Feasibility Study on the Local Commercial Producton of CFLs
-
Upload
gerald-murwira -
Category
Documents
-
view
120 -
download
0
description
Transcript of Feasibility Study on the Local Commercial Producton of CFLs
TABLE OF CONTENTS
CHAPTER PAGE
1. Executive summary………………………………………………………..……3
2. Project background and history…………………………………………………6
3. Marketing analysis and marketing concept…………………………………….9
4. Material inputs…………………………………………………………………19
5. Location site and environment………………………………………………...23
6. Project engineering……………………………………………………………25
7. Organisation and overhead costs……………………………………………...46
8. Human resources ……………………………………………………………..46
9. Implementation schedule……………………………………………………...50
10. Financial analysis and investment…………………………………………...51
1
Abstract
This feasibility report was compiled in partial fulfillment of the part three project. The writer
carried out a research and produced a written report in which he provides an assessment on
the feasibility of the local commercial production of compact fluorescent lamps (CFLs). The
research objectives were to:
- Identify sponsors for the project.
- Assess markets and marketing concepts of compact fluorescent lamps.
- Locate potential and existing suppliers of material inputs used in the manufacture of
compact fluorescent lamps.
- Select a suitable location of the plant site and impact of the plant on environment.
- Determine technology and equipment required for the production of compact
fluorescent lamps.
- Suggest the organisational layout and estimate the overheard costs of the proposed
project.
- Come out with an implementation schedule for the project.
- Determine the financial viability of manufacturing compact fluorescent lamps locally.
The writer gathered the given information through the use of the internet textbooks, journals
and open interviews with personnel involved in the lighting industries and other related
industries.
-
2
CHAPTER 1EXECUTIVE SUMMARY
During the past decade our nation has been facing severe power cuts which are a major blow
to the nation’s economic status. Neighboring countries which have been exporting power to
Zimbabwe have shown that they are not able to continue supplying power to Zimbabwe due
to increased power demand in their own countries. In a bid to curb the power shortages the
nation needs to adopt technology which saves energy and which is also environmentally
friendly.
CHAPTER 2
2.1 PROJECT BACKGROUND AND HISTORY
2.1.1 Project History.
Figure 2.1 An early compact fluorescent lamp
Peter Cooper Hewitt invented the mother to modern fluorescent lamps in the late 1890s.
These lamps were used for photographic studios and industries.
In 1927 Edmund Germer and others patented a high pressure vapour lamp. George Inman in
collaboration with General Electric produced a practical fluorescent lamp which was sold in
1938 and patented in 1941.The first fluorescent bulb and fixture were displayed to the general
public at the1939 New York World’s Fair.
In 1976 Edmund E Hammer an engineer with General Electric invented the spiral tube
compact fluorescent lamp. The lamp met the design goals of those who had made it but it
would have cost General Electric millions of dollars to build factories to build them and the
project was set aside. The design eventually leaked out and was copied by others but it was
3
not until 1995 that spiral lamps manufactured in China were commercially available. In 1980,
Philips introduced its model SL, which was a screw-in lamp with integral ballast. The lamp
used a folded T4 tube, stable tri-color phosphors, and a mercury amalgam. This was the first
successful screw-in which replaced an incandescent lamp. In 1985 Osram started selling their
model EL lamp which was the first CFL to include electronic ballast. Since then the
technology of fluorescent lamps has been developing until today that it can replace the
incandescent lamp.
In Zimbabwe the greater population of the nation has not known the benefits of using
compact fluorescent lamps. The Zimbabwe Electricity Supply Authority (ZESA) and other
players in the lighting industry have been negotiating with the government in order to ban the
use of incandescent lamps in Zimbabwe. In response the government refused to pass the ban
but there is a possibility of increasing import duty on the incandescent lamps. Increasing
import duty on incandescent lamps will not solve the problem because on the Zimbabwean
market some incandescent lamps are fetching as little as $0.15.This means even if we
increase its duty by 300% it is still the best buy for saving money.
2.1.2Background
Continuous power cuts have become a norm in our country which has left everyone pointing fingers to the national power utility;Zimbabwe Electricity Supply Athourity (ZESA). This has shown ignorance on our part as citizens and consumers that we can also take part in the reduction of power imports by usage of power saving electrical goods. The compact fluorescent lamp (CFL) which may also be called the “energy saver” bulbs is one of the devices we can adopt to reduce our power bills from household level up to national stage .These bulbs consume less energy than the traditional incandescent light bulbs which have been in use in almost every Zimbabwean household.
The issue of global warming has raised alarm the world over the but third world countries like Zimbabwe have been looking at first world nations like the United States to take the initiative to stop global warming .We must follow other countries which have taken their own steps further by phasing out the incandescent lamps and introducing the compact fluorescent lamps which are more friendly to our environment.
African countries have been known with a tradition of extracting minerals, exporting them whilst raw and then importing the finished products. This has also been happening in our own country, Zimbabwe, since we have been importing incandescent light bulbs from China and other countries yet we have the glass industry with abundant raw materials in metal and gas for the production of incandescent lamps. This has also been the case with compact fluorescent lamps which are imported into Zimbabwe. A huge amount of money has been lost
4
by Zimbabweans who have been buying these imported commodities as some of the bulbs blow out just after installation.
In a bid to reduce load on our power supply, reduce our contribution to global warming, reduce the number of imports, create employment and increase the Gross Domestic Product of Zimbabwe this project is going to look at the feasibility of the local commercial production of compact fluorescent lamps. The need to provide employment to reduce migration of Zimbabweans into neighboring South Africa where industry is sound is also the inspiration behind this project.
2.3 Project sponsors
The project needs adequate sponsorship for it to be successful. The project will be sponsored
by the organizations shown in figure 2.1.
Type of sponsorship Sponsor/Organisation
Supervision and co-ordination of the project University of Zimbabwe
Funding for acquisition of plant machinery
and setting up of buildings
Infrastructural Development Bank of
Zimbabwe and The Commercial Bank of
Zimbabwe
Money to cover expenses such as transport
and internet costs
Self
Data on existing bulb manufacturers and
market of compact fluorescent lamps in
Zimbabwe
ZESA Holdings
Data on existing bulb manufacturers and
market of compact fluorescent lamps in
Africa
Southern African Power Pool
Figure 2.2 Project Sponsors
2.3 Costs of studies and investigations already made
Activity Costs
5
Transport $30Communication $3Research on internet $25Stationary $5Food $40Report preparation and documentation $20Total $118
Fig 2.3 Costs of studies performed
CHAPTER 3MARKETING ANALYSIS AND MARKETING CONCEPT
3.1.1 Basic idea of project
The basic idea of the project is to set up a Compact fluorescent lamp (CFL) manufacturing
plant as a profitable business entity. The implementation of this project will go a step further
to complement the efforts of the power utility Zimbabwe Electricity Supply Authority
(ZESA) to introduce it as a demand side management strategy. The plant will produce 2U,
spiral and 3U CFLs .The units will be marketed to individual retailers in the country and to
power utilities in the region through Southern African Power Pool (SAPP).
