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PROFILE ON PRODUCTION OF JEANS
ECONOMIC BENEFITS 83-14 83-14 83-15 83-16 83-17 . TECHNOLOGY B. TOTAL INITIAL INVESTMENT COST B. MATERIALS AND INPUTS A. ENGINEERING 83-10 83-10 83-12 VI. RAW & AUXILIARY MATERIALS B.83-2 TABLE OF CONTENTS PAGE I. MARKET STUDY AND PLANT CAPACITY A. TRAINING REQUIREMENT 83-13 83-13 83-14 VII. FINANCIAL ANALYSIS A. SUMMARY 83-3 II. MANPOWER & TRAINING REQUIREMENT A. PRODUCT DESCRIPTION & APPLICATION 83-3 III. TECHNOLOGY & ENGINEERING A. MANPOWER REQUIREMENT B. MARKET STUDY B. PRODUCTION COST C. UTILITIES 83-9 83-9 83-10 V. PLANT CAPACITY & PRODUCTION PROGRAMME 83-3 83-3 83-8 IV. FINANCIAL EVALUATION D.
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. The plant will create employment opportunities for 41 persons.83-3 I. The demand is expected to reach at 5.43 million discounted at 8. out of The project is financially viable with an internal rate of return (IRR) of 20 % and a net present value (NPV) of Birr 2.000 pieces per annum. 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. II. pocket flasher. The present demand for the proposed product is estimated at 2. The total investment requirement is estimated at about Birr which Birr 772. . MARKET STUDY 1. III. MARKET STUDY AND PLANT CAPACITY A.000 is required for plant and machinery.1. joker ticket.27 million pieces by the year 2020.88 million. A typical pair of jeans will have a hang tag.5%. leg sticker. inside care label with product of origin and assorted product id tags. 4. The domestic production of wearing apparel for the past five years is given in Table 3. SUMMARY This profile envisages the establishment of a plant for the production of Jeans with a capacity of 250.79 million pieces per annum.
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.542 140. the country imports a substantial amount of clothings from overseas.427 273. Since the country imports a verity of ready-made garments that are made of silk.83-4 Table 3.328 142.166 130.932 dozen. Men's & women's jackets & blazers of cotton. wool. Due to the very limited supply of ready made garment from local production. Women's or girls trousers & breeches of cotton. According to the Annual Reports of the National Bank of Ethiopia.752 124. .1 DOMESTIC PRODUCTION OF WEARING APPAREL (READY MADE GARMENTS) Year Production (Dozen) 2000 2001 2002 2003 2004 2005 100. 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. and Skirts and divided skirts of cotton. The selected products are as follows:• • • • Men's or boys' trousers & breeches of cotton. During the period of analyses on the average local production was 151. Table 3.375 Source: Statistical Abstract of CSA. About half of the money is spent for importing different types of clothing including Jeans. synthetic fiber etc only selected products made of cotton has been analyzed for the purpose of this project.
857.110 136.269 571.620 308. Men's Jackets and girls /women's Jacket each account share of skirts of cotton. The annual average growth rate was around 8% .523.637 3. JACKETS & SKIRTS OF COTTON ( NO ) Year Men’s or Boys Trousers.823 117. Jackets and Skirts of Cotton has been generally rising in the past five years. which is on the average about 61%.686 51. With respect to the share of each product men's or boys trousers and breeches constitute the bulk of the import.529 258.156 1.853 431.201 20. Synthetic fiber.664.707.330 498. etc). Breaches of Cotton Men’s and Women’s Jackets and Blazers of Cotton Women or Girls Trousers Breeches of Cotton 169.049.588.2.710 2. Source:.743.542 2.209 4.798 402.498 1.248 2.993.282 734.192.768 Skirts and Divided Skirts of Cotton Total 2000 2001 2002 2003 2004 2005 2006 1.086 1.754 1.123 112.139 2.670 410.781.951 2.592.723 Average 1.288 63. the total import of Trousers. Jackets and Skirts that are made of other materials ( Silk. Wool.488.310 1.078 2.Compiled from Ethiopian Customs Authority.726 533.488 256.195 721.000 Note:. As could be seen from Table 3.064.704 2.199 1.040 4. Table 3.2 IMPORT OF TROUSERS.328 262.073 814.526 690.401. for about 36%.095.702.83-5 The import data of the above products which is compiled from the Ethiopian Customs Authority is presented in Table 3. The remaining 3% is the .The data does not included imports of Trousers.892 399.2.
