83. PROFILE ON PRODUCTION OF JEANS
83-2
TABLE OF CONTENTS
PAGE
I.
SUMMARY
83-3
II.
PRODUCT DESCRIPTION & APPLICATION
83-3
III.
MARKET STUDY AND PLANT CAPACITY
83-3
A. MARKET STUDY
83-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME
83-8
MATERIALS AND INPUTS
83-9
A. RAW & AUXILIARY MATERIALS
83-9
B. UTILITIES
83-10
TECHNOLOGY & ENGINEERING
83-10
A. TECHNOLOGY
83-10
B. ENGINEERING
83-12
MANPOWER & TRAINING REQUIREMENT
83-13
A. MANPOWER REQUIREMENT
83-13
B. TRAINING REQUIREMENT
83-14
FINANCIAL ANALYSIS
83-14
A. TOTAL INITIAL INVESTMENT COST
83-14
B. PRODUCTION COST
83-15
C. FINANCIAL EVALUATION
83-16
D. ECONOMIC BENEFITS
83-17
IV.
V.
VI.
VII.
83-3
I.
SUMMARY
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
per annum.
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%.
II.
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.
III.
MARKET STUDY AND PLANT CAPACITY
A.
MARKET STUDY
1.
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.
83-4
Table 3.1
DOMESTIC PRODUCTION OF WEARING APPAREL
(READY MADE GARMENTS)
Year
Production (Dozen)
2000
100,328
2001
142,166
2002
130,752
2003
124,427
2004
273,542
2005
140,375
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.
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The import data of the above products which is compiled from the Ethiopian Customs
Authority is presented in Table 3.2.
Table 3.2
IMPORT OF TROUSERS, JACKETS & SKIRTS OF COTTON ( NO )
Year
Men’s or Boys
Men’s and
Women or
Skirts and
Trousers,
Women’s
Girls
Divided
Breaches of
Jackets and
Trousers
Skirts of
Cotton
Blazers of
Breeches of
Cotton
Cotton
Cotton
Total
2000
1,401,086
402,282
169,670
20,040
1,993,078
2001
1,707,951
734,529
410,853
4,209
2,857,542
2002
2,049,156
258,269
431,526
4,686
2,743,637
2003
1,781,498
571,488
690,330
51,823
3,095,139
2004
1,192,310
256,620
498,195
117,123
2,064,248
2005
1,523,199
308,328
721,073
112,110
2,664,710
2006
1,488,798
262,892
814,726
136,288
2,702,704
Average 1,592,000
399,201
533,768
63,754
2,588,723
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
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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.
Table 3.3
THE PRESENT UNSATISFIED DEMAND FOR JEANS
2.
Sr.
Type
Unsatisfied
No.
of Jeans
Demand (No.)
1
Men’s or boys trousers & breeches of cotton
1,719,429
2
Men’s & women’s Jackets and blazers
430,556
3
Women’s or girls trousers and breeches
575,939
4
Skirts
69,896
Total
2,795,820
Projected Demand
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).
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Table 3.4
FORECASTED UNSATISFIED DEMAND FOR JEANS OF DIFFERENT
TYPES (No.)
Year
Men's
Men's & Women’s
Women's
Trouser
Jacket
Trouser
Skirts
Total
2008
1,805,401
452,084
604,736
73390
2,935,611
2009
1,895,671
474,688
634973
77060
3,082,392
2010
1,990,455
498,423
666721
80913
3,236,511
2011
2,089,977
523,344
700057
84958
3,398,337
2012
2,194,476
549,511
735060
89206
3,568,254
2013
2,304,200
576,987
771813
93667
3,746,667
2014
2,419,410
605,836
810404
98350
3,934,000
2015
2,540,380
636,128
850924
103267
4,130,700
2016
2,667,399
667,934
893470
108431
4,337,235
2017
2,800,769
701,331
938144
113852
4,554,097
2018
2,940,808
736,397
985051
119545
4,781,801
2019
3,087,848
773,217
1034304
125522
5,020,892
2020
3,242,241
811,878
1086019
131798
5,271,936
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.
3.
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.
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B.
PLANT CAPACITY AND PRODUCTION PROGRAMME
1.
Plant Capacity
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.
2.
Production Programme
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
then after.
Table 3.5
PRODUCTION PROGRAMME
Year
Capacity utilization (%)
Production (pcs)
1
2
3-15
80
90
100
200000
225000
250000
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IV.
