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PROFILE ON PRODUCTION OF JEANS
MARKET STUDY B. SUMMARY 83-3 II. MANPOWER & TRAINING REQUIREMENT A. MATERIALS AND INPUTS A. MARKET STUDY AND PLANT CAPACITY A. FINANCIAL EVALUATION D. ECONOMIC BENEFITS 83-14 83-14 83-15 83-16 83-17 . MANPOWER REQUIREMENT B. UTILITIES 83-9 83-9 83-10 V. FINANCIAL ANALYSIS A. TRAINING REQUIREMENT 83-13 83-13 83-14 VII. TECHNOLOGY & ENGINEERING A. TOTAL INITIAL INVESTMENT COST B. PRODUCT DESCRIPTION & APPLICATION 83-3 III. TECHNOLOGY B.83-2 TABLE OF CONTENTS PAGE I. PRODUCTION COST C. PLANT CAPACITY & PRODUCTION PROGRAMME 83-3 83-3 83-8 IV. RAW & AUXILIARY MATERIALS B. ENGINEERING 83-10 83-10 83-12 VI.
The total investment requirement is estimated at about Birr which Birr 772. II. MARKET STUDY 1.83-3 I.79 million pieces per annum. inside care label with product of origin and assorted product id tags. 4. The present demand for the proposed product is estimated at 2. The plant will create employment opportunities for 41 persons. pocket flasher. out of The project is financially viable with an internal rate of return (IRR) of 20 % and a net present value (NPV) of Birr 2. III. . joker ticket.000 is required for plant and machinery. The demand is expected to reach at 5.5%.000 pieces per annum. SUMMARY This profile envisages the establishment of a plant for the production of Jeans with a capacity of 250. PRODUCT DESCRIPTION AND APPLICATION Jeans is a type of wear preferred particularly by both male and female youths because of its appearance to remain attractive in all the states throughout its life.1. The domestic production of wearing apparel for the past five years is given in Table 3. A typical pair of jeans will have a hang tag. MARKET STUDY AND PLANT CAPACITY A.27 million pieces by the year 2020.43 million discounted at 8.88 million. leg sticker. Past Supply and Present Demand The demand for ready made garments such as Jeans is mainly met through import although some factories have started to produce it locally in small quantities.
166 130.1 DOMESTIC PRODUCTION OF WEARING APPAREL (READY MADE GARMENTS) Year Production (Dozen) 2000 2001 2002 2003 2004 2005 100. According to the Annual Reports of the National Bank of Ethiopia. Due to the very limited supply of ready made garment from local production.932 dozen.752 124. About half of the money is spent for importing different types of clothing including Jeans. and Skirts and divided skirts of cotton.83-4 Table 3. wool.427 273.542 140. Table 3. synthetic fiber etc only selected products made of cotton has been analyzed for the purpose of this project. the amount of foreign exchange that is spent on textiles and clothing in the past 2-3 years has reached to a level of more than one billion Birr. . the country imports a substantial amount of clothings from overseas. The selected products are as follows:• • • • Men's or boys' trousers & breeches of cotton. Since the country imports a verity of ready-made garments that are made of silk. During the period of analyses on the average local production was 151.328 142.375 Source: Statistical Abstract of CSA. Men's & women's jackets & blazers of cotton. Women's or girls trousers & breeches of cotton.1 reveals that domestic production of ready-made garments fluctuates from year to year although there is a general increase in the past five years.
2.269 571.857.588.823 117. Jackets and Skirts that are made of other materials ( Silk.282 734.754 1.798 402. Jackets and Skirts of Cotton has been generally rising in the past five years. JACKETS & SKIRTS OF COTTON ( NO ) Year Men’s or Boys Trousers.330 498.529 258.488.000 Note:.The data does not included imports of Trousers.670 410.488 256.310 1.288 63.086 1.892 399.637 3.049.195 721.710 2.110 136.704 2.Compiled from Ethiopian Customs Authority.123 112.064.095.707.768 Skirts and Divided Skirts of Cotton Total 2000 2001 2002 2003 2004 2005 2006 1.201 20. Breaches of Cotton Men’s and Women’s Jackets and Blazers of Cotton Women or Girls Trousers Breeches of Cotton 169.686 51.2 IMPORT OF TROUSERS. Table 3.498 1.526 690.951 2. Wool. The annual average growth rate was around 8% .620 308.192.040 4. for about 36%. which is on the average about 61%.664.853 431.073 814.328 262.743. the total import of Trousers.781.542 2.2. As could be seen from Table 3.993. Men's Jackets and girls /women's Jacket each account share of skirts of cotton.592. Synthetic fiber. etc).726 533. Source:.723 Average 1.401.156 1.078 2.702. The remaining 3% is the .199 1.209 4.248 2.523.83-5 The import data of the above products which is compiled from the Ethiopian Customs Authority is presented in Table 3.139 2. With respect to the share of each product men's or boys trousers and breeches constitute the bulk of the import.
