Manufacturing of Nails

 

 

61. PROFILE ON NAIL MANUFACTURING

 

 

61-2 TABLE OF CONTENTS

PAGE  

I.

SUMMARY

61-3

II.

PRODUCT DESCRIPTION & APPLICATION

61-3

III.

MARKET STUDY AND PLANT CAPACITY

61-4

A. MARKET STUDY

61-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME

61-6

RAW MATERIALS AND INPUTS

61-6

A. RAW & AUXILIARY MATERIALS B. UTILITIES

61-6 61-7

TECHNOLOGY & ENGINEERING

61-8

A. TECHNOLOGY

61-8

B. ENGINEERING

61-9

MANPOWER & TRAINING REQUIREMENT

61-10

A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

61-10 61-11

FINANCIAL ANALYSIS

61-12

A. TOTAL INITIAL INVESTMENT COST

61-12

B. PRODUCTION COST

61-13

C. FINANCIAL EVALUATION

61-14

D. ECONOMIC BENEFITS

61-15

IV.

V.

VI.

VII.

 

 

I.

61-3 SUMMARY

This profile envisages the establishment of a plant for the production of nails with a capacity of 2,400 tonnes

per annum.

The present demand for the proposed product is estimated at 18,541 tonnes per annum. The demand is expected to reach at 31,940 tonnes by the year 2017 .

The plant will create employment opportunities for 62

persons.

The total investment requirement requirement is estimated at about Birr 7.22 million, out of which Birr 3.96 million is required for plant and machinery.

The project is financially financially viable with an internal rate rate of return (IRR) of 28 % and a net  present value (NPV) of Birr 5.89 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

A nail is pin shaped sharp object of hard metal typically steel us used ed as fastener. Nails are driven into the work piece by a hammer. hammer. A nail holds materials together by friction. friction. The common kind of nail is called “wire nail” to distinguish it from other types of nails.

Tack is a short nail with a wide, flat head used for fixing carpets to floorboards and for stretching fabric on to wood.

 

 

61-4

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The nail markets is supplied by import as well as domestic pr production. oduction. Supply of nails is  presented in Table 3.1 while domestic production is in the increase, imported nails seem to be decreasing indicating the the successful substitution substitution of domestic products. Particularly in the last three years the domestic production shows a significant growth of 70%.

The linear trend equation fitted for 1997-2005 total supply of nails reveals. 2

Y = 1,339.9 X + 3,802.3

R   = 71.2%

Applying this supply equation, the current effective demand for nails is estimated at 18,541 tons. Table 3.1. SUPPLY OF NAILS AND RACKS OF IRON OR STEEL Year

Ton Local

Import

Total

1997 1998

3,494 2,702

375 5,810

3,869 8,512

1999

2,454

6,449

8,903

2000

2,773

5,325

8,098

2001

3,817

7,950

11,767

2002

5,190

6,582

11,772

2003

5,330

3,282

8,612

2004

8,664

4,961

13,625

2005

15,335

4,025

19,360

Source:  

Customs Authority CSA, Survey of Manufacturing Industries

 

 

2.

61-5

Demand Projection

The demand for nails is related with construction and building sectors. New as well as renovation of buildings and other constructions are the main end users of nails. The growing construction sector development as evidenced in the successive increase of nail supplies is expected to consume more. Therefore in this study the linear trend equation;

2

Y = 1,339.9 X + 3,802.3

R   = 71.2%

is applied to project the demand for nails. Accordingly the demand for nails iin n 2017 will  be 31,940 tons. Projected demand for nails is presented in Table 3.2. Table 3.2 PROJECTED DEMAND FOR NAILS  

3.

Year

Tons

2008

19,881

2009

21,221

2010

22,561

2011

23,900

2012

25,241

2013

26,580

2014

27,920

2015

29,260

2016

30,600

2017

31,940

Pricing and Distribution

The average retail price of nails at Addis Ababa is 7 Birr per kg. The recommended price for the new product under study is Birr 5 per kg.

 

 

61-6

Distribution of the product will be through own retail and wholesale shop, the main outlet  being regional wholesale.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study, and the economic scale of nail manufacturing, the rated capacity of the plant is proposed to be 2,400 tonnes of nail per annum.

