Series 2/3 · (1) Where Information Changes Hands in the Supply Chain Workflow · (2) Why CM Is the Only Shared Variable in FOB Cost · (3) Why Vendor and Factory Calculate the Same CM in Opposite Directions
KEY POINTS
Of all the lines in an FOB cost sheet, only CM lands in both the vendor’s and the factory’s books. For the vendor, CM is a cost line. For the factory, it is all of the revenue the order brings in. CM makes up 15.2~23.5% of FOB depending on the item, and garment factories that only take CM mostly earn single-digit margins.
Remember the woven jacket WJ-2411 from the last article, the one the vendor merchandiser was retyping from the Tech Pack and PO on a Monday morning? That order has now landed on the costing desk.
The top line of the costing sheet is the FOB price the buyer has confirmed. From there the costing person works down: fabric, then trims and accessories, then washing or embroidery, testing, packing materials, commercial costs such as freight and documents, finance costs, commission, vendor overhead and target profit. What is left at the bottom is CM, the cut and make charge.
At the same moment, someone in the factory office in Vietnam is looking at the same number. But in the factory’s books, CM is not a cost line. It is all of the revenue that order brings in. The last line of the vendor’s sheet becomes the first line of the factory’s books. Let’s take the cost sheet apart and see why CM is the only line that works this way.
The FOB Cost Sheet, Line by Line
Broken down line by line, a vendor’s order cost sheet looks roughly like this.1
FOB = fabric + trims and accessories + CM + special processes + testing + packing materials + commercial costs + finance costs + commission + vendor overhead + vendor profit
Fabric is consumption plus a loss allowance, times the unit price. Special processes are things like printing, embroidery and washing. Commercial costs cover C&F, documents, THC and inland transport, and finance costs cover LC fees and currency costs. Commission goes to the buying house or agent, and vendor overhead covers merchandisers, QA and sample costs.
For the vendor, FOB is set by the buyer and can’t move. Flip the equation and you get the most the vendor can pay the factory for CM.
Target CM = FOB − fabric − trims and accessories − special processes − testing − packing materials − commercial costs − finance costs − commission − vendor overhead − target profit
Who Decides Each Line, and Whose Books It Lands In
Go through the lines one by one and most of them are decided inside the vendor and land only in the vendor’s books.
| Line | Who decides it, where it lands | Can the factory touch it? |
|---|---|---|
| FOB | Set by the buyer Vendor revenue | No The factory never sees FOB |
| Fabric, trims, accessories | Buyer-nominated or vendor-sourced Vendor cost | No The vendor supplies them |
| Special processes, testing, packing | Ordered by the vendor Vendor cost | Mostly no |
| Commercial, finance, commission | Internal to the vendor Vendor cost | No The factory barely knows they exist |
| Vendor overhead and profit | Internal to the vendor Vendor cost and profit | No |
| CM | Agreed between vendor and factory Vendor cost and all of the factory’s revenue | Yes The line the factory can negotiate |
CM is the only line that both the vendor and the factory put into their books at the same time. A rise in fabric prices or freight changes nothing in the factory’s books, but when CM moves by a cent, both sets of books move together.
How Much of FOB Is CM?
CM’s share of FOB varies quite a bit by item. One analysis puts it at 23.5% for shirts, 22.4% for woven trousers, 17.0% for polo shirts and 15.2% for T-shirts. In the same analysis, fabric took 38.0~52.3%.2
A simple sample cost sheet splits an FOB of $10.00 into fabric $6.00, trims $1.00 and CM $3.00. Break that CM of $3.00 down further and you get labour $0.64, overheads $1.86 and net profit $0.50.3
The two sources cover different items on different bases, so we didn’t merge them into a single range. Whether it’s a shirt or a T-shirt, and who buys the fabric, can change CM’s share a lot.
What the Factory Keeps from CM
For the factory, CM is all of the revenue. Wages, overheads, power, depreciation and interest all come out of it, and what’s left is thinner than most people expect.
