A to z glossary of apparel costing e book by anjuli gopalakrishna

A ‘MUST HAVE’ RESOURCE FOR SMART APPAREL PROFESSIONALS.

A-Z Glossary on Apparel Costing

Here is an attempt to share useful information in easy digestible format for apparel and fashion professionals. An A-Z Glossary on Apparel Costing.

EASY EXPLANATIONS OF KEY ‘TERMS’ RELATED TO APPAREL COSTING

Sr No. 1

Term

Definition

AGOA

The African Growth and Opportunity Act, or AGOA (Title I, Trade and Development Act of 2000; P.L. 106–200 [2]) is a legislation that has been approved by the U.S. Congress in May FOLLOW 2000. The FURTHER LINKS TO purpose of this legislation is to assist the economies EACH of sub-Saharan TERM TO GET INDEPTH Africa and to improve economic relations between the United States INFO and the region.[3] Effective October 1, 2000, the United States established a preferential program that grants duty-free and quotafree duty status for apparel products manufactured in certain SubSaharan Africa countries After completing its initial 15-year period of validity, the AGOA legislation was extended on 29 June 2015 by a further 10 years, to 2025.[4] MAKE SMARTER COSTING LinksDECISIONS WITH THE HELP OF https://en.wikipedia.org/wiki/African_Growth_and_Opportunity_Ac THIS FREE RESOURCE TO KEEP t HANDY FOR ALL TIMES http://trade.gov/agoa/ http://agoa.info/

2 3

ALC Actual Landed Cost CAFTA The Dominican Republic–Central America Free Trade Agreement (CAFTA-DR) is a free trade agreement (legally a treaty under international law, but not under U.S. law). Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA. In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed CAFTA-DR. Links http://bit.ly/291fimO http://1.usa.gov/290v7GN

Free E Book on Apparel Costing

4 CBM CBM is the volume of the and cartonConsulting used for shipping goods. The freight Anjuli Gopalakrishna Training rates by shipping companies are charged based upon per CBM. You need to know the dimensions of the carton – L X B X H in meters to arrive at the cubic meter volume or CBM. Freight cost per item will

depend on number of units of that item placed inside that garment. For Garments, the formula is – Volume per Carton X Freight Charge or rate per CBM ÷ No of garments in a carton OR Volume per Carton ÷ No of garments in a carton X Freight Charges per CBM For air freight purposes, one needs to calculate what is known as volumetric weight. Air Freight rates are based on either gross weight or volumetric weight whichever is higher. Links – http://www.ginifab.com/feeds/cbm/ http://www.dhl.com.sg/en/tools/volumetric_weight_express.html http://www.online-calculators.co.uk/volumetric/weight.php 5

CBTPA Caribbean Basin Trade Partnership Act (CBTPA) CBTPA was implemented on October 5, 2000, and expires on September 30, 2020. CBTPA generally provides for duty-free entry of goods into the United States from designated Beneficiary Countries. CBTPA applies to both textile goods and certain non-textile goods. Nevertheless, the majority of CBTPA claims are for textile imports. Links – http://1.usa.gov/294Ao1V

CVC

CVC refers to “Chief Value Cotton” fabrics that are made from combining cotton with polyester. Cotton is a naturally derived fabric, and when it is combined with synthetic fibers like polyester, the fabric is called CVC. Usually, the cotton content is more than 50 percent of the total combination with polyester. A CVC fabric may be made of 55 percent or 80 percent cotton with the remaining percentage indicating the amount of polyester used. CVC fabrics are cheaper than pure cotton fabrics. Link – http://www.qwhatis.com/what-is-cvc-fabric/

CMT

CM refers to the Cut and Make cost component of an apparel/garment costing. CM covers labor costs, overheads, profit margins of apparel manufacturers. CMT refers to Cut, Make and Trim cost component of an apparel / garment costing.

CMTP

CMTP Q

CPM

CMTP refers to Cut, Make, Trim and Pack component of an apparel / garment costing. CMTPQ refers to Cut, Make, Trim, Pack and Quota cost components of an apparel / garment costing. Since 2005 abolition of apparel quotas, the Q component has become redundant as an apparel cost component. CPM or Cost Per Minute is the cost of manufacturing the garment expressed in per minute terms. This covers the labor and overheads costs involved in making of the garment. Based on Cost per minute established, the CM cost of the garment is determined. CM cost depends on – SMV -Standard Minute Value Overheads (direct and indirect labor) Productivity Cost per minute Profit Margin Link – http://bit.ly/296pmIV

Duty

Duty is the government imposed tax on import of goods. It is a % of the FOB value of goods declared on the Purchase Order. One of the best source of information to figure out what’s the duty rate for different products and different countries is https://www.dutycalculator.com/

