83. PROFILE ON PRODUCTION OF JEANS
TABLE OF CONTENTS
PRODUCT DESCRIPTION & APPLICATION
MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME
MATERIALS AND INPUTS
A. RAW & AUXILIARY MATERIALS
TECHNOLOGY & ENGINEERING
MANPOWER & TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS
This profile envisages the establishment of a plant for the production of Jeans
with a capacity of 250,000 pieces per annum.
The present demand for the proposed product is estimated at 2.79 million pieces
The demand is expected to reach at
5.27 million pieces
by the year 2020.
The plant will create employment opportunities for 41 persons.
The total investment requirement is estimated at about Birr
4.88 million, out of
which Birr 772,000 is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 20 % and a net
present value (NPV) of Birr 2.43 million discounted at 8.5%.
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. A typical pair
of jeans will have a hang tag, joker ticket, pocket flasher, leg sticker, inside care label
with product of origin and assorted product id tags.
MARKET STUDY AND PLANT CAPACITY
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. The
domestic production of wearing apparel for the past five years is given in Table 3.1.
DOMESTIC PRODUCTION OF WEARING APPAREL
(READY MADE GARMENTS)
Source: Statistical Abstract of CSA.
Table 3.1 reveals that domestic production of ready-made garments fluctuates from
year to year although there is a general increase in the past five years. During the
period of analyses on the average local production was 151,932 dozen.
Due to the very limited supply of ready made garment from local production, the
country imports a substantial amount of clothings from overseas. According to the
Annual Reports of the National Bank of Ethiopia, 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. About half of the money is spent for importing different types
of clothing including Jeans.
Since the country imports a verity of ready-made garments that are made of silk,
wool, synthetic fiber etc only selected products made of cotton has been analyzed for
the purpose of this project. The selected products are as follows:•
Men's or boys' trousers & breeches of cotton,
Men's & women's jackets & blazers of cotton,
Women's or girls trousers & breeches of cotton, and
Skirts and divided skirts of cotton.
The import data of the above products which is compiled from the Ethiopian Customs
Authority is presented in Table 3.2.
IMPORT OF TROUSERS, JACKETS & SKIRTS OF COTTON ( NO )
Men’s or Boys
Note:- The data does not included imports of Trousers, Jackets and Skirts
that are made of other materials ( Silk, Wool, Synthetic fiber, etc).
Source:- Compiled from Ethiopian Customs Authority.
As could be seen from Table 3.2, the total import of Trousers, Jackets and Skirts of
Cotton has been generally rising in the past five years. The annual average growth
rate was around 8% .
With respect to the share of each product men's or boys trousers and breeches
constitute the bulk of the import, which is on the average about 61%. Men's Jackets
and girls /women's Jacket each account
share of skirts of cotton.
for about 36%.
The remaining 3% is the
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. Then, an annual average growth rate of 8%, which is the observed trend in
the past, is applied to arrive at the year 2007 demand.
Accordingly, the total
unsatisfied demand is estimated at 2,795,820.
The current unsatisfied demand estimated by type of product is worked out by taking
their past years share in the total import. Accordingly the estimated demand for each
product will be as follows.
THE PRESENT UNSATISFIED DEMAND FOR JEANS
Men’s or boys trousers & breeches of cotton
Men’s & women’s Jackets and blazers
Women’s or girls trousers and breeches
The demand for Jeans is mainly influenced by urban population growth and income
rise. Hence, an annual average growth rate of 5% is taken to forecast the future
unsatisfied demand (see Table 3.3).
FORECASTED UNSATISFIED DEMAND FOR JEANS OF DIFFERENT
Men's & Women’s
The envisage plant can target 10 to 15% of the projected demand for the initial stage.
At a letter stage it can increase its production to a higher level as the market allows.
Pricing and Distribution
The price of jeans varies according to type such as trouser, jacket skirt etc. For the
purpose of financial analysis, an average price of Birr 70 is adopted.
The products can find their market outlet through the existing ready made garment
distributing/ retailing enterprises.
PLANT CAPACITY AND PRODUCTION PROGRAMME
The market study presented above indicates that the projected demand of jeans grows
from 2,935,611 year 2008 to 5,271,936 by the year 2020.
Jeans can be prepared of different sizes, liked by all age group i.e. children, adults,
men and women. As the size of jeans differs for different age groups, it would be
necessary to take an average size to determine the annual plant capacity.
Accordingly, the envisaged plant will have annual production capacity about 10% of
the projected demand for the year 2008 i.e. 250,000 pieces of jeans. The plant is
assumed to operate 2 shifts a day each 8 hours, and for 300 days a year.
As it is the case for new plant, full capacity production can be attained by starting
operations at lower capacity in the initial year, and then building up production in the
successive years. Hence, production capacity will start at 80% in the first year, then
grow to 90% the second year, and reach of full capacity (100%) in the third year and
Capacity utilization (%)
MATERIALS AND INPUTS
RAW AND AUXILIARY MATERIALS
The major raw material required for the preparation of jeans is cotton fabrics dyed and
finished with different colours.
The cotton fabric used for jeans preparation is
usually hard blue cotton twill, also known as denim cloth. This material can either be
imported or locally produced and used for this purpose as long as it meets the required
quality and specification.
