sure rate of increase.
Micro denier polyester filament fabrics are undistinguishable
from silk but real silk is still a luxury fibre and in demand.
17. Sources, Availability and Costs of Materials Regenerated
Fibres
Viscose, modal, Tencel and Lyocell are manufactured from
chemicals and cellulose (softwood).
Softwood is grown in North America and Europe.
Management of these forests ensures a consistent and controlled
supply leads to relatively inexpensive fibres.
18. Sources, Availability and Costs of Materials Synthetic
Fibres
93% of world production of fibres.
Polyester has greatest market share.
Europe consumes more than it produces and imports polyester
from Asia.
Made from crude oil.
Synthetic fibres are inexpensive to produce and supply is
reliable.
19. Sources, Availability and Costs of Materials Importance of
Oil
Worlds largest oil producing countries are not major oil
consumers export most oil.
Prices of oil climbed sharply around 1973 led to international
economic downturn.
Oil costs fluctuate resulting in higher petrol, energy and raw
materials prices worldwide.
20. Scale of Production
Predicts profitability because it influences how and where a
product is manufactured, choice of products available and selling
price.
For high volume production manufacturers and retailers base
sales predictions of volume and price on:
Testing selling in selected shops.
Sales of similar styles in previous seasons.
How product matches current and future colour, shape and design
trends.
21. Scale of Production
Economies of scale are factors that cause costs to be lower in
high volume production.
Unit price of a mass produced product is lower because raw
materials are used more efficiently.
Economies of scale is mass production result from:
Spreading cost of production between more products.
Bulk buying of materials = lower cost.
Specialisation dividing up work between a workforce with skills
that match the job.
Industry concentrated in one areas.
Componies concentrated in one area.
22. Design, Planning and Production Costs
Difficult for company to be profitable without developing new
products.
Cost of product development is high.
New products require change in production methods and training
costs.
Changes in production need planning and will overlap with
existing production to keep company in profit.
Constant demand to reduce time to market of new products.
Need right product at right time, in right quantity at right
cost.
Consumers perception of product needs to be that it provides
the right image as well as value for money.
23. Design, Planning and Production Costs Costs of Product
Development
Includes design and manufacturing costs.
Following costs must be included in cost of the product:
Employing designer.
Developing design concepts.
Modelling and prototyping.
Employing a pattern cutter to produce a prototype pattern.
Producing a sample (materials, labour, overheads)
Producing a production pattern.
24. Design, Planning and Production Costs Costs of Production
Costs include adapting the manufacturing process and training
operators.
Target production costs must be established at the design stage
and feasibility checked against existing styles.
Major costs are incurred in the manufacturing stage.
DFM (designing for manufacture) is about designing for
cost.
The aims of DFM are:
Minimise assembly costs
Minimise product development cycle
Manufacture high quality products efficiently.
25. Design, Planning and Production Costs Labour Costs
Sewn products need a lot of labour not automation as production
is complex.
Cutting, sewing, pressing are direct labour costs and account
for 20-25% of total direct costs.
Sewing and pressing are most labour intensive (cutting uses CAD
CAM).
Higher the level of productivity lower the labour costs per
unit and higher the potential profit.
26. Design, Planning and Production Costs Cost of Quality
Manufacturers aim to produce a competitive product that is good
quality and value for money.
Cost of quality is budgeted, measured and analysed.
There are three types of cost related to quality:
Cost of checking it is right.
Cost of making it right first time.
Cost of getting it wrong.
27. Design, Planning and Production Costs Cost of Quality
Cost of checking it is right
Related to checking:
Materials, processes and products against specifications.
That quality system is working well.
The accuracy of equipment.
28. Design, Planning and Production Costs Cost of Quality
Costs of making it right first time
Designing, implementing and maintaining a quality assurance
system stops things going wrong.
It is set up before production begins and results in costs
relating to:
Setting customer quality requirements.
Developing training for employees.
Design, development, purchase of equipment for checking
quality.
Developing specifications for materials, processes and
products.
Planning and using quality checks against specifications.
29. Design, Planning and Production Costs Cost of Quality
The costs of getting it wrong
Internal failure costs and external failure costs.
Internal failure costs products dont reach quality standard
detected before despatch. Includes costs relating to:
Reworking product to correct faults
Scrapping products
Inspecting reworked products
Selling products as seconds
External failure costs products dont reach quality standard
detected after being sold to retailer. Includes costs relating
to:
Customer service
Returned or replacing products
Investigating returned products
Products liability legislation
Damage to company reputation relating to future sales
30. Design, Planning and Production Costs How to Cost a Product
Cost must be an accurate price that makes product saleable and
create profit.
Too high = reduced sales below profitable margin.
Too low = no profit even if many are sold.
Comparing prices of competitors is an indicator used.
Computer systems are used to estimate costs and forecast
profits.
Cost is more than adding a set percentage to cost of
making.
31. How to Cost a Product Cost and Value
The best price is one that generates the highest profit not the
one that sells the most products.
Cost of making (materials, electricity, labour)
Maintenance, storage, transportation to retail outlets.
Rent, administration design, marketing.
Profit
32. How to Cost a Product Calculating the Selling Price
Costing takes account of:
Direct costs (variable costs). Cost of manufacture eg
materials, labour, energy used, packaging. Accounts for 50-65% of
total product selling price (SP).
Overhead costs (fixed or indirect costs). Cost of design and
marketing, admin, management, maintenance and repair of buildings
and machinery, cleaning, security, safety, pattern cutting,
sampling, quality, rent, rates, insurance, storage, lighting,
heating, distribution.
Overheads are shared between all products in a line. Marketing
costs account for 15-20% of total SP.
33. How to Cost a Product Calculating the Selling Price
Costing also takes account of:
Profit (gross or net). Amount left after all costs have been
paid.
Gross profit is revenue from sales minus direct and overhead
costs.
Net profit is gross profit minus tax.
Net profits pay dividends to shareholders, bonuses to employees
and are used for new machinery and product development.
34. How to Cost a Product Calculating the Selling Price
The break even point = how to pay back direct and
overheads.
Break even analysis works out how many products to sell to make
a profit.
This is done by accountants and financial controllers.
Break even point = overhead costs
selling price direct costs
Eg Direct cost of garment is 13, sells to retailer for 20.
Overheads for 1000 are 5000.
Break even point = 5000
20-13
Break even point = 714.
This means 714 products must be sold to break even.
35. Selling the Product
When setting price need to find what consumers are willing to
pay.
Pricing decisions include:
Social values value for money and customer demand.
Political values economic policy, culture of profit.
Economic values booming economy, recession.
Technological values electronic money transfer, distribution
systems.