ELC

ELC stands for Estimated Landed Cost. A Landed Cost estimate includes any applicable duties, fees, taxes, and transportation costs that may apply based on origin, destination, and products in a shipment. The most common components of ELC cost in the apparel products include – FOB Commissions – Buying / sourcing office commission as a % of FOB Duty - % of FOB Freight Cost per garment (sea or air or land) In land freight (port to shop floor) Warehouse Distribution charges Misc. (insurance, banking, admin, testing etc.) Link – http://bit.ly/292OorO

FCL

FCL refers to Full Container Load. This relates to the space usage in a container. Shipping Companies or Sea Freight forwarders usually quote freight charges based on Full Container Loads or LCL – Loose Container Load. Based on FCL the different sizes of containers used

for shipping are – 20’ = 40’ = 40’ high cube= 45’ =

28 CBM 56 CBM 64 CBM 75 CBM

Link – http://bit.ly/29dXXE6 15

Freigh t

A freight rate (historically and in ship chartering simply freight) is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport (truck, ship, train, aircraft), the weight of the cargo, and the distance to the delivery destination. Link https://en.wikipedia.org/wiki/Freight_rate

FOB

Free On Board is the term used to define the buyer/seller’s obligation based on Incoterms in the purchase order/contract, used in apparel industry. The seller delivers the goods on a ship nominated by the buyer at the named port of shipment or procures goods already delivered there. Risk of loss or damage passes when the goods are resting on or in the vessel, not when they are hanging from a crane or being handled over the ship's side. Most of the apparel suppliers quote prices on FOB terms to their buyers. Link http://bit.ly/2a7Ew3A

FTA

Free Trade Agreements are signed between countries to reduce trade barriers – import quotas and tariffs- and to increase trade of goods and services with each other. In apparel trade FTAS can impact sourcing decisions of Apparel brands / buyers to a great extent. Link – http://www.trade.gov/fta/

FVCA

Full Value Cost Analysis is the concept of taking into account of a product cost, not just direct costs associated with the product- in our case apparel, but also take into account all the indirect or hidden costs. These could even be macro or country costs like corruption, miscommunication. Linkhttp://bit.ly/2a7Qgmy

GATT

General Agreement on Tariffs and Trade is a multilateral treaty system that lowers trade barriers among nations. The General Agreement on Tariffs and Trade (typically abbreviated

GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1946 and lasted until 1993, when it was replaced by the World Trade Organization in 1995. The original GATT text (GATT 1946) is still in effect under the WTO framework, subject to the modifications of GATT 1994. Link www.wto.org 20

GSD

GSD is the tool developed by a UK based company which determines the labor content of making a garment. It does that by using a predetermined motion-time system developed by them. Many organizations use their standards to calculate labor costs. Linkhttp://www.gsdhq.com/about-gsd/

GSM

Grams per Square Meter is the weight of one square meter of fabric in grams. Metric measurements are generally the most common place but some clothing items are still marked in Imperial weights (OZ or oz/yd2 = ounces per yard squared) The important thing to state here is that all of the terms above are measurements of weight, specifically the fabric weight when talking clothing. For example, a t-shirt may be listed as 185gsm and another may be listed as 5.5oz the outcome is that these are basically the same as 5.5oz = 186gsm Linkhttp://bit.ly/2a69hll

HOPE

Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE Imports of certain Haitian manufactured textile and apparel goods are eligible for duty-free treatment under the Caribbean Basin Trade Partnership Act (CBTPA). Additional benefits under CBTPA have been created through the Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 (HOPE), the Food Conservation and Energy Act of 2008 (HOPE II) and the Haiti Economic Lift Program of 2010 (HELP). CBTPA and HOPE established unlimited duty-free treatment for various apparel products, with certain restrictions regarding the source of the yarns and fabrics used in the apparel, and duty-free treatment for certain apparel up to certain annual quotas, known as

tariff rate quotas (TRQs). HOPE II and HELP expand these existing preference programs by allowing additional textile and apparel articles to qualify for duty-free treatment, as well as increasing some of the TRQs. Link – http://bit.ly/1QPyLPn 23

HTS

An HS code or HTS code stands for Harmonized System or Harmonized Tariff Schedule. Developed by the World Customs Organization (WCO), the codes are used to classify and define internationally traded goods. In most cases, in order to import or export a product internationally, the traded good must be assigned an HTS code that corresponds with the Harmonized Tariff Schedule of the country of import. For Apparel Industry the information regarding HTS codes can be found on the following links – For USA - http://usitc.gov/tata/hts/bychapter/index.htm Refer to chapter 61 and 62 for apparel and textiles For EUROPE – chapter 61 and 62 for apparel can download from http://www.wcoomd.org/en/search.aspx?q=chapter%252061 The best website for help http://www.dutycalculator.com/dc/48858235/clothes-for-men/tpolos/shirts-of-woven-cotton/import-duty-rate-for-importing-menwoven-cotton-shirts-from-nepal-to-united-states-is-19.7/