MATERIALS AND INPUTS
A.
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.
Table 4.1
RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST
(AT FULL CAPACITY)
Sr.
Description
Qty.
No.
Cost ('000 Birr)
FC
LC
TC
A. Major Raw Material
1
Denim cloth
375000 m
14600
-
14600
Sub total
375000 m
14600
-
14600
B. Auxiliary Materials
1
Fabric for internal lining
Lumpsum
-
24
24
2
Thread
Reqd.
-
160
160
3
Buttons
Lumpsum
-
156
156
4
Zip fasteners
252,000 pcs
288.00
-
288.00
5
Labels, Trade mark
252,000 pieces
8.0
-
8.0
14898
340
836
200
200
540
15438
Sub-total
Bank,
insurance,
customs,
handling costs
Total Cost
14898
83-10
B.
UTILITIES
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.
V.
TECHNOLOGY AND ENGINEERING
A.
TECHNOLOGY
1.
Production Process
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.
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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
machines.
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.
2.
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
Tsing
China
83-12
The National Small Industrial Corporation Ltd
Ladhu Udyog Bhavan
Okhla Industrial Estate
New Delhi 110 020
India.
B.
ENGINEERING
1.
Machinery and Equipment
Machinery and equipment required in the production of jeans is shown in Table 5.1.
Table 5.1
MACHINERY AND EQUIPMENT REQUIRED BY JEANS
MANUFACTURING PLANT AND COST
Sr.
Description
Qty.
Cost ('000 Birr)
No.
2.
FC
1.
Sewing machine
2.
Electric knives fitted with Disc
3.
Lapping trolley
4.
Electric iron
5.
Other materials
LC
TC
22 pcs
660
-
660
10
60
-
60
8
40
-
40
20
6
-
6
Lump sum
-
18
18
Bank, insurance, freight, customs
-
-
50
50
Total Cost
-
766
68
772
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.
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3.
Proposed Location
The location of the anticipated project could be at Bodity, where access to different
infrastructure is secured.
VI.
MANPOWER AND TRAINING REQUIREMENTS
A.
MANPOWER REQUIREMENT
The total manpower requirement of the plant is 41 persons. This includes both
administration and production workers.
Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST
Sr.
No.
1.
2.
3.
4.
5.
6.
1.
2.
3.
Description
Qty.
(No)
Monthly
Salary
(Birr)
Annual
Expenditure
(Birr)
A. Administration
Plant manager
Secretary
Accountant
Salesman
Clerk
General service
1
1
1
1
1
3
1800
600
800
600
400
250
21600
7200
9600
7200
4800
9000
Sub-total
8
-
59400
B. Production
Production supervisor
Skilled workers
Laborers
1
44
12
1200
600
300
14,400
316,800
43,200
Sub-total
33
-
374,400
-
-
108,450
41
-
542,250
Workers benefit (25% of
basic salary)
Total
83-14
B.
TRAINING REQUIREMENT
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
month.
VII.
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
1 year
Source of finance
30 % equity
70 % loan
Tax holidays
Bank interest
3 years
8%
Discount cash flow
8.5%
Accounts receivable
30 days
Raw material local
30 days
Raw material, import
90 days
Work in progress
5 days
Finished products
30 days
Cash in hand
2 days
Accounts payable
30 days
A.
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.
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Table 7.1
INITIAL INVESTMENT COST
Sr.
Total Cost
No.
Cost Items
(‘000 Birr)
1
Land lease value
32.0
2
Building and Civil Work
650.0
3
Plant Machinery and Equipment
772.0
4
Office Furniture and Equipment
125.0
5
Vehicle
200.0
6
Pre-production Expenditure*
267.1
7
Working Capital
2,842.4
Total Investment cost
4,888.5
Foreign Share
*
N.B
13
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.
B.
PRODUCTION COST
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.
83-16
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Cost
%
15,438.00
93.45
Utilities
65
0.39
Maintenance and repair
80
0.48
Labour direct
325.35
1.97
Factory overheads
108.45
0.66
216.9
1.31
16,233.70
98.27
192.2
1.16
93.4
0.57
16,519.30
100
Administration Costs
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost
C.
FINANCIAL EVALUATION
1.
Profitability
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
viable.
83-17
2.
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.
BE =
Fixed Cost
=
31%
Sales – Variable Cost
3.
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.
4.
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.
D.
ECONOMIC BENEFITS
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.
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