A net profit of 5% counts as good, and only if it’s money actually received.3 When Bangladesh factory managers were asked, 31% put their profit rate at 0~2%, 47% at 2~5%, and most of the remaining 22% at 5~7%.4 In 2023, major factories in Bangladesh, India and Sri Lanka ran at 60~70% utilization and took orders at near-zero margins just to keep lines running.5
The production model matters too. Gross margins run about 5~15% for CMT, 10~25% for OEM/FOB, 15~30% for ODM and 30~40% for own brands (OBM).6 The more a factory takes on materials and design, the more room it has.
Listed companies point the same way.7 Garment exporters in Vietnam and Indonesia mostly stay in single-digit operating margins, while vertically integrated groups in Taiwan and Hong Kong that handle everything from fabric to design reach double digits. Two “garment factories” can keep very different amounts depending on whether they only take CM or take on more than that.
Quoted Margin vs. What Ends Up in the Bank
Margins at the quoting stage are much higher. Factories may quote 12~20% on high-volume basics and aim for 25~35% on small runs or fashion items8, and costing often adds a 10~15% margin.9
Double digits go into the quote, low single digits come out at closing. Most of that gap opens up on the floor. If planned efficiency isn’t reached, the same wage bill produces fewer pieces and cost per piece goes up. We’ll work through that with the formula in the next article.
Vendor-side margins were hard to confirm from public sources, so this article doesn’t give a figure for them.
Two Ledgers Pushing the Same Number in Opposite Directions
Now it’s clear why both organizations hang on to CM.
The vendor’s books run per order. The buyer set FOB, and fabric and trim prices are more or less set by the market. To protect its margin, the vendor has only one line left to push down: CM.
The factory’s books run per day. What it costs to run one line for a day in wages and overhead is already fixed, and it doesn’t change when the order does. To break even, the factory has to push CM up or make more in the same hours.
One side wants the number lower and the other wants it higher. Neither is wrong. Each choice makes sense in its own books, and that’s why every CM negotiation turns into a tug of war.
How SIJE Handles CM
In pre-costing, SIJE treats CM as a design variable, not a leftover. Instead of telling the factory whatever is left after the deductions from FOB, we build CM first from the standard time from process analysis, an agreed cost per minute and a realistic efficiency, then fit the FOB structure around it. That way the vendor’s order cost sheet and the factory’s daily P&L work on the same number.
In the next article, Why Vendor and Factory Calculate the Same CM in Opposite Directions, we’ll look at why the vendor and the factory get different CMs from the same formula, and how to close that gap.
References
- SIJE internal data, vendor and factory P&L structure notes v1. Line items in a vendor order cost sheet. ↩
- Rajib et al., Complete Garment Costing with Major Cost Breakdown, Journal of Textile Science and Technology (SCIRP), 2023. FOB mix for shirts, woven trousers, polo shirts and T-shirts. ↩
- ITC (International Trade Centre), The Garment Costing Guide for Small Firms in Value Chains, 2022. $10.00 FOB sample cost sheet and the 5% net profit benchmark. ↩
- ILO, A Market Systems Analysis of Working Conditions in Asia’s Garment Export Industry, 2017. Survey of Bangladesh factory managers. ↩
- McKinsey, Redesigning apparel manufacturing in Asia: A pattern for resilience, 2023. Utilization and near-zero margin orders in South Asia. ↩
- Vietcap, Textile Sector Update, October 2024. Gross margins by production model. ↩
- stockanalysis.com financials, operating margins FY2021~2025, checked September 2026: TNG, Pan Brothers, TCM, Song Hong (MSH), Shenzhou, Eclat, Makalot, Crystal. ↩
- Ryzeal Sourcing, Costing in Garment Industry. Quoting margins at Bangladesh factories. ↩
- INFLIBNET, apparel merchandising course material, Unit 6. Margin setting in costing. ↩
