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Table of Contents 1. Executive Summary 2. Incentive Scheme – Basic Designs and Principles 3. Incentive Scheme Design for the factory 3.1. Sewing Room 3.2. Cutting Room 3.3. Finishing Room 3.4. Factory Manager 4. Incentive Calculations

Incentive Writeup

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Page 1: Incentive Writeup

Table of Contents

1. Executive Summary

2. Incentive Scheme – Basic Designs and Principles

3. Incentive Scheme Design for the factory

3.1. Sewing Room

3.2. Cutting Room

3.3. Finishing Room

3.4. Factory Manager

4. Incentive Calculations

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1. Executive Summary

The following are the key points of the Incentive design –

The people covered under the incentive scheme in the factory are Sewing room

Operators Direct Helpers Indirect Helpers Quality Checkers Sewing Supervisors Floor In charge

Cutting Room Spreaders Cutters Relaying Operators and Trimmers Recutting operators Fusing Operators Ply Numbering People Bundling Operators Indirect Helpers Cutting In charge

Finishing Kaja Button Operators Kaja Button Helpers Thread Trimmers Quality Checkers Ironers Final Checkers Packers Kaja Button Supervisors (All Supervisors) Finishing In charge

Factory Manager Production Manager

The incentive is calculated as the average performance at the following frequency, but it always paid monthly All workers – Weekly Supervisors & Floor In charge – weekly Production and Factory Manager – Monthly

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Sewing Room The incentive scheme in the sewing and finishing room are designed such that the

worker earns 1% of salary for 1% percentage increase in efficiency Incentive is paid to a worker if her efficiency is over 60% and if the batch efficiency is

over 50%. The pay per extra SMV over 60% is Rs.0.1667 The incentive is calculated as a weekly average but paid at the end of the month The incentive for the Floor In charge, Supervisor and End Batch Checker is

calculated as per the batch efficiency – the pieces issued to finishing at the end of the day.

The incentive for the Floor In charge, Supervisor and End Batch Checker is also 1% of salary for 1% increase in efficiency but it also includes another performance criteria – Quality. The incentive earned as per the efficiency factor is multiplied by the percentage target achievement of quality.

The target DHU at the end of the line is 10 DHU The feeding helper earns 0.6% of salary for 1% increase in efficiency of the batch

Cutting Room The cutting room incentive is a group incentive scheme The output of the product is determined with the help of a cutting room difficulty

matrix – which has been designed as there is a lack of a work measurement system. The workers are paid at the rate of Rs. 1.50 for all the pieces cut above the target

level for a basic men’s shirt with full sleeves, single pocket and checked cotton fabric. The pieces that are bundled and ready for issuing to the sewing room is considered

as the production of the cutting room. Every one in cutting earns the incentive only if each individual group reaches their

target performance. The total incentive amount is divided up in the following ratio Workers - 1 Supervisor - 1.5 Cutters - 2 Cutting Incharge - 5 The earning at target level is around 30% of their salary

Finishing Room The incentive scheme in the finishing room is similar to that of sewing in the sense

that it is paid on the basis of minutes of work produced. But the incentive is earned as per the group performance

If the factory has a large finishing group, it should be divided into a number of sub groups so that the incentive is effective

The incentive earned by the group is around 1% of salary for 1% increase in efficiency

The pay per SMV for each SMV produced beyond 60% is Rs.0.1667

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The incentive is calculated on the number of pieces packed at the end of the day The total incentive is divided amongst everybody in the following ratio –

All group members - 1(Group includes Trimmers, Checkers, Ironers, Final Checkers, Alteration Tailor, Kaja Button operators and helpers) Packers - 1 Finishing Supervisor - 2 Finishing Incharge - 4 / (Number of groups in finishing)

The finishing in charges incentive is the sum of the incentives earned from each group. If there are 4 groups in finishing, he earns one part incentive from each group.

The payback calculation for the incentive design was done for Professional Clothing factory. The calculations show that the current Cost /SMV produced in the factory is around Rs 0.64. If the incentive is paid out the cost per minute increases to Rs 0.66.

The incentive scheme pays back for itself with just 2% points increase in efficiency from the current level. The payback calculations are added as Table 1.27 in the annexures.

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2. Incentive scheme - Basic design & principles

There are different ways of linking pay to performance.

