56. PROFILE ON PRODUCTION OF SPOOLS,

COPS, BOBBINS & SEWING THREAD REELS,

OF WOOD

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TABLE OF CONTENTS

PAGE

I. SUMMARY 56-3

II. PRODUCT DESCRIPTION & APPLICATION 56-3

III. MARKET STUDY AND PLANT CAPACITY 56-3

A. MARKET STUDY 56-3

B. PLANT CAPACITY & PRODUCTION PROGRAMME 56-6

IV. MATERIALS AND INPUTS 56-7

A. RAW & AUXILIARY MATERIALS 56-7

B. UTILITIES 56-8

V. TECHNOLOGY & ENGINEERING 56-8

A. TECHNOLOGY 56-8

B. ENGINEERING 56-9

VI. MANPOWER & TRAINING REQUIREMENT 56-10

A. MANPOWER REQUIREMENT 56-10

B. TRAINING REQUIREMENT 56-10

VII. FINANCIAL ANALYSIS 56-11

A. TOTAL INITIAL INVESTMENT COST 56-11

B. PRODUCTION COST 56-12

C. FINANCIAL EVALUATION 56-13

D. ECONOMIC BENEFITS 56-14

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I. SUMMARY

This profile envisages the establishment of a plant for the production of spools, cops,

bobbins and reels of wood with a capacity of 5,000 kg per annum.

The present demand for the proposed product is estimated at 4,500 kg per annum. The

demand is expected to reach at 11,672 kg by the year 2017 .

The plant will create employment opportunities for 12 persons.

The total investment requirement is estimated at Birr 881,600, out of which Birr 239,000

is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 18% and a net

present value (NPV) of Birr 288,220, discounted at 8.5%.

II PRODUCT DESCRIPTION AND APPLICATION

These products are essential accessories of textile & handloom industries. With the

development of textile industries, these products are in good demand which is expected to

increase. The demand is currently met through imports, except some local producers.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The textile manufacturing sector requires various types of spools, cops, bobbins and

sewing thread reels made of plastic, paper or paperboard and wood. The demand for

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these items is mainly met through import. Import of the products made of wood

(excluding plastic and paper) is presented in Table 3.1

Table 3.1

IMPORT OF SPOOLS, COPS, BOBBINS AND SEWING THREAD REELS OF

WOOD

Year Import (Kg)

2002 3,457

2003 13,271

2004 3,880

2005 -

2006 2,126

Total 22,734

Average 4547

Source: - Ethiopian Customs Authority.

As shown in Table 3.1, import of spols, cops, bobbins and sewing thread reels of wood

exhibits year-to-year fluctuation with out any discernible trend. The highest import was

in 2003, i.e., about 13.3 tonnes. In 2005, the country did not import the product while in

the remaining three years the amount imported ranged from 2,126kg to 3,457 kg. The

reason for such huge difference from year to year is due to a stock carry over from

periods in which import was very high. In the absence of a trend in the import data, it is

considered as reasonable to assume that the average of the past five years to reflect the

present demand. Hence, the present demand for the product would be in the order of

4,500kg.

2. Projected Demand

Demand for the products is directly related with the development of the textile industries

in the country. Due to the good opportunities created for textile products in the U.S.A

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and Europe, the government is taking various measures for the development of the sector.

As a result, a number of textile projects in the country are under implementation.

Considering this situation, demand for the products is assumed to grow by 10% per

annum. The projected demand is shown in Table 3.2.

Table 3.2

PROJECT DEMAND FOR SPOOLS, COPS, BOBBINS AND SEWING THREAD

REELS OF WOOD (KG)

Year Projected Demand

2008 4,950

2009 5,445

2010 5,990

2011 6,588

2012 7,247

2013 7,972

2014 8,769

2015 9,646

2016 10,611

2017 11,672

Demand for the product is projected to be 5,990 kg by the year 2010. By the year 2013

and 2017, the demand will grow to 7,972 kg and 11,672kg, respectively.

3. Pricing and Distribution

Based on the average price of import, a factory-gate price of Birr 75 per kg is

recommended. The products can be sold directly to the end-users, i.e., textile mills.

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B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

According to demand projection indicated in Table 3.2 of the market study, the demand

for spools, cops, bobbins and sewing thread reels of wood in year 2008 will be 4,950

kilogrammes, while this figure will grow to 9,646 kilogrammes by the year 2015. It is,

therefore, proposed that the envisaged plant will have an annual production capacity of

5,000 kg of the assorted products of wood. The plant will operate single shift of 8 hours

a day and for 300 days a year. Production can be doubled if the market warrants by

operating the plant 16 hours a day without making any change in investment on

machinery and building.

2. Production Programme

A gradual production build-up is proposed for the plant so as to allow skill development

and for establishment of sufficient market outlets. The plant, hence, will commence

production at 65% of full capacity at the first year of operation. Production will then

grow to 75% and 85% in the second and third year, respectively.

Full capacity production shall be attained in the fourth year and then after. Table 3.3

below indicates the details of the proposed production programme.

Table 3.3

PRODUCTION PROGRAMME

Year 1 2 3 4 and above

Capacity utilization (%) 65 75 85 100

Production (kgs) (Assorted

Wood Products)

3,250 3,750 4,250 5,000

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IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The major raw material required for the production of spools, cops, bobbins and reels is

wood. Some times wooden waste pieces can be used as long as the size and quality of

the waste wood meets the requirement. The raw material can be obtained from sawing

mills in SNNPRS, or from sawing mills of other regions. Soft wood from pines, oak,

etc., are best suited for manufacturing of assorted products.

Production of the assorted wood products require auxiliary materials such as varnish,

polishing materials, etc. Annual requirement of raw and auxiliary materials at full

capacity production is shown in Table 4.1 below.

