Special Machine Attachments & Subcontracting Cost Allocation

Factories lose money on two decisions more than any others in value-addition costing: buying a special machine attachment, and sending work to a subcontractor. Both decisions fail for the same reason: a line is left off the sheet. The attachment is judged on its purchase price alone, without spreading it over its lifetime output. The subcontractor is judged on its quoted rate alone, without transport, management, and rejection. In both cases the missing lines are what decide whether the decision makes or loses money.

The natural search phrases for this skill are machine attachment costing and subcontracting cost, and the method for both is the same: build every line, divide fixed charges by the real quantity, and compare totals, not single rates.

An attachment (a folder, a hemmer, a binding attachment, a pocket setter) is a fixed purchase that produces savings on every piece it runs. Its cost per piece is therefore:

Attachment cost per piece equals purchase price divided by expected lifetime pieces.

The lifetime figure must come from the supplier or from a similar attachment already running in the factory. An optimistic lifetime is the easiest way to make a bad attachment look good, because doubling the lifetime halves the cost per piece on paper while the purchase price stays exactly the same.

The saving per piece comes from time: the operation SMV with the attachment subtracted from the SMV without it, multiplied by the factory cost per minute (CPM, from Module 1 of this course). Net saving per piece equals labour saving per piece minus attachment cost per piece. If the net saving is negative, the attachment loses money on every piece, and no volume can rescue it, because volume multiplies a loss just as faithfully as it multiplies a gain.

All figures in this example are illustrative. The method is standard; the prices are example values.

An automatic pocket folder costs BDT 85,000 including fitting, with an expected life of 250,000 pieces. Its cost per piece is 85,000 divided by 250,000, which is BDT 0.34.

The operation SMV falls from 0.85 minutes without the folder to 0.55 minutes with it, saving 0.85 minus 0.55, which is 0.30 minutes. At a cost per minute of BDT 2.50, the labour saving is 0.30 times 2.50, which is BDT 0.75 per piece.

Net saving per piece is 0.75 minus 0.34, which is BDT 0.41. On 100,000 pieces the gross saving is 0.75 times 100,000, which is BDT 75,000; the attachment cost share is 0.34 times 100,000, which is BDT 34,000; the net saving is 75,000 minus 34,000, which is BDT 41,000 (and 0.41 times 100,000 is also BDT 41,000, which cross-checks).

Payback quantity equals purchase price divided by net saving per piece. Here it is 85,000 divided by 0.41, which is 207,317.07, or about 207,317 pieces. The attachment must actually run that many pieces before it has repaid itself. Every piece after payback is pure saving (apart from maintenance).

The payback quantity is the buy rule, and it must be checked against the confirmed order book, not against hoped-for orders. A factory with 50,000 pieces of that pocket operation ahead should not buy this folder at this price, because it would recover only 50,000 times 0.41, which is BDT 20,500 of the BDT 85,000 price, and the remaining BDT 64,500 would sit on the balance sheet as an unrecovered asset. The same folder is an excellent buy for a factory with 300,000 pieces ahead, because it would save 300,000 times 0.41, which is BDT 123,000 against a BDT 85,000 price, a net gain of BDT 38,000.

One honest simplification in this lesson: maintenance is excluded from the attachment cost per piece. A factory with heavy attachment maintenance should add an annual maintenance estimate divided by annual pieces as an extra line. The method does not change; the sheet just gains a line.

All figures in this example are illustrative.

A subcontractor quotes BDT 42.00 per piece for embroidered panels. Transport costs BDT 6,000 each way, which is BDT 12,000 both ways, divided by 6,000 pieces, which is BDT 2.00 per piece. Management and quality checking costs BDT 1.50 per piece. The subtotal is 42.00 plus 2.00 plus 1.50, which is BDT 45.50. A 2 percent rejection allowance gives 45.50 times 1.02, which is BDT 46.41 per piece. For 6,000 pieces the order total is 46.41 times 6,000, which is BDT 278,460.

The full in-house comparison is machine time BDT 38.00 plus thread and backing BDT 6.10, which is BDT 44.10 per piece. Subcontracting costs 46.41 minus 44.10, which is BDT 2.31 more per piece, which on 6,000 pieces is BDT 13,860 more for the order.

So why did the factory in the example subcontract anyway? Because the in-house option needed a BDT 700,000 machine purchase the factory could not fund that season, and the shipment date could not wait. The premium of BDT 13,860 bought capacity and a met deadline. That is a legitimate decision, but only because both figures were visible: the factory knew it was paying a premium, knew exactly how large it was, and recorded the reason. A decision taken on the quoted rate alone (BDT 42.00 against wages alone) would have looked like a saving while actually costing more per piece.

Every comparison has hidden lines, and they sit on both sides, not just on the subcontract side. In-house cost hides the maintenance share of the machine, the supervision time, and the floor space. Subcontract cost hides transport, management, quality checking, and the cost of returns when panels are rejected. A comparison that shows one side fully and the other side partially is not a comparison; it is a justification for a decision already taken.

The discipline is to build both columns with the same lines: machine or subcontractor rate, materials (thread, backing), supervision and checking, transport, and rejection. Whichever column is lower wins on cost. If the higher column wins for a non-cost reason (capital, capacity, deadline), the premium is recorded as the price of that reason, and the next season decision starts from the same sheet.

A complete attachment decision needs: one, the purchase price including fitting. Two, the lifetime pieces from the supplier or from experience. Three, the measured SMV difference on the actual fabric and style. Four, the cost per minute from the current month. Five, the net saving and the payback quantity. Six, the payback checked against the confirmed order book.

A complete subcontract decision needs: one, the subcontractor rate per piece. Two, transport both ways divided by quantity. Three, management and quality checking per piece. Four, the rejection allowance and the agreed responsibility for rejected panels. Five, the full in-house total on the same lines. Six, the decision recorded with both totals and the reason if the higher option is chosen.

Attachment cost per piece is purchase price divided by lifetime pieces, and it is worth paying only when the labour saving per piece exceeds it. Payback quantity is the buy rule, and it must be checked against real orders. Subcontract cost per piece is the rate plus transport plus management plus a rejection allowance, compared against the full in-house cost. Both decisions are simple arithmetic once every line is shown, and both become expensive once a line is hidden.