Abc Apparel Case

rudiment Apparel Case Questions 1 What are the respective amounts and parts of Materials, Labor, Overhead and Other in total COGS for ABC? * Illustrate on an Excel pie chart showing amounts and percentages for each slice. pic 2 What percentage of total COGS is represented by what Mr. Price c wholeed full package (purchased completed goods)? Finished Garments represent $647 Million. This assumes the purchased immaculate goods are supplied freight and duty paid otherwise, applicable freight and duty addresss would have to be added.Note that not all freight and duty can be added to this category, since freight and duty mustiness also support the owned supply chain operations. $647 / $2528 = 25. 6% 3 Where do you see the largest opportunities for cost reduction? List your Top 3, with strategies to pursue each one. * Explain your selections. purchase hurt or cost of supply (TCO) reductions in purchased finished goods. At 38% of COGS, these represent the largest single opportunity for cost management / reduction. Material price reductions (30% of COGS) through supply chain procurement practices. Other Costs. lading and Duty represent almost 10% of COGS, which is believably ripe for emolument. Evaluate reducing carriers from 4-5 to fewer. Labor At 20%, Labor is a substantial percentage of cost but has probably already given up the low hanging cost fruit in the relocation to offshore geography, and would pr obably be difficult to further reduce. 4 Which functional areas would you prioritize in your cost reduction efforts? Why? Following the same priorities in Question 3 Purchase price or cost of supply (TCO) reductions in purchased finished goods. Apply supply chain procurement practices such as negotiated price reductions, reverse auctions, global sourcing, target costing, centralizing procurement, spend analysis or supplier rationalization. Material price reductions. Apply supply chain procurement practices such as negotiated price reductions, reverse auctions, global sourcing, target costing, centralizing procurement, spend analysis or supplier rationalization. Other Costs Reduction.Freight and Duty represent almost 10% of COGS, which is probably ripe for improvement. Labor Cost Reduction. At 20%, Labor is a substantial percentage of cost but has probably already given up the low hanging cost fruit in the relocation to offshore geography, and would probably b e difficult to further reduce. 5 Which internal manufacturing processes would you prioritize for improvement? Why? Evaluate moving the textile manufacturing processes (yarn through Fabric Finishing) from US to offshore, preferably close to the cutting operations.If the key materials could be sourced in-region, this would eliminate the cost, risk and go along time of shipping these products from the US to Central America / Caribbean, reducing the high freight costs. Evaluate Supplier Relationship Management programs with Asia garment suppliers. Objective would be to fully identify and reduce hidden costs of supply from this region through collaborative problem-solving and joint incentives (gainsharing) for improved performance. Pursue lead time reductions and cut back lead time variability through improved logistics practices. Seek use of technologies to identify logistics wait times and unplanned delays.Consider use of a 3PL to become responsible for coordinatin g all Western Hemisphere logistics, negotiating with the major carriers to reduce costs, pre-clearing all shipments through customs, etc. 6 What is the ratio of internal manufacturing cost to purchased garment cost? Ratio, internal to external costs 275% Internal $1,881 External $647 7 Assuming a SG&A rate of 24% and a gross margin of 35%, what annual revenue would you estimate for ABC? Show your calculations. pic 8 What is ABCs net turn a profit margin, in dollars and percent? 11% $428 9 What is ABCs profit leverage effect of reducing purchased item costs? How much additional revenue would be required to equal a 5% reduction in purchased prices paid? pic 5% of 1404 = $70 Million. So, reducing purchased costs by 5% reduces COGS and increases profit by $70M. To yield an equivalent increase through sales, sales must increase by ($70/. 35) = $200 Million (6%).