production of jeans

7/29/2019 Production of Jeans

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83. PROFILE ON PRODUCTION OF J EANS


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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 ANALY SIS 83-14

A. TOTAL INITIAL INVESTMENT COST 83-14

B. PRODUCTION COST 83-15

C. FINANCIAL EVALUATION 83-16

D. ECONOMIC BENEFITS 83-17


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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%.

I I. 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.

II I. 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.


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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 273,5422005 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, J ACKETS & SKIRTS OF COTTON ( NO )

Year Mens or Boys

Trousers,

Breaches of

Cotton

Mens and

Womens

J ackets 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, J ackets 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, J ackets 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.


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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 J EANS

Sr.

No.

Type

of J eans

Unsatisfied

Demand (No.)

1 Mens or boys trousers & breeches of cotton 1,719,429

2 Mens & womens Jackets and blazers 430,556

3 Womens 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).


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Table 3.4

FORECASTED UNSATISFIED DEMAND FOR J EANS OF DIFFERENT

TY PES (No.)

Year

Men's

Trouser

Men's & Womens

J acket

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.


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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 1 2 3-15

Capacity utilization (%) 80 90 100

Production (pcs) 200000 225000 250000


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IV. MATERIALS AND INPUTS

A. RAW AND AUXIL IARY 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 AUXIL IARY 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


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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

TsingChina


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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 J EANS

MANUFACTURING PLANT AND COST

Sr. Description Qty. Cost ('000 Birr)

No. FC LC TC

1. Sewing machine 22 pcs 660 - 660

2. Electric knives fitted with Disc 10 60 - 60

3. Lapping trolley 8 40 - 40

4. Electric iron 20 6 - 6

5. Other materials Lump sum - 18 18

Bank, insurance, freight, customs - - 50 50

Total Cost - 766 68 772

2. 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.

Description Qty.

(No)

Monthly

Salary

(Birr)

Annual

Expenditure

(Birr)

1.

2.

3.

4.

5.

6.

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

1.2.

3.

B. Production

Production supervisorSkilled workers

Laborers

144

12

1200600

300

14,400316,800

43,200

Sub-total 33 - 374,400

Workers benefit (25% of

basic salary)

- - 108,450

Total 41 - 542,250


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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 3 years

Bank interest 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 13

* N.B 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.


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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 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

Administration Costs 216.9 1.31

Total Operating Costs 16,233.70 98.27

Depreciation 192.2 1.16

Cost of Finance 93.4 0.57

Total Production Cost 16,519.30 100

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.


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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 projects 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.

production of jeans

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