Make Your Shop More Production Efficient
From Stitches' State of the Industry 2010
By Jimmy Lamb
Your production goal is to keep your machines running as many minutes out of each hour as possible. Since your competitive pricing structure and your income are the direct result of your productivity, you only make money when the machine is sewing. If you can maximize your machines’ output, then you can increase your profit, as well.
For example, if you routinely get 30 minutes of actual run time per hour at an average speed of 800 stitches per minute, that would equal 24,000 stitches per hour. If your operational cost is $30 per hour, then you’d have a minimum sewing cost of $1.25 per 1,000 stitches. However, if you could increase your output to 45 minutes of sewing time per hour, then your stitch cost drops to 83 cents per 1,000 stitches. The result is that you can charge a more competitive price.
The most effective method for getting more out of your machines is proper production planning, which means creating a process for scheduling work that utilizes your equipment efficiently and keeps downtime to a minimum.
It’s a common misconception that you must process jobs in the order you receive them, and that you must finish one job completely before starting the next one. Certainly there are situations where this is true, such as a rush order, but for the most part you should schedule your work by sewing characteristics to maximize machine production time. This ensures that your job setup time is kept to an absolute minimum, since that’s typically the most costly part of the production process: Your machine remains idle for an extended time while your operator readies it for the next order.
To minimize such downtime, analyze each job and group it with other jobs that have similar characteristics. For example, run all of your cap orders in sequence, even if some work orders have a mixture of caps and shirts. After you sew all of your caps, convert the machine to sew shirts, and then do all of the same type of shirts together, one after the other.
What Are Your Employees Costing You?
To calculate your labor cost per minute, take the employee’s wage per hour, add taxes and benefits (typically about 30%), and then divide by minutes. So for a $13-per-hour employee, add 30% ($3.90), and your hourly cost is $16.90. Divide by 60 minutes and you get 28.2 cents per minute for a labor cost. Suddenly, you see how having an operator spend three minutes wrestling a shirt out of its bulletproof plastic packaging just cost you nearly $1! Know your costs and you’ll know how to price for profit.
Why choose flat-rate pricing?
In the Stitches State of the Industry survey, two-thirds of embroiderers said they prefer a pricing model of cost per thousand stitches, but yet two-thirds of the same respondents give the final pricing to the client in some sort of consolidated presentation (see charts on pages 56 and 57). Most embroiderers present price in the way that closes the most sales. When you get right down to the details, flat-rate pricing simply replaces one tier structure (thousands of stitches) with another (square inches).
In sales it’s critical to use price models that customers can understand. When embroidery pricing is distilled, the machine is being operated for a given amount per hour, or per minute. After all, the amount of work the machine can do is related to its profitability. Cost per thousand stitches is directly related to revenue per hour on your machine.
When you analyze production, you invariably take a job and determine how many pieces you can produce in an hour. Flat-rate pricing does essentially the same thing, but doesn’t focus on the number of stitches. Realistically, most left-chest designs are going to fall into a couple of groupings that have an average, predictable stitch count. Using flat-rate pricing simplifies the task of creating quotes and makes it easy for customers to understand.
Avoid Proof Disasters
Logo and design proofs are a technical communication tool to help you and your customer agree on what you’re going to produce, so they should be clear and precise. To save time, dollars and headaches later, have customers sign off on all proofs before you run the jobs.
Quality vs. Pricing = Disaster
One of the challenges in an effective price model is to not pit quality against price. When you do this, the end result is always a disaster for the client and ultimately for your business. With the traditional model of cost per thousand stitches, it’s critical to stand up for quality with the client. If you fail to adhere to good quality guidelines, you ultimately end up cutting stitches out to decrease the cost. This almost always results in cutting corners in the embroidery quality, such as that you don’t fill as much or you drop a detail.
Inclusive pricing largely avoids this dilemma, since it’s either flat-rate or includes the embroidery with the garment price. It’s also important to qualify your customer and to understand his needs and budget so you can present the right product. If the customer has a budget of $15 per shirt, you shouldn’t be presenting a $35 embroidered oxford.
This really becomes a problem when the customer’s budget is just under what you’ve presented. For example, you present that $15-per-shirt customer with a polo that prices out at $15.75 with the embroidery. Most customers will ask for a discount and most sales reps will look for ways to trim the cost of the product to make it fit. The right solution would be to present an alternate that might come in at $13.85. This stays in the client’s budget while allowing you to still present a profitable product. – Brian Greul
What’s Your Production Cost?
Your production capacity is simply the number of heads multiplied by the average speed you run, less the time you don’t run. If you have a six-head machine that you run at an average of 1,100 stitches per minute on flats about 80% of the time, this works out to a production yield of around 5,280 stitches per minute, which is realistically a finished design of 7,500 stitches about every 1.5 minutes. If you’re using flat-rate pricing, it’s important to know that you can produce about 40 products per hour at a sewing cost of 65 cents each. If you’re using cost per thousand stitches, you know that you can do 5,000 spm; your sewing cost is 42.6 cents per minute, so in this example your cost to produce a thousand stitches is around 8 cents.
Avoid This Price Scammer
Beware of customers who constantly expect percent-off discounts. Typically, customers want to see 10% or 20% off if they play this game, since they’re conditioned by big retailers to expect big discounts. For embroiderers to be competitive, your margins are much slimmer. Giving away 20% may give away all of your profit, or worse. Don’t make it a habit to slash your prices to keep customers.