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Thursday, July 24, 2014

What is best? Work with Vietnam Apparel Factory on CM or FOB terms?

Circular Knit vs Flat Knit
Circular Knit vs Flat Knit
The first decision you must make before producing garments in an apparel factory in Vietnam is: will your order be a CM order or an FOB order. Let's take a second to define the difference.

CM stands for Cut and Measure. An apparel factory might use CMT which means Cut, Measure and Thread. Or, another factory clothes will say CMPT which means Cut, Measure, Package and Thread. The lawyer in me simplifies all three into one clear definition: CM business terms means that the price includes everything minus trims, accessories, and fabric. CM price includes everything in the production process from checking fabric, cutting fabric, sewing, ironing, folding, packaging and boxing. Another way to think of it is: the CM price covers all labor costs, overhead and profit. Some tricky points to watch out for are: does CM include import-export document processing fees?; does CM price including trucking costs to and from the factory?; does CM include international money transfer fees? All these points need to be clearly negotiated before signing contracts or shaking hands. Factory clothes.

FOB stands for Free on Board. Basically, the Vietnam factory takes care of everything: trims, accessories, fabric, cutting, sewing, packaging, boxing, and transportation to the port. The FOB price includes everything from the moment that pre-production samples are approved until the containers are delivered to the port and cleared by customs. 

In both cases, 99% of the time, the buyer pays for shipping from Vietnam to their home port. 

Making a deal on CM terms gives you more flexibility to control prices of trims, accessories and fabric but also gives you more headache to manage it all. CM terms means that you, the buyer, is responsible for faulty trims, accessories and fabric - not to mention delivery times. The Vietnam apparel factory is not responsible.

Making a deal on FOB terms is hassle free but allows the seller to inflate trim, accessory and fabric prices without you knowing. Moreover, they usually ask for a handling fee of 6 to 12%. Managing all the trim, accessory, and fabric is labor intensive - especially when the sub contractors make mistakes. FOB terms means that the seller accepts all responsibility for mistakes. Factory clothes or apparel factory, both will clearly know the difference. Do you?
 
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