Auxiliary materials consist of thread, zip fasteners, button, labels and packing
materials. The annual requirements of raw and auxiliary materials together with costs
at full capacity production of jeans production plant is given in Table 4.1 below.
RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST
(AT FULL CAPACITY)
Cost ('000 Birr)
A. Major Raw Material
B. Auxiliary Materials
Fabric for internal lining
Labels, Trade mark
Utilities required by the plant consist of electricity and water. Electricity is required
for lighting purposes and running production equipment.
Water is required for
drinking and general purposes. The total annual requirement of utilities is estimated
at Birr 65,000.
TECHNOLOGY AND ENGINEERING
The production process of jeans includes the following basic steps:
First, a pattern maker draws a jeans pattern based upon measurements (of samples)
that were supplied by the jeans designer or the buyer's merchandiser. Next it takes
approximately 15 pieces that make up a standard pattern for a pair of standard 5
pocket jeans. A person, or a computer program, 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. After drawing the cutting lines onto this paper:
The fabric is ready to be cut; the denim is laid out in layers on a cutting table. Up to
100 layers of denim are stacked and weights are put on top of it to hold the denim
fabric in place, while it is being cut.
The separate parts of the jeans are cut with a textile cutting machine and each piece is
then marked with its size, using a piece of chalk so it won't show after washing.
All of these pieces of cut denim are then put into bundles by size.
It takes about 1.6 meters of denim fabric, several hundred meters of sewing thread, 6
rivets, 1 or 5 jeans buttons, 4 labels (usually imitation leather), and optionally a zipper
to make a pair of jeans.
There are different machines for each handling.
On average, it will take about 15 minutes and 12 steps to make one pair of blue jeans.
After the denim jeans are sewn together, they go out to a jeans washing plant where
they are washed in what could best be described as: standard, yet very big, washing
A stonewash for 150 pairs of jeans takes 150 kilos of pumice stone and more than 750
liters of water. Depending on how faded the look will have to be, they will be washed
somewhere between 30 minutes and 6 hours.
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.
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.
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.
It will have a backward linkage effect with cotton yarn producing industries.
Source of Technology
The sources of machinery and equipment are countries like Korea, Chine, 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
The National Small Industrial Corporation Ltd
Ladhu Udyog Bhavan
Okhla Industrial Estate
New Delhi 110 020
Machinery and Equipment
Machinery and equipment required in the production of jeans is shown in Table 5.1.
MACHINERY AND EQUIPMENT REQUIRED BY JEANS
MANUFACTURING PLANT AND COST
Cost ('000 Birr)
Electric knives fitted with Disc
Bank, insurance, freight, customs
Land, Building and Civil Works
Jeans manufacturing plant requires a total area of 500 m2. This is supposed to
accommodate production hall, store for raw material and finished products, offices,
and general purpose building. Estimating that a unit area (per m2) of building costs
Birr 1200, the total building cost will be Birr 600,000. At a lease rate of Birr 0.1 per
m2 land, the total land lease value for 80 years will be Birr 32,000.
Thus, the total
investment land cost, building and civil works is estimated at Birr 632,000.
The location of the anticipated project could be at Bodity, where access to different
infrastructure is secured.
MANPOWER AND TRAINING REQUIREMENTS
The total manpower requirement of the plant is 41 persons. This includes both
administration and production workers.
MANPOWER REQUIREMENT AND LABOUR COST
Workers benefit (25% of
Training of supervisor and production workers is required to upgrade the skill of jeans
production. For this local garment factories can provide the training in their premises.
A total of Birr 20,000 is sufficient to under take the training for a period of one
The financial analysis of the
jeans project is based on the data presented in the
previous chapters and the following assumptions:-
Source of finance
30 % equity
70 % loan
Discount cash flow
Raw material local
Raw material, import
Work in progress
Cash in hand
TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at
Birr 4.88 million, of which 13 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
INITIAL INVESTMENT COST
Land lease value
Building and Civil Work
Plant Machinery and Equipment
Office Furniture and Equipment
Total Investment cost
Pre-production expenditure includes interest during construction (Birr 117.07
thousand ) training (Birr 20 thousand ) and Birr 130 thousand costs of registration, licensing and
formation of the company including legal fees, commissioning expenses, etc.
The annual production cost at full operation capacity is estimated at Birr 16.52
million (see Table 7.2).
The material and utility cost accounts for 93.85 per cent,
while repair and maintenance take 0.48 per cent of the production cost.
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Raw Material and Inputs
Maintenance and repair
Total Operating Costs
Cost of Finance
Total Production Cost
According to the projected income statement, the project will start generating profit in
the first 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
total investment) show an increasing trend during the life-time of the project.
The income statement and the other indicators of profitability show that the project is
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.
Sales – Variable Cost
Pay Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 6 years.
Internal Rate of Return and Net Present Value
Based on the cash flow statement, the calculated IRR of the project is 20% and the
net present value at 8.5% discount rate is Birr 2.43 million.
The project can create employment for 41 persons.
In addition to supply of the
domestic needs, the project will generate Birr 2.26 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.