Pre-Feasibility Study
LADIES SHOES MANUFACTURING UNIT
Small and Medium Enterprise Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE th
6 Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: (042) 36304926-7
[email protected]
REGIONAL OFFICE
REGIONAL OFFICE
REGIONAL OFFICE
REGIONAL OFFICE
PUNJAB
SINDH
KHYBER PAKTUNKHWA
BALOCHISTAN
8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474
[email protected]
5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572
[email protected]
Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908
[email protected]
Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922
[email protected]
June, 2011
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
1
EXECUTIVE EXECUTIVE SUMMARY................. SUMMARY............................... ............................ ............................ ............................ ............................ ............................ .......................... ............ 4
2
INTRODUCTION INTRODUCTION TO SMEDA ........................... ......................................... ............................ ............................ ........................... ........................... ...................... ........ 5
3
PURPOSE OF THE DOCUMENT ........................... ......................................... ........................... ........................... ............................ ........................... ................. .... 5
4
PROJECT PROFILE .......................... ........................................ ............................ ........................... ........................... ............................ ............................ .......................... ............ 6
4.1 4.2 4.3 4.4 4.5 4.6
OPPORTUNITY RATIONALE........................... ......................................... ............................ ............................ ............................ ............................ ........................ .......... 6 PROJECT BRIEF.......................... ........................................ ............................ ............................ ............................ ............................ ............................ ............................ ................ 6 PROPOSED BUSINESS LEGAL STATUS ........................... ......................................... ............................ ............................ ............................ ...................... ........ 6 PROPOSED CAPACITY ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ................. ... 6 TARGET CUSTOMER ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ................... ..... 6 PROPOSED LOCATION............................ .......................................... ............................ ............................ ............................ ............................ ............................ ................. ... 6
5
KEY SUCCESS FACTORS................. FACTORS............................... ............................ ............................ ............................ ............................ ............................ ........................ .......... 7
6
SWOT ANALYSIS ........................... ......................................... ............................ ............................ ............................ ............................ ............................ ........................... ............... 7
6.1 6.2 6.3 6.4
STRENGTHS ........................... ......................................... ............................ ............................ ............................ ............................ ............................ ............................ ................... ..... 7 WEAKNESSES ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ............................ ................ 7 OPPORTUNITIES............................ .......................................... ............................ ............................ ............................ ............................ ............................ .......................... ............ 7 THREATS ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ............................ ...................... ........ 8
7
INDUSTRY ANALYSIS ........................... ......................................... ............................ ............................ ............................ ............................ ........................... ................... ...... 8
8
MARKET ANALYSIS ........................... ......................................... ............................ ............................ ........................... ........................... ............................ ....................... ......... 8
8.1 8.2 9
PRODUCTION PROCESS................... PROCESS................................. ............................ ........................... ........................... ............................ ............................ ...................... ........ 1 0
9.1 9.1.1 9.1.2
9.2 10
PRODUCTION PROCESS FLOW............................ .......................................... ............................ ............................ ............................ ........................... ................. .... 10 Parts of Footwear...................... Footwear.................................... ........................... ........................... ............................ ............................ ........................... ...................... ......... 10 Shoe making process process .......................... ........................................ ............................ ............................ ........................... ........................... ........................... ............. 11
PROPOSED PRODUCT MIX ............................ .......................................... ............................ ............................ ............................ ............................ ...................... ........ 12
RAW MATERIAL REQUIREMENT REQUIREMENT .......................... ........................................ ............................ ........................... ........................... ......................... ........... 13
10.1 10.2 10.3 10.4 10.5 11
MARKET DEMAND ........................... ......................................... ............................ ............................ ............................ ............................ ............................ ...................... ........ 9 MARKET SUPPLY............................ .......................................... ............................ ............................ ............................ ............................ ............................ ...................... ........ 10