A. Jump based

PayGuaranteed minimum

% Efficiency

B. Piece rate

Pay Guaranteed minimum

% Efficiency

C. Geared incentive

Pay Guaranteed minimum

% Efficiency

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Efficiency indicates the number of Standard minutes (SMVs) produced in the minutes of work attended. If an operator takes 100 min. to complete 80 SMVs of work, her efficiency is 80%. This also incorporates quality, because all repairs have to be done in her own time.

Jump based and geared schemes offer a certain amount of protection from incorrect rates. Piece rate has the greatest incentive pull.

We suggest the core of the scheme be a direct incentive as in B with a slight variation for the sewing room. For the cutting and finishing room the incentive scheme would again be a variation of B with the difference that a group incentive will be followed.

The incentive system has been designed keeping in mind that everyone should be able to earn around 30% of their salary at their target performance

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3. Incentive Scheme Design for the factory

The following chapter covers the incentive design at the factory level for

Cutting Room Sewing Room Finishing Room

The design would cover all operators, helpers and supervisors in each of these sections. The incentive designed is individual incentives in the sewing room and group incentives in the cutting and finishing rooms.

3.1 Sewing Room

It is expected that at the start of implementation of the incentive scheme the factory would have the following in place.

An effective production monitoring system - use of daily operator sheets, efficiency calculation, payroll calculation system etc.

Well defined methods with SMV’s for each operation

A quality system capable of monitoring defectives and tracing these to the respective operators

Thus, the incentive scheme should only be implemented once the systems in the factory have stabilised.

The implementation in the sewing room for the operators will reduce conversion cost per garment. For the non-sewing operators (helpers) within the line, this will provide much needed motivation, and will result in higher performance levels.

The incentive design in the sewing room covers

Operators & Direct Helpers Indirect Helpers Supervisors Floor - Incharge

The following graph provides a schematic of the payroll scheme for the direct workers – Operators and direct helpers.

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Pay Guaranteed minimum

% Efficiency

Efficiency indicates the number of Standard Minute Value (SMV's) produced in the minutes attended. If an operator attends work for 500 min. and completes 400 SMV's of work, her efficiency is 80%. This also incorporates quality, because all repairs have to be done in her own time.

Straight incentive scheme has the greatest incentive pull.

Incentive Scheme for Sewing Operators & Helpers –

Objectives - The objectives of the incentive scheme designed for GI are to encourage:

Performance Flexibility Attendance

Performance Incentive – The incentive on efficiency shall be paid in the following manner:

The operators' efficiency is calculated as the percentage of SMV's produced versus the amount of time attended. The operator is paid according to the average efficiency during the week. The average is calculated for the working days only. In the case of paid leave the operator is paid at the basic pay level. The incentive is earned only if the efficiency of the operator is over 60% and the batch efficiency is over 50%.

There is a guarenteed minimum pay which is the current basic wage that is earned by them. The operators earn the basic pay if their weekly efficiency is less than 60%. At higher efficiency they earn incentive at the rate of Rs.0.1667 per SMV produced. The incentive rate is the same for all grades of operators. For operators of higher grade, an increase in earnings results due to a higher basic wage, which encourages flexibility.

The operators earn in the range of 27% (for A+ grade) to 34% (for D grade) of their basic pay at the target performance OF 90%.

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The incentive amount is decided as per the following criteria –

Target efficiency given the product profile Incentive pull we wish to provide – decided at 30% of basic salary at target efficiency

Calculated payroll numbers for GI Exports:

Grade A+ Grade A Grade B Grade C Grade D Grade F

Basic Pay/day Rs. 88.46 Rs. 82.69 Rs. 78.85 Rs. 75.77 Rs. 70.38 Rs. 68.42

Basic Pay/ month

Rs. 2300 Rs. 2150 Rs. 2050 Rs. 1970 Rs. 1830 Rs. 1779

Target Perf. 90% 90% 90% 90% 90% 90%

Pay/month at Target Perf.

Rs. 2924 Rs. 2774 Rs. 2674 Rs. 2594 Rs. 2454 Rs. 2403

Table 1.1 – 1.6in the annexures gives the details of the incentive design for each grade. Chart 1.1 shows the incentive earnings for each grade.