3.1.2 Objectives of the project
- To manufacture Compact fluorescent lamps at a profit in Zimbabwe.
- To guarantee customer satisfaction in our products.
- To gain the largest markets share in the lighting industry.
- Marketing the CFLs effectively to maximize sales by effective marketing strategies.
6
3.1.3 Strategies
Strategies are developed, resources committed and programs of activity assembled for the
purpose of achieving and maintaining competitive advantage in some defined area. Strategic
marketing treats market scope as a matter of strategic choice .These choices follow major
environmental uncertainties for example technological changes clearly affect market.
Segmentation, targeting and positioning are major marketing tools used to gain dominance in
the market as they differentiate the company’s product from that of its competitors.
3.1.3.1 Market segmentation
It is the strategy of dividing diverse markets into smaller, more homogenous sub-markets,
and serving those submarkets with your product. The CFL market can be segmented to those
who need colored lamps to those who need clear white lamps, those who want spiral shaped
lamps , those who want u shaped lamps and also the wattage of the lamps .The market can
also be segmented according to the type of light fittings in people’s homes and offices that is
screw lamp holders or bayonet holders. Bolt on segmentation will be applied in the project
where the firm will access the external data e.g. demographic data to determine the differing
customers’ needs.
3.1.3.2 Targeting
The firm is targeting the following markets:
- Urban Residential lighting
- Offices and street lights
- Regional power utilities
- Rural electrified and solar powered homes
3.1.3.3 Positioning
Positioning a product involves designing a marketing program including the product mix that
is consistent with how the company wants its products or services to be perceived. The
strategy the firm adopts is then driven by desired positioning .Positioning aims to influence or
adjust customer perceptions of a product or brand and let the brand occupy a preferred or
unique position in customers minds. The brand needs to be distinguished from other brands.
Product attributes, price and image enhancements are the major components of positioning.
7
The variables of prices versus performance and focused versus market coverage can be used
to select an optimal market position .A nice packaging of the product also position the
product in a way that the customers will have a good perception of the product. The firm will
have to use a position that permits the offering of a standard product across the entire market.
A market knowledge audit has to be performed to determine if the firm is using knowledge to
develop an optimal market position. The audit will cover issues like customer knowledge,
process knowledge, technology knowledge and strategic knowledge.
3.2 Demand and market
3.2.1 Structure of market
In Zimbabwe on the manufacture’s point of view the lighting products market is oligopolistic.
Currently there is no light bulb manufacturing Company in Zimbabwe. The light bulbs used
in Zimbabwe are imported from Malaysia; Indonesia, Europe and China. In Africa the only
existing bulb manufacturing company is in Lesotho which is owned by Philips and Eskom.
The general quality of the CF lamps supplied by the supermarkets and registered dealers in
electrical industry such as Destiny Electronics and Electro-Sales are of good quality.
Nevertheless there has been an influx of low quality CFLs and even incandescent lamps of
low quality due to lack of policy formulation to protect the consumers from low quality
products.
Brands sold Retailers
Philips Destiny electronics
Luhouis; Philips and Osram Power speed
Osram, Philips and Luhouis Spar supermarkets
Luhouis;Philips and Osram Electro-sales
Luhouis; Philips and Osram Food world
Table 3.1 Existing suppliers of compact fluorescent lamps
3.2.2 Past imports and their future trends; volumes and prices
These values as shown by the Southern African power Pool (SAAP) about the CFLs imported
into Zimbabwe in 2008 and 2009.
Year Volumes Average price per unit
8
2008 3 500 000 $4
2009 2 000 000 $4
Table 3.2 Past imports and prices
3.2.3.1 ROLE OF INDUSTRY IN THE NATIONAL ECONOMY
China is said to be the main producer of lighting products accounting for 80% of the world’s
exports of compact fluorescent lamps. The lighting industry also contributed to the fast
growth of the Chinese economy which is rated the fastest growing economy in the world. The
major roles of the CFLs industry in the economy are:
- Creation of employment for both skilled and semi skilled Zimbabwean population
- Increase the Gross Domestic Product of the country through export band local sales
- Since CFLs use 70% less of energy used by incandescent lamps the implementation
of this project will reduce the nation’s revenue directed towards the importation of
power .This will also reduce the power bills in homes and offices.
- The load on the national grid will be reduced therefore more areas can be connected
on the grid and improve the general livelihood of the nation.
- Power outages which have been affecting industry and the nation at large can be
history by the implementation of such a project. Industry and mines which are the
main movers of the economy will perform much better than at the present in an
environment which is free of power cuts.
3.2.3.1NATIONAL POLICIES
- The government of Zimbabwe together with the national power supplier ZESA has
been promoting the electrification of rural areas .This project complements such
policies by the reduction of load on the national grid to enable new connections.
- The project supports the environmental management authority in the development of
environmental friendly technologies.
- Generally the improved performance of all industries influences the political situation
in a country.
9
- Other governments have still in the process of making policies which discourage the
use of incandescent lamps in the near future so this project will help the country and
other countries in the region to implement such a good idea.
- The project helps the power utility in the Demand side Management Power stations
program which encourages the use of compact fluorescent lamps.
3.2.4 Approximate present size of demand
These values are based on the number of CFL units sent to SAPP by power utilities of
Southern African countries. At the present moment about 250 000 compact fluorescent lamps
have been sold over the counter to individuals. Despite the low volumes of sales recorded so
far in Zimbabwe the local power supplier requested to be supplied about 3 000 000 CFLs for
the period 2010. There strategy of exchanging the incandescent lamps used in households
with compact fluorescent lamps when a customer pays bills is to be adopted in this project nd
the costs is added to the power bills. This strategy helps to increase the sales of the
commodity and the saving of electricity.
Wattage
colour
Colour
appearance
Fitting
type
Burning hours Type of
lamps
Length Quantity
for the next
three years
14/15 Warm
white
BC 8000
&
10000
&
15000
3 U CFL
LAMPS
115mm 9 787 481
ES 2 446 870
18/20 WARM
WHITE
BC 9 787 481
ES 2 446 870
22/24 WARM
WHITE
BC 115mm
&125mm
9 787 481
ES 2 446 870
22/24 COOL
WHITE
BC 3 262 493
ES 815 623
Total 40 781 168
10
Table 3.3 Approximate present size of demand
BC- Bayonet Cap.
ES- Edison Screw.
3U lamps- Number of U shaped glass tubes.
3.2.5 Selected targets
- Urban residential homes
- Commercial buildings
- Other nations in the Region.
- Rural electrified and solar powered homes
- City council for street lighting for roads.