UPPER MATERIAL ............................ .......................................... ............................ ............................ ............................ ............................ ............................ .................... ...... 13 INSOLE MATERIAL ........................... ......................................... ............................ ............................ ............................ ............................ ............................ .................... ...... 13 OUTSOLE MATERIAL ........................... ......................................... ............................ ............................ ............................ ............................ ............................ ................. ... 13 GRINDERIES ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ............................ ................ 13 AUXILIARY MATERIAL............................ .......................................... ............................ ............................ ............................ ............................ ........................... ............. 13
HUMAN RESOURCE REQUIREMENT ........................... ......................................... ............................ ............................ ........................... ................. .... 13
11.1
HUMAN RESOURCE REQUIREMENTS ............................ .......................................... ............................ ............................ ............................ .................... ...... 13
12
MACHINERY MACHINERY REQUIREMENT........... REQUIREMENT......................... ............................ ............................ ............................ ............................ ............................ ................... ..... 14
13
OFFICE EQUIPMENT AND FURNITURE.................. FURNITURE............................... ........................... ........................... ........................... ........................ .......... 15
14
LAND & BUILDING REQUIREMENT ............................ ......................................... ........................... ............................ ............................ ................... ..... 16
14.1 14.2 14.3 15
LAND AND BUILDING REQUIREMENT ........................... ......................................... ............................ ............................ ............................ .................... ...... 16 SUITABLE LOCATION ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ................ 16 UTILITIES REQUIREMENT ........................... ......................................... ............................ ............................ ............................ ............................ ........................ .......... 16
PROJECT ECONOMICS................ ECONOMICS.............................. ............................ ........................... ........................... ............................ ........................... ........................... .............. 17 1
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Ladies Shoes Manufacturing Unit
PROJECT INVESTMENT................................................................................................................ 17
FINANCIAL ANALYSIS................................................................................................................. 18
16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8
PROJECT DETAIL ........................................................................................................................ 18 PROJECTED INCOME STATEMENT ............................................................................................... 19 PROJECTED CASH-FLOW STATEMENT ........................................................................................ 20 PROJECTED BALANCE SHEET ..................................................................................................... 21 COST OF SALES PER PAIR ............................................................................................................ 22 YEAR-WISE PRODUCTION ........................................................................................................... 23 COST OF SALES .......................................................................................................................... 23 REVENUE CALCULATION............................................................................................................ 24
17
KEY ASSUMPTIONS...................................................................................................................... 25
18
ANNEXURE...................................................................................................................................... 27
18.1 18.2 18.3
MACHINERY SUPPLIERS ............................................................................................................. 27 RAW MATERIAL SUPPLIERS ....................................................................................................... 27 TAX DEDUCTION INCOME SLABS ................................................................................................ 28
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DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk
DOCUMENT CONTROL Document No.
PREF-114
Prepared by
SMEDA-Punjab
Issue Date
June 2011
Issued by
Library Officer
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Ladies Shoes Manufacturing Unit
EXECUTIVE SUMMARY
This pre-feasibility study is for setting up of a semi-mechanized shoe manufacturing unit exclusively for ladies. Footwear manufacturing is a process of manufacturing shoes according to the market need in respect to design and size, trends etc. The unit is assumed to be set up in any city with already established units, such as Karachi, Faisalabad, Hyderabad, Sahiwal, Gujranwala and Rawalpindi. Shoe manufacturing industry can be broadly categorized into two main segments i.e. organized and unorganized sector. The organized sector comprises of fully mechanized shoe manufacturing units. These mainly include Bata Pakistan Limited, Servis Industries Limited, Footlib Limited, Firhaj Footwear (Pvt) Limited, and a few other units. The unorganized sector comprises of labour intensive units having semi-mechanized manufacturing facilities, with relatively modest capital investments, as compared to fully mechanized plants. The total project cost for setting up this workshop is estimated at Rs. 7.801 million. The project is financed through 50% debt and 50% equity. The project NPV is around Rs. 56.885 million, with an IRR of 56% and payback period of 3.60 years. The legal business status of this project is proposed as ‘Sole Proprietorship’. The unit is proposed to operate 8 hours everyday. The proposed maximum capacity of the unit is 600 pairs per day. During the first year 40% capacity is assumed, which increases at a rate of 10% each year and assumes maximum capacity of 95% in seventh year of operations.
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Ladies Shoes Manufacturing Unit
INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. SMEDA has so far successfully formulated strategies for industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.