Incentive calculation

The incentive calculation for a week is done in the following manner:

(Basic Salary/day x (No. of days attended + No. of days on Leave)) + ((SMV's Prod) – (No. of minutes worked x 60%) x 0.1667)

The incentive scheme is effective only if the operators totally understand the payment system. A very clear explanation should be made to the operators before the implementation of the scheme. The amount that could be earned by them should be clearly mentioned.

In the kind of incentive scheme designed, it is possible to calculate the operation piece rate for the style. In order to explain the incentive scheme to the operators the following points should definitely be mentioned –

Minimum pieces to produce in a day for start of incentive earning should be calculated.

Minimum Production Required for Operation = (Working Min in a day / SMV for operation) x 60%

Rate for each operation should be calculated at the beginning of a style - The operation piece rate can be calculated as follows -

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Operation Piece Rate = (SMV of the operation x Rs.0.1667)

Source Documents

Daily Operator Sheet (refer Table1.7) – The daily operator sheet should be handed over to all direct operators (tailors as well as helpers) in the line. This document is handed over to the operators first thing in the morning by the feeding helper. The document should be collected in the evening and all calculations for the number

of pieces produced by each operator is to be done by the feeding helper. The operator needs to carefully record the operation she has performed along with

the number of pieces. Different operations should be recorded in separate columns in order to avoid errors in recording and in calculations.

Operator Weekly Summary (refer Table 1.8) - The data collected from the operators is added to the weekly operator summary sheet on a daily basis. Once PROMAN is operational, it should be linked to the incentive calculation sheet to avoid duplication of data entry.

Precautions

It is very important that the calculations for incentives are made carefully and the payments made are fair to the Operators as well as the GI. In order to make sure that there are no discrepancies in the amount earned by the operators the following points should be carefully followed –

Maintain the feeding register that clearly lists the bundle number fed into the line. Once the gum sheets are received a random check should be made on the bundle number entered by the operators to make sure that they are correct.

The operators should note the different sequence number of operations done by them in separate columns. This will ensure that the SMV produced by her is correctly calculated. It is essential to explain the importance of this to the operators and the Supervisors.

It should be possible to track each piece to the operator who has produced it. Currently an informal marking system is followed which allows the end line checker to identify the operator who has worked on the piece. This is extremely important as all quality repairs should be done by the operator who has made the error. This would keep the quality level under control even after the start of incentive payment.

Once the style is completed a crosscheck on the total number of pieces produced by each operator should be done. This could be a random audit. The total pieces made by the operator should never exceed the number of pieces fed in the sewing line. This will help in catching an operator who might have deliberately inflated the production numbers.

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Incentive scheme for sewing Floor In charge, Supervisor, End Batch Quality Checker and Indirect Helpers-

Key performance areas for the Floor Incharge, Supervisor and End Batch Quality Checker include the following:

1. Line efficiency – earn incentive over 60%2. End Line defect levels – Target level 10 DHU

Incentive Calculation

The incentive is paid as a percentage of their salary. For each percentage improvement in efficiency over 60% they earn 1% of their salary as incentive. The incentive earned is then multiplied by the percentage target achievement for quality. The incentive is calculated as an average for the month.

The percentage incentive earned is then multiplied to the percentage achievement of target for the end line. For example –

If the line has performed at 80% and the end line DHU is 6. % earned due to line efficiency = 80-60 = 20% of salary. End line quality target achievement – 5/6 = 83.3% Final incentive earning = 20% x 83.3% = 16.6% of salary

End Line Efficiency is calculated as –

(No. of pieces produced from the Line x SMV of the garment) / (No. of people in the Line x Min worked)

The monthly average should not be calculated by averaging the daily efficiency. It should be calculated using the total SMV’s produced by the Line divided by the total Minutes worked in the month.

For the Floor Incharge the calculation is as follows-

If X1 = (No. of pieces produced from the Line 1 x SMV of the garment)And X2, X3, X4 are SMV’s produced from Line 2, 3 and 4 under the Floor Incharge

If Y1 = (No. of people in the Line 1 x Min worked) And Y2, Y3, Y4 are minutes worked in Line 2, 3 and 4 under the Floor Incharge, then the average efficiency for the Lines under the floor incharge is calculated as

(X1+X2+X3+X4) / (Y1+Y2+Y3+Y4)

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For the Floor Incharge the incentive is calculated for the average efficiency and DHU of all the lines that he is in charge of.

