prac t i t ioner Br i e F inG

Executive Summary

The garment industry traditionally uses individual piece rate (along with Standard Value Minutes—SVM) to track production and negotiate prices. But when a supplier transitions from batch to one-piece-flow, it has an opportunity to adopt a more efficient and accurate measure that benefits the supplier, the buyer and the worker by improving quality and freeing up cash for reinvestment.

By M.L. Phan

GrouP PiEcE ratE: a BEttEr MEaSurE for LEan GarMEnt ProducErS

Support one-piece-flow, team effort and sustainability with this more efficient and accurate method to track output.

www.tbmcg.com

Why Piece rate?The garment industry in Asia compensates factory workers daily based on what they produce, so piece rate—the number of man-hours it takes to make a single garment—is the standard measure of output. Piece rate also is used in price negotiations between producers and buyers because it avoids the necessity to adjust for currency fluctuations and conversions.

individual Piece rate: The number of cumulative man-hours it takes individual operators to produce a single piece of clothing. It disregards quality, i.e., whether or not the garment is saleable.

Group Piece rate: The number of man-hours it takes a team to collectively produce a single piece of clothing that meets quality standards and is saleable.

The garment industry uses individual piece rate to determine compensation and as an input on pricing, but as manufacturers move from batch production to one-piece-flow, group piece rate is a better measure for both producers and workers. Here’s the difference using the example of T-shirt production:

individual Piece rate Group Piece rate

Number of Steps* 14 14

Number of Operators 25 10

Working Hours/Day 8 hours per operator 8 hours per operator

Daily Output 800 pieces a day (average production output)

400 pieces a day (good piece/saleable production output)

Total Man-Hours Per T-Shirt .25 .20

*Only sewing step. Excludes embellishment, trimming and quality check.

This example assumes a 20 percent productivity improvement resulting from the transition to one-piece flow. Based on our work with garment-industry clients in Asia, this is a realistic goal; and indeed we have garment clients in Malaysia, Cambodia, Indonesia and China that are using group piece rate.

We still use Standard Value Minutes (SVM) as a measure of process-time-per-piece, and this is part of standard work and also an input for determining price. The piece-rate measure is more related to

output and compensation; and the switch to group piece rate creates a direct connection between quality and compensation, which is not present in individual piece rate. This is illustrated in the T-shirt example: Individual piece rate is calculated using average production output (including pieces of unacceptable quality) while group piece rate is calculated using only acceptable pieces. Hence, group piece rate also improves SVM-pricing relationships because it refocuses the conversation solely on acceptable pieces.

P G . 2

www.tbmcg.com

Piece rate individual Group

Quality Rewards output regardless of quality. If the garment is completed, it counts.

Only garments that are saleable are counted, so operators are more quality conscious.

Administrative Burden

At some plants, supervisors or administrative officers gather output numbers employee-by-employee multiple times a day to calculate compensation.

Output is automatically tracked as acceptable finished goods are packed; plus, there are fewer opportunities for erroneous reporting.

Production Planning

Because the number of hours required to produce a complete garment can vary by step, by worker, and by the requirements of the garment itself, individual piece rate is inconsistent.

Because group piece rate is an average, it provides consistency for production planning as well as pricing.

Motivation & Teamwork

Individual piece rate encourages individual performance regardless of optimal output for the whole production line.

Working as a group instead of individuals is a dramatic shift in thinking for garment workers, and we have seen motivation increase substantially.

Workforce Stability

High labor turnover is an expensive and disruptive reality for many garment producers. Any workplace improve-ments that can be made—especially relating to safety—give plants a competitive edge in worker retention.

By investing the cash freed up from a group piece rate model, plants can minimize turnover.

Here’s more detail on the benefits of group piece rate compared with individual piece rate:

In addition to quality, group piece rate improves safety, cost and delivery because it frees up cash to: upgrade plants and equipment, add safety and skills training, increase compensation, and improve profitability. (The savings is sometimes divided among compensation, plant investment, and more competitive pricing).

To help garment clients achieve flow to prepare for a piece-rate transition, we focus improvement efforts on critical areas, i.e., bottlenecks. Often, training solves the problems, but this training is “pulled” by ongoing identification of bottlenecks so we don’t have wasteful training and so we level-load the changes in order to maintain safety and adequate order fulfillment. We zero in on critical skills that most directly affect quality of product and performance, and we find that operators and plant managers are equally in need.

In one Jakarta plant, for example, we had been working on flow, made many improvements, and the production manager had set a goal range of 60 to 80 garments produced in one hour for sewing lines depending on the SVM. When I returned to the plant later to monitor their progress, plant managers reported that they were not meeting this goal. One problem they had identified was below-expected performance in the incoming end of the line. We examined the supermarket from which the line pulled material and found the wrong material was often pulled. We trained the water spider on how to randomly check that the pulled material matched the order. These random checks were enough to correct the problem.

Next, we examined work-in-process on the line. Material was going back and forth between steps instead of flowing. Once we re-established flow, it was easier to identify where the true bottleneck was and make adjustments to correct it. By that afternoon, the

line was producing 10 to 15 saleable garments every 15 minutes. Two days later, a quality improvement of 90 percent was achieved—a record for the company.

As garment plants reach high levels of team-based production, these two approaches become essential to sustaining gains and capturing even more gains: a switch from individual to group piece rate following one-piece-flow set up; and a sharply focused effort to correct bottlenecks with targeted training.

About the AuthorMai Lean (M.L.) Phan is a Senior Management Consultant with TBM Consulting Group. M.L. possesses a sound knowledge of implementing lean production in all facets of mass manufacturing operations including production, engineering, material planning, purchasing, quality assurance and finance. M.L. has been a trusted advisor for companies such as Sumbiri, Fotexco, Meihua, Fong’s, Y.R.C. Textile, Pulse, TTI, Nike Apparel and Mondial.

P G . 3

www.tbmcg.com

P G . 4

Join us onOurBlog

TBM Consulting Groupwww.tbmcg.com

China • Brazil • France • Germany • India • Mexico • United Kingdom • United States

05/2013 TBM, the TBM logo and LeanSigma are registered trademarks of TBM Consulting Group, Inc. © 2013 TBM Consulting Group, Inc.

TBM is a global operations management consulting firm that maximizes enterprise value and accelerates growth by working with clients to leverage operational excellence. Our clients achieve growth rates 3–5X their industry average and EBITDA growth at least 2X their topline. We focus on results with a bias for action and work side by side with our clients to immediately improve EBITDA, accelerate organic growth, ensure the rapid realization of results from newly acquired businesses, and generate immediate and long-term balance sheet improvements. Our subject-matter professionals average 10–25 years of operational, management and executive experience in the manufacturing sector and none are career consultants. We leave behind a customized framework and structure for lasting change using our proprietary LeanSigma® approach, which has been continuously improved since we introduced it over 20 years ago.

About TBM Consulting Group