3
PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. This pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and production, marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors of Ladies Shoes Manufacturing unit by providing them a macro and micro view of the business with the hope that the information provided herein will aid potential investors in crucial investment decisions. Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. In the financial model, since forecast/projections relate to the future periods, actual results are likely to differ because of the events and circumstances that do not occur as expected. 5 PREF-114/June, 2011
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Ladies Shoes Manufacturing Unit
PROJECT PROFILE Opportunity Rationale
Pakistan is the 6th most populous country in the World and according to an estimate with an average population growth of approximately 1.6 %.The population of Pakistan is estimated about 187 million in the year 20111. Around 45% of the total population comprises of females. Shoes are a basic necessity of every individual and Pakistan has a relatively high population growth rate. This provides an opportunity for the investor to set up a ladies shoes manufacturing unit to meet the demands of this growing sector and earn substantial profits. 4.2
Pro je ject Brief
This document provides details for setting up ladies shoes manufacturing unit. The unit will have the capacity to produce approximately 600 pairs of ladies shoes per day on single shift basis. For achieving quality and consistency in the production, some second hand machinery of German and UK origin will be used. This machinery will be acquired locally. 4.3
Proposed Business Legal Status
The business legal status of the proposed project can either be sole proprietorship or partnership. Additionally, it can also be registered under the Companies Ordinance, 1984 with the Securities & Exchange Commission of Pakistan. The selection depends upon the choice of the Entrepreneur. This Pre-feasibility assumes the legal status to be Sole Proprietorship. 4.4
Proposed Capacity
The proposed project is capable to produce an average of 600 pairs of ladies shoes per day. Considering the market demand and Pakistan’s population growth trends, initially the project would easily be able to produce and sell the quantity, which is required for the project to be economically viable. 4.5
Target Customer
The target customer for the proposed project would be ladies 14 years of age and above. 4.6
Proposed Location
Lahore is the footwear centre of the country, followed by Karachi, Faisalabad, Hyderabad, Sahiwal, Gujranwala and Rawalpindi. All the shoe manufacturing units are established in these cities. Therefore, any of the above cities would be suitable for setting up a ladies shoe manufacturing unit. Raw material and labour is also easily accessible in these cities.
1
http://en.wikipedia.org/wiki/Demographics_of_Pakistan 6
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Ladies Shoes Manufacturing Unit
KEY SUCCESS FACTORS
1. The key to success of this project is in manufacturing good quality ladies shoes. Quality standards should be followed strictly. 2. Strong presence in the domestic market. Traders/Wholesalers are already present in the local market. 3. Tools & equipments locally available at low price. 4. Raw materials are available in sufficient quantity. 5. Availability of other inputs like Adhesives, chemicals, last, punch, mould, grinderies and packing materials (boxes) etc. 6. Vast pool of skilled labour. 7. Stable business environment till today and growing day by day.
6 6.1
SWOT ANALYSIS Strengths
1. Strong presence in the domestic market. Traders/Wholesalers are present in the local market. 2. Local availability of raw materials, machinery and parts. 3. Easy availability of low cost skilled and unskilled labour 4. Presence of qualified leather technologists in the field. 5. Stable business environment till today and increasing day by day. 6.2
Weaknesses
1. 2. 3. 4. 5. 6.
Imports started coming in especially from China. Traditional method of production. High Competition in local and international market. Low level of technological up-gradation. Manufacturing defects and use of substandard materials. Very frequent changes in design, technology, process and marketing due to foreign branded footwear availability in the market. 7. Lack of access to testing, designing and technical services 6.3
Opportunities
1. 2. 3. 4.
Growing international and domestic markets. Competition is going to make availability of inputs cheaper and sufficient. Increased awareness is likely to improve the skill base of the workers. Changing business environment and marketing channel can provide opportunity for enterprising firms. 5. Exposure to newer markets through Fairs/Exhibitions.
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Ladies Shoes Manufacturing Unit
Threats
1. Competition is going to increase because of setting up modern units elsewhere in the country. 2. Overseas importers are smart enough to change their sourcing country. 3. Technology can impose a major threat unless it is changed/ modernized. 4. Innovation is required in every phase of business operation. 5. Fast changing fashion trends are difficult to adapt 6. Threat of increasing competition from Chinese imports. 7. The changing business environment is always a problem for firms.
7
2
INDUSTRY ANALYSIS 2
Pakistan Footwear industry has shown good progress in terms of production and exports. Footwear industry has increased its exports at large extent since 2003. Pakistan is one of the most populous countries in the World and according to an estimate with an average population growth of approximately 1.6 %.The population of Pakistan is estimated about 187 million in the year 20113. Keeping in view the growth in population, the growth in the demand of footwear industry is also anticipated. Though, significant growth has taken place in the Shoe Industry of Pakistan, but there is a view that it has not been up to the mark and the industry has suffered due to a growing and fierce competition of the emerging economies like India and China. There is a general perception that after suffering from the cut-throat competition especially with China, the footwear industry is doing better especially in the previous two years and it is regaining the strength to fulfil the local demand as well as compete efficiently in the world market. This sector has pivotal importance in terms of providing and creating jobs, earning of foreign exchange with the help of exports and fulfilling the local consumption requirements. Yet, according to the Leather Sector Strategy report by J.E. Austin, no new manufacturing unit has been established in Pakistan’s organized sector for the last decade.
