The Globalized Value Chain
The components needed to produce a product directly affect the cost, and ultimately, the price of that product. Because the manufacturing of products today is global, the sourcing and costing of products, as well as the materials required to make them, can take on many variations.
For example, a product designed in the United States uses materials from Europe and China, but the product is produced primarily in Japan, and later finished and packaged in South America due to quota restrictions. The cost to produce such a product is affected by material costs, manufacturing costs, multiple shipping costs and handling fees, and duties and quotas.
The Bill of Materials (BOM) lists the materials used in a product. The combined cost of these materials can tie directly into the Cost Sheet of a product. Two typical methods of costing the design and manufacture of products are CMT and FOB. While there may be variations of these processes, they can be described as follows:
• Cut, Make, and Trim (CMT)—The CMT method of costing is used to negotiate pricing when the fabric is supplied to the manufacturer. When a bid is submitted, the manufacturer is quoting the price for cutting the product, assembling the product, and applying trim (such as buttons and zippers) to the product.
• Freight On Board (FOB)—This costing method is used to negotiate pricing where the manufacturer is also responsible for purchasing the fabric and trim needed to produce a garment. The manufacturer is quoting the price for cutting and assembling the product, as well as supplying fabric and trim.
In both cases, the materials listed in the BOM affect price. In CMT, the designer might track the exact supplies and their cost, whereas in FOB, the manufacturer takes more responsibility for these. Many times, a BOM is used to list the materials and to make recommendations or to list requirements of specific components. In this case, the designer might control the materials, but the manufacturer ultimately purchases these supplies.