Costing and Negotiation skills for merchants in apparel supply chain.
It’s that time of the year again. The beginning of a new season, proto sampling deadlines, endless coordination with fabric suppliers and garment vendors to stick to the dates to make sure the samples reach in time for the ‘ oh so important meeting’, and above all costings, costings, costings..If you are a merchandiser in the apparel arena, you can relate to the above.
A period of crazily hectic activity, and pressures mounting from all sides…buyers, suppliers, bosses…But there is some excitement in all this mayhem. The thrill of working on new styles, designs, fabrics… the excitement and anticipation of booking new orders… the fun in negotiation and haggling for best prices…Ask any merchant on what they like most about their jobs..And they will tell you it’s these aspects which give them an adrenalin rush in their jobs… Otherwise life would be pretty mundane…
Given the crazy workload that hits a merchant at this time, it is little wonder that some details, often with important implications, get overlooked. If you had more than 100-150 cost sheets to populate, prepare and quote prices on, being a supplier’s merchant… to err in some costings would be human indeed. But wait a minute… let’s just understand the implications before brushing it aside as a simple as that scenario. I came across a cost sheet in my career as a merchant, where instead of typing $ 0.59 for a certain leather patch in the garment, the supplier merchant had typed $ 0.059. Price was sealed and order was confirmed for 25,000 pcs for a pant. It’s only later that I noticed this error. Now imagine the amount of money left on the table … $ 13,275! Wow, I could do the Europe holiday that I often dream of in that kind of money!! It’s just criminal to me, irrespective of which side you are on, supplier or buyer, to leave that kind of money lost in human errors, and there are countless such instances which remain unnoticed… lost forever.
The key to eliminate or at least reduce these kinds of errors during costings is to ‘become a marwari’. Now that you have become a marwari, who is quoting price for your own business, every cent will count to you! Now costing will take a totally different dimension, and there is no room for any errors… it’s your money at stake!
Micro Detailing is crucial in preparing cost sheets. At times all the items are not listed on the bill of material provided by the buyer, but you are going to need them eventually in making the garments. Examples are packing trims, interlinings, buttons, threads etc. So it’s important to not only include the items on the BOM of a tech pack, but also include all the items that will go on the garment.
Protect your cost sheet in every way. You don’t want to base your final price on a fabric consumption only to find out during production that you ended up ordering more fabric than was estimated at costing stage. It’s your money being lost.
Fabric is the biggest component of any garment costing. Make sure you take accurate yields based on ratio markers, make sure you take formal commitments from fabric suppliers while taking price quotes, regarding finished width of fabric, shrinkages, defect percentages etc. This is important because later on it will be possible for you to hold them accountable to cover for your losses, in case the fabric shrinkages exceeded the expectations and you ended up ordering extra fabric, or if more than expected fabric got wasted due to defects etc. So often due to time constraints, merchants end up taking fabric price quotes on phone, rather than through a proper professional quotation sheet from fabric supplier. Now if you were a Marwari running your own business, you will not do that, and will take care to have a proper record in place for all raw material prices, before quoting the final price for the garment to the buyers.
Knowing your competition is the secret for becoming an astute negotiator. All businessmen make it their business to know the competitors they are dealing with. This knowledge gives you that extra edge while quoting the prices to the buyers. Are you competing with suppliers within your own geographical location, or are there players from other parts of the globe vying for the same orders? What is your competitive edge Vis a Vis competition and vice versa. Especially when speed to market is so crucial in a tough business environment, buyers do not have much time to haggle back and forth and bring down the prices to acceptable levels. You need to quote the right price in one shot, and you have to be accurate. If you over quote, you run the risk of losing the business to another supplier, and if you under quote, you lose money.
An understanding of the buyer margins can help you to hit the buyer targets more accurately in one go. More often than not, you may end up getting a higher price than you aimed for in the first place, and still make customer happy by meeting their targeted margin goals. What level of market your customer operates in e.g. luxury segment, middle segment or mass market? What profit margins do they need to make to run profitable business at their end? This keen business sense is similar to astute shop keepers in flea markets who quote the price by looking at the customer and estimating his ability to pay and purchase. You would have seen many sari shop owners, who will willingly open and show as many sarees to a customer whom they think will make the purchase and are reluctant to open even a few when they feel the customer is not going to make the purchase. This simply comes from knowing the customers well.
Last but not the least; great negotiation power belongs to a person who can think win win. Armed with the knowledge above and even after being as accurate and detailed as possible, if your price quote is still not satisfactory enough from buyer target price, by all means make an alternate proposal to buyer. Give options with suggestions to may be delete a trim or change the fabric source or whatever it may be… but give alternative suggestions to meet and service the customer requirement in way which is win win for both parties. Like Marlin Brando in Godfather when he says – I will make him an offer he can’t refuse.
About the Author –
Anjuli Gopalakrishna has spent more than a decade in the apparel industry, having worked with leading companies including J C Penney Purchasing Corporation, Tommy Hilfiger India Limited and Li & Fung. Her experience includes apparel marketing and merchandising, sourcing of home products, apparel, accessories and leather goods. She has extensive experience sourcing for US and Europe from sourcing destinations including India, Bangladesh, Sri Lanka, Vietnam, Madagascar, Pakistan, Taiwan and China.
She is a Post Graduate in Fashion Management Studies from the National Institute of Fashion Technology Delhi (NIFT).
She is now an independent consultant and trainer in supply chain merchandising to buying offices and garment exporters and also a guest lecturer at NIFT Bangalore.
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