Many start-ups are cautious about how much they order as they want to de-risk their investment and make sure they don’t order too much stock that they end up looking at for years.
At Blue Associates Sportswear, we specialise in working with start-ups and work with a trusted network of sportswear factories that have agreed to lower their MOQ’s for our clients.
This works well for everyone; however, the margin our start-up clients initially work with is smaller than established brands because they need to pay surcharges to the entire supply chain because the orders are so small.
Understanding why this happens can offer valuable insights into how businesses optimise costs, scale production, and remain competitive in a dynamic market and plan for growth.
Economies of Scale: The Foundation
The primary reason garment unit costs decrease with larger orders lies in the concept of economies of scale. This economic principle explains how the average cost per unit declines as production volume increases. Economies of scale operate on two levels:
- Fixed Costs Spread Over Larger Quantities: In garment production, certain costs remain constant regardless of the order size. These include expenses like:
- Setting up machinery
- Designing patterns
- Creating prototypes
- Administrative overhead
When you produce a small batch, these fixed costs are divided among fewer units, leading to a higher cost per garment. In contrast, larger orders distribute these costs over more units, reducing the cost allocated to each item.
Some factories don’t charge brands for samples and pattern development once they have established a long-term partnership and the brand orders a certain volume from the factory. This obviously reduces the unit cost.
- Operational Efficiencies: High-volume production allows manufacturers to streamline operations. For instance:
- Bulk purchasing of materials: Ordering larger quantities of fabric, threads, and accessories often qualifies for supplier discounts, which lowers material costs. These discounts run over all components and trims too.
- Optimised labour utilisation: Workers on an assembly line become more efficient with repetitive tasks, increasing output and reducing time per unit.
- Reduced waste: Larger production runs minimise setup changes, reducing material wastage and time lost in retooling.
Material Cost Savings
Fabric and trims constitute a significant portion of garment manufacturing costs. When manufacturers place bulk orders for materials, they leverage their buying power to negotiate lower prices with suppliers. Suppliers are often willing to offer discounts on large orders to secure sales and optimise their production and inventory management. These cost reductions directly impact the overall cost of the garments.
For example, a fabric supplier might charge $7 per yard for orders under 500 yards but reduce the price to $4.50 per yard for orders exceeding 3,000 yards. For a large-scale garment order requiring thousands of yards, this seemingly small discount can translate into substantial savings.
These savings run across all the fabrics, trims and components and so ordering more can make a big difference when a brand is able to scale their volume.
Labour Efficiency and Productivity Gains
In apparel manufacturing, labour costs are a crucial factor. Producing garments in bulk allows manufacturers to achieve significant labour efficiencies:
- Learning Curve Effect: Workers performing the same task repeatedly over a longer production run tend to become faster and more accurate, reducing errors and rework.
- Specialisation: High-volume orders enable the use of assembly lines, where each worker specialises in a specific task. This division of labour enhances speed and precision.
- Reduced Idle Time: Smaller orders often result in frequent machine adjustments and downtime. Larger orders minimise these interruptions, ensuring smoother production flows.
- Calibration: Technical sportswear usually has some machinery that needs to be calibrated such as heat sealing or bonding machines. This takes time and becomes costly to a factory when the orders per style are small.
Reduced Overheads Per Unit
Manufacturing facilities incur overhead costs, including utilities, rent, and maintenance. These costs remain constant irrespective of production volume. When producing a larger batch of garments, these overheads are spread across more units, decreasing the cost per unit. For instance, if a factory’s monthly rent is $10,000 and it produces 10,000 units, the overhead cost per unit is $1. However, if production increases to 20,000 units, the cost per unit drops to $0.50.
Logistics and Shipping Efficiencies
Bulk orders also reduce per-unit logistics and shipping costs. Transporting a large shipment is more cost-effective than shipping multiple smaller batches. Freight carriers often offer discounts for bulk shipments, and consolidating orders minimises administrative and handling expenses.
For instance, shipping a container filled with 10,000 garments may cost $5,000. If the order were split into two shipments of 5,000 garments each, the cost might increase to $6,000 or more due to repeated handling and additional fees. The cost savings from consolidated shipping contribute to the reduced unit cost of larger orders.
Small start-up orders are expensive to ship as the volume doesn’t fit with bulk shipping methods. Most start-ups end up using courier services to ship small orders which can be expensive compared to a shipping via container by sea.