Table 4.1

RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST AT FULL

CAPACITY

Sr.

No.

Description Qty Cost (‘000 Birr)

A. Raw Material

1 Soft wood (kg) (wooden waste

pieces)

5,010 25.05

Sub-total 25.05

B. Auxiliary Materials

1 Wood varnish Reqd 5.0

2 Polishing materials, labels, etc. Reqd 5.0

Sub-total 10.0

Total 35.05

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B. UTILITIES

Electricity and water are utilities required for the plant. A total of 10kWh of electricity

and 50 m3 of water are required. At the rate of Birr 0.474 per kWh for electricity and

Birr 10 per m3 for water, the annual expenditure on utilities is estimated at Birr 11,876.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

It would be preferable for the wood products to be manufactured from sizable waste

pieces of woodware manufacturing factory or soft wood available from pine tree, oak

tree, etc. The major operations involved in the production process are:-

- Selection and preparation of wood

- Sizing of the pieces according to the type of product

- Preparation of holes and grooves /slots

- Planing wood surfaces and producing shapes for spools/bobbins, cops, or

reels, depending on the type of product

- Polishing and varnishing for finished products

- Packing and labeling.

2. Source of Technology

Address of supplier for word working equipment for the manufacture of the assorted

products is given below.

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Naohing zi Hamlet, Dalianwan Town, Ganjingzi District

Dalian, CHINA

Tel. 86411 8133 5615

Fax: 86 411 8711 2012

E-mail: yedwood 125@ 163.com

B. ENGINEERING

1. Machinery and Equipment

Table 5.1 below indicates machinery and equipment required for the envisaged plant and

cost.

Table 5.1

MACHINERY AND EQUIPMENT REQUIREMENT AND COST

Cost (‘000 Birr) Sr. No.

Description Qty LC FC TC

1 Power saw 1 - 35 35

2 Planning machine 1 - 34 34

3 Wood rather machine 2 - 50 50

4 Wood drilling machine 1 - 15 15

5 Surface grinder 1 - 25 25

6 Miscellaneous (Hammer, knives,

tools, work benches,

Reqd - 30 30

FOB price - 189 189

Freight, Bank and Insurance

charges, materials handling.

50 - 50

CIF Landed Cost 50 189 239

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2. Land, Building and Civil Works

Land is required to accommodate buildings for production and administration, for storage

of materials, and for future expansion. In view of these factors, the total and requirement

is estimated to be 1,000 m2. Of this the built-up area will be 200 m2. At the rate of Birr

1.0 per m2 for land leasing for a period of 80 years, and Birr 1,500 per m2 for building

and construction work, the total investment on land , building and civil works will be Birr

380,000.

3. Proposed Location

Location of a plant is determined on the basis or proximity to raw materials, availability

of infrastructure and distrance to potential market areas, woreda identified are Bonga

zuria, yeki, mizan Teferi zuria and Dita. Considering fair distribution of projects, Dita

woreda is selected. It is, therefore, suggested that the envisaged plant be established in

Zada town.

VI. MANPOWER AND TRAINING REQUIREMENT

A. Manpower Requirement

The envisaged project requires 12 work force. The list of manpower and annual labour

cost is given in Table 6.1.

B. TRAINING REQUIREMENT

As indicated above operators of production equipment, including the production foreman

will be trained to attain the required wood working skill., A two- weeks training

program will be sufficient. Training program can be carried out in one of the wood

working enterprises in Addis Ababa. The total cost of such training is estimaied at Birr

50,000.

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Table 6.1

MANPOWER REQUIREMENT AND LABOUR COST (BIRR)

(Birr)

Sr.

No.

Job Title Req.

No.

Monthly Salary Annual

Wages

A. Administration

1 Plant manager 1 1,800 21,600

2 Secretary 1 600 7,200

3 Cashier 1 600 7,200

4 Store man 1 600 7,200

5 Clerk 1 400 4,800

6 General services 2 250 6,000

Sub-total 8 54,000

B. Production

1 Skilled operators 2 14,400

2 Laborer 2 6,000

Sub-total 4 - 20,400

Workers’ benefit (25% BS) - 18,600

Total 12 93,000

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VII. FINANCIAL ANALYSIS

The financial analysis of the spools, cops, bobbins and reels of wood

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 8.5 %

Discount cash flow 8.5 %

Accounts receivable 30 days

Raw material local 30 days

Work in progress 2 days

Finished products 30 days

Cash in hand 10 days

Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at

881,600, 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.

No.

Cost Items

Total Cost

(‘000 Birr)

1 Land lease value 80.0

2 Building and Civil Work 300.0

3 Plant Machinery and Equipment 239.0

4 Office Furniture and Equipment 50.0

5 Vehicle -

6 Pre-production Expenditure* 201.9

7 Working Capital 10.7

Total Investment cost 881.6

Foreign Share 13

* N.B Pre-production expenditure includes interest during construction ( Birr 51.87

thousand ) training (Birr 50 thousand ) and Birr 100 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 268,320

(see Table 7.2). The material and utility cost accounts for 17.49 per cent, while repair

and maintenance take 7.45 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 35.05 13.06

Utilities 11.88 4.43

Maintenance and repair 20 7.45

Labour direct 39 14.53

Administration Costs 54 20.13

Total Operating Costs 159.93 59.60

Depreciation 73.9 27.54

Cost of Finance 34.49 12.85

Total Production Cost 268.32 100

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 ) is estimated by using income statement projection.

BE = Fixed Cost = 40 %

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 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 18 % and the net

present value at 8.5 % discount rate is Birr 280,220.

D. ECONOMIC BENEFITS

The project can create employment for 12 persons. In addition to supply of the domestic

needs, the project will generate Birr 209,830 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.