The selected production capacity is based on 300 working days per annum, 3 shifts of eight hours each per day.

The rest of calendar days are left for cleaning and

maintenance.

2.

Production Programme

The production program is based on the time required for the adjustment of feedstock, labour and equipment to the technology selected. Accordingly capacity utilization is set as follows: -  75% of plant capacity during the 1  year st

-  85% of plant capacity during the 2  year nd 

-  100% of plant capacity during the 3rd  year IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

Raw materials required for production of nails are:1. 

Low carbon steel wire for both types, and

2. 

Cold rolled steel sheet for roof nails.

 

 

61-7

Assuming that 12.5% of the total product will be roofing nails, the annual requirement of these raw materials materials is shown in Table 4.1. Roofing nails are are usually galvanized for for  protection against corrosion. The finished products are packed with a hard rolled paper.

Table 4.1 SUMMARY OF ANNUAL CONSUMPTION FOR RAW AND AUXILIARY MATERIALS AND COST

Sr.

Description

No.

 

Unit of

Annual

Measure

Con's

Cost in '000 Birr FC

LC

TC

1.

Lo Low carbon steel wire

Tonnes

2,324

7,360

1,464

8,024

2.

Cold-rolled steel sheet

Tonnes

112

448

90

538

3.

Saw dust

Tonnes

8

-

0.52

0.52

4.

Zinc

Tonnes

16

125

25

150

5.

HCI

Lt.

1,500

9.4

1.9

11.3

6.

Ammonium chloride

Tonnes

204

44

8.8

52.8

7.

Packing material

-

64.6

64.6

7,98 7,986. 6.4 4

1,65 1,654. 4.82 82

8,84 8,841. 1.22 22

Tot Total

  B.

UTILITIES

3

Industrial water of 250 m  and electric power of 15000 kWh are consumed in this plant  per annum. The total cost of utilities is estimated e stimated to be Birr 7,879. Details of which are shown in Table 4.2.

 

 

61-8 Table 4.2 ANNUAL REQUIREMENT OF UTILITIES AND COST

  Sr.

Description

Qty.

Unit Price (Birr)

No.

Cost ('000 Birr)

1

Electricity (kWh)

2

Water (m )

3

15,000

0.4736

7.104

250

3.10

0.775

Grand total

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

7.879

Manufacturing of nails passes through the following steps. - 

Feeding of wire coil to nail making machine

- 

Forming the bottom and top portion of nail and cutting on the nail making machine manufacturing of flat head nails ends here

- 

Manufacturing of the nail head on a washer making machine

- 

Polishing of head part

- 

Feeding the head to the nail making machine

- 

Punching of the head to the nail and pressing to umbrella shape

- 

Galvanizing

 

 

61-9

2.

Source of Technology

Visiting Ethiopian Iron and Steel foundary Factory, which is located in Addis AbabaAkaki; and discussing with the technical personnel as well as referring to the technical document it is possible to compile information for the technology. B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment required for the manufacture of nails is given in Table 5.1. Total cost of machinery and equipment is estimated at Birr 3.969 million, out of which Birr 3.199 million is required in foreign currency. c urrency.

The plant needs one pick-up vehicle for transportation of finished product and for office activities. The total cost of vehicle is is estimated at Birr 220,000. Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENTS AND COST Sr.

Description

Qty.

No.

 

Cost in '000 Birr FC

LC

TC

1.

Washe herr making machine

1

600

120.0 0.00

720

2.

Nail Nail makin aking g mac achi hine ne

4

1657 1657.4 .47 7

360. 360.00 00

2017 2017.4 .47 7

3.

Wire coil stand

4

16.86

3.36

20 20.22

4.

Accessories

4 set

246.00

40.00

286.00

5.

Head polisher

1 pc

128.26

31.16

159.42

6.

Galvanizing equipment

1

372

80.0

452.00

7.

Compressor

1

98.08

22.61

120.69

8.

Surface grinder

1

81.08

16.22

97 97.3

9.

Weighing scale

1

-

5

5

10.

Hard pallet truck

1

-

7

7

3199.75

685.35

3969.1

Total

 

 

2.