429 430. Hence. an annual average growth rate of 5% is taken to forecast the future unsatisfied demand (see Table 3. Projected Demand The demand for Jeans is mainly influenced by urban population growth and income rise. Accordingly.83-6 To determine the present unsatisfied demand for the four products under consideration the average import of the past five years is first assumed to reflect the demand for the year 2006.820 2.556 575. the total The current unsatisfied demand estimated by type of product is worked out by taking their past years share in the total import.795.3). Accordingly the estimated demand for each product will be as follows.) 1 2 3 4 Men’s or boys trousers & breeches of cotton Men’s & women’s Jackets and blazers Women’s or girls trousers and breeches Skirts Total 1.795.3 THE PRESENT UNSATISFIED DEMAND FOR JEANS Sr. . is applied to arrive at the year 2007 demand. Then.896 2.820. which is the observed trend in the past. Table 3.719.939 69. unsatisfied demand is estimated at 2. Type of Jeans Unsatisfied Demand (No. an annual average growth rate of 8%. No.
671 1.769 2.935.476 2.801 5.130.392 3.878 Women's Trouser 604.4 FORECASTED UNSATISFIED DEMAND FOR JEANS OF DIFFERENT TYPES (No.936 The envisage plant can target 10 to 15% of the projected demand for the initial stage.397 773.082.242.337 3.800. .399 2.934.423 523. 3.511 3. At a letter stage it can increase its production to a higher level as the market allows. The products can find their market outlet through the existing ready made garment distributing/ retailing enterprises.331 736.236.455 2.611 3.419.380 2. an average price of Birr 70 is adopted.688 498.848 3.667 3. Pricing and Distribution The price of jeans varies according to type such as trouser.097 4.000 4.304.934 701.540. jacket skirt etc.194.398.511 576.254 3.746.020. For the purpose of financial analysis.337.087.128 667.271.401 1.990.987 605.) Men's Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Trouser 1.667.235 4.568.241 Men's & Women’s Jacket 452.554.200 2.736 634973 666721 700057 735060 771813 810404 850924 893470 938144 985051 1034304 1086019 Skirts 73390 77060 80913 84958 89206 93667 98350 103267 108431 113852 119545 125522 131798 Total 2.977 2.410 2.217 811.892 5.836 636.700 4.344 549.940.089.805.83-7 Table 3.084 474.808 3.895.781.
e.5 PRODUCTION PROGRAMME Year Capacity utilization (%) Production (pcs) 1 80 200000 2 90 225000 3-15 100 250000 .83-8 B. production capacity will start at 80% in the first year. Production Programme As it is the case for new plant. Plant Capacity The market study presented above indicates that the projected demand of jeans grows from 2. children. liked by all age group i. men and women. the envisaged plant will have annual production capacity about 10% of the projected demand for the year 2008 i. full capacity production can be attained by starting operations at lower capacity in the initial year. Accordingly. and reach of full capacity (100%) in the third year and then after.e.935.936 by the year 2020.000 pieces of jeans. adults. then grow to 90% the second year. As the size of jeans differs for different age groups. 2. PLANT CAPACITY AND PRODUCTION PROGRAMME 1. The plant is assumed to operate 2 shifts a day each 8 hours. Jeans can be prepared of different sizes. and then building up production in the successive years. 250. Hence. and for 300 days a year.271. Table 3.611 year 2008 to 5. it would be necessary to take an average size to determine the annual plant capacity.