- Power Utilities
Strategies to be used for targets
The local power authority ZESA has taken an initiative together with suppliers of lighting
products in Zimbabwe to raise awareness of their energy saving capabilities. There is need
for the marketer to look for the needs and the expectations of the customer and use the
information to make quality compact fluorescent lamps. Awareness campaigns can be raised
by advertising, promotions and road shows. The other strategy is to make sure that there is
internal competency to provide the basis for optimizing market place performance. This looks
at strategic leadership, strategic planning, financial planning, innovation, productivity,
employee practices, quality and information systems. Since the CFL market is still in its early
growth stages it therefore means the firm can get a large market share by reducing prices.
Marketing strategies consists of selecting a target market and developing a marketing mix to
satisfy the market’s needs. A target market is a defined group of consumers with whom the
firm wants to create marketing exchanges .A marketing mix is the overall marketing offer to
appeal to the target market. It consists of four basic areas: product, pricing, communications
and distribution. The firm will effectively blend product, price and distribution and
communications decisions into a different marketing mix designed to serve its target market.
11
3.3 Marketing concept
The marketing concept suggests that firms seek to meet the customers’ needs at a profit.
Satisfying customer needs requires integrated and coordinated efforts throughout the
organization. The organization should focus on long term success. In the project the
customers’ need can be satisfied by producing lamps that have a longer lifetime than
incandescent lamps at a reasonable price. The quality of the light which the lamp produces is
of importance to the buyer. The wattage of the lamps also differs and the customers buy
according to their own interests. The price of the lamps should be affordable and at the same
time not compromising their quality to ensure customer satisfaction. Generally the product
should be a best buy than other lamps of the same type.
PRODUCT
PLACE
PRICE
PROMOTION
12
TARGET MARKET
The place variable seeks to create time, place and possession utility by having the product available where and when targets customers will buy it. In the case of CFLs it will be supermarkets, hardware, and utility offices where electricity bills are paid
PRODUCT: The product variable
is the attributes that has the
potential to satisfy customers e.g
quality and durability
Price variable establishes the amount of money that the buyer is expected to pay for the finished lamp. The prices range from $2.50 to $13.00 depending on the
Promotion variable is the communication between the firm and the targeted consumers. The firm will use:
Radio and TV adverts
In store promotions
Figure3.1 The Marketing Mix
3.3.2 Anticipated competition from existing producers and suppliers
Stiff competition is anticipated from these well known brands listed below:
- Philips
- Osram
- Eveready
There is also competition on the compact fluorescent lamps with other lamp types such as the
incandescent lamp, light emitting diodes (LEDs), fluorescent tubes and halogen lamps. The
advantage of producing compact fluorescent lamps against incandescent or halogen lamps is
that CFLs save energy by up to 75% therefore they protect the environment from
greenhouse gases emitted by thermal power stations and at the same time they save money by
their long lives. The energy saving aspects of LEDs as compared to those of compact
fluorescent lamps are much better but compact fluorescent lamps are preferred in our
environment. They are favored because lamp fixtures in homes are mainly screw or bayonet
therefore CFLs can easily be fixed on these without changing the lamp holders.
3.3.3 Localisation of markets
(a) Local
13
Price variable establishes the amount of money that the buyer is expected to pay for the finished lamp. The prices range from $2.50 to $13.00 depending on the
Promotion variable is the communication between the firm and the targeted consumers. The firm will use:
Radio and TV adverts
In store promotions
MARKET PLACE REASONS FOR CONSIDERING IT AS
MARKET
HARARE All these places are towns and that is where
potential users and selling points of compact
fluorescent lamps are located.
MUTARE
GWERU
MASVINGO
BINDURA
KADOMA
BULAWAYO
MARONDERA
Table 3.4 local markets
(b) Foreign
These are sold to power utilities in the southern African region who submitted their CFL
requirements to Southern African Power Pool.
Country Power Utility
Angola ENE
Malawi ESCOM
ZAMBIA ZESCO
SWAZILAND SEC
Namibia NAMPOWER
South Africa ESKOM
Mozambique EDM
Table 3.5 Foreign markets
3.3.4 Sales programme
14
The firm apply the Just -In –Time manufacturing system which means that the production is
influenced by demand. Since the demand of compact fluorescent lamps in the region is above
that of the compact fluorescent lamps in the region the firm will sell all the lamps in the year
they are manufactured. The lamps will be sold to regional power utilities and individuals and
other companies.
3.3.5 Estimate annual sales revenues from products and by products
The firm is expected to produce lamps that will all be sold during the within the year in which
they are manufactured since the demand of these lamps is very large considering the numbers
of lamps required by the regional power supply authorities .These lamps will be sold at about
$ 2.50 per unit which is the price of the lamps which are being imported from Lesotho.
Taking units produced = volumes of sales
Year 1 2 3
Volume of sales 2 000 000 4 000 000 6 000 000
Annual sales revenue $8 000 000 $16 000 000 $12 000 000
Table 3.6 Annual sales revenue
Estimated annual costs of promotion and marketing
3.4 Production programme required
3.4.1 Products
3U, 2U CFL and spiral lamps
There are no by products in this process
References
www.netmba.com
www.freelibrary.com
www.researchandmarkerts.com/reports
15
C Burton;Norma Michael;A Practical Guide To Project Management ;Kogan Page;
(1992);London
I Chaston;Knowledge Based Marketing; Sage Publications(2004)London
W.F Schoell, Marketing, Contemporary Concepts And Practices,(1995)Prentice Hall, New
Jersey
CHAPTER 4MATERIAL INPUTS
Compact fluorescent lamps have a number of glass tubes in which fluorescent material is
applied on the inner surface; and in which mercury steam and noble gas is injected. Also
glass tubes are connected so that they are communicable to each other.
16
Figure 4.1 Photography of an opened integrated 2U Philips cfl lamp with built in ballast
4.1 Raw Materials
The raw materials needed for manufacturing compact fluorescent lamps are:
Fluorescent powder
The potential supplier of fluorescent powder is Ideas lighting China at an approximate price
of $2000 per tonne.
Mercury
International standards require the mercury content of every CFL bulb to be less than
5mg.Therefore a 5 kg of mercury can produce 1000 000 CFL lamps. Mercury is required
with purity greater than 99.9999%.Mercury is a controlled mineral which is not purchased on
the open market due to its harmful effects. The potential supplier of mercury for use in
fluorescent lamps is Venture lighting from the United Arab Emirates. The approximate price
17
of the mercury is $13 per kg.
Cement
Cement is needed to attach the plastic caps to the and cement is available in Zimbabwe with
companies like Lafarge Zimbabwe and Portland Cement doing good in this area of
production. Price is approximately $7.50 for 50kgs.
4.2 Components
Lead glass tubes and Cane glass for bead mounting
Industrial sand and gravel, often called "silica," "silica sand," and "quartz sand," includes
sands and gravels with high silicon dioxide (SiO2) content are used in glassmaking; for many
industrial uses. Silica resources for most uses are abundant in the Gokwe and Sanyati areas
in Zimbabwe. Currently Zimglass is producing glass bottles and PG Industries is making flat
and decorating glass. These companies have the potential of supplying glass tubes to be used
for compact fluorescent lamp manufacturing. In the year 2002 a Chinese glass-manufacturing
firm came up with the idea of setting up a glass manufacturing plant in Kadoma. However
this shows that the plant is able to acquire more glass tubes as the Zimbabwean glass industry
is set to revive. The glass must contain 20% lead. The approximate price of the glass tubes is
$ 4 00 for a thousand pieces.
