cost reduction plan for 2005

8/7/2019 Cost Reduction Plan for 2005

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COST REDUCTION PLANSFOR 2005

Golden Dragon Apparel, Inc.


2/16

The Management Team has decided to form a

committee who will strictly impose the

Cost-cutting plans & they are as follows:

1. Timothy dela Vega

2. Rhea Castaneda

3. Rowena Cresencia

4. Jheremy Sorizo

5. Ramil Delovino

6. Lazaro Manalo

7. Fernando Lacson8. Rosita Manalo

9. Michell Beloria

The Cost-Busters


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Cost per minute

in USD

Ave

2004

Jan 05

Target

Feb 05

Target

Mar 05

Target

0.11 0.08 0.08 0.08


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Ten Major Contributors

of HIGH COST:

1. Overtime2. Efficiency

3. Supplies

4. Utilities

5. Manpower ratio

6. Shipment Performance7. Charge Back

8. Airfreight

10. Reworks

Where we are?

1. Overtime 5% of total mfg costs2. Efficiency -

3. Supplies 3% of total mfg costs

4. Utilities 9% of total mfg costs

5. Manpower ratio -

6. Shipment performance -7. Charge back -

8. Airfreight -

9. Reworks -

Source Data: YTD - Dec 2004


5/16

Contributor1 : OVERTIME

Where we are : 6.67% of total CPM

Goal : Reduce to 3% of total CPM or $23k reduction

Responsible person : HR timekeeper

Attack : Install OT control measures

Cut overtime costs by meeting the target OT of 2 hours/direct employee per day & 1

hour/indirect employee per day. In excess of the budgeted OT hours, supervisors/heads must

secure OT request signed by the GM.

Each dept will be required to submit their action plans to reduce OT & the dept head must

give his/her justification every time these action plans are not met. Only those operators who will meet 50% efficiency within the 4 regular working hours

(1/2 day) will be allowed to render overtime, but not to exceed 2 hours.

Timekeeper sends out OT monitoring report to all BU heads every Monday & a summary

month end report.

With proper implementation of the above measures, OT meal allow & OT Transportation

costs will also decrease.

Allocation of reduction per dept. Cutting - $ 3,018 (4,732 hrs)

Breakdown of Support depts. Sewing - 8,789 (13,780 hrs)

Pattern/Preprod - $1,917 (3,006 hrs) Production - 205 (312 hrs)

Engg & Maint - 1,608 (2,521 hrs) Finishing - 2,388 (3,744 hrs)

Subcon/Shipping - 928 (1,454 hrs) QA/QC - 746 (1,170 hrs)

HR/ITD/Admin - 1,546 (2,424 hrs) Other support depts.- 7,854 (12,314 hrs)

Warehouse/IE - 1,855 (2,909 hrs) TOTAL $ 23,000 (36,052 hrs)

NOTE: Factory affected by untimely arrival of fabrics & accessories for the 1stQtr production load due to turnover in LTG.

Attacks & Strategies


6/16

Contributor2 : EFFICIENCY

Where we are : 48%

Goal : Increase efficiency to 53%

Responsible person : IE Head

Attack : Sending Home Policy, Incentive Scheme, Team Briefing

Each module will be given minimum efficiency to achieve.

Original Module - 50%

Trainee Module - 40%

Preparatory Team - 60%

The above targets should be met w/in the 1st 4 regular working hrs.

Module/section who failed to reach the given minimum efficiency will be senthome after half day work.

Latest incentive scheme to be set by IE dept. to immediately address all issues

on hand affecting efficiency.

Team briefing & monitoring twice a day.

NOTE: Factory affected by underbooking problems of LTG for the 1st qtr of 2004.



7/16

Contributor 3 : SUPPLIES

Where we are : 0.003 CPM or4.43% of total mfg. costs.

Responsible Person : Budget OfficerGoal : Reduce to 3.5% of total mfg costs or $4k per month

Attack : Monitoring monthly consumption

Printing of unnecessary documents should be avoided. This will help minimize consumption on

papers & inks. Orientation & continuous calling of bad habits will be done.

Will avoid duplicating & distributing copies that are unnecessary to save costs on photocopies

(paper & toner). Ex. IO file will review & establish # of maximum copies per report. Re-use other side of bond paper for informal documents.

Request that are not w/in the budget should be given justification prior to approval. GM to approve

all exceptions.

Meet all dept. heads to get their cost reduction plans & get their commitment on these plans.

Review/Evaluation of forms if they can still be reduced.

Provide incentive for those depts. that will be able to cut their supplies consumption (c/o IE dept).

Used papers will be exchanged for tissue papers from TIPCO (Paper company). About $15

monthly savings. The above strategies will be set as an internal policy to ensure their implementation.

There will be a weekly meeting of dept. heads & of the Cost Reduction Committee.

Allocation of savings per dept.

