6 Best Cost Optimization Strategies for Garment Manufacturing

When market conditions get rough, optimizing costs becomes a crucial growth and survival tactic for any business. With the global fashion industry facing continued sales declines and sluggish growth owing to economic uncertainties and shifting consumer behavior (McKinsey report), garment cost optimization is not just a priority but a necessity. 

As uncertainties continue to persist for fashion, businesses need to view cost reduction as an achievement of real and lasting reductions in the unit cost of goods or services without compromising their intended use or quality. For reference, the cost of garment production can be broken down as: 50% spent on raw materials (including trims), 24% on actory costs such as salaries, wages, and overtime, 8% on business development and logistics, 6% on finance and other overheads, and remaining 10% on profit. 

To realistically reduce costs, manufacturers need to focus on four key elements: value enhancement, cost savings, cost containment, and cost avoidance. Improvements should target all these areas to achieve comprehensive cost reduction. In this article, I will discuss some typical strategies such as leveraging automation, boosting productivity, improving efficiency, cutting down waste, enhancing quality, ensuring reliable business processes, and optimizing outsourcing.  

There are countless ways for a business to minimize costs while maintaining quality and efficiency but for this article, I want to focus on the 6 most valuable improvement areas. Let’s get into it, shall we? 

1.  People Management

The apparel supply chain relies heavily on its workforce, making manpower a significant contributor to total operating expenses. Effective people management begins with meticulous manpower budgeting to ensure optimal utilization of human resources. 

The first step involves conducting a comprehensive process study across various departments. This includes a gap analysis to align processes with the goal of reducing manpower. Understanding each process thoroughly is crucial to ensuring they are streamlined and efficient. Each department should have a clear structure with well-defined roles and responsibilities. 

Analyzing productivity, efficiency, and the man-to-machine ratio provides a clear picture of the required versus utilized manpower, highlighting any deviations from the allocated budget. A skill matrix is an excellent tool for this purpose at the floor level. The industrial engineer’s role is pivotal in allocating the right manpower to the appropriate roles, providing regular training, and ensuring there is no excess workforce. This involves calculating the cost per garment unit and cost per minute to maintain cost-effectiveness. 

For instance, an often overlooked area is the timing of operations in the cutting or finishing room. While there is typically a strong focus on the sewing floor, every function within the garment operation, including cutting and finishing, can and should be timed to ensure efficiency. By scrutinizing and optimizing these processes, manufacturers can achieve significant cost reductions and enhance overall productivity.  

2. Product Quality 

Ensuring high product quality is essential in garment manufacturing, yet it often takes a back seat to meeting shipment deadlines. On average, 2-5% of garments produced in a factory are not shipped due to quality issues, leading to significant losses. By reducing these defects by just 50%, factories can save thousands of dollars without increasing operating costs. 

Achieving high-quality standards involves three critical steps:

• Measure Defects Accurately and Transparently: The first step is to establish a clear and transparent system for measuring defects. This includes rigorous inspection protocols and accurate documentation of any issues. 
• Rectify Defects: Once defects are identified, they must be promptly and effectively rectified. This involves having skilled workers and the right tools to address and fix any problems. 
• Control Defects by Identifying Root Causes: Controlling defects requires identifying and addressing their root causes. This step is crucial for preventing recurrence. It involves a thorough analysis of all potential factors contributing to defects, including human error, machinery issues, and material flaws. 

Quality managers often know the techniques needed for these steps, but consistent and rigorous implementation is key. Clear Standard Operating Procedures (SOPs) should be defined to address any defects systematically. Each contributing factor—whether it relates to personnel, machinery, or materials—must be identified and controlled through well-documented procedures. 

Having the right skills in the factory is also vital. Considering attrition rates and varying skill levels, continuous training programs should be planned. Cross-training employees can provide greater flexibility in operations and help maintain high-quality standards. 

Technical specifications must be carefully reviewed during planning and resource allocation for developing new styles. Style allocation should be matched with the strengths of specific production lines whenever possible. All style details, including any changes and material specifics, should be communicated to all stakeholders to ensure smooth order execution. Using software can help manage version control and avoid confusion. Discussing the style thoroughly in the pre-production phase can significantly reduce quality issues.  