Auxiliary Materials 1 2 3 4 5 Fabric for internal lining Thread Buttons Zip fasteners Labels. insurance.00 8. customs. Auxiliary materials consist of thread.83-9 IV. The cotton fabric used for jeans preparation is usually hard blue cotton twill.1 RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST (AT FULL CAPACITY) Sr. zip fasteners. also known as denim cloth. Lumpsum Reqd. RAW AND AUXILIARY MATERIALS The major raw material required for the preparation of jeans is cotton fabrics dyed and finished with different colours. Major Raw Material 1 Denim cloth Sub total B.0 14898 24 160 156 340 200 24 160 156 288.00 8.000 pcs 252. labels and packing materials. No. Description Qty. FC Cost ('000 Birr) LC TC A. button. Table 4.1 below. Trade mark Sub-total Bank.000 pieces 288. Lumpsum 252. The annual requirements of raw and auxiliary materials together with costs at full capacity production of jeans production plant is given in Table 4.0 836 200 375000 m 375000 m 14600 14600 14600 14600 handling costs Total Cost 14898 540 15438 . This material can either be imported or locally produced and used for this purpose as long as it meets the required quality and specification. MATERIALS AND INPUTS A.
83-10 B. The total annual requirement of utilities is estimated at Birr 65. V. Production Process The production process of jeans includes the following basic steps: First. Electricity is required for lighting purposes and running production equipment. or a computer program. TECHNOLOGY 1. Up to 100 layers of denim are stacked and weights are put on top of it to hold the denim fabric in place. A person. . a pattern maker draws a jeans pattern based upon measurements (of samples) that were supplied by the jeans designer or the buyer's merchandiser. The separate parts of the jeans are cut with a textile cutting machine and each piece is then marked with its size. It takes about 1.000.6 meters of denim fabric. After drawing the cutting lines onto this paper: The fabric is ready to be cut. Next it takes approximately 15 pieces that make up a standard pattern for a pair of standard 5 pocket jeans. while it is being cut. There are different machines for each handling. several hundred meters of sewing thread. using a piece of chalk so it won't show after washing. TECHNOLOGY AND ENGINEERING A. and optionally a zipper to make a pair of jeans. will then calculate the optimal fabric consumption by puzzling all the pieces of the jeans pattern on a paper that is placed on top of the denim fabric. Water is required for drinking and general purposes. 4 labels (usually imitation leather). All of these pieces of cut denim are then put into bundles by size. UTILITIES Utilities required by the plant consist of electricity and water. the denim is laid out in layers on a cutting table. 1 or 5 jeans buttons. 6 rivets.
washing machines. Depending on how faded the look will have to be. Chine.83-11 On average. it will take about 15 minutes and 12 steps to make one pair of blue jeans. 2. yet very big. they will be washed somewhere between 30 minutes and 6 hours. After the denim jeans are sewn together. The production process has no any negative environmental impact. The plant can be established either at small or medium scale level depending on the market size to be captured. A stonewash for 150 pairs of jeans takes 150 kilos of pumice stone and more than 750 liters of water. and India some of the addresses of machinery suppliers are the following: Chaina National Machinery Import and Export Corporation Shandong Branch 28 Fan Hsin Road Tsing China . It will have a backward linkage effect with cotton yarn producing industries. After that the jeans go on to the garment packing room where final quality inspection takes place and paper tags and labels are placed or attached. they go out to a jeans washing plant where they are washed in what could best be described as: standard. After the stone-washing process the denim garment is inspected for faults and loose threads are cut. Next the button(s) and rivets are placed using a special type of press. Source of Technology The sources of machinery and equipment are countries like Korea.