(Total Defects Caught in a month) / (Total Pieces checked) Indirect Helper

The incentive is paid as a percentage of their salary. For each percentage improvement in line efficiency over 60% they earn 0.6% of their salary as incentive. At the target line performance of 90% they would earn 18% of their salary as incentive. The incentive is calculated as per weekly averages of the line efficiency.

Refer Table 1.9 for details of incentive payment for Floor Incharge, Supervisors and Indirect Helpers

Source Documents

The Incentive payments are calculated on the basis of the End Line efficiency and the End Line DHU level. The source documents for each are –

Daily Production Register (refer Table 1.10) – The total number of pieces issued to finishing at the end of the day is noted. The efficiency is calculated on a daily basis, but the incentive payment is made according to the average at the end of the month.

End Line DHU (refer Table 1.11) – The quality auditor, checks the pieces passed by the end line checker for each line at least twice a day. The total DHU (Defects per hundred units) is calculated from each of these sheets.

3.2 Cutting Room

The incentive scheme in the cutting room is a group incentive scheme.

The design of the scheme is as under:

1. Target levels are set for the cutting room for 8 hours for a standard shirt. These targets are applicable to the overall output of the cutting room. But the incentive is paid only when each section Spreading, Cutting, Recutting and bundling have each met their targets for the day. This is to avoid showing highs and lows in production where the cutting room is in make up on one day and is earning a high incentive the next day.

2. Equivalent garment values are established for all other styles that go into production based on work content with respect to the “standard shirt”. These equivalent garment

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values are calculated with the help of the Cutting Room Difficulty Matrix (Refer Table 1.12)

3. A rupee value is decided as the additional incentive for the standard shirt.

4. For the days in a month that all three areas (spread, cut and bundle) exceed the target, the incentive pay is computed as follows:

Incentive pay = No. of shirts produced above target x Rs./shirt (Rs1.50)

5. For each week, the total incentive pay is summed and distributed amongst the cutting room personnel. This is distributed as a weighted average of their salary for the Cutting Supervisor, Sorting Incharge & Cutters and all the Operators.

Illustrative Calculation – Target output – 2000 pieces in 8 hours, for plain shirt Boys check – 1.3 plains 1 shirt = Rs. 1.50 per shirt, as incentive pay

Output for the day (in spread, cut & bundle in 8 hrs.) = 1800 pieces, for Polo boys checkTarget for Boys check = 2000/1.3 = 1540 pcsIncentive pay = Rs. (1800 – 1540) x 1.50 = Rs. 390

Net Incentive Pay for the Day = Rs. 390

Please refer to Table 1.13 for details of the incentive payout

Documents

The documents that would be used for Incentive calculation in the finishing room are: Records need to be maintained for each activity in the cutting room – spreading, cutting,

recutting, bundling.

The Bundling Records – The number of pieces bundled daily represents the output of the finishing room. This is used to calculate the amount of incentive earned. Table 1.14 shows the record from which the incentive calculation will be made.

3.3 Finishing Room

The incentive scheme for finishing is also a group incentive design.

The finishing room should be broken into sub-groups so that the size of the group smaller and the group incentive is more effective. Group incentive will be applied to everyone in the

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finishing group – kaja button, trimmers, checkers, ironers, final checkers. The packers will form a separate part and will be common for all the groups. There is a disincentive for the quality checkers if they produce bad quality. The incentive earnrd by the group is then multiplied by their % target achievement of quality to give the net incentive amount earned by them. The incentive is calculated based on the number of pieces packed at the end of the day, given that the buyers’ QC has passed the shipment. An internal AQL inspection failure will result in re-screening of the garments by the same group resulting in loss of opportunity of earning the incentive pay, thus ensuring that the incentive does not result in lessening of the quality standards.

The internal audit, which is done after every 200 pieces, is the control point to ensure that quality standards are adhered to. These should be very rigorously followed, especially during the beginning of the incentive scheme to ensure that the group realises that slackening of quality standards will not result in increased incentive earnings for the group.

Furthermore, individual stickers should be provided for the quality checkers in the finishing room, which will help at the audit stage in the tracking the checker who has cleared a defective garment.

