The Manufacturing Process: Are You Ready?
Are you ready to actually manufacture your ideas? As a small business you will probably only be dealing with contractors to manufacture your line, but you should know the other types of production arrangements for the future and your own knowledge of the market. Other than contractors, three other manufacturing arrangements exist: jobbers, licensing, and private label. All of them deal with some facet of the manufacturing process, from designing to finishing. The difference between them all is the degree to which they own the factory and your brand.
Types of Production Arrangements
Manufacturers perform the entire range of production, from designing to finishing. Some manufacturers buy fabric and do the designing, patternmaking, grading, cutting, sewing, and assembling of garments in factories that they own. Manufacturers can also be responsible for the advertising, marketing and distribution of its products. Companies listed as Manufacturers are registered with State and Federal Agencies. Unless their status can be verified they are not listed as Manufacturers or Contractors.
Manufacturers can readily expand and contract output by employing jobbers and contractors. By doing business this way, manufacturers reduce capital investment required for expansion and avoid carrying the cost of unused capacity during a contraction. Manufacturing efficiency is critical to the long-term success of apparel and footwear companies. This efficiency shows up in the gross profit margins on a company’s income statement. Firms are in a constant battle to lower their costs relative to their competitors. There are several factors involved in the cost basis of this industry, including labor, raw materials, shipping costs, import tariffs, and technological advancements.
Not all apparel and accessories companies are engaged directly in manufacturing. Licensing and Private label deal with advertising and marketing. In other words, as a designer, you would give complete control to the licenser and private label to market your brand.
In general, contractors receive already cut garment bundles from jobbers and process them into finished garments. Larger companies may sometimes have their own in-house sewing operators, and still contract out some of their work. Some larger companies cut in the US and then ship the cut garment to an off shore contractor to sew together. Or, they may have the total production produced abroad, which will enable the manufacturer to produce at a more competitive price point.
Contractors generally work in piece goods, this means the garment is sewn piece by piece. For example: one operator is responsible for sewing a collar, another is responsible for setting the sleeves and another will complete the whole garment by sewing the finished pieces together.
Each worker is paid depending on the number of pieces he or she has sewn.
Operators who show exceptional ability are frequently promoted to produce the first sample, (Sample hand), which is responsible for the prototype samples. This position requires a person that has a number of years experience and who can produce a good looking garment. They are generally assured steady employment at a regular weekly salary. A good sample maker is hard to find and well respected.
Better wear companies have their garments sewn completely by one operator to assure a better quality garment; these operators are paid by the hour and not by each piece produced. It is a common practice these days for a group of operators to be responsible for one garment, working as a team to sew the complete garment. This induces a sense of pride in the operators as their finished product is recognized as their own work. This is known as the modular method.
You will likely be working with sewing contract companies.
Jobbers design their own garments, acquire the necessary fabric and related materials, and arrange for the sale of the finished product. However, they contract out most production operations (that is, sewing and finishing), with the exception of cutting.
Licensing involves a contractual arrangement whereby a company licenses the rights to certain technological know-how, design and intellectual property to a foreign company in return for royalties or other kinds of payment.
Licensing offers a small business many advantages, such as rapid entry into foreign markets and virtually no capital requirements to establish manufacturing operations abroad. Returns are usually realized more quickly than for manufacturing ventures.
If you are thinking of licensing, then take a look at the licensing king, Calvin Klein. The licensing program had brought in $24,000 when it was first initiated in 1974. By 1977, just 9 years after founding Calvin Klein Ltd. with only $10,000, Calvin Klein had licenses for scarves, belts, shoes, sunglasses, sheets, and furs, then moving on to cosmetics, jeans, and menswear. After this, Klein’s retail volume was estimated at $100 million annually. Also, look at Ralph Lauren. His company has just as many as licenses as Calvin Klein if not more. And Ralph Lauren’s range from furniture to wall paint…it is endless to the type of licenses to have.
The disadvantages of licensing are that control may be lost over manufacturing and marketing, and more important, that the licensee may become a competitor if too much knowledge and know-how is transferred. Take care to protect trademarks and intellectual property.
Licensees typically look for companies with strong name brand recognition and proven staying power - attributes not associated with small start ups no matter how great your design or idea.
Private Label is a term used to describe merchandise commissioned by retailers to sell under their own brand name - XXX for Neiman Marcus or Saks Fifth Avenue Real Clothes. While private label contracts can mean substantial sales, it also exposes designers to potential loss of identity and sales if contracts are not renewed. Private label production is not recommended for young designers and would probably never be offered to a start up to begin with.