profile on production of workers overall and gowns - SNNPR ...

248. PROFILE ON PRODUCTION OF WORKERSOVERALL AND GOWNS

248-2TABLE OF CONTENTSPAGEI. SUMMARY 248-3II. PRODUCT DESCRIPTION & APPLICATION 248-3III. MARKET STUDY AND PLANT CAPACITY 248-4A. MARKET STUDY 248-4B. PLANT CAPACITY & PRODUCTION PROGRAMME 248-7IV. RAW MATERIALS AND INPUTS 248-7A. RAW & AUXILIARY MATERIALS 248-7B. UTILITIES 248-8V. TECHNOLOGY & ENGINEERING 248-9A. TECHNOLOGY 248-9B. ENGINEERING 248-10VI. MANPOWER & TRAINING REQUIREMENT 248-12A. MANPOWER REQUIREMENT 248-12B. TRAINING REQUIREMENT 248-12VII. FINANCIAL ANALYSIS 248-14A. TOTAL INITIAL INVESTMENT COST 248-13B. PRODUCTION COST 248-14C. FINANCIAL EVALUATION 248-15D. ECONOMIC BENEFITS 248-16

248-3I. SUMMARYThis <strong>profile</strong> envisages the establishment of a plant for the production of workers overalland gown with a capacity of per annum.The present demand for the proposed product is estimated at 11,827 pieces per annum.The demand is expected to reach at 40,830 pieces by the year 2020.The plant will create employment opportunities for 27 persons.The total investment requirement is estimated at about Birr 3.36 million, out of whichBirr 404,250 is required for plant and machinery.The project is financially viable with an internal rate of return (IRR) of 14 % and a netpresent value (NPV) of 626,400 discounted at 8.5 %.II.PRODUCT DESCRIPTION & APPLICATIONWorkers overall and gowns is popular among workers engaged in machinery operation oroutdoor work. The market for workers overall and gowns grows as the number ofemployees engaged in industry increases .III.MARKET AND PLANT CAPACITYA. MARKET STUDY1. Past Supply and Present DemandWorkers overall and gown is popular among workers engaged in machinery operation oroutdoor work. The demand for the product is essentially met from domestic production.

248-5Table 3.1DISTRIBUTION OF LARGE AND MEDIUM SCALE MANUFACTURINGINDUSTRIES BY REGIONAL STATESRegion Number of PercentageEstablishmentsTigray 63 5.22Afar 11 0.91Amhara 125 10.36Oromiya 193 15.99Somalie 8 0.66SNNP 109 9.03Gambella 2 0.17Harari 31 2.57Addis Ababa 626 51.86Dire Dawa 39 3.23Total 1207 100.00Source: CSA, Report on Large and Medium Scale Manufacturing andElectricity Industries Survey, 2006.2. Demand ProjectionWorkers overall and gowns are widely used by workers employed in the manufacturingindustry, which is highly associated with economic growth. The consumption of theproducts is, therefore, influenced by the rate of economic growth. Considering the quiteremarkable rate of economic growth that has been successively registered by the countrysince the recent past and the rapidly growing demand for manufactured products, thedemand for workers overall and gowns is assumed to grow at the rate of 10%. Theprojected demand for the product is depicted in Table 3.2.

248-6Table 3.2PROJECTED DEMAND FOR WORKERS OVERALL AND GOWNSProjected DemandYear(Number)2007 11,8272008 13,0102009 14,3112010 15,7422011 17,3162012 19,0482013 20,9522014 23,0472015 25,3522016 27,8872017 30,6762018 33,7442019 37,1182020 40,8302021 44,9132022 49,4043. Pricing and DistributionThe retail price of workers overall and gown is about Birr 150. Allowing margin forretailers and wholesalers, the envisaged plant is expected to sell its product at per unitprice of Birr 130. The product can get its market outlet through the existing wholesaleand retail network, which includes department stores, merchandise shops andsupermarkets. The envisaged plant can also supply its product directly to customers thatinclude firms in the large, medium and small scale manufacturing industry.

248-7B. PLANT CAPACITY & PRODUCTION PROGRAMME1. Plant CapacityThe market study for workers overall and gown indicates that the effective demand forthe items is 11,827 pieces in 2007. This figure grows to 25,352 and 40,830 pieces in2015 and 2020, respectively. Accordingly, considering small scale production of thecloth items, the envisaged plant will have annual production capacity of 10,000 overalls.The plant will operate single shift 8 hours a day and for 300 days a year.2. Production ProgrammeProduction will start at lower capacity, with the plant operated at 75% capacity during thefirst year of operation. Then, production will grow to 85% and 100% of plant capacityduring the 2 nd and 3 rd year, respectively. Production build-up is shown in Table 3.3below.Table 3.3PRODUCTION PROGRAMMEYear 1 2 3 and aboveCapacity utilization (%) 75 85 100Production (PCS) workers 7,500 8,500 10,000overall /GownIV.MATERIALS AND INPUTSA. RAW MATERIALSThe major raw material required to prepare workers overall and gown is blue jeans clothand should be of Denim type. This is on account of the character of working clothes.