The design of the scheme is as under:

The SMV’s are calculated for all the operation in the finishing room. The incentive payment is made according to the group efficiency. The minimum efficiency for the group is 60% and the target efficiency at which incentive is calculated is 90%. The incentive rate is the same as the sewing room i.e. Rs.0.1667 per SMV produced. The efficiency is calculated as per the following formula –

Group Efficiency = (No. of pieces packed by the group x Finishing SMV of the garment)

1. Target levels are set for the finishing room for 8 hours at 60% efficiency for each group. This is the target number of pieces to pack.

2. Incentive pay is calculated over the weekly efficiency average for each operator in the group.

3. For the quality checkers, the incentive earned by them is multiplied by the percentage target achievement of quality. The target DHU in finishing is 3. For example, if the total incentive earned by everyone in the group is Rs500 and the 200 piece audit results in 4DHU. The percentage target achievement for quality = ¾ = 75%.

Therefore the total incentive earned by the checkers in the group = 500 x 75% = Rs.375

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4. In case the internal quality audit after every 200 piece does not clear, the pieces will be given back to the group for re-screening.

5. If a style does not meet requirements in the final inspection by the buyer, the incentive pay for the days during which that style was produced will not be given.

6. For each month, the total incentive pay calculated at weekly average is summed and added to the operator’s salary.

7. The Finishing Incharge and the packers get a part of the incentive from each line. As there are 4 groups in finishing, each group contributes to the incentive as per the efficiency of the group. The incentive for the finishing incharge is calculated on a monthly basis and that of the packers is calculated on a weekly basis.

Please refer to Table 1.15 for the incentive earning in the finishing room.

Documents

Packed Goods Records – This shows the number of pieces packed for each good at the end of the day. Table 1.16 gives the record to be used.

3.4 Production & Factory Manager

The table below details the factors on which the incentive of the Production and Factory Manager depends. The incentive is paid every month with a lag of one month. Therefore the incentive for the month of January would be paid out with the February salary in March.

Each of the factors below has a certain percentage of salary to it that can be earned as incentive given that the minimum level for the factor has been achieved. However the 100% Capacity Utilisation has to be over 40% for both the managers to qualify for incentive on any factor.

The incentive calculation can be explained by the following manner. If the 100% Capacity Utilisation for the factory is 40% and the Factory Audit is 65%, both the factory and production manager would earn –

% achievement of target = 65/60 = 108%% of salary earned as incentive = 108% x 4.5% = 4.9%

Thus, the incentive earned for each factor is calculated in this manner and the sum total is paid out monthly.

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Performance Factors

S. No Area of Measure TargetMinimum

To achieveF.M.

% of SalaryP.M.

% of Salary

1 100% Capacity Utilisation 60% 45% 12%

2 Factory Cost/SMV produced 0.53 .73 6%Rs. Rs

3 On Time Performance 100% 80% 6% 6%

4 Factory Audit 60% 50% 4.5% 4.5%

5 Defect % (Finishing-200 pc audit) 3% 5% 4.5%

6 Defect % (Sewing-End line audit) 10% 15% 4.5%

7 Fabric Utilization 100% 105% 6%& Below

8 Cut to Shipped ratio 99% 97% 3% 3%

SUM 30% 30%

Incentive Earned

The following table shows the incentive earned at various levels of Capacity utilisation given that all other factors are at target -

Factory Manager Prodn ManagerS. No. 100% Cap

UtilisationIncentive Incentive Incentive Incentive

% of CTC Rs. / month Rs. / month

1 1% 0% 0 0% 02 10% 0% 0 0% 03 20% 0% 0 0% 04 30% 0% 0 0% 05 40% 29% 5,537 26% 7,8006 50% 29% 5,721 28% 8,4007 60% 30% 5,885 30% 9,0008 70% 31% 6,000 32% 9,6009 80% 31% 6,107 34% 10,200

10 90% 31% 6,206 36% 10,80011 100% 32% 6,293 38% 11,40012 110% 32% 6,374 40% 12,00013 120% 32% 6,448 42% 12,600

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The above table shows the percentage incentive earned at each Grade for the Production manager and the factory manager. It also defines the performance index required by the managers for each of the grades.

The Performance Index is calculated by the totalling the percentage achievements in each of the factors mentioned in the table above.

The detailed working of the incentive for the factory manager is shown in Table 1.17 and Table 1.18 and the production manager is shown in Table 1.19 and Table 1.20 respectively.