Tungsten wire
The potential supplier for tungsten is AM&F a US based company and Gyrotex Enterprises a
compay based in China. The approximate price for tungsten is about $15 000 per tonne.
Metal base
These metal bases are made of steel and this resource is available in abundance in Zimbabwe.
They can be made into screw in or bayonet bases .Metal is an abundant resource in
Zimbabwe although the leading company in the extraction and processing of the metal
ZISCO Steel is currently closed. Price is approximately $10 000/tone.
18
Plastic cap
The potential suppliers are Treggers plastics and Plastic Products. The approximate price is
$1.for ten pieces
Electronic ballasts
Tendo Electronics and Mukonitronics have moved a step further in the electronics industry
by producing electronic ballasts for fluorescent lamps which are much preferred than
magnetic ballasts which have transient periods before lighting the lamp after switching it on.
They are potential suppliers of compact fluorescent lamp ballasts. Fluorescent lamps require
a ballast to stabilize the current through the lamp, and to provide the initial striking voltage
required to start the arc discharge. Electromagnetic ballasts with a minor fault can produce an
audible humming or buzzing noise. Magnetic ballasts are usually filled with a tar-like potting
compound to reduce emitted noise. Hum is eliminated in lamps with high-frequency
electronic ballast. Energy lost in magnetic ballasts can be significant, on the order of 10% of
lamp input power. Electronic ballasts reduce this loss. Estimate price is $1500 per 1000
units.
4.3 Utilities
Natural gas
Natural gas with 8700 kcal/Nm ³and a necessary pressure of 2500mmAg at the inlet of the
machine. BOC Gases will be able to supply the natural gas. Zimbabwe has got natural gas
reserves at Sengwe which can be the source of the gas if a large quantity is required. The
approximate cost for natural gas is $2.50 per cubic meter.
Liquid petroleum gas
Oil less and air is required at a pressure 2500mmAg at inlet of machine. Allowable foreign
materials contained are oil less than 1PPU; humidity with pressure due point below 5 C. The
approximate cost is $20 per 8 kgs. The local supplier is BOC Gases.
Oxygen
19
The necessary pressure required for the oxygen is 2.0kg/cm² at inlet of machine. Purity of
99.999% is required. Allowable foreign materials to be contained are oil less than 1
ppm ;water pressure due point below 5ºC and dust less than 10 ppm.BOC Gases can supply
this gas locally. . The approximate cost is $30 per 14.2 kg
Argon gas
Argon is required at a pressure of 2.0 kg/cm² at inlet on machine. Purity of 99.999% is
required .BOC Gases a local gas company in can supply this gas. The approximate cost is
$0.5 per 100g.or from $2.80 to $4.00 per litre.
Nitrogen
Nitrogen is required at a pressure of 2.0kg/cm² at the inlet of the machine. Purity of more
than 99.999% is required. Oxygen should be less than 10 PPU. BOC Gases can supply this
gas locally in Zimbabwe. Approximate price is $2.75 per cubic feet.
Water
Water is required at a pressure of 2-3 kg/cm² at the inlet of the machine and a temperature of
20 ºC. The Harare City can supply this water. Costs of water can be estimated at $800 per
month.
Power
Power will be sourced from the ZESA grid. The machinery require 220 volts single phase or
380 three phase at 50 Hertz frequency. The problem is the current power cuts which have
been affecting our manufacturing industry. Costs industrial electric power of $0.91 cents per
kilowatt hour
CHAPTER 5 LOCATION SITE AND ENVIRONMENT
20
5.1 Selection
There are no restrictions for the location of the plant site but the plant will operate more
efficiently if there is convenient transportation and abundant supply of labour and materials
used to manufacture the compact fluorescent lamps.
Area of land and building
Office 6m x 5m
Warehouse 8m x 8m
Factory Building 40 x 12m
Total land required 572m²
The factory site is proposed to be in Harare in the Southerton Industrial area .The premises
will be acquired through the loan facility of Pinnacle Holdings and the Commercial Bank of
Zimbabwe. The area is linked with the railway line and road networks for the transportation
of raw materials to the plant and finished products to the market. The area is connected to the
ZESA power supply network with the use of overhead cables. Water for the plant is sourced
from Harare City Council connections in the area. The area is surrounded by the following
high density suburbs which are Rugare; Mbare and Highfields .These high density suburbs
surrounding the area will provide the labour for operating the plant. The issue of availability
for space of expansion is also to be taken into account for setting a recycling plant in the
future and for increasing production. The site is located in the Zimbabwe’s major market
Harare which will reduce the costs of transportation. The land is suitable for enlarging the
plant to accommodate larger equipments for increased production.
5.2 Environmental assessment
In order to safeguard our natural resources and the environment the manufacturing plant
should be operated within the guidelines of the environmental management act. This also
makes the plant a safe workplace for workers as required by the workers unions.
CFLs contain about 4-5mg of mercury and other phosphor compounds which are harmful to
human beings. These mainly affect the workers since they are the ones who are exposed to
them during manufacturing process therefore protective clothing such as facemasks is
required to ensure safety of the workforce. There is also need for careful handling of mercury
21
containers during transportation to avoid spills and human contact .The machinery used has
to be inspected by engineers working with the National Social Security Association (NSSA)
to ensure safe working environments. The machinery power requirements have no significant
negative impacts on the national grid since the manufacturing processes do not require much
power. The manufacturing of compact fluorescent lamps has positive impacts on the grid
after the CFLs have been installed by reducing the power consumption which indirectly
prevents the use of firewood as an alternative source of energy thereby protecting the
ecosystem. There are no major disruptions of landforms or earth movements when building
or when need to expand the plant are required. When CFLs break is when they tend to be
poisonous therefore in the disposal phase there is need to collect and recycle used up lamps to
avoid contamination of water bodies with mercury and other poisonous chemicals. The only
existing CFL recycling plant in Africa is still under construction in Lesotho. To make the
disposal less expensive there is need to set up a recycling plant near the manufacturing plant
to minimize transportation costs to Lesotho and other expenses for the recycling services.
This project impacts on the economic environment by increasing the inflow of revenue into
the nation and increase the Gross Domestic Product of Zimbabwe. The implementation of the
project depends on the political climate in the nation because it is the one which affects the
confidence of the investors. The government’s policies towards manufacturing industries and
the issues of good governance in the government also affect the day to day running of the
plant. In conclusion positive impacts of the project outweighs negative impacts and investors
interested in the lighting industry must perform more researches on CFL manufacturing
technologies that are more environmental friendly than existing ones if possible.