3. Process Design

Operation bulletins are a cornerstone of effective process design in garment manufacturing. Traditionally, only the sewing department adheres to time-based targets set by the engineer, while cutting and finishing operations follow need and shipment-based targets. To shift towards a smart manufacturing approach, it’s essential for all departments to follow the operation bulletin, with the Industrial Engineering (IE) department establishing time-based targets across the board. 

This systematic methodology helps identify non-value-adding tasks, driving cost efficiency. However, relying solely on operation bulletins may not be enough to eliminate unnecessary tasks. It’s also crucial to implement additional Standard Allowed Minute (SAM) reducing measures. 

Simple modifications can lead to significant improvements. For instance, updating sewing machines with pneumatic stackers can eliminate the need for an extra helper to stack stitched bars. Adding a table extension to the sewing table can enhance the handling of long panels, streamlining the process. 

Re-engineering garments to simplify operations and remove bottlenecks is another effective strategy. Redesigning the workplace to be more ergonomic, with the addition of work aids such as bakers’ trolleys, front disposal baskets, pocket shelves, label dispensers, and waterfall trolleys, can significantly improve efficiency. 

Incorporating methodologies like 6S (Sort, Set in order, Shine, Standardize, Sustain, Safety) and SMED (Single-Minute Exchange of Die) can further optimize process design. SMED, a key lean tool, focuses on reducing setup times, thus improving flexibility to handle frequent product changes and better respond to customer demand. It involves separating internal activities from external ones, standardizing and improving both, and ultimately converting internal activities to external ones wherever possible. 

Value Stream Mapping (VSM) is another powerful lean tool for reducing waste, cycle time, and implementing process improvements. The VSM process involves identifying the product family, mapping the current state, identifying opportunities for waste elimination, developing a future state map, and implementing the new plan. Common forms of waste include high inventory levels, lengthy processing times, defects and the time needed to correct them, overproduction in certain parts of the cycle, unnecessary motion, excessive material movement time, and long waiting periods. Reducing even a few of these can lead to substantial cost savings. 

4. Asset Utilization

Optimizing overall equipment utilization is crucial for cost reduction in garment manufacturing. You can do this by establishing an asset management resource center to oversee machines, spares, consumables, attachments, folders, and jigs. The centre can also handle indent and supplier management and support the Management Information System (MIS) for assets deployed in the factory. 

The MIS should include a comprehensive list of machines and equipment, their deployment records, and maintenance plans. For consumables and spares, the system should track all items, maintaining a minimum threshold and monitoring utilization and consumption. Attachments, folders, and jigs should also be inventoried and managed for optimal control and discard. The MIS should continuously generate reports and monitor improvement projects, ensuring complete oversight of all factory assets. 

Another critical aspect of asset utilization is energy costs. Inadequate energy use can lead to high energy expenses. Regular audits are essential to track actual energy consumption, ensuring efficient use of electricity and proper functioning of utilities like compressors. These audits should also assess space utilization, identifying areas for improvement. 

Deploying energy-saving devices wherever possible can further reduce costs. Additionally, material utilization is a vital component of asset optimization. Fabric accounts for 60-70% of total raw material costs. Even a small saving of 2-3% in fabric usage can result in substantial cost reductions. 

While there are numerous IT tools available to optimize material usage, basic Standard Operating Procedures (SOPs) can also be effective. For instance, grouping fabric rolls by width and using spreadsheets to identify the most suitable roll for specific areas can optimize fabric utilization. Keeping accurate records of remaining materials for recutting can prevent waste. 

Technology-based interventions like Radio Frequency Identification (RFID) can enhance inventory management, helping to optimize material usage while reducing waste and overordering.  

5. Automation 

Apparel 4.0, a key trend in the industry, is being adopted at varying levels across garment factories. This concept involves integrating information and communication technologies to build a cyber-physical system, creating a digital and intelligent factory, or a smart factory. Automation can redefine the man-machine ratio, leading to optimal equipment utilization as machines can obviously operate for longer durations, enhancing productivity and efficiency.  

