Garment Piece Rate

Determining Garment Piece Rate Based on Standard Time - An Introduction

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On the other day I met one Head Operations  in a garment factory. On that day he was only one week old to that company. We were discussing about issues faced by small garment factories like problem in setting Piece Rate for new styles. He was asking me about setting piece rate for sewing operators based on operation SAM. And our discussion went on.

It was a knits factory. Garments are made by a group of operators. Progressive  Bundle System (PBS) doesn't exist there. Operators are paid in piece rate system. Piece rates are decided by past work experience of the manager, market rate, and mutual negotiation of factory and operators. Factory is looking for a solution for this problems caused due to piece rate system. As a new operations head, he likes to bring good systems in the factory.

He wants to determine piece rate based on operation SAM. But he knows little about measuring garment SAM. He was wondering if I know about such things. 

Here SAM means Standard Minute. As per US Department of Labor "A piece rate fixes a wage payment on each completed unit of work". SAM based piece rate is a method of deriving piece rate of operations based on operation SAM and hourly operator rate. In layman language, setting piece rate (making rate of each operation) based on standard time of sewing operation. In other words operators would be paid based on standard minutes produced by them. SAM based costing can be used in both environments – for salaried as well as piece rate employees.

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By the way I got an interesting topic for discussion. I am preparing a draft for further discussion. This explains how to introduce SAM Based costing, its benefits, and extended benefits if factory introduces SAM based costing for sewing operators. I am sharing an introduction here. 

Benefits of SAM Based Piece Rate:

Piece Rate negotiation with sewing operators: 

In piece rate environment, piece rate negotiation of operations goes on for two to three days after loading of a style. Until the rate is fixed for each operation, operators work at lower speed than their actual capability. Reason is to show they can't earn much money if piece rate is not set higher. As a result most of the time factory spends excess money in operators payroll. This is the problem.

The solution for this problem is determining garment piece rate based on standard time.

• Measure standard time of operations, categorize operations based on difficulty level and machine type 
• Set per minute rate for each category considering line efficiency factor. 
• If operators disagree with piece rate, explain, and show them how much time to be taken to complete their operations. And how many pieces they can produce in a day if they work in full effort.
• While finalizing piece rate, consider order quantity, style run and product difficulty level.

By this method you can set Piece Rate on the first day of production start. And can avoid initial production loss. (Note: Factory needs to gain experience on IE things to implement this method effectively) .

Accuracy in product costing for direct labor cost part

Direct labor cost is very important part of product costing as lot of labors are involved in making a piece of garment. When you calculate piece rate based on your past experience, you are not always sure if your calculation is accurate. Sometimes you might give your operators excess rate, which subsequently increases product costing. (Indirect labor costs and overhead costs are calculated based on direct labor cost). Your estimation might also be lower than actual cost. 

This will cause high product costing or low product costing. If you cost too high you might lose the order. On the other hand if your cost is too low, you will earn less by processing the order. Secondly, you might need to pay more to your workers than your estimation. 

Solution: You need to work smartly. While making product cost sheet use accurate direct labor cost figure derived from product SAM. Thus you will make more accurate product costing.

Cost negotiation with buyers

Now buyers ask for open costing for orders. Buyers are aware about the minimum labor wages in your region. And they can derive direct labor cost for a product. You might not have technical team but they have to analyze product construction and estimating standard time. In such environment, you will find difficulty adding much margin in various cost categories. 

If you know standard time of a product, factory performance (efficiency) and minimum labor wages you can easily derive direct labor cost of a product (without having Industrial Engineer or work study team you would not get figures for first two). In case buyer pushes you too much for reducing labor cost, you can tell them confidently what is possible and what is not. This is not only used in preparing product price for buyers but it helps you to understand if you are making profit from the order in advance.

Other Benefits of SAM Based Costing

There are many other benefits of introducing SAM based piece rate. When you plan to implement SAM based costing, you are actually setting up Industrial Engineering Cell in your factory. An IE will also perform other tasks of IE department rather than just said objective. As a result you can take advantages of IE department in many ways. Some of those are

1. You can set standard time for products and operations 
2. It would help you in planning manpower and machines in advance 
3. You can measure factory performance and individual operator performance accurately, benchmark your performance level
4. IE tools and methods can be used for productivity and quality improvement 
5. Having product SAM, you can estimate production capacity, do better line planning, and production planning 

Read this post to learn more about IE’s activities.

Action Plan

The next important thing one need to take action on following areas while planning to implement SAM based piece rate setting.

• Understanding Industrial Engineering concepts, and use of Standard Minute in apparel production
• Hire experienced Industrial Engineer and set Industrial Engineering department and IE team. 
• Set Key Responsibility Areas for the IEs
• Develop SOP for IE activities 
• Establish database for operation SAM by measuring time study method or you can consider purchasing MTS based SAM calculating software. 
• Set labor cost per standard minute

The idea is not new but even factories those have established Industrial Engineering department do not practice SAM based piece rate. If like this idea you can introduce this technique in your factory.