CHAPTER 6PROJECT ENGINEERING
22
6.1 Plant capacityBetter utilization of capacity means better utilization of resources. It is an important
consideration for cost determination and cost reduction. Thus, it is essential to establish the
capacity of the plant
The costs accounting standard is used to determine the plant capacity for the compact
fluorescent manufacturing plant (CFL) manufacturing plant.
6.1 (a) Determination of installed capacity
Installed capacity is determined based on equipment manufacturers’ technical specification which is 1200 units per hour. It also depends on the number of shifts. The company will have 3 shifts.
6.1 (b) Determination of practical / achievable capacity
Practical capacity or achievable capacity should be determined after adjustment of the following with the installed capacity.
- Available production hours taking into consideration holidays, normal shut down days and normal idle time.
- Normal time loss in batch change over, break downs of machines, repairs etc- Loss in efficiency due to ageing of the machines/ equipment
Taking these into consideration there are about 12 holidays in Zimbabwe which the plant would not be operational on Sundays. The capacity of the plant will be calculated as follows after determination of the following parameters:
Manufacturers’ Specifications - capacity per hour = 1200 units
No of shifts (each shift 8 hours) = 3 shift
Holidays in a year:
Sundays = 52 days
Other holidays = 13 days
Annual maintenance from is done within these 13 holidays.
Preventive Weekly Maintenance for the machines on Sunday.
23
Normal idle capacity for batch change over,
Lunch, personal need etc = 1 hr per shift
Calculations for the plant capacity
Installed Capacity for the machine = 365 x 8 x3x 1200 = 10.5 million units
Practical Capacity = ( 365 – 52– 13) x ( 8 - 1) x 3 x1 200 = 7.6 million units
For normal years 3, 4 and 5 the normal capacity is calculated as (3.5+5+7)/3=5.2 million
Production schedule for the plant
Year Units to be
produced
Actual capacity utilisation
1 1 500 000 14.2%
2 3 000 000 28.6%
3 5 500 000 52.4%
4 6 000 000 58.8
5 7 000 000 66.7%
6.2 Relationship between sales plant capacity and material inputs
According to Eugene et al in Financial Management Theory and Practices the relationship
between sales is proportional to its production. It’s reasonable to assume that cash ,accounts
receivable and inventories will be proportional to the sales .It is advisable for the plant to
install more capacity due to economies of scale in building capacity. Even if plant is
operating at maximum capacity most companies produce additional units by reducing
downtime for maintenance, by running at a higher optimal speed, or adding a second or third
shift. In the short run the company may not have a close relationship between sales and net
plant and equipment.
During the initial years of the plant managers build the actual planned expenditures on plant
and equipment. It is difficult to continue increasing sales unless capacity is added therefore it
24
is reasonable to assume that long term ratio of net plant and equipment to sales will be
constant.
6.1 Scope of project
Year Expected production Technologies used Target market
1 2 000 000 CAM Zimbabwe
2 4 000 000 CAM Zimbabwe
3 6000 000 CIM Southern Africa
4 8 000 000 CIM Southern Africa
5 10 000 000 CIM Southern Africa
6.2 Tables 6.1 showing scope of the project
6.4 Technology and equipment
6.4.1 Technologies and processes that can be adopted
Fig 6.2 Product cycle.
25
DESIGN PROCESS
CAM
MANUFACTURING PROCESS
NC – Numeric Control
CNC-Computer Numeric Control
26
Design conceptualization
Feasibility study with CFL design information
CFL Design specificationssss
Design need
SYNTHESIS
Design evaluation
Design analysis optimization
Design Analysis modelDesign
documentation
ANALYSIS
CAD +CAE
Production planning
Production of CFLs
Quality control
Packaging ShippingProcess planning
Design and procurement of new tools
Order input materials
Marketing
NC,CNC,DNC programming
DNC- Digital Numeric Control
The process of making compact fluorescent lamps is complex other than that of making
incandescent lamps which does not involve processes like coating or fusion. This however
makes the capacity for the plant produce fewer lamps than an incandescent lamp plant of the
same size. The machines are automated to make production easy and faster. For the industry
to survive there is need to produce products with better quality at a lower cost and with
shorter lead time. To achieve these there is need to use computers huge memory capacity, fast
processing speed and user friendly interactive graphics which are capable to automate and tie
together some cumbersome and separate engineering or production tasks. This reduces the
time and costs of product development and production. Computer aided design
(CAD) ,Computer-aided engineering(CAE) ,Computer-aided manufacturing(CAM)are the
technologies that can be adopted for these purposes during the production cycle.
In lamp bulbs manufacturing industries computer-aided design (CAD) is the technology
concerned with the use of computer systems to assists in creation, modification, analysis and
optimization of the lamp design. These CAD tools can be used to manipulate shapes of the
lamps to be produced in the plant, design mechanical parts for the equipment used in the
manufacturing process, design of the electronic ballasts and layout of machinery in the plant.
The greatest benefits of CAD are that it can save considerable time and reduce errors caused
by having to redefine the geometry of the product design from scratch every time it is needed.
CAM is the technology concerned with the use of computer systems to plan, manage and
control manufacturing operations through either direct or indirect computer interface with the
plant’s production resources. The product cycle for the manufacturing of compact fluorescent
lamps is composed of two main processes. The design process starts from customers’
demands that are identified by the marketing personnel and ends with a complete description
of the product, usually in form of a drawing. The manufacturing process starts from the
design specifications and ends with the shipping of the actual product. There are two types of
activities which are involved in the design process which are synthesis and analysis. The
manufacturing process begins with process planning, using drawings from the design process
and it ends with the actual products. The outcome of process planning is a production plan, a
materials order, and machine programming. In lamp manufacturing one of the most
significant areas of CAM is numerical control (NC). This technique of using programmed
instructions to control the machine tools that can cut bent the glass tubes into finished
27
products. Another significant function of in bulbs manufacturing is the programming of
robots, which may work in work cell arrangement, selecting, and positioning tools and
workpieces for numerical control machines. They also perform operations of assembling
parts on machines like on the capping machine and the fusion machine.
Computer-aided engineering (CAE) is a technology concerned with the use of computer
systems to analyze CAD geometry, allowing the designer to simulate and study how the lamp
or other components such as ballast will behave so that the design can be refined and
optimized.CAE allows the engineer to catch any errors before going to the time and the
expenses of building and testing physical prototypes.
The technology called computer-integrated manufacturing is to be used in the project to
combine the three technologies mentioned earlier using a database as a way to run the entire
plant more efficiently. It has an impact on shipping, scheduling, accounting and other
management functions in addition to the engineering design and production functions.CIM
has the following benefits
- CFLS can be produced with improved quality.
- New products are developed more rapidly and at a lower costs, that is , reduction in
lead times and savings in material.
- Better customer service.
- Reduced design costs.
- Simple production plan.
- It forces review and improvement of existing design and manufacturing practices and
production planning.
6.4.2 Technology description
The material inputs as described in chapter 4 of the project are used to manufacture these
lamps using the processes as shown in the diagram below .the
28
Fig 6.2 CFL Manufacturing Overview diagram
6.4.2 Technology description
Glass tube cutting.