) 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 1.429 430.896 2.83-6 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. Hence.719.939 69. Accordingly the estimated demand for each product will be as follows. is applied to arrive at the year 2007 demand.820.820 2. unsatisfied demand is estimated at 2. the total The current unsatisfied demand estimated by type of product is worked out by taking their past years share in the total import.556 575. Accordingly. an annual average growth rate of 8%.795. which is the observed trend in the past. Table 3. an annual average growth rate of 5% is taken to forecast the future unsatisfied demand (see Table 3.3). Type of Jeans Unsatisfied Demand (No. Projected Demand The demand for Jeans is mainly influenced by urban population growth and income rise.795. No. Then.3 THE PRESENT UNSATISFIED DEMAND FOR JEANS Sr. .
an average price of Birr 70 is adopted.848 3.940.990.769 2.000 4.895.800.936 The envisage plant can target 10 to 15% of the projected demand for the initial stage.337.476 2.540.568.337 3.397 773.801 5.83-7 Table 3. At a letter stage it can increase its production to a higher level as the market allows.401 1.392 3.808 3.271.200 2.089.331 736.082.611 3.671 1.380 2.667 3. 3.878 Women's Trouser 604.746.087.805.511 576.399 2.700 4.511 3.097 4.934 701.344 549.781.935. Pricing and Distribution The price of jeans varies according to type such as trouser.236.455 2. The products can find their market outlet through the existing ready made garment distributing/ retailing enterprises.130.4 FORECASTED UNSATISFIED DEMAND FOR JEANS OF DIFFERENT TYPES (No.235 4.128 667.254 3.934.217 811.554.836 636.241 Men's & Women’s Jacket 452.736 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 2.020.987 605.977 2. jacket skirt etc.688 498. .242.419.892 5.084 474.410 2.398.423 523.) Men's Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Trouser 1.304.667.194. For the purpose of financial analysis.
men and women. liked by all age group i.936 by the year 2020. full capacity production can be attained by starting operations at lower capacity in the initial year. 2.e. the envisaged plant will have annual production capacity about 10% of the projected demand for the year 2008 i. production capacity will start at 80% in the first year. Jeans can be prepared of different sizes. it would be necessary to take an average size to determine the annual plant capacity.e. children. Accordingly. and reach of full capacity (100%) in the third year and then after. Plant Capacity The market study presented above indicates that the projected demand of jeans grows from 2. PLANT CAPACITY AND PRODUCTION PROGRAMME 1. and then building up production in the successive years. Production Programme As it is the case for new plant. 250.000 pieces of jeans. adults.271. The plant is assumed to operate 2 shifts a day each 8 hours. As the size of jeans differs for different age groups. Hence. Table 3. and for 300 days a year.5 PRODUCTION PROGRAMME Year Capacity utilization (%) Production (pcs) 1 80 200000 2 90 225000 3-15 100 250000 .83-8 B.611 year 2008 to 5.935. then grow to 90% the second year.
00 8. Auxiliary Materials 1 2 3 4 5 Fabric for internal lining Thread Buttons Zip fasteners Labels.0 836 200 375000 m 375000 m 14600 14600 14600 14600 handling costs Total Cost 14898 540 15438 .1 below. 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.0 14898 24 160 156 340 200 24 160 156 288. button.000 pcs 252. The annual requirements of raw and auxiliary materials together with costs at full capacity production of jeans production plant is given in Table 4.000 pieces 288. RAW AND AUXILIARY MATERIALS The major raw material required for the preparation of jeans is cotton fabrics dyed and finished with different colours. Description Qty. Trade mark Sub-total Bank.83-9 IV. Major Raw Material 1 Denim cloth Sub total B. zip fasteners. MATERIALS AND INPUTS A. insurance. also known as denim cloth. Table 4. This material can either be imported or locally produced and used for this purpose as long as it meets the required quality and specification. No. Lumpsum Reqd. customs. Auxiliary materials consist of thread. labels and packing materials.00 8. Lumpsum 252. FC Cost ('000 Birr) LC TC A.
Electricity is required for lighting purposes and running production equipment. Up to 100 layers of denim are stacked and weights are put on top of it to hold the denim fabric in place. Next it takes approximately 15 pieces that make up a standard pattern for a pair of standard 5 pocket jeans. . a pattern maker draws a jeans pattern based upon measurements (of samples) that were supplied by the jeans designer or the buyer's merchandiser. 4 labels (usually imitation leather). All of these pieces of cut denim are then put into bundles by size. or a computer program. TECHNOLOGY 1. and optionally a zipper to make a pair of jeans.000. The separate parts of the jeans are cut with a textile cutting machine and each piece is then marked with its size. the denim is laid out in layers on a cutting table. There are different machines for each handling. several hundred meters of sewing thread. Production Process The production process of jeans includes the following basic steps: First. TECHNOLOGY AND ENGINEERING A. 6 rivets. V.6 meters of denim fabric. After drawing the cutting lines onto this paper: The fabric is ready to be cut. A person. Water is required for drinking and general purposes. while it is being cut. 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. 1 or 5 jeans buttons. The total annual requirement of utilities is estimated at Birr 65.83-10 B. It takes about 1. UTILITIES Utilities required by the plant consist of electricity and water. using a piece of chalk so it won't show after washing.