8
MARKET ANALYSIS
The leather footwear industry is concentrated in and around the cities of Lahore, Kasur and Charsadda. Other footwear centres are Lahore, Karachi, Faisalabad, Hyderabad, Sahiwal, Gujranwala and Rawalpindi. The Pakistan footwear sector produces 150 million pairs annually which accounts for 1% of global production. Footwear sector exports add a meagre US$ 110 million to the export earnings of the country and Pakistan holds a market share of 0.1% of the world footwear market. In Charsadda, 2,500 workers produce over a million pairs of shoes annually. The Charsadda cluster is composed of 500 workshops. Besides the local manufacturing of shoes, the markets are flooded with
2 3
A case study of Footwear Industry of Pakistan (http://www.pide.org.pk/psde24/pdf/17.pdf) http://en.wikipedia.org/wiki/Demographics_of_Pakistan 8
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Chinese shoes which are available at very low price. A high level of employment in footwear manufacturing exists in small scale businesses and the informal sector.4 The shoe manufacturers in Pakistan are not organized with the exception of some big manufacturers like Bata and Servis shoes. Therefore, the exact figures regarding number of units, production and consumptions (of ladies shoes) are not available. The last footwear industry survey carried out in Pakistan was in 1996; therefore, updated information is unavailable. However some estimates of overall shoe industry are available. The major players of the Pakistani Footwear industry are5: 1. Service Industries 2. Bata Pakistan 3. Firhaj Footwear 4. EPCT (Pvt) Ltd 5. Elegant (Pvt) Ltd 6. Footlib Ltd 7. Shafi (Pvt) Ltd 8. Starlet Innovations 9. Brothers Associates 10. Simba Enterprises During the year 2000, a nominal growth of 0.2% and 0.6% was recorded in the production and consumption of shoes respectively. 8.1
Market Demand
According to the estimates by SATRA Technology Centre United Kingdom, per capita consumption of footwear in Pakistan is 1.5 pair per annum. The consumption of footwear during the year 2000 was 234 million pairs6. The following table shows the consumption from 1996 to 2000: 6
Table 8-1 Market Demand 6 Year
Consumption (Million Pairs)
Percentage Increase
1996 1997 1998 1999 2000
190.0 197.0 218.5 232.5 234.0
3.68% 10.91% 6.41% 0.65%
4
Leather sector strategy report – J.E Austin 2008 Pakistan Footwear Manufacturers Association - 2008 6 World Footwear Markets 2002 - (Global Statistics for 1996-2000) by SATRA Technology Centre 2002 5
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Ladies Shoes Manufacturing Unit
Market Supply
There are different estimates from different sources regarding the number of shoe manufacturing units in Pakistan. According to one estimate, total number of units in the year 1999 was 5007 organized/semi-organized and 20,000 unorganized units. The number of organized units has risen to 609 8 during the year 2000. Production of footwear from 1996 to 2000 from organized and unorganized sector was as follows: 8
Table 8-2 Market Supply8
9
Year
Production (Million pairs)
Percentage Increase
1996 1997 1998 1999 2000
197.0 205.0 226.8 240.4 241.0
4.1% 10.6% 6.0% 0.2%
PRODUCTION PROCESS
9.1
Production Process Flow
A variety of materials are used for making shoes- leather fabrics, plastic, rubber, fabrics, wood, and metal. However, with the development of modern machines, a pair of shoes can be made in very less time as each step in its manufacturing is generally performed by different machines. 9.1.1
Par t ts o f F f F oot wear
1. Sole: The exterior bottom part of a shoe is the sole. 2. Insole: The interior bottom of a shoe, which sits directly beneath the foot, is its
insole. They are removable and replaceable too. In some of the shoes, extra insoles are often added for foot comfort, foot or joint pain relief and for other reasons, such as to control the shape, moisture, or smell of the shoe. 3. Outsole: It is that layer of the shoe that is in direct contact with the ground. These can
be made of various materials like leather, natural or synthetic rubber etc. Often the heel of the sole is made from rubber for durability and traction and the front is made of leather for style. 4. Heel: The rear part at the bottom of a shoe is the heel. It supports the heels of the feet.