Glass tubes are fed into the glass cutting machine where they are cut to a specific length .The
machine has a trough for storage of glass tubes. When a glass tube is fed in the tube will be
automatically sent to the cutting mechanism to cut into specific length. The tubes will be sent
to end glazing mechanism. A detective device will remove an uncut tube. It is then sent to the
bending machine. The cutting machine automatically supplies tubes to the bending machine.
Tube bending
The tube from cutting machine then is bent and molded into a U shaped tube. Tubes are fed
from the cutting machine and fed into the heating device of the bending machine. At initial
stages of heating the tube is moved transversely in order to make the heating uniform. At
later stages of heating the tube is bent only on one side, so the tube will not move
transversely in order to let the tube to be heated just on the bending side. The bending is
29
proceeded with synchronous heating, making the bottom part of the tube to be much thicker.
The forming mold is applied controlled temperature in order to make the surface smoother.
Washing and coating
The U formed glass tube is cleaned, coated and dried in the washing/ coating machine before
baking it. The clean glass tube is dried by hot air and then coated with aluminum oxide at the
end of the tube by supersonic wave and dried off again. The tubes are conveyed to a position
of coating .Before coating the tubes are reversed and fluorescent paste is filled into the tube.
The quantity to be filled is controlled by a sensor. The tubes will be reversed again making
the coating to be distributed uniformly.
Baking
Baking eliminates all compounds except the fluorescence in the glass tube hot flowing air. At
the first stage, while the tube being heated, there are also two heads bellowing in oxygen,
making it easier to eliminate all the impurities. At the last stage, the tube will be cooled off.
Nitrogen gas is then blown in to reduce the possibility for the fluorescence to absorb
moisture.
Bead mounting
The tungsten filament and glass ring (bar) is fastened onto the lead in wires and coat the
filament with a certain quantity of oxide. At this moment, the tungsten filament is
automatically being fed in to mount on the lead in wire and the excessive edge will be cut off.
Sealing
The exhaust tube, and the mounting with the coated glass tube are combined and then fed in
automatically to the sealing machine. After the auto fed in glass tube being preheated, the
mounting will then penetrate into it. That will make the tungsten inside the tube to be heated
for shorter time. During the heating process, hot Argon is blown into the tube to prevent
oxide poisoning.The tube is then moved to the annealing oven in the sealing machine
1 st FUSION
Two glass tubes are fused so that they are communicable to each other. The two tubes will be
held into 60º to passing through a preheating oven to be heated thoroughly, in order to
prevent the tubes to be cracked at fusion. Before fusion, there is a mold to form a convexity at
30
the position to be fused. Then the convexity will be burnt into a hole and fused. This type of
fusion can avoid the glass being mixed up with the fluorescence. .
2 ND FUSION
This machine is functioned to fuse the third sealed glass tube together with the two fused
glass tubes, forming a series circuit within those three tubes when lighting up. These tubes
will be heated thoroughly while passing through the preheating oven, which used to prevent
the tubes being crack at fusion. Afterwards, the position for fusion will be formed up a
convexity by a mold, then burned into a hole and fused. This type of fusion can decrease the
possibility for the glass to be mixed up with fluorescence, also the fusion hole will be bigger
and more harmony. Moreover, the reverse side of the tube will be heated at the same time of
fusion, in order to reduce the pressure deriving from fusion.
Exhausting
The semi-finished fluorescent tube is undergone through an oven. The temperature of the
oven is auto-controlled and there are four leakage detective mechanisms inside the oven.
Simultaneously, there is a water cooling system. Then the tubes will be processed through
four Argon flushing mechanisms to enhance the purity inside the tubes. Then Argon will be
filled up the tubes and the mercury also dropped in. Finally, the exhaust tube will be cut off
and the remnant tube will be removed.
Ageing
The semi-finished tube that has been undergone exhaust is to undergo ageing by lighting up
with different voltage. The procedure is to pre-heat the tungsten first, and then lighted up by
high and usual voltage. Moreover, the voltage for lighting can be adjusted at a specified
range. You only need to press the selective switch on the control-box, and then the voltage
will be switched.
Capping
The capping is done by the capping machine which has 60 sets of chucks to hold the tube.
The sets of the capping machine are used for holding the tube. The cap and tube are
31
automatically fed in the chuck; the cap will be heated to solidify the cement, and then fixing
the cap on top of the tube. The finished tube will be auto pick out of the machine.
Cement filling
The vibrator of the cement filling machine delivers the cap automatically. The cap is
conveyed to the position under a fixed cement bucket. A chuck will clamp the cap up to the
hole to fill in a certain amount of cement.
Equipment used in CFL manufacturing process
These are the machines used in the process of making compact fluorescent lamps. They all
work on a 220V single phase and 380V triple phase at 50Hz or 60Hz.The main mechanisms
of these machines are mechanical and apply heating systems therefore since polytechnics and
universities in Zimbabwe are producing graduates in the field of mechanical engineering with
the support of existing companies in the manufacturing industry these machines can be made
locally.
Figure6.3.1GLASS CUTTING MACHINE
32
Figure 6.3.2
BENDING
MACHINE
Figure 6.3.3 WASHING AND COATING MACHINE
33
34
Figure6.3.4BAKING MACHINE
Figure 6.3.5 BEAD MOUNT MACHINE
35
Figure 6.3.6 Sealing
Machine
Figure6.3.7Fusion Machine
36
Figure 6.3i 2 ND
Fusion Machine
Figure 6.3.Exhaust Machine
37
Figure 6.3j
Ageing
Machine
38
39
6.4.3 Environmental impacts of technologies
It is necessary to implement technologies which have a smaller environmental impact to
reduce pollution of the environment. The environmental effects are evaluated by carrying
lifecycle analyses of the CFLs. The main emphasis is placed on energy consumption and
emissions linked to this during the production; operating and scrapping phases of the lamps.
On average CFLs contain 5 milligrams of mercury which is small as compared to mercury
fever thermometers.
Lifecycle analysis shows that the use of compact fluorescent lamps instead of incandescent
lamps as expected leads to reduced emissions of carbon dioxide sulphur dioxide and nitrogen
oxides; methane and solid waste.
Fig 6.8 -Principle of analyses of energy
Environmental effects
Energy service
40
Environmental effects Environmental effects Environmental effects
Total energy and material consumption for production of the energy technology and materials used
Total energy and material consumption to operate energy technology including converting losses.
Total energy consumption and material flow for scrapping , recycling and depositing the energy technology
Production OperatingScrapping
6.4.3 Production phase
Compact fluorescent lamps (CFLs) contain mercury and other chemicals such as antimony,
barium and lanthanides which may cause problems during production. These chemicals are
hazardous to the health of workers .The CFL is a complex technology than an incandescent
lamp due to electronic ballast, phosphor coating leading to a complex process of manufacture
and thus energy consumption for the production of CFL is of significant size as compared to
that of incandescent lamps.