248-8The width of the cloth can be of 92-100 cm and 40 metres long roll. The required clothsize is 92 cm by 4.0 metres. For 10000 workers overall per annum, and considering 1%wastage, the raw material requirement will be 40400 metres.The plant requires auxiliary materials such as sewing thread, accessories such as buttons,zippers, sewing needles, clips, scissors, labels, polyethylene sheets and packing boxes.Details of raw and auxiliary materials and related annual costs are given in Table 4.1below.Table 4.1RAW AND AUXILIARY MATERIALSSr.Description Qty Cost (‘000 Birr)No. LC FC TC1 Blue jeans cloth (m) 40400 198.0 - 198.02 Sewing thread (km) 2720 15.0 - 15.03 Buttons Req 5.0 - 5.04 Zippers Req 5.0 - 5.05 Sewing needles Req 2.0 - 2.06 Clips and scissors Req 0.5 - 0.57 Labels Req 0.8 - 0.88 Polyethylene sheets Req 2.0 - 2.09 Packing boxes (cartons) Req 10.0 - 10.0Total - 238.30 - 238.30B. UTILITIESElectricity, fuel oil and water are utilities required by the plant. Electricity is required forprime movers, for lighting and power sockets.

248-9Fuel oil is used for steam generation (firing a boiler) for pressing workers cloth. Water isrequired for drinking, general purpose and for conversion into steam. Annualrequirement of utilities at full capacity production is shown in Table 4.2 below.Table 4.2ANNUAL REQUIREMENT OF UTILITIESSr.Description Qty Cost (‘000 Birr)No.1 Electricity (kWh) 15,000 7.112 Water (m 3 ) 2500 25.03 Fuel oil (litres) 6000 32.46Total - 64.57V. TECHNOLOGY AND ENGINEERINGA. TECHNOLOGY1. Production ProcessThe major operations involved in the manufacturing of workers overall gown are thefollowing:-a) Pattern design and patternmaking; pattern making process by hand work.b) Cloth cutting, grading process by mechanical cutting system and piecebundling.c) Sewing by high speed industrial sewing machine.d) Trimming and inspectione) Ironing and pressing for finishing processf) Packing and delivery.

248-102. Source of TechnologyAddress of a German company that supplies machinery for workers over all and gownproduction is given below:G.M. PFAFF A.GP.O.Box 3020D- 67653 KaiserslauterGERMANYFax: (0631) 17202B. ENGINEERING1. Machinery and EquipmentThe plant requires installation of one line of production for workers overall and gown.The details of the required plant equipment and related costs are shown in Table 5.1below.

248-11Table 6.1LIST OF MACHINERY AND EQUIPMENTSr.Description Qty Cost (‘000 Birr)No. LC FC TC1 Single needle lock stitch 12 - 60 602 3 – needle chain 2 - 22 223 Chain stitch button sewing 1 - 17.0 17.04 Lock stitch bar tacker 1 - 28 285 Other special type 1 - 25 256 Steam generator (Boiler) 1 - 175 1757 Steam press (general use type) 2 - 4.0 4.08 Cloth laying machine 1 - 2.5 2.59 Band knife cutter 1 - 2 210 Die cutter 1 - 2 211 Clothe iron 4 - 0.5 0.512 Straight knife cutter 2 - 1.2 1.213 Cloth laying and cutting table 2 - 0.75 0.7514 Cloth cutting table 2 - 0.8 0.815 Knife sharpener 1 - 0.5 0.516 Material boxes & chutes Req - 3.0 3.017 Shelves & working chairs Req - 7.0 7.018 Air compressor 1 - 5.0 5.019 Air cleaning equipment Unit - 3.0 3.0FOB price 359.25 359.25Freight, insurance, customs & - 45 - 45Bank charges, material handlingcostCIF Landed Cost 45 359.25 404.252. Land, Building and Civil WorksThe required flour area for the main production hall for the cutting, sewing, patterndesign and sample making, storage of material cloth and final products, offices and showroom, boiler room, air conditioning unit, finishing sections including packing anddelivery room is estimated 1,000 m 2 . Accordingly, the total plant site area required isestimated 2,000 m 2 . This will give opportunity to carry out expansion work and haveaccess to internal path ways.