Heels of a shoe are often made from the same material as the sole of the shoe. It can be high for fashion purpose or for making a person look taller. They are also flat for comfort and practical use. 7
Servis Industries World Footwear Markets 2002 - (Global Statistics for 1996-2000) by SATRA Technology Centre 2002, UK 8
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5. Upper: The upper part of a shoe that helps in holding the shoe onto the foot is the
vamp or simply called the upper. This part is often embellished or given different styles to make shoes attractive. 9.1.2
S hoe mak ing pr pr ocess
A footwear unit has mainly four departments in which a progressive route is followed for producing finished shoes. These departments are: Clicking or Cutting Department, Closing or Machining Department, Lasting & Making Department and Finishing Department. Following is the process of footwear manufacturing. 1. Product Development: Product development is the process of designing new styles
of shoes or existing ones and then specifying the materials and components, detailing the materials and the processes that are to be followed in order so that the styles of shoes can be produced in bulk. 2. Designing and Pattern Cutting: According to the samples of shoes, design or
requirement of the customer the model last is selected by the shoe designers then patterns are developed and sample shoe is manufactured in under the supervision of the shoe designer by the craftsmen/artisan. When the samples are approved the patterns are graded by hand or machines in required sizes and handed over to the production division for manufacturing the shoes. The designers also specify the materials required for making the shoes. 3. Clicking/ Components Division: The components are clicked by hand or machine
by the clicker then checked and marked by hand or by stamping machine. The upper and lining components are skived according to the manufacturing process. 4. Closing or Machining: The component pieces are sewn together by skilled
machinists so as to produce the completed upper. The work is divided in stages. In early stages, the pieces are sewn together on the flat machine. In the later stages, when the upper is no longer flat and has become three-dimensional, the machine called post machine is used. The sewing surface of the machine is elevated on a position to enable the operative to sew the three dimensional upper. Various edge treatments are also done for giving an attractive look to the finished upper. At this stage only, the eyelets are also inserted in order to accommodate the laces in the finished shoes. 5. Lasting, Making and Finishing: The completed uppers are moulded into a shape of
foot with the help of a "Last". Last simulates the foot shape. It is later removed from the finished shoe to be used further in making other shoes. Soles can also be premoulded as a separate component out of various synthetic materials and again glued to the lasted upper to complete the shoe. 6. Packing: The shoe lift is inserted in the shoes to maintain the shape of the finished
shoes. After this operation the finished shoes are kept in the boxes.
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Figure 9-1 Process Flow f or Ladies shoe manuf acturing
Designing
Last Making (Outsourced)
Packing
Press Cutting Dyes
Finishing & Quality Checking
Lasting
Upper Cutting
Sole Attaching
Upper Cleaning
9.2
Proposed Product Mix
The proposed unit will produce pumps, coat shoes, sandals and sleepers with different leather and non leather materials. The size range will be from 6 to 11. The proposed unit will manufacture ladies shoes in all the sizes, which starts from number 6 and goes up to number 11. 12 PREF-114/June, 2011
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10 RAW MATERIAL REQUIREMENT New inventions take place in the footwear industry and new materials have come up for manufacturing of good quality footwear. A number of units have started manufacturing footwear components. Following are the materials required for footwear manufacturing: 10.1 Upper Material
For manufacturing of shoe uppers, natural Leather, Paramedics, Leather Fabrics, Textile materials, Plastic and rubber fall are used; but natural leather is the most important material which is superior in its characteristics to all other materials. 10.2 Insole Material
The leather Board, Texon, Bontex and other cellulose Board and some special types of shoe construction textiles are used as Insole material. The exporters for maintaining the quality and for mass production of shoe manufacturing use moulded insole. 10.3 Outsole Material
The Ethylene Vinyl Acetate (EVA), Polyvinyl chloride (PVC), Polyurethane (PU) and Thermoplastic rubber (TPR) are found most suitable as soling materials and are easy to manufacture. 10.4 Grinderies
Other materials used are shoe laces, Threads, Tapes, Metal fittings, eyelets, Buckles, Different types of Nails/Tingles, Shanks, Rivets, Hooks Zip fastener. 10.5 Auxiliary Material
The adhesives which are generally used are solvent, dispersion, hot melt adhesives that are used for joining/sticking the shoe components. The finishing chemicals like Latex, polish, etc. are also used for giving shine to shoes.
11 HUMAN RESOURCE REQUIREMENT 11.1 Human Resource Requirements
The technology level is low in shoe manufacturing industry; therefore training can be imparted to most of the workforce within 30 days. Related technical skilled labour is easily available in cities where shoe manufacturing units are already established. A total of 14 employees are hired as permanent staff, this includes production and administrative staff. The staff salaries for the first year are given in table 11-1 below. The cost of direct labour including cutting man, upper man, bottom man, finishing man, skiving operator and other production staff is included in the cost of production on per pair basis.
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Table 11-1 Human Resource Requirement Employees
Director/CEO Production Staff Production Supervisor Designer Foreman Mechanic Helper Administration Staff Marketing Executive Purchaser Accountant Store Keeper Office boy Watchman Total
No.
Salary/Month (Rs.)
Annual Salary (Rs.)