6.4.3 Operating phase
CFLs consumes less energy during operating phase than incandescent lamps .This the reason
why it is attractive to use compact fluorescent lamps instead of incandescent lamps from a
cleaner energy point of view because reduced emissions from electricity production assuming
the same usage pattern of CFLs and incandescent lamps. Mercury inside the lamp is safe
unless the bulb is broken. A small amount of ultra violet (UV) light is emitted by fluorescent
lamps and exposure to UV for 8 hours is equivalent to 1 minute of sun exposure However
UV affect sensitive paintings especially water colors and textiles. The UV light also causes
problems to people with high pathological sensitivity to UV light .UV induced a disease
called crythematosus in photosensitive individuals’ .Fluorescent lighting with magnetic
ballasts flicker at an unnoticeable frequency and this causes problems for people who are
light sensitive.
Electrical power equivalents for differing lampsCompact Fluorescent (W) Incandescent (W) Minimum light output] (lumens)
9–13 40 45013–15 60 80018–25 75 1,10023–30 100 1,60030–52 150 2,600
Figure 1.1 Electrical equivalents of incandescent lamps and CFLs
41
Figure 1.2 Mercury emissions by ligt source
Fig 1.3 Electrical consumption of bulbs as compared to luminous flux
42
6.4.3. Disposal phase
CFL bulbs should be disposed with care to avoid mercury pollution into the environment
which is a health hazard to people and other living organisms. Instead CFLs may be subjected
to some sought of collection and be recycled which would lead to damages being reduced.
Larger risk than that of mercury is found in phosphors which are rich in beryllium europium,
terbium and strontium found in electronics. The phosphor causes quick infection and slow
healing of broken tube cuts.Currently the Zimbabwe Electricity Supply Authourity (ZESA)
has identified a dumping site for these lamps whichis to be protected to keep they trash from
reach of animals and humans. This idea needs to be supplemented with the building of a
recycling plant which proves to be a cleaner and safer disposal method.
6.4.4 Estimate of costs of technology
The plant will implement the computer integrated manufacturing (CIM) technology which is
estimated to costs the firm USD$ 950 000.The technology consists of the software and
hardware required to carry out CIM.
6.4.5 Layout of proposed equipment
Plant layout is an important aspect of the flow of components and materials throughout the
manufacturing cycle. The equipment for the manufacturing of compact fluorescent lamps
should be efficient and orderly as shown in Fig 6.9.The plant will use the layout used in fig
6.9 below
Figure 6.9 Layout of machinery
Tube cutting machine tube bending washing machine
Sealing Bead mounting Machine Baking
machine
43
1st Fusion machine 2nd Fusion machine exhausting
Machine
Cement filling Capping machine Aging machine
Machine
The plant layout shown in Fig 6.9 is called the S-flow .It offers the following advantages:
- Better space utilization.
- Simpler inspection.
6.4.6 estimate of investment cost of equipment
Equipment Estimated cost ($)per unit
Tube making machine 75 000
Tube cutting machine 45 000
Tube bending machine 95 000
Washing and coating machine 100 000
Baking machine 100 000
Bead mounting machine 100 000
Sealing machine 150 000
24H fusion machine 150 000
48H fusion machine 150 000
Exhausting machine 100 000
Aging machine 75 000
Capping machine 35 000
Cement filling machine 20 000
Total 1 195 000
44
6.5.1 Civil engineering works
- Site pegging
- Site clearance
- Ground leveling
- Water connections
- Roads construction
- Foundation laying
- Building structures
- Roofing
6.5.2 Arrangemnt of buildings
Buuildings will be arranged as shown in figure 6.10
Civil engineering works
ENTRANCE
45
WORKSHOP WAREHOUSE
LOADING AND OFFLOADING ZONE
Offices PARKING
SPACE
ACCOUNTING ENGINEERING
ADMINSTATION
MARKERTING
ENTRANCE
The office is to be built using bricks and roofed with corrugated asbestos material. The
premises are fenced using a durawall. The plant and warehouse is built using corrugated steel
sheets. The Harare city council is responsible for developing the area after it has been
purchased.
46
References
www.indiamart.com
www.alibaba.com
turnkey.taiwan.com.tw
www.wikipedia.org
Annette Gydesen et al, Lifecycle Analyses Of Integral Compact Fluorescent Lamps Versus
Incandescent Lamps .Netherlands.
Kuller,Lainke T (1998).The Impact Of Flicker From Fluorescent Lighting On Well Being,
Performance And Physiological Arousal .Ergonomics 41(4) 433-47
Chang,T .C. et al. Computer Aided Manufacturing, 2nd ed., Prentice-Hall, Englewood
Cliffs,NJ,1998
Chapter 7 Organisation and Overhead costs7.1 Organisational layout
Figure7.1 Organisational layout for the firm
47
General management
R&D MANAGER
MARKETING MANAGER
PLANT MANAGER
ENGINEERING MANAGER
Finance Manager
Marketing techniques
Project development
Lamp development
Sales
Sales administration
Advertising and promotion
Lamp design
Preliminary design
Quality control
Tooling
Purchasingscheduling
Production planning
Cost accounting
Budgets
Financial planning
Statistics and data processing
General accounting
MATERIALS CONTROL Inventory control
Plant maintenance
Assembly
Human resources
Employee recruitment
Welfare of workers
Figure 7.1 Organisational Structure
The study noted that the above organization is the most suitable for manufacturing
companies. This type of organization is called the Process-focused organization in which the
first level supervisors tend to be experts in production technology they supervise, and they
must coordinate the utilization of people, machines, and material in the manufacturing of
lamps. The firm must adopt this organisational structure because it gives stronger support to
the competitive priorities of product flexibility and quality. The costs and profit responsibility
in this type of organisation is at a high level and they have highly developed staff functions at
a higher levels in the organisation. There is a logical reflection of functions.