000. No.000.1. Land. freight. 1. ENGINEERING 1.000. the total land lease value for 80 years will be Birr 32. Machinery and Equipment Machinery and equipment required in the production of jeans is shown in Table 5.83-12 The National Small Industrial Corporation Ltd Ladhu Udyog Bhavan Okhla Industrial Estate New Delhi 110 020 India.1 per m2 land. Estimating that a unit area (per m2) of building costs Birr 1200. the total investment land cost. the total building cost will be Birr 600. . customs Total Cost 22 pcs 10 8 20 Lump sum Description Qty. Building and Civil Works Jeans manufacturing plant requires a total area of 500 m2. FC 660 60 40 6 766 Cost ('000 Birr) LC 18 50 68 TC 660 60 40 6 18 50 772 2. This is supposed to accommodate production hall. 4. 5. insurance. and general purpose building. B. store for raw material and finished products. 3. Table 5. offices.1 MACHINERY AND EQUIPMENT REQUIRED BY JEANS MANUFACTURING PLANT AND COST Sr. Thus. At a lease rate of Birr 0. Sewing machine Electric knives fitted with Disc Lapping trolley Electric iron Other materials Bank. 2. building and civil works is estimated at Birr 632.
450 542.83-13 3.1 MANPOWER REQUIREMENT AND LABOUR COST Sr. A. . This includes both administration and production workers. Table 6. 2. MANPOWER REQUIREMENT The total manpower requirement of the plant is 41 persons. VI.200 374. Description Qty. where access to different infrastructure is secured.250 1. 5. (No) Monthly Salary (Birr) 1 1 1 1 1 3 8 1 44 12 33 41 1800 600 800 600 400 250 1200 600 300 Annual Expenditure (Birr) 21600 7200 9600 7200 4800 9000 59400 14. 2.800 43. 6. Production Production supervisor Skilled workers Laborers Sub-total Workers benefit (25% of basic salary) Total 1.400 108. 3. MANPOWER AND TRAINING REQUIREMENTS A. Administration Plant manager Secretary Accountant Salesman Clerk General service Sub-total B. 4. No. Proposed Location The location of the anticipated project could be at Bodity. 3.400 316.
A total of Birr 20.88 million.83-14 B. FINANCIAL ANALYSIS The financial analysis of the jeans project is based on the data presented in the previous chapters and the following assumptions:- Construction period Source of finance 1 year 30 % equity 70 % loan Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material. TOTAL INITIAL INVESTMENT COST The total investment cost of the project including working capital is estimated at Birr 4. of which 13 per cent will be required in foreign currency. For this local garment factories can provide the training in their premises. import Work in progress Finished products Cash in hand Accounts payable 3 years 8% 8.000 is sufficient to under take the training for a period of one month. TRAINING REQUIREMENT Training of supervisor and production workers is required to upgrade the skill of jeans production. .5% 30 days 30 days 90 days 5 days 30 days 2 days 30 days A.1. VII. The major breakdown of the total initial investment cost is shown in Table 7.
0 200.1 INITIAL INVESTMENT COST Sr. . licensing and formation of the company including legal fees.83-15 Table 7.B Pre-production expenditure includes interest during construction (Birr 117. The material and utility cost accounts for 93.52 million (see Table 7. PRODUCTION COST The annual production cost at full operation capacity is estimated at Birr 16.2).0 772.0 125. No.07 thousand ) training (Birr 20 thousand ) and Birr 130 thousand costs of registration.0 650.48 per cent of the production cost. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share Total Cost (‘000 Birr) 32.888.4 4.85 per cent.1 2.5 13 * N.0 267. while repair and maintenance take 0.842. B. commissioning expenses. etc.
70 192. The income statement and the other indicators of profitability show that the project is viable.39 0.2 93.66 1. Important ratios such as profit to total sales.45 0.97 0.00 65 80 325.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR) Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost Cost 15.233.45 216.35 108.57 100 C. FINANCIAL EVALUATION 1. Profitability According to the projected income statement.83-16 Table 7.438. net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project. the project will start generating profit in the first year of operation.31 98.9 16.519. .27 1.30 % 93.48 1.4 16.16 0.
. D.5% discount rate is Birr 2. Internal Rate of Return and Net Present Value Based on the cash flow statement. The project’s initial investment will be fully recovered within 6 years. ECONOMIC BENEFITS The project can create employment for 41 persons.26 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports. the project will generate Birr 2. the calculated IRR of the project is 20% and the net present value at 8. Break-even Analysis The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection. 4. BE = Fixed Cost = 31% Sales – Variable Cost 3. In addition to supply of the domestic needs.83-17 2. Pay Back Period The investment cost and income statement projection are used to project the pay-back period.43 million.