Documents

100% Capacity Utilisation – is taken from the Factory Efficiency report generated by the Industrial Engineering Department. Table 1.21 has a copy of this report. 100% Capacity Utilisation is a product of the average factory efficiency to the capacity utilisation

This is an important factor as even if a factory has high efficiency, low utilisation of capacity or number of machines in the factory increase the cost of production of the unit.

Factory Cost/ SMV produced – This is defined as

Total Cost of factory / Total SMV Produced in the factory

The SMV produced should include Cutting and Finishing SMV’s if available. If not available only the sewing SMV’s can be used. This measure helps in accurate costing of the production in the factory. Table 1.22 is the format from which the factory cost is to be taken. This report is generated by the accounts department.

On time Performance – is not currently being measured in GI. The target shipment date now needs to be issued to the factory by the PPC department keeping in mind the date on which the factory gets all the raw materials. It is calculated as -

(Total number of pieces shipped on target date / Total number of pieces shipped)

The total pieces shipped is taken as the sum of the number of pieces in the order placed by the customer and not on the actual number of pieces shipped.

Factory Audit – Factory audits are conducted by an internal team to ensure that all norms are being adhered to. The source document is shown in Table 1.23.

Defect % Finishing - In finishing, an AQL audit of the pieces is done after every 200 pieces by the central QC Team. This audit ensures that the goods packed are as per the

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buyers norms. The QC of the central team stationed in finishing generates this format. The defect percentage is calculated as follows –

(Total Defects Caught / Total pieces checked)

Table 1.24 shows a copy of this format.

Defect % Sewing – The QC from the central team audits the passed pieces of the line at least twice a day. This audit is used to measure the defect percentage of the sewing room. The calculation is as below for the complete sewing room –

(Total number of defects caught in a day / Total number of pieces checked in a day)

The report that generates these numbers is shown in Table1.11. This should be consolidated on a daily basis for ease of calculation.

Fabric Utilisation – Fabric is the single largest cost in the production of a garment. It therefore becomes a very important cost head. The fabric utilisation is calculated at the end of every style in the FCR. A copy of this report is in Table 1.25 in the annexures. The percentage achievement of target is calculated by using the following formulas.

1. The target fabric consumption for the order is calculated

Target Fabric consumption for the order = Cut Quantity x Fabric cons. per piece

2. The Actual Fabric Consumption = Total Fabric Received – Fabric Returned – Stock Fabric – Returned Fabric

3. Fabric Utilisation % = Target Fabric Cons. / Actual Fabric Cons.

Cut to Shipped Ratio – This is taken from the OCR (Order Completion Report). Table 1.26 shows a copy of the report. The calculation is as below –

(The total number of pieces shipped / Total Number of pieces cut)

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4. Incentive Calculations

The following are the formulas to be used for Incentive calculations to various grades. Whenever incentives are expressed as a percentage, the payment is to be calculated by multiplying the percentage to the individuals salary.

Sewing Room

Operators, Direct Helpers

CalculationFirst the SMV’s produced is calculated. If an operator does more than one operation, the product of the SMV’s to the number of pieces for each operation is added together to result in the total SMV’s producedSMV Produced = No. of pieces produced x SMV of operation

Incentive earned = (Basic Salary/day x (No. of days attended + No. of days on Leave)) + ((SMV's Prod) – (No. of minutes worked x 60%) x 0.1667)

Source Documents1. Daily Operator Sheet2. Weekly Summary Report

Incentive calculation generated by the personnel department of the factory

Floor In charge, Supervisor, End Batch Quality Checker and Indirect Helpers-

CalculationEnd line efficiency =(No. of pieces produced from the Line x SMV of the garment) / (No. of people in the Line x Min worked)

% achievement of quality target = Target DHU / End Line DHU

Incentive % earned = (End line efficiency – 60%) x 1 x (% achievement of quality target)

Source Documents1. Daily Production Book (is maintained by the end batch checker)2. Merchandise Quality Audit (generated by the QA person allocated to the batch)

Incentive calculation generated by the personnel department in the factory

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Indirect Helpers

CalculationIncentive % earned = (End line efficiency – 60%) x 0.60

Source Documents1. Daily Production Book (is maintained by the end batch checker)