248-12At an average land lease rate of Birr 1.0 per m 2 , and unit building cost of Birr 2,000 (perm 2 ), the land lease value for a period of 80 years will be Birr 160,000, and total buildingcost of Birr 2 million. Thus, the total initial investment on land, building and civil worksis estimated to be Birr 2.16 million.3. Proposed LocationLocation of a plant is determined on the basis of proximity of raw materials, availabilityof infrastructure and distance of potential market outlets. Three woredas, namelyArbaminch Zuria, Awassa Zuria and Wonago are identified. Considering fair distributionof projects among SNNPRS Woredas, Awassa zurea is selected. The envisaged plantwill therefore be established in Awassa town.VI.MANPOWER AND TRAINING REQUIREMENTA. MANPOWER REQUIREMENTThe garment plant requires direct production workers and administration staff. Details ofmanpower requirement and estimate of annual expenditure on manpower is given inTable 6.1 below.B. TRAINING REQUIREMENTWorkers directly related to production will be given two weeks training in one of thegarment factories in Addis Ababa. A total of Birr 10,000 is allotted to execute thetraining programme.

248-13Table 6.1MANPOWER REQUIREMENTSr.Job Title Nos. Monthly Annual WagesNo.SalaryA. Administration1 Plant manager 1 2,000 24,0002 Secretary 1 600 7,2003 Store man 1 700 8,4004 Cashier 1 500 6,0005 Clerk 1 375 4,5006 General services 2 250 6,000Sub-total 7 - 56,100B. Production1 Skilled workers 15 600 108,0002 Unskilled 4 250 12,000Sub total 20 - 129,600Workers benefit (25% BS) - 46,425Total 27 233,925VII. FINANCIAL ANALYSISThe financial analysis of the workers overall and gownspresented in the previous chapters and the following assumptions:-project is based on the dataConstruction period3 yearsSource of finance% equity% loanTax holidays3 yearsBank interest 70 %

248-14Discount cash flow 30%Accounts receivable30 daysRaw material local30 daysWork in progress2 daysFinished products30 daysCash in hand10 daysAccounts payable30 daysA. TOTAL INITIAL INVESTMENT COSTThe total investment cost of the project including working capital is estimated at Birr3.36 million, of which 36 per cent will be required in foreign currency.The majorbreakdown of the total initial investment cost is shown in Table 7.1.Table 7.1INITIAL INVESTMENT COSTSr.Total CostNo. Cost Items (‘000 Birr)1 Land lease value 1602 Building and Civil Work 2,160.003 Plant Machinery and Equipment 404.254 Office Furniture and Equipment 755 Vehicle 2006 Pre-production Expenditure* 302.237 Working Capital 63.55Total Investment cost 3,365.0Foreign Share 36* N.B Pre-production expenditure includes interest during construction (Birr 202.23thousand) training (Birr 10 thousand) and Birr 90 thousand costs of registration,licensing and formation of the company including legal fees, commissioning expenses,etc.

248-15B. PRODUCTION COSTThe annual production cost at full operation capacity is estimated at Birr 1.07 million(see Table 7.2). The material and utility cost accounts for 28.19 per cent, while repairand maintenance take 6.98 per cent of the production cost.Table 7.2ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)Items Cost %Raw Material and Inputs238.30 22.18Utilities64.57 6.01Maintenance and repair75 6.98Labour direct140.35 13.06Factory overheads58.48 5.44Administration Costs93.57 8.71Total Operating Costs670.27 62.38Depreciation215.93 20.10Cost of Finance188.22 17.52Total Production Cost1,074.42 100C. FINANCIAL EVALUATION1. ProfitabilityAccording to the projected income statement, the project will start generating profit in thefirst year of operation. Important ratios such as profit to total sales, net profit to equity(Return on equity) and net profit plus interest on total investment (return on totalinvestment) show an increasing trend during the life-time of the project.

248-16The income statement and the other indicators of profitability show that the project isviable.2. Break-even AnalysisThe break-even point of the project including cost of finance when it starts to operate atfull capacity (year ) is estimated by using income statement projection.BE = Fixed Cost = 34 %Sales – Variable Cost3. Pay Back PeriodThe investment cost and income statement projection are used to project the pay-backperiod. The project’s initial investment will be fully recovered within 6 years.4. Internal Rate of Return and Net Present ValueBased on the cash flow statement, the calculated IRR of the project is 14 % and the netpresent value at 8.5 % discount rate is Birr 626,400.D. ECONOMIC BENEFITSThe project can create employment for 27 persons. In addition to supply of the domesticneeds, the project will generate Birr 789,580 in terms of tax revenue. The establishmentof such factory will have a foreign exchange saving effect to the country by substitutingthe current imports.