Lower Rejection Rates and Quality Control Costs
Quality control processes are more streamlined in high-volume production. Manufacturers can invest more in setting up robust quality checks for large orders, ensuring consistency and reducing defects. This investment is less viable for smaller orders, where the cost of stringent quality control measures may outweigh the benefits. Consistent production also minimises the likelihood of costly rejections or rework, further driving down unit costs.
Automation and Technology Utilisation
Modern garment manufacturing increasingly relies on automation and advanced technologies. High-volume orders justify the use of automated cutting machines, computerised sewing equipment, and robotics, which enhance speed and accuracy while reducing labour costs. These technologies often require significant upfront investment, which can only be amortised over large production runs. Small orders, on the other hand, may not justify such investments, resulting in higher per-unit costs.
Even if a factory has invested in such machinery,. It might not be commercial for them to set up the machines for small orders.
Vendor Relationships and Negotiation Power
Manufacturers with larger orders often command better relationships with their vendors. They can negotiate favourable terms, such as extended payment periods, volume discounts, or priority production slots. These advantages are rarely available for smaller orders, which typically lack the bargaining leverage of high-volume customers.
All of our trusted suppliers ask for a minimum of 30-50% deposit for start-ups orders, however our larger clients that have worked with us for a long time get payment terms with a reduced deposit and 30-60 days post production payment.
Reduced Marketing and Sales Costs
For brands and retailers, larger orders often mean fewer campaigns, negotiations, and administrative efforts to manage multiple smaller orders. This reduces the overall cost of securing and managing production. Additionally, larger orders are more predictable and easier to forecast, reducing the risk of overproduction or underproduction.
Impact on Retail and Consumer Pricing
The reduced cost of production in bulk orders has significant implications for retail and consumer pricing. Lower production costs enable brands to price garments more competitively, attracting more customers and increasing sales volume. This, in turn, creates a virtuous cycle of higher demand and further cost reductions.
The phenomenon of reduced unit costs with larger garment orders is a testament to the efficiency of scale in manufacturing. From spreading fixed costs to leveraging supplier discounts, optimising labour productivity, and utilising advanced technology, multiple factors contribute to these cost savings. For businesses in the sports apparel industry, understanding and harnessing these principles is crucial to maintaining competitiveness and maximising profitability.
By recognising the underlying dynamics, both manufacturers and buyers can make informed decisions that benefit their operations and end consumers. Whether you’re a sportswear brand scaling up production or a manufacturer aiming to optimise efficiency, the advantages of larger orders are undeniable, shaping the way the industry operates in today’s cost-conscious market.
There is however an industry issue with all of this. Many brands have become focussed on high volumes and driving costs down by ordering more. This increased volume then doesn’t align with what they actually sell, and the brands then look to discount any remaining stock at the end of the season, eroding the margin they gained by ordering more!
There are too many sportswear brands that over order and focus on margin rather that focus on factual sales projections. Brands that continually offer discounts and are in sale several times throughout a season, damage their brand and end up only selling to their consumers when they are in sale.
Rapha is a fine example of this. The brand started out as THE premium cycling apparel brand with high quality and premium prices to match. Blue Associates designed and produced their first collection and worked with them for several years when they launched, managing their production and supply. However, the brand grew fast and investors chased turnover, which ultimately led to the brand starting to discount at the end of the season. This led to customers waiting for their sale and killed their margin.
Rapha is now making huge losses and has killed their reputation, allowing other start-ups to replace their position as the premium quality brand. Quality has suffered by driving volumes and moving production to bigger factories and the brands focus has shifted from being the best quality to being the highest volume, seemingly regardless of performance, quality or margin.
Castore, another brand that started life as being a premium tennis brand has also fallen short here. They have just reported losses of £28.9M despite doubling their EU turnover. Quality has reduced over the years and consumers are now aware they can simply postpone their ordering and wait for their sale.
At Blue Associates Sportswear, we always recommend brands order based on what they predict to sell at full margin. We have a saying ‘Better to be looking for the stock, that looking at it”
We always advise our start-ups to grow organically and don’t chase turnover that isn’t there. Ignore what the competition might be doing if it’s ultimately killing their brand. Let them be the busy fools and grow your brand for the long term. Maintain your brand values and protect them so you can flourish when others are cutting back to save theirs.
Get in touch to discuss your sportswear production requirements.
