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 IV. MATERIALS AND INPUTS 83-9 A. RAW & AUXILIARY MATERIALS 83-9 B. UTILITIES 83-10 V. TECHNOLOGY & ENGINEERING 83-10 A. TECHNOLOGY 83-10 B. ENGINEERING 83-12 VI. MANPOWER & TRAINING REQUIREMENT 83-13 A. MANPOWER REQUIREMENT 83-13 B. TRAINING REQUIREMENT 83-14 VII. 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 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. 83-5 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 Trousers, Breaches of Cotton Men’s and Women’s Jackets and Blazers of Cotton Women or Girls Trousers Breeches of Cotton Skirts and Divided Skirts of 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 for about 36%. The remaining 3% is the share of skirts of cotton. 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. 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 Sr. No. Type of Jeans Unsatisfied 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 2. 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). 83-7 Table 3.4 FORECASTED UNSATISFIED DEMAND FOR JEANS OF DIFFERENT TYPES (No.) Year Men's Trouser Men's & Women’s Jacket Women's 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. 83-8 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 1 2 3-15 Capacity utilization (%) 80 90 100 Production (pcs) 200000 225000 250000 83-9 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. Cost ('000 Birr) No. FC LC TC 1 A. Major Raw Material Denim cloth 375000 m 14600 - 14600 Sub total 375000 m 14600 - 14600 1 2 3 4 5 B. Auxiliary Materials Fabric for internal lining Thread Buttons Zip fasteners Labels, Trade mark Lumpsum Reqd. Lumpsum 252,000 pcs 252,000 pieces - - - 288.00 8.0 24 160 156 - - 24 160 156 288.00 8.0 Sub-total 14898 340 836 Bank, insurance, customs, handling costs 200 200 Total Cost 14898 540 15438 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. [...]... 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... 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. ..83-11 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... Administration Plant manager Secretary Accountant Salesman Clerk General service 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. .. 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... 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... 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 Description Qty (No) Monthly Salary (Birr)... 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... 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. .. 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 FC 1 2 Electric knives fitted with Disc 3 Lapping trolley 4 Electric iron 5 Other . 83. PROFILE ON PRODUCTION OF JEANS 83-2 TABLE OF CONTENTS PAGE I. SUMMARY 83-3 II. PRODUCT DESCRIPTION & APPLICATION 83-3 III B. PRODUCTION COST 83-15 C. FINANCIAL EVALUATION 83-16 D. ECONOMIC BENEFITS 83-17 83-3 I. SUMMARY This profile envisages the establishment of a plant for the production of Jeans. 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