Some common examples of automated machines in garment manufacturing include programmable pocket setters, automatic belt loop setters, serging machines, programmable automatic coin pocket attachers, and twin needle lockstitch conveyor machines. These automations enable factories to achieve higher productivity and maintain consistent quality.  

Investing in automation typically involves a capital expenditure, but the focus should be on the return on investment (ROI) rather than just the initial cost. Automation can yield significant long-term savings and efficiency improvements, making it a worthwhile investment for many garment manufacturers.  

For example, using RFID-based attendance for operators while they are boarding the bus allows engineers to balance production lines before operators even arrive at the factory. Other technologies like automated warehouses, intelligent laundries, real-time shop floor data tracking, visual production plans with automatic updates, AI-based forecasting and end-to-end digital integrations are critical developments in Apparel 4.0. 

These advancements enable garment manufacturers to streamline operations, reduce manual labor, and increase overall efficiency.  

6. Financial Management  

Optimizing costs through advanced financial management is essential for garment manufacturers looking to maintain profitability. Here are three strategic approaches you could consider: 

• Advanced Budgeting: Move beyond traditional budgeting by adopting zero-based budgeting (ZBB). ZBB requires justifying all expenses from scratch, ensuring every cost is necessary and aligned with business objectives. This method uncovers hidden inefficiencies and promotes a culture of cost-consciousness.  
• Dynamic Financial Modeling: Implement dynamic financial models to forecast different scenarios. These models should factor in variables such as fluctuating raw material costs, currency exchange rates, and potential supply chain disruptions. By simulating various scenarios, you can prepare contingency plans and make more informed financial decisions.  
• Strategic Cost Management: Adopt Activity-Based Costing (ABC) to gain a more precise understanding of overhead costs associated with specific products or activities. This method allocates indirect costs more accurately, helping to identify and eliminate non-value-adding activities, thereby reducing overall expenses. 

In general, you want to regularly benchmark your financial performance against industry standards and best practices. Compare financial metrics and adopt relevant best practices to drive superior performance. Integrating such strategies can help you not just achieve cost efficiencies, but also improve financial resilience, and support sustainable business growth.  

Implementing cost optimization in garment manufacturing is essential for driving sustainable growth and maintaining a competitive edge. By focusing on cost-saving strategies, manufacturers can enhance profitability, foster human resource development, and promote a culture of continuous improvement.  

Lower production costs can lead to more competitive Free on Board (FOB) prices, improving market positioning and enabling businesses to offer better prices and higher quality, thereby strengthening customer relationships and loyalty. Additionally, streamlined processes and efficient use of resources result in faster turnover rates, significantly enhancing overall business performance. 

However, it is crucial to approach cost optimization carefully to avoid potential pitfalls. Aggressive cost-cutting measures can compromise product quality, damaging a brand’s reputation. Abandoning cost reduction initiatives midway can lead to wasted resources and negate the benefits of previous efforts. Temporary changes might offer short-term savings but fail to provide sustainable advantages.  

Moreover, any cost optimization efforts should align with the organization’s long-term strategic goals to ensure cohesive and sustained progress. By balancing these benefits and threats, garment manufacturers can effectively implement cost optimization strategies that drive growth, efficiency, and lasting competitive advantage. 

Combining these cost optimization techniques can help you achieve significant savings in your factory within 6 months to a year. Efficient people management, maintaining high product quality, smart process design, optimal asset utilization, automation, and advanced financial management are crucial for reducing costs and boosting profitability. 

While the focus of this article has been on manufacturing cost optimization, another approach involves exploring new product categories. Transitioning to higher-value categories or offering sustainable fashion products might take longer to yield results, but it offers substantial long-term benefits and opens new revenue streams. A strategic balance between immediate cost-saving measures and long-term growth initiatives ensures sustained success and competitiveness in the ever-evolving market.  

Ready to take your garment manufacturing to the next level? Start implementing these cost optimization strategies today and see the difference they can make in your bottom line. Reach out to our team for tailored solutions and expert guidance on maximizing efficiency and profitability.