Incentive calculation generated by the personnel department in the factory

Cutting Room

CalculationTotal Incentive earned by group = Rs1.50 x (Pieces Produced in one week – Target Production for one week)

The total incentive amount is divided up in the following ratio Workers - 1 Supervisor - 1.5 Cutters - 2 Cutting Incharge - 5

Source Documents1. Sorting Production Report (is generated by the Sorting Supervisor)

Incentive calculation generated by the personnel department in the factory

Finishing Room

Calculation

Total SMV’s Produced = No. of packed Pieces in a week x Finishing SMV/pieceTotal no. of people present in a week in group = Sum of people present each day for week in a groupTarget SMV’s to produce = Total no. of people present in a week in group x No. of minutes worked in a day

Total Incentive earned by group = (Total SMV’s produced – Target SMV’s to produce) x Rs 0.1667

The total incentive is divided amongst everybody in the following ratio – All group members - 1 Packers - 1

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Finishing Supervisor - 2 Finishing Incharge - 4 / (Number of groups in finishing)

Source Documents1. Packing Report 2. Attendance Report3. SMV Sheet (is issued by IE)

Incentive calculation generated by the personnel department in the factory

Factory Manager and Production Manager

The incentive earned by the Factory manager is the sum total of the incentive earned due to the various factors. The incentive calculation for each of the factors is detailed below. The calculations below reveal the incentive percentage earned. This is to be further multiplied by the salary to get the incentive amount.

100% Capacity Utilisation – is calculated for the production manager only. It is taken from the P.O. Efficiency report generated by the Industrial Engineering Department. Incentive is only paid if it is above 45%.

Incentive % earned = (100% Capacity Utilisation / 60%) x 12%

Source Documents1. PO Efficiency Report (generated by IE)

Factory Cost/ SMV produced – is calculated for the factory manager only. It is paid if the cost per minute is less than Rs 0.73. This is defined as

Total Cost of factory / Total SMV Produced in the factory

Please refer to table 1.22 for the account heads under factory cost The SMV produced should include Cutting and Finishing SMV’s if available. If not available only the sewing SMV’s can be used. taken.

Source Documents1. SMV produced (generated by IE)2. Factory Cost (generated by the accounts department)

On time Performance – is calculated for both the factory manager and the production manager. It is paid if the OTP is more than 80%. It is calculated as -

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(Total number of pieces shipped on target date / Total number of pieces shipped)

The total pieces shipped is taken as the sum of the number of pieces in the order placed by the customer and not on the actual number of pieces shipped.

Source Documents1. Target shipment date (generated by PPC)

Factory Audit – Factory audits are conducted by an internal team to ensure that all norms are being adhered to. The incentive is paid only if the audit percentage is more than 50%. It is calculated as

Audit % achieved / 60%

Source Documents1. The source document is shown in Table 1.23. (generated by IE)

Defect % Finishing – is calculated for the factory manager and is paid if the DHU level at the audit is less than 5 DHU. It is calculated as follows –

Monthly DHU average (finishing) = Total Defects caught / Total pieces checked

Incentive % earned = 3 / Monthly DHU Average

Source Documents1. Monthly DHU Summary (generated by QA Team checker in finishing)

Defect % Sewing – is calculated for the production manager and is paid if the DHU level at the audit is less than 15 DHU. The calculation is as below for the complete sewing room –

Monthly DHU average (sew) = (Total number of defects caught in a month / Total number of pieces checked in a month)

Source Documents1. Monthly DHU Summary (generated by QA Team checker in sewing)

Fabric Utilisation – is calculated for factory manager and is paid if the consumption is less than 105%. The percentage achievement of target is calculated by using the following formulas.

1. The target fabric consumption for the order is calculated

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Target Fabric consumption for the order = Cut Quantity x Fabric cons. per piece

2. The Actual Fabric Consumption = Total Fabric Received – Fabric Returned – Stock Fabric – Returned Fabric

3. Fabric Utilisation % = Target Fabric Cons. / Actual Fabric Cons.

Source Documents1. FCR (generated by Divisional Cost Accountant)

Cut to Shipped Ratio – is calculated for both the factory and the production manager and the incentive is paid if the cut to shipped ratio is more than 97%. The calculation is as below –

(The total number of pieces shipped / Total Number of pieces cut)

Source Documents1. OCR (generated by Divisional Cost Accountant)