IMU

Initial Mark Up is the difference between the cost and selling price of a product. It is and must be expressed as a % of the Selling price or the Retail Price. An initial retail price must obviously cover the cost of the product, and any other selling expense associated with the product. It must also cover overhead expenses, markdowns and then leave some money on the table as profit. Link – http://www.the-retail-advisor.com/imu_gross_margin.html

LCL

Loose Container Load or Less than Container Load is a shipping term used to denote that the shipper does not have enough cargo or goods to accommodate in one full container and he has to consolidate his goods with other shippers to make a full container. Usually LCL costs more than FCL per unit of freight. Link –

https://www.flexport.com/learn/ship-by-lcl-or-fcl/ 26

LDP

Landed Duty Paid is the incoterm which means that a seller quotes the price to buyer on the terms that the seller will be responsible for not only shipping the goods, paying the freight but also delivering the goods to the port of destination, custom cleared and duty paid. Link – http://www.walkerchb.com/WCB%20COMMON%20TERMS%20OF %20SALE.pdf http://www.incotermsexplained.com/the-incoterms-rules/the-elevenrules-in-brief/delivered-duty-paid/

Margi n

Margin is the difference between the selling price (retail price) and the cost price expressed as a percentage of selling price (retail price). Margin% =Retail Price – Cost Price / Retail Price x 100 Margin is a more preferable and sensible measure of profitability used in the industry although It’s commonly termed as markup. Mark up often tends to overstate the profitability and can be misleading. A retailer cannot have 100% Gross Profit Margin (GPM)) or MU as that means cost of goods is zero. GPM% is always a percentage of your Retail and can never be more than 99.9% Link – https://www.youtube.com/watch?v=0SRFI1Rrqvk https://www.youtube.com/watch?v=ziwXq09Zkmw

Mark Up

Markup is the difference between the selling price (retail price) and the cost price expressed as a percentage of cost price. Markup = Retail Price – Cost Price / Cost Price x 100 While the two terms Mark Up and Margin are often used interchangeably, it is very important to know the difference between the two accounting measures. Link – http://www.accountingcoach.com/blog/gross-margin-markup

MMF

Man Made Fiber – Fiber whose chemical composition, structure and properties are significantly modified during the manufacturing process. MMFs are spun and woven into huge number of consumer and industrial products including garments such as shirts, hosiery, home furnishings etc. The chemical compounds from which MMFs are made are called polymers. The duty structure for MMF differs from

CVC or Chief Value Cotton Fabrics in the apparel industry. Link – https://global.britannica.com/technology/man-made-fiber 30

NAFT A

The North American Free Trade Agreement (NAFTA) is a trade agreement among the United States, Canada, and Mexico that liberalizes restrictions on trade among the three countries. Under the NAFTA, U.S. textile and apparel exporters benefit from duty-free entry on all qualifying products into Canada and Mexico, the two largest export markets for U.S. textile and apparel products. NAFTA promotes opportunities for U.S. fiber, textile and clothing manufacturers to expand sales and increase production, to make full use of economies of scale and take advantage of complementary resources in the three countries to enhance export potential. Tariff Elimination Under the NAFTA, qualifying U.S. textile, apparel, footwear, leather and travel goods enter into Canada and Mexico duty-free. To qualify for duty-free entry, these products must meet origin criteria as set out in the Agreement (see Qualifying Products/Rules of Origin section below). However, for textile and apparel products, there are exceptions to the basic rules. One such example is the Tariff Preference Levels (TPLs), which were developed primarily to alleviate short supply problems, especially as they relate to manufacturers' inputs. Tariff Preference Levels--TPLs provide duty-free access for specified quantities of yarns, fabrics, apparel and made-up textile goods that do not meet the origin criteria (i.e., non-originating goods), but that are subject to significant processing in one or more NAFTA countries. The TPLs are agreed upon annual levels that vary by product and by NAFTA Partner as shown below. Amounts of these goods in excess of the TPLs are subject to most-favored-nation (MFN) rates of duty Link – http://web.ita.doc.gov/tacgi/fta.nsf/FTA/NAFTA? opendocument&country=NAFTA