61-10 Land, Building and Civil Works

2

2

The plant requires a total of 1000 m  area of land out of which 600 m  is built-up area which includes manufacturing area, raw material stock area, offices etc. Assuming construction rate of Birr 1300 per m2, the total cost of construction is estimated to be Birr 780,000.

2

The total cost, for a period period of 80 years with cost of Birr 0.15 per m , is

estimated at Birr 12,000. The total investment cost for land, building and civil works is estimated at Birr 792,000.

3.

Proposed Location

Availability of raw materials, labor force, utilities and infrastructure like road for ease of transportation of raw materials and products are the major factors considered for selection of location. Therefore, Butajira is proposed to be the best location for nails manufacturing  plant.

VI.

MANPOWER AND TRAINING REQUIREMENTS

A.

MANPOWER REQUIREMENT

Total manpower requirement, including skilled and unskilled labour is 62 persons. Correspondingly, total annual labour cost, including fringe benefits, is estimated at Birr 453,000. Table 6.1 below shows the list of manpower required and the estimated annual labour costs.

 

 

61-11 Table 6.1 MANPOWER REQUIREMENT & LABOUR COST

Sr.

Job Position

No.

Req.

Salary per

Salary per

No.

Month

Year

A. Production

1.

Manger

1

2000

24,000

2.

Production and maintenance

3

3600

43,200

supervisor 3.

Production clerk

1

450

5,400

4.

Operator

36

21,600

259,200

5.

Mechanic

6

3,900

46,800

6.

Labour

6

1,500

18,000

1

1,300

15,600

7.  

B. Others

1.

Stores, Finance ,administration

2.

and sales head

3.

Salesman

1

600

7,200

4.

Secretary

1

600

7,200

5.

Cashier/ clerk

1

600

7,200

6.

Store clerk

1

450

5,400

7.

Security guard

2

500

6,000

8.

Messenger/ cleaner

1

200

2,400

Driver

1

450

5,400

Total

62

37,750

453,000

    B.

TRAINING REQUIREMENT

All operators need basic basic training so that they can be acquainted to the operation. This can be done during the commissioning period of the plant. The cost of such training is estimated at Birr 50,000.

 

 

VII.

61-12 FINANCIAL ANALYSIS

The financial analysis of the nail manufacturing project is based on the data presented in the previous chapters and the following assumptions:a ssumptions:-

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

30days

Raw material, import Work in progress

90days 5 days

Finished products

30 days

Cash in hand

2 days

Accounts payable

30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment investment cost of the project including working capital is estimated at Birr 7.22 million, of which 36 per cent will be required in foreign foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

 

 

61-13 Table 7.1 INITIAL INVESTMENT COST

Sr.

Total Cost

No.

Cost Items

(‘000 Birr)

1

Land lease value

2

Building and Civil Work

3

Plant Machinery and Equipment

3,969.1

4

Office Furniture and Equipment

125.0

5

Vehicle

200.0

6

Pre-production Expenditure*

508.6

7

Working Capital

1,629.6

Total Investment cost

7,224.4

Foreign Share

12.0 780.0

36

* N.B Pre-production expenditure includes interest during construction ( Birr 358.63 thousand ) training (Birr 50 thousand ) and Birr 100 thousand costs of rregistration, egistration, 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 10.39 million (see Table 7.2). The material and utility cost accounts for 85.12 per cent, while repair and maintenance take 1.91 per cent of the production cost.

 

 

61-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items

Raw Ra w Mat ater eria iall and and Inpu Inputs ts

Cost

%

8,84 8,841. 1.22 22

85.0 85.05 5

7.88

0.08

198.46

1.91

271.8

2.61

90.6

0.87

181.2

1.74

9,59 9,591. 1.16 16

92.2 92.26 6

Depreciation

518.41

4.99

Cost of Finance

286.11

2.75

10,395.68

100

Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Tottal Oper To Operat atin ing g Cos Costs

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 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 life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

 

 

2.

61-15 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 using income statement projection.

BE =

Fixed Cost

= 25 %

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 fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 28% and the net  present value at 8.5% discount rate is Birr 5.89 million.

D.

ECONOMIC BENEFITS

The project can create employment for 62 domestic needs, the project will generate Birr

persons.

In addition to supply of the

3.77 million 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.