Cutting - $800 (20%) Human Resource Dept. - $ 120 (3%)

Sewing - 600 (15%) Outbound Logistics - 200 (5%)

Production - 600 (15%) Pattern Making - 200 (5%)

Finishing - 200 (5%) Other support depts. - 1,160 (29%)

QA/QC - 120 (3%) Subtotal $ 1,680 (42%)Subtotal $ 2,320 (58%) Estimated TOTAL SAVINGS per month $ 4,000



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Contributor4 : UTILITIES

Where we are : 0.004 CPM or5.44% of total mfg. costs

Goal : Reduce by at least $700/month or 3% of total costs

Responsible Person : Engineering & Admin Heads

Attack : Energy savings policy for electricity

Turn-off lights & monitors during break time. This is about $300 savings on utilities per

month.

Before going home make sure that all computers, lights, AC units and other electricalequipments are properly turned off. Assign cost-busters to do the roving with proper

reports.

Use of computer for personal matter/project is strictly prohibited.

Security guard will go inside the office during break time and during off time to ensure that

everything has been turned off properly. A report will be done daily.

Corresponding admin sanctions to be given for violators.

Allocation of reduction per dept.Cutting - $ 84 (12%) Human Resource Dept. - $ 21 (3%)

Sewing - 175 (25%) Outbound Logistics - 21 (3%)

Production - 70 (10%) Pattern Making - 35 (5%)

Finishing - 84 (12%) Other support depts. - 140 (20%)

QA/QC - 70 (10%) Subtotal $ 217 (31%)

Subtotal $ 483 (69%) Estimated TOTALSAVINGS per month $700

Threat : We have just received a price increase notice from Tarlac Electric Company fromP3.4/KWH to P5.2/KWH. Price for 1st 1,000 KWH also increased from P20/KWH to P40/KWH.



9/16

Contributor6 : MANPOWER RATIO

Where we are : 61% (Sewer) 1% over the target

Goal : Maintain current MP ratio

Responsible Person : HR Head

Attack : Proper evaluation of MP requests of concerned depts.

All requests for additional manpower should be evaluated by the HR Head

upon recommendation of IE Head.

IE will ensure that hiring of Non-sewing functions will be avoided & will

install correct SMV monitors for proper application.

Weekly manpower review for production processes to ensure reasonable

hiring of emergency workers in cases of unbalanced loading.



10/16


Contributor7 : SHIPMENT PERFORMANCE

Where we are : 98% of total cut qtyGoal : At least 99.5% of cut qty will be shipped

Responsible Person : Finishing Head/Sewing Manager & Heads

Attack : Solve the problems on missing/undone garments

Revive the Magic12 Committee who would check/audit the accuracy of recordingper transfer slip & the transfer of cut goods from Cutting to Finishing dept.

Assign 1 permanent guard to monitor accuracy of garments transferred & loaded

by randomly checking packed garments in the loading area.

Set a separate cut-off date per dept starting from the internal plan that is not the

same as the shipment date.

Reports should be presented in a much simpler & easier way. For ex:Prioritization of IOs for shipment per ship dates.

IE to conduct study & restore the incentive scheme needed to motivate employees

to increase their efficiency.

Establish quick response line (skilled sewers). The main responsibility of this line

is to back-up other lines that have backlogs and/or fallouts. This will help Sewing

Dept. to meet the lead time & transfer the garments to Finishing on time.

Improve upgrading of undone garments unshippables.


11/16


Contributor8 : CHARGEBACK

Where we are : Zero (1st Qtr - 2004)

Goal : Maintain Zero chargeback

Responsible Person : Outbound Logistics Asst Manager

Attack : Determine major contributors of charge back in 2003 &

develop action plans. Major contributors of chargebacks are 1) Wrong Packing Lists and 2) Wrong carton

labels.

1 person in the group will be given additional responsibility & that is to audit the

data encoding in ASNX.

Develop flexibility of employees by training some pressers on packing procedures

in order for them to be able to back-up the packers on big volume shipments. In thisway, packers wont need to render continuous overnight work; thereby, minimizing

the problem of wrong carton labels.

Develop multi-skilled employees by conducting orientation on buyers

requirement. There should be team-based focus/specialization per buyer so that there

will be persons who will vouch for the correctness of the garments to be shipped.

1 auditor will be assigned to control/check the printing of scanned documents

carton labels.


12/16


Contributor9 : AIRFREIGHT

Where we are : .7% of total CPM or $13k

Goal : Zero airfreight

Responsible Person : Production, Planning & Coordination Asst Manager

Attack : Proper planning & coordination w/ concerned depts.

A separate cut-off date should be set per dept. starting from the internal plan

to ensure enough buffer to last stage processes.

Prioritization of styles to ensure clearer directions set per cost center.

Incentive scheme for meeting the target efficiency per dept.

The ex-factory date should be the only date to be given to concerned depts.

so as not to confuse all BU heads in planning.

NOTE: Above cost is due to fabric problems & is still to be claimed back from fabric mill.


13/16

Contributor10 : REWORKS

Where we are : 9.30% (Combined)

Goal : Decrease combined reworks to 6%

Responsible Person : QA Head with assistance of Production Planning Team.