1
50,000
600,000
1 1 2 1 1
25,000 20,000 15,000 12,000 7,000
300,000 240,000 360,000 144,000 84,000
1 1 1 1 1 2 14
15,000 12,000 12,000 10,000 7,000 8,500
180,000 144,000 144,000 120,000 84,000 204,000 2,604,000
12 MACHINERY REQUIREMENT The organized units comprise only 2.3%9 of the total shoe manufacturing units. Therefore, because of low demand of new shoe manufacturing machinery, brand new machinery for shoe manufacturing is not available in the local market. Second hand and refurbished machinery of UK and German origin is mostly used for any new shoe manufacturing unit. Cutting press, skiving and stitching machines, sole attaching press and sole activator machine are the main machinery that will be required for a shoe manufacturing unit. Apart from these machines certain locally manufactured tools for upper, bottom and finishing, lasts, cutting tables and boards are easily available in the local market. Following table shows the machinery and tools required for setting up a Ladies Manufacturing Unit. Table 12-1 Machinery Details Machinery
Qty
Cutting clicking press and cutting board GP 4 Machine Skiving Machine Upper Stitching Flat Bed Machine 9
1 2 2 4
Unit Price (Rs.)
150,000 50,000 25,000 20,000
Source: Footwear Industry Pakistan, report compiled by Servis Industries 14
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Total Amount (Rs.)
150,000 100,000 50,000 80,000
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Upper Stitching Post Bed Machine Cylindrical Bed / Bending Machine Sole Attaching Press Grinder / Scoring Machine Sole Activator Zigzag Machine Scoring Machine Finishing machine Other Machinery: Embossing machine Punching machine Roughening machine Air Compressor Heat Seating chamber Air Gun for colouring Tools Lasts Generator - 50 KVA Miscellaneous expenses (Inland Freight, Electric wiring) Total Machinery cost
2 1 1 3 1 1 1 1
25,000 40,000 230,000 15,000 400,000 20,000 20,000 40,000
50,000 40,000 230,000 45,000 400,000 20,000 20,000 40,000
1 1 2 1 1 1
50,000 50,000 15,000 50,000 50,000 50,000 100,000 500,000 282,000
50,000 50,000 30,000 50,000 50,000 50,000 100,000 500,000 282,000 500,000
1 1
2,887,000
13 OFFICE EQUIPMENT AND FURNITURE Following tables present the office equipment and furniture/fixtures requirement for a Ladies Shoes manufacturing unit. Table 13-1 Of f fi ce Equipment Items
Computers UPS Printers Telephone Sets Fax Machine Total Cost
Qty
Cost/Unit (Rs.)
3 3 1 2 1
25,000 7,500 12,000 1,000 12,000
Total Cost (Rs.)
75,000 22,500 12,000 2,000 12,000 123,500
Table 13-2 Furniture & Fixture Items
Executive Table Tables
Qty
Cost/Unit (Rs.)
1 7
20,000 8,000 15
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Total Cost (Rs.)
20,000 56,000
Pre-feasibility Study
Sofa Store racks/Shelves Chairs Stools Work Tables File cabinets Fans and Lights Fire extinguishers Air conditioners Total Cost
Ladies Shoes Manufacturing Unit
1 5 14 3 2 3
12,000 10,000 2,200 800 5,000 5,000 50,000 2,500 35,000
3 2
12,000 50,000 30,800 2,400 10,000 15,000 50,000 7,500 70,000 323,700
14 LAND & BUILDING REQUIREMENT 14.1 Land and Building Requirement
For the proposed project, a building covering an area of approximately 4,500 sq ft. will be required. It is recommended that the building is acquired on rental basis in order to save on initial investment. The rent in this pre-feasibility is taken to be about Rs. 112,500/- per month. Following basic structure is required for a shoe manufacturing unit. Table 14-1 Space Requirement Space Required. (Sq. ft)
Management office Production hall Raw material store Finished goods store Washroom Loading area Total Infrastructure Cost
200 3,000 500 500 50 250 4,500
14.2 Suitable Location
Lahore is the footwear centre of the country, followed by Karachi, Faisalabad, Hyderabad, Sahiwal, Gujranwala and Rawalpindi. All the shoe manufacturing units are established in these cities. Therefore, industrial areas of any of the above cities would be suitable for setting up a ladies shoe manufacturing unit. Raw material and labour is also easily accessible in these cities. 14.3 Utilities Requirement
Utilities required for Ladies Shoes Manufacturing Unit include Electricity, Gas, Water and Telephone connections.