PMTS

A predetermined motion time system (PMTS) is frequently used to set labor rates in labor oriented industry by quantifying the amount of time required to perform specific tasks. The first such system is known as Methods-time measurement, released in 1948 and today existing in several variations, commonly known as MTM-1, MTM-2, MTM-UAS, MTM-MEK and MTM-B. Obsolete MTM standards include MTM-3 and MMMM (4M). The MTM-2 standard has also largely been phased out by the organization, but is still used in some commercial

applications. Predetermined motion time system is another term to describe Predetermined Time standards (PTS). In the Apparel Industry, GSD, SewEasy and ProSMV are more commonly used PMTS to determine the Standard minutes for garments costing. Link – https://en.wikipedia.org/wiki/Predetermined_motion_time_system http://www.seweasy.biz/oldSite/protech.htm 36

SAH

SAM

Standard Allowed Hours is the production standard used for labor costing in apparel industry expressed in hours. It is usually expressed in SAM or standard allowed minutes. So, SAM / 60 = SAH SAM is the time in minutes that it takes a worker to complete a specific operation or to produce a specific garment. It should cover the time taken to perform an operation at normal or standard pace, plus an allowance for relaxation and possible stoppages. It’s called Standard Allotted Minute (SAM) or Standard Minute Value (SMV). Often SAM and SMV are often used interchangeably in the apparel industry. Check out the links to improve your understanding further. Link – http://www.onlineclothingstudy.com/2012/09/difference-betweensam-and-smv.html https://www.linkedin.com/pulse/lets-get-basics-what-sam-smvmausmi-ambastha

SME

Square Meter Equivalent is the notional, common unit of quantity, constant across categories and time. Conversion Factors are used to convert units of quantity into SME, when reporting and monitoring of overall trade and for charges to group and aggregate limits. The SME factors are meant to be general and historically consistent and cannot be used to actually calculate the number of square meters of fabric required to produce individual products. Link – http://otexa.trade.gov/msrintro.htm http://otexa.trade.gov/corr.htm

SMV

Standard Time (also referred to as the “Standard Minute Value” or “SMV”), is the time required for a qualified worker working at “Standard Performance” to perform a given task. The SMV includes additional allowances for Rest and Relaxation, Machine Delay and anticipated Contingencies.

The SMV is the universal measurement of time and its accuracy and consistency is essential as the foundation for measurement and organization of key business processes such as Production Targets, Line Balancing, Production Planning, Incentive Schemes, and the quantification of Operator Performance and Factory Efficiency. Linkhttp://www.gsdhq.com/defining-standard-time/ http://www.onlineclothingstudy.com/2012/09/difference-betweensam-and-smv.html 40

SPI

TPP

Stitch Per Inch. This is an important specification for sewn garments and embroidery, as it has a direct impact on the seam strength, stitch appearance, seam elasticity on stretch fabrics. Also important from the point of view of determining thread costs for sewn garments or embroidery costs for embellishments. Linkhttp://bit.ly/2amMbaR The Trans-Pacific Partnership (“TPP”) is a Free Trade Agreement (“FTA”) between 12 countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. All 12 TPP countries are members of the Asia-Pacific Economic Cooperation (APEC). The TPP was concluded on 5 October 2015 in Atlanta, Georgia, USA, and signed on 4 February 2016 in Auckland, New Zealand. The TPP has its roots in the Trans-Pacific Strategic Economic Partnership (TPSEP), otherwise known as the Pacific 4 (P4) agreement, which came into effect in May 2006 between Singapore, Brunei, Chile and New Zealand. In 2008, the US, Australia and Peru formally indicated their interest in negotiating an FTA with the P4. This FTA became known as the TPP. In 2010, Malaysia and Vietnam formally joined negotiations. This was followed by Mexico and Canada in October 2012 and Japan in July 2013

TPL

Linkhttp://bit.ly/20ueNlD Tariff Preference Levels--TPLs are part of Free Trade Agreements (FTAs), provide duty-free access for specified quantities of yarns, fabrics, apparel and made-up textile goods that do not meet the origin criteria (i.e., non-originating goods), but that are subject to significant processing in one or more FTA countries. The TPLs are agreed upon annual levels that vary by product and by FTA Partner. Amounts of these goods in excess of the TPLs are subject to most-favored-nation (MFN) rates of duty.

Linkhttp://otexa.trade.gov/agoa-cbtpa/98220511_2013_TPL.htm YY is the abbreviation for yardage yield which means marker length. In apparel costing this term indicates the fabric consumption for a garment. Fabric is one of the biggest component of an apparel cost and therefore accurate YY/consumption is very important factor to determine. Link â&#x20AC;&#x201C; https://cutmaketrim.wordpress.com/tag/yy/

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Anjuli Gopalakrishna