Attack : Team-based focus/specialization per buyer

Production Dept. will conduct orientation/training per buyer to develop

multi-skilled employees.

Conduct review of manuals to update buyers requirements.

Lesser reworks would mean lesser chargebacks & zero airfreight.



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Performance Summary

Actual vs. Target

Company Name: Golden Dragon Apparel Inc

Performance Summary: Mar 2004 & Target for 2004

Currency: USD

YTD - 2004Target

Q2 2004Variance

BASIC INFORMATION:

Prod. Qty (dz), including sub-in 20,511.80 22,648.45 2,136.65

Prod. Qty - (SAH), including sub-in 94,641.40 104,499.90 9,858.50

Shipped Quantity (dz) 26,305.30 22,195.48 -4,109.82

GSD Efficiency % 48% 53% 5%

Ave. SMV/pc 23.07 23.07 0

Average working hrs/sewer/day 9.5 9.5 0

Manpower Ratio 61% 60% 0

TOTALS - Based on Ship Qty

CM Margin 794,827.21 670,647.06 -124,180.15

Total Mfg. Cost 615,322.61 459,200.95 -156,121.66

Mfg. Income 179,504.60 211,446.11 31,941.51

Other Income (Expenses) -7,112.31 -7,112.31 0.00

Net Income (Loss) 186,616.91 218,558.42 31,941.51

Supplementary Data

Claims -35,241.64 0 35,241.64

Sales Discount & Returns 4,525.72 0 -4,525.72

VAS Profit (Loss) 2,951.26 2,951.26 0

Printing 0 0.00 0

UPC Printing 0 0.00 0

Washing 0 0.00 0

Embroidery 37.2 37.20 0

Manufacturing 0 0.00 0

Polo Merchandising 0 0.00 0

Sample Shop 4,084.11 4,084.11 0

Manufacturing Cost - Based on Prod Qty*Direct Labor 199,895.97 183,592.18 -16,304

Factory Overhead 205,694.93 198,140.59 -7,554

GA - Controllable 78,138.20 77,356.63 -782

GA - Uncontrollable 111.55 111.55 0

Total 483,840.65 459,200.95 -24,640

Airfreight 0 0 0

PER DOZEN*

Direct Labor 9.75 8.11 -1.64

Factory Overhead 10.03 8.75 -1.28

GA - Controllable 3.81 3.42 0

GA - Uncontrollable 0.01 0 0

Total 23.59 20.28 -3.31

Airfreight 0 0 0


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Fixed costs analysisCompany Name: Golden Dragon Apparel Inc

Report Name: Analysis of Fixed costs

Period Covered: JAN - MAR 2004 (Ave)

Currency: USD

JAN FEB MARYTD

Average

BASIC INFORMATION:

Prod. Qty (dz), including sub-in 17,108.00 19,428.80 20,511.80 19,016.20

Prod. Qty (dz), excluding sub-in 17,108.00 19,428.80 20,511.80 19,016.20

Prod. Qty (mins) 4,477,506.00 4,996,308.00 5,678,484.00 5,050,766.00

Shipped Quantity (dz) 22,342.20 31,497.00 26,305.30 26,714.83

Machine Count 758 777 938 824

Total Head Count 1,492 1,432 1,527 1,484

Sewers 893 846 898 879

Non-sewers 562 550 616 576

Exclusions 37 36 13 29

Work days 24 26 26 76

Workhours 197,110 212,348 223,618 211,025

Output/mc/day (pc) 11.3 11.5 10.1 10.9

Output/mc/hr (pc) 1.2 1.2 1.1 1.2

Headcount/mc 2 1.8 1.6 1.8

Average working hrs/sewer 220.7 251 249 240

Average working hrs/sewer/day 9 10 10 10

Factory Overhead

515010000 Facilities rental 2,660.34 2,652.80 2,652.80 2,655.31

515030000 Equipment rental 300 300 300 300

TOTAL 2,960.34 2,952.80 2,952.80 2,955.31

Gen. & Admn Costs

515010000 Facilities rental 551.7 558.73 558.73 556.39

515030000 Equipment rental 292 292 292 292.00

720000500 PH Central Suppor t Group Level 20,374.37 19,446.62 21,580.21 20,467.07

720000510 PH Central Suppor t Group Level 23,917.09 5,463.07 13,678.56 14,352.91

720000511 PH Central Support Group Level 0 -7,813.03 0 -2,604.34

530060000 ITD - SAP fee 0 119.48 111.55 77.01

HQ Allocated expenses 218.25 -218.26 0 0.00

TOTAL 45,353.41 17,848.61 36,221.05 33,141.02

TOTAL FIXED COSTS 48,313.75 20,801.41 39,173.85 36,096.34

CPM - Fixed costs only 0.011 0.004 0.007 0.007


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Target is to reduce Cost per Minute to 7 cents

by end of 2nd Quarter 2004

Golden Dragon Apparel, Inc.

cost reduction plan for 2005

Documents