16 PREF-114/June, 2011
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
15 PROJECT ECONOMICS 15.1 Pro je ject Investment
The total investment in this project is been estimated at Rs.7.801 million. The estimated capital cost is Rs. 3.904 million and the estimated working capital of Rs. 3.897 million. The total cost, project returns and financial plan are given in the tables below. Table 15-1 Total Pro ject Cost Account Head
Total Cost (Rs)
Total Capital Cost Total Working Capital Total Project Cost (Rs)
3,904,247 3,897,270 7,801,517
The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However, this composition of debt and equity can be changed as per the requirement of the investor Table 15-2 Financing Plan Financing
Ratio
Equity Debt
Rs
50% 50%
3,900,759 3,900,759
Table 15-3 Pro ject Returns Project
IRR NPV (Rs) Payback Period (Years)
56% 56,885,908 3.60
17 PREF-114/J une, 2011
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Ladies Shoes Manufacturing Unit
16 FINANCIAL ANALYSIS 16.1 Pro je ject Detail Initial Investment Capital Investment Machinery & equipment Furniture & fixtures Office equipment Pre-operating costs Training costs Total Capital Costs Working Capital Equipment spare part inventory Raw material inventory Upfront building rent Upfront insurance payment Cash Total Working Capital
Rs. in actuals 2,887,000 323,700 123,500 520,047 50,000 3,904,247 Rs. in actuals 2,977,920 675,000 144,350 100,000 3,897,270
Total Investment Initial Financing Debt Equity
7,801,517
50% 50%
Rs. in actuals 3,900,759 3,900,759
Project Returns Net Present Value (Rs.) Internal Rate of Return Payback Period (Yrs)
EQUITY 41,998,408 85% 3.04
18 PREF-114/June, 2011
PROJECT 56,885,908 56% 3.60
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
16.8 Revenue Calculation Revenue Calculations Year 1 Total Capacity (per day) Local Sales B-Pairs Selling Price Selling Price for B-Pair Increase in unit price
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
80% 480 Pairs 142,618 666 399
90% 540 Pairs 160,622 732 439
90% 540 Pairs 161,922 805 483
90% 540 Pairs 161,996 886 531
95% 570 Pairs 170,350 974 585
95% 570 Pairs 170,963 1,072 643
95% 570 Pairs 170,998 1,179 707
123,868,758 3,911,645 127,780,403
136,318,133 4,304,783 140,622,916
157,683,146 4,979,468 162,662,614
174,075,184 5,497,111 179,572,295
191,522,100 6,048,066 197,570,166
600 95% 5% Rs. 500 Rs. 300 10.0%
Capacity Utilization No. of Pairs / day Total Pairs Sold Selling Price Selling Price for B-Pairs
40% 240 Pairs 66,804 500 300
60% 360 Pairs 105,105 550 330
70% 420 Pairs 124,537 605 363
Local Sales Sale of B-Pairs Total Sales
31,731,900 1,002,060 32,733,960
54,917,342 1,734,232 56,651,573
71,577,502 2,260,342 73,837,844
90,166,711 2,847,370 93,014,081
111,704,423 3,527,508 115,231,931
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
16.8 Revenue Calculation Revenue Calculations Year 1 Total Capacity (per day) Local Sales B-Pairs Selling Price Selling Price for B-Pair Increase in unit price
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
80% 480 Pairs 142,618 666 399
90% 540 Pairs 160,622 732 439
90% 540 Pairs 161,922 805 483
90% 540 Pairs 161,996 886 531
95% 570 Pairs 170,350 974 585
95% 570 Pairs 170,963 1,072 643
95% 570 Pairs 170,998 1,179 707
123,868,758 3,911,645 127,780,403
136,318,133 4,304,783 140,622,916
157,683,146 4,979,468 162,662,614
174,075,184 5,497,111 179,572,295
191,522,100 6,048,066 197,570,166
600 95% 5% Rs. 500 Rs. 300 10.0%
Capacity Utilization No. of Pairs / day Total Pairs Sold Selling Price Selling Price for B-Pairs
40% 240 Pairs 66,804 500 300
60% 360 Pairs 105,105 550 330
70% 420 Pairs 124,537 605 363
Local Sales Sale of B-Pairs Total Sales
31,731,900 1,002,060 32,733,960
54,917,342 1,734,232 56,651,573
71,577,502 2,260,342 73,837,844
90,166,711 2,847,370 93,014,081
111,704,423 3,527,508 115,231,931
24 PREF-114/J une, 2011
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
17 KEY ASSUMPTIONS Table 17-1 Operational Assumptions
Maximum capacity utilization First year capacity utilization Capacity utilization growth rate Maximum number of pairs per day at 100% capacity Maximum number of pairs per year Percentage of A pair shoes Percentage of B pair shoes Hours operational per day Days operational per year Table 17-2 Economy-Related Assumptions