A stonewash for 150 pairs of jeans takes 150 kilos of pumice stone and more than 750 liters of water.83-11 On average. The production process has no any negative environmental impact. Source of Technology The sources of machinery and equipment are countries like Korea. 2. it will take about 15 minutes and 12 steps to make one pair of blue jeans. Chine. they go out to a jeans washing plant where they are washed in what could best be described as: standard. washing machines. 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 will be washed somewhere between 30 minutes and 6 hours. It will have a backward linkage effect with cotton yarn producing industries. yet very big. After the stone-washing process the denim garment is inspected for faults and loose threads are cut. Depending on how faded the look will have to be. 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 . Next the button(s) and rivets are placed using a special type of press. After the denim jeans are sewn together. The plant can be established either at small or medium scale level depending on the market size to be captured.
5. building and civil works is estimated at Birr 632. store for raw material and finished products. 3. This is supposed to accommodate production hall. customs Total Cost 22 pcs 10 8 20 Lump sum Description Qty. B. the total building cost will be Birr 600.000. . Thus. offices. ENGINEERING 1. Estimating that a unit area (per m2) of building costs Birr 1200. Machinery and Equipment Machinery and equipment required in the production of jeans is shown in Table 5.000. At a lease rate of Birr 0.1 per m2 land. the total investment land cost. No. 1. Building and Civil Works Jeans manufacturing plant requires a total area of 500 m2. Land.83-12 The National Small Industrial Corporation Ltd Ladhu Udyog Bhavan Okhla Industrial Estate New Delhi 110 020 India. Sewing machine Electric knives fitted with Disc Lapping trolley Electric iron Other materials Bank. 4. and general purpose building. FC 660 60 40 6 766 Cost ('000 Birr) LC 18 50 68 TC 660 60 40 6 18 50 772 2.1.1 MACHINERY AND EQUIPMENT REQUIRED BY JEANS MANUFACTURING PLANT AND COST Sr. freight. the total land lease value for 80 years will be Birr 32. Table 5. 2. insurance.000.
.1 MANPOWER REQUIREMENT AND LABOUR COST Sr. VI. 3.200 374.400 108.250 1. MANPOWER AND TRAINING REQUIREMENTS A.83-13 3.800 43.450 542. where access to different infrastructure is secured. A. 4. 2. Administration Plant manager Secretary Accountant Salesman Clerk General service Sub-total B. 2.400 316. Production Production supervisor Skilled workers Laborers Sub-total Workers benefit (25% of basic salary) Total 1. Proposed Location The location of the anticipated project could be at Bodity. (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. Description Qty. No. 3. 6. MANPOWER REQUIREMENT The total manpower requirement of the plant is 41 persons. 5. This includes both administration and production workers. Table 6.
88 million. VII. . TRAINING REQUIREMENT Training of supervisor and production workers is required to upgrade the skill of jeans production.83-14 B.5% 30 days 30 days 90 days 5 days 30 days 2 days 30 days A. A total of Birr 20. The major breakdown of the total initial investment cost is shown in Table 7. TOTAL INITIAL INVESTMENT COST The total investment cost of the project including working capital is estimated at Birr 4. For this local garment factories can provide the training in their premises.1. 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. of which 13 per cent will be required in foreign currency. 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.
52 million (see Table 7.0 125.0 650. commissioning expenses.4 4. etc.48 per cent of the production cost. while repair and maintenance take 0.1 INITIAL INVESTMENT COST Sr. 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. . PRODUCTION COST The annual production cost at full operation capacity is estimated at Birr 16.888. B.1 2.842.0 267. No.83-15 Table 7. licensing and formation of the company including legal fees. The material and utility cost accounts for 93.07 thousand ) training (Birr 20 thousand ) and Birr 130 thousand costs of registration.0 772.85 per cent.0 200.2).5 13 * N.B Pre-production expenditure includes interest during construction (Birr 117.
16 0.83-16 Table 7.2 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 15.45 216. the project will start generating profit in the first year of operation.30 % 93.35 108.48 1. FINANCIAL EVALUATION 1.233.57 100 C.00 65 80 325.4 16.70 192.27 1. Important ratios such as profit to total sales.31 98. Profitability According to the projected income statement.438.2 93.97 0.9 16.66 1.519. 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.45 0. The income statement and the other indicators of profitability show that the project is viable.39 0. .
BE = Fixed Cost = 31% Sales – Variable Cost 3. 4.83-17 2. In addition to supply of the domestic needs. ECONOMIC BENEFITS The project can create employment for 41 persons. 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. Pay Back Period The investment cost and income statement projection are used to project the pay-back period. . The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports. Internal Rate of Return and Net Present Value Based on the cash flow statement. D. the calculated IRR of the project is 20% and the net present value at 8.26 million in terms of tax revenue. The project’s initial investment will be fully recovered within 6 years.5% discount rate is Birr 2. the project will generate Birr 2.43 million.
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