Manufacturing Bags the Product That This Company

Manufacturing Bags

The product that this company will be manufacturing are bags that will be sold at Gap retail locations and through online sales. The price target for these bags is between fifty and eighty-five dollars, and retail markup is estimated to be approximately forty percent. This means the cost to the retailer will need to be kept in the range of approximately thirty-six dollars and sixty-one dollars in order for Gap to achieve a reasonable margin to cover its costs and make a profit. The manufacturing company would like to see a ten percent profit margin, as well, meaning that the final costs of manufacturing and distributing the bags (to Gap's own distribution centers, not through the full distribution chain to actual retail stores) need to be capped at between thirty-two and fifty-five dollars. Achieving these manufacturing and distribution goals should be fairly easily achievable in a variety of ways, with the potential to achieve even greater results in terms of profitability for both the manufacturer and for Gap by reducing costs at many points on the supply chain.

The first necessity is the sourcing of fabric and he other raw materials needed for the manufacture of these bags. Care must be taken to balance cost savings with ethicality, as the textile industry is dominated by third-world factories that often have unsafe or unsanitary working conditions, employ child laborers, and have other issues. Still, it is possible to purchase large amounts of fabric for relatively negligible costs, estimated to be no more than five dollars per bag and possibly considerably less. This takes care of the raw materials for the bags, and leads to the next major cost of manufacturing this product: labor.

Fortunately, it is possible to source very cheap labor for the manufacture of these bags with a minimum of ethical worry. Average factory workers in China have a wage of just under four U.S. dollars per hour, and even cheaper labor can be found in certain other Asian countries (though with considerably greater human rights risks and thus greater costs associated with ensuring ethicality). Assuming that manufacturing takes place in China, however, and with an average expected manufacture time including all cutting, sewing, inspection, and packing of one hour per bag, labor costs will be only four dollars per bag. Wear and tear on machinery can be estimated at an additional dollar per bag, though this is probably an overestimate. At this point, the total cost of manufacture is estimated to be only ten dollars per bag. Other overhead fixed costs exist that will definitely take up large portions of the existing profit margin, but if shipment from Chinese factories (also not a traditional variable cost, as economies of scale apply to shipping rates by decreasing the per-unit cost as shipment sizes increase) can be kept at no more than three dollars per unit (which should be more than achievable when shipping by the thousands), there is still at least a nineteen dollar per-unit allowance for these overhead costs before reaching the thirty-two dollar target that is the low end target wholesale price for these bags, allowing for decent profits.