95% 40% 10% 600 180,000 95% 5% 8 300
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
17 KEY ASSUMPTIONS Table 17-1 Operational Assumptions
Maximum capacity utilization First year capacity utilization Capacity utilization growth rate Maximum number of pairs per day at 100% capacity Maximum number of pairs per year Percentage of A pair shoes Percentage of B pair shoes Hours operational per day Days operational per year
95% 40% 10% 600 180,000 95% 5% 8 300
Table 17-2 Economy-Related Assumptions
Electricity cost growth rate Water cost growth rate Gas cost growth rate Diesel cost growth rate Wage growth rate
10% 10% 10% 10% 10%
Table 17-3 Cash Flow Assumptions
Accounts Receivable cycle (in days) Accounts payable cycle (in days) Raw material inventory (in days) Equipment spare part inventory (in days) Work-in-progress closing stock (in days) Finished good closing stock (in days)
15 15 45 15 7 15
Table 17-4 Revenue Assumptions
Sales price - Pair A Sales price – Pair B Sales price growth rate
500 300 10%
Table 17-5 Expense Assumptions
Administration benefits expense (% of admin expense) Communication expense ( % of admin expense) Travelling expense ( % of admin expense) Office expense ( % of admin expense) Equipment and machinery insurance Electricity utilization in hours/day 25 PREF-114/June, 2011
5% 2% 2% 2% 5% 5
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
Generator diesel utilization in hours/day Promotional sales call expense (% of revenue) Year 1 - 3 Year 4 - 6 Year 7 - 10 Professional fee (% of revenue) Bad debt expense (% of revenue)
3 2.5% 1.5% 1.0% 0.5% 1.0%
Table 17-6 COGS Assumptions Cost of raw material
Cost per pair
Upper material cost Sole Rubber solution Cement solution Desmokol for sole Desmoder MEK (for cleaning) EVA sheet Other chemicals Labour Cost Cutting man Upper man Bottom man Finishing man Factory overheads cost Design and development Packing material Accessories Foam lining Maintenance Miscellaneous Cost of COGS growth rate
151.88 130.00 3.00 3.00 7.00 2.00 2.00 8.00 6.00 Cost per pair 2.50 12.00 8.00 2.50 Cost per pair 12.50 18.00 5.00 1.00 1.00 1.00 7.5%
Table 17-7 Financial Assumptions
Project life (Years) Debt Equity Interest rate on long-term debt Interest rate on short-term debt
10 50% 50% 17% 16% 26
PREF-114/June, 2011
Pre-feasibility Study
Ladies Shoes Manufacturing Unit
Interest on cash in bank Debt tenure (Years) Debt payments per year
10% 5 1
Table 17-8 Depreciation Rate Assumptions
Machinery and Equipment Office Equipment Furniture & Fixtures Vehicles
10% 10% 10% 10%
18 ANNEXURE 18.1 Machinery Suppliers
Company Name: Address: City: Tel: Company Name: Address: City: Tel: Company Name: Address: City: Tel: Company Name: Address: City: Tel:
New Tech Auto Mission 809 Ravi Block, Near Kharah Stop Main Multan Road Lahore 042-37490497, 36106946 Rex Machinery AEX Market, B, Allama Iqbal Road Lahore 042-38376522 United Machinery Ground Floor, West Land Trade Center, Shop no. S-3 Block 7/8, K.C.H.S.U, Shaheed Millat Road Karachi. 021-4392781 R. Sons Machinery 24 Allama Iqbal Road, Shop no 5-6, Near Railway Hospital Lahore. 042-36370818, 36364965
18.2 Raw Material Suppliers
Company Name: Address: City: Tel: Company Name: Address: City: Tel: Email: Company Name: Address:
Ideal Rubber & Engineering Industry 17-A, SIE No. 1 Gujranwala 055-3259034, 0300-8465454 Global Enterprises 40-ST-80, Opposite Local Govt. Complex, Sanda Road Lahore 042-37148734
[email protected] Crescent Art Fabric. 10- Abbot Road 27
PREF-114/June, 2011
Pre-feasibility Study
City: Tel:
Ladies Shoes Manufacturing Unit
Lahore. 042-36364208
18.3 Tax deduction income slabs Income Slabs
Tax Rate
0.00% 0.50% 1.00% 2.00% 3.00% 4.00% 5.00% 7.50% 10.00% 12.50% 15.00% 17.50% 21.00% 25.00%
100,000 – 110,000 110,000 – 125,000 125,000 – 150,000 150,000 – 175,000 175,000 – 200,000 200,000 – 300,000 300,000 – 400,000 400,000 – 500,000 500,000 – 600,000 600,000 – 800,000 800,000 – 1,000,000 1,000,000 – 1,300,000 1,300,000 and above
28 PREF-114/June, 2011