48
7.2 Estimated overhead costs.
Year Year 1 Year 2 Year 3 Year 4 Year 5Expense CostsPower $5 000 $10 000 $10 500 $11000 $12 000Fire and insurance $500 000Heating and lighting $800Maintanance $2000Indirect material $4000Rates $4800 $2 000 $2 000 $2000 $2 000Depreciation of plant and Machinery
$10 000 $10 000 $10 000 $10 000 $10 000
Phone $1 500 $3 000 $4 000 $4 500 $5000Material inputs $1000 000 $2 000 000 $3 000 000 $3 500 000 $3 700 000Repairs on machinery
$5 000 $11 000 $12 000 $12 000 $12 000
Total $1 023 500 $2 036 000 $3 039 000 $3 539 500 $3 741 0007.2.1 Factory overheads for a 5 year period
Expense Year 1 Year 2 Year 3 Year 4 Year 5Stationery $3 500 $5 000 $5 500 $5 500 $5 500Office furniture $15 000 $20 000 $20 000 - -Transport $200 000 $450 000 $700 000 $800 000 $900 000Allowances $100 000 $200 000 $350 000 $500 000 $500 000Total $318 500 $675 000 $26 560 $1 305 500 $1 405 500
7.2.2 Administration Expenses
7.2.3 Financial Expenses
Expense Year 1 Year 2 Year 3 Year 4 Year 5Marketing $30 000 $60 000 $30 000 $30 000 $30 000Insurance $400 000 $400 000 $400 000 $400 000 $400 000Salaries and wages $200 000 $400 000 $500 000 $500 000 $500 000Taxes $150 000 $300 000 $450 000 $500 000 $550 000Total $780 000 $1 260 000 $1 380 000 $1 430 000 $1 490 000
7.2.4 Total overhead costs
Year Year 1 Year 2 Year 3 Year 4 Year 5Total costs $ 2 122 000 $3 971 000 $4 445 560 $6 005 000 $6 636 500
49
Chapter 8 Human ResourcesEstimated Human Resources required for the CFL plant
8.1Human Resource 8.2 Costs per annum
Management
General Manager=1 $48 000
Legal advisor=1 $39 600
Financial Advisor=1 $39 600
Secretary= 1 $7 200
Human Resources Department
Human Resources Manager=1 $18 000
Secretary=1 $7 200
Engineering Department
Engineering Manager=1 $24 000
Secretary=1 $7 200
Quality controllers=6 $108 000
Electricians=3 $108 000
Project manager=1 $24 000
Mechanical Engineer=2 $36 000
Electrical Engineer=1 $18 000
Marketing department
Marketing Manager=1 $24 000
Secretary=1 $7 200
Sales Executive=2 $19 200
50
Sales Representatives=6 $43 200
Production Department
Plant Manager=1 $24 000
Production Technicians =3 $108 000
General Hands=50 $240 000
8.1Human Resource 8.2 Costs per annum
Drivers =10 $72 000
Research and Development
R & D Manager=1 $24 000
Secretary=1 $7 200
Design engineers=1 $18 000
Markert Researchers= 3 $36 000
Finance Department
Finance Manager=1 $24 000
Secretary=1 $7 200
Accounting assistant=4 $48 000
Clerks=4 $28 800
Total=111 1 053 600 per annum
51
CHAPTER 9 IMPLEMENTATION SCHEDULEFugure 9.1 Implementation schedule
8.1 Task Duration / months 8.2 Implementation costs
Report preparation 6 $120
Loan acquisition 6 $50
Site selection 4 $100 000
Construction 18 $ 3 000 000
Machinery acquisition 4 $1 195 000
Machinery installation ½ $ 950 000
Power installations ½ $100 000
Company registration ½ $200
Human resources recruitment 2 $200
Water connection 3 $3 000
Material input acquisition 1 $1 000 000
Trial production 6 $500 000
Commercial production 6 $2 000 000
Total $8 848 570
52
Chapter 10 Financial analysis and investment
10.1 Total investment costs10.1.1Estimate of capital requirements
Requirement Costs
Feasibility study $300
Material inputs $1000 000
Land $1000 000
Construction $2 000 000
Technologies $ 950 000
Equipment $1 195 000
Overheard costs $400 000
Salaries $700 000
Project implementation $300 000
Motor vehicles $600 000
Production costs $2000 000
Total capital required $10 145 000
10.1.2 Estimated fixed assets
Below is a lists of fixed assets required for production of compact fluorescent lamps.
-Land (for the expansion of plant and setting up of recycling plant)
-Vehicles (for transportation of labor raw materials and products from one point to another)
-Plant equipment (shown in chapter 6)
-Office equipment
10.2 Project financing
Project financing is the raising of funds on a limited recourse and non recourse basis to fund an
economically separable capital investment project in which providers of the funds look at the cash
53
flow from the project as the source of funds to service their loans and provide the return on their
equity invested in the project. The project requires financing to a tune of $10 000 000 for the plant to
be established and become operational.
10.2.1 Capital structure
The directors of the firm have to decide on the weather to raise the capital by borrowing or by issuing
shares. Electric lamp manufacturing plants have a high financial leverage as compared to service
industries such as accounting firms that operate on almost no long term debt. The project will be
financed from 50% internal sources and 50% will be external long term sources payable within a
period of 5 years .The interest will be charged on compound interest basis at the rate of 20%.The 50%
funding would be provided with Zesa Enterprises as shareholders equity. The other 50% will be
funded by the Infrastructural Development Bank as a long term debt.
10.2.2 Cost of finance
Capital is a necessary factor of production and it has a cost. The costs of finance are critical important
in the financial position of the business in that proper budgeting decisions require an estimate of the
cost of capital. The cost of capital is also required to discover whether the return on proposed
investment is sufficient to justify raising the capital to fund it. To determine the costs of capital we
create the weighted average cost of capital. The firm will use debt finances during the first five years
can obtain additional equity by listing on the stock exchange and issuing out ordinary shares to
prevent the debt ratio from becoming too large. The firm is to be taken as an ongoing concern and the
costs of capital used in capital budgeting is calculated as the weighted average. Any net increase in
then assets is financed by an increase in the capital components. These major capital components used
in calculating the weighted average costs of capital(WACC) are:
Kd =interest rate on the firms new debt taken as 20% in this project= component costs of debt
before tax
Ki= Kd(1-t)==component cost of debt after tax where t=tax rate.
kp=component costs of preferred stock.=Dp/Pn
Ke= costs of equity before- tax=costs of debt before tax +risk premium in expected return for
stock over debt.
Average costs of capital
54
Once we have computed the costs of individual components we then assign weights to each
financing source according and then calculate the (WACC)
n
Cost of capital =∑ kx(Wx) where kx is the after tax method of financing,wx is the weight
given x=1
to that method of financing as a percentage of the firms total financing.
Costs of capital =ki(Wi)+kp(Wp)+ke(We)
Figure 10.1 Costs of capital
1. COSTS 2. PROPORTION OF
TOTAL FINANCING
3. WEIGHTED COSTS
(1X2)
Debt ki 35% 0.35ki
Preferred stock kp 25% 0.25kp
Common stock equity ke 50% 0.5ke
Total ke +kp+ ki 100% 0.5ke +0.25kp+0.35ki
10.3 Production costs
These are the production costs for the first 2 000 000 lamp’s to be produced in the first year.
Figure 10.2 Production costs for the first year of production
Description Amount
Production salaries $372 000
Raw materials $1000 000
Fixed costs $600 000
Variable costs $150 000
Semi fixed costs $150 000
Overheads $122 000
Total $3 240 000
55
10.4 Financial evaluation of the above mentioned values
10.4.1 Payback period
Payback period is the length of time it takes for an initial investment to be repaid out
of the net cash inflows from the project .The payback period of the project s
calculated from the expected cash inflows as shown in chapter 3.
Figure 10.3 Payback period
Amount
Initial investment 10 000 000
Year 1 2 000 000
Year 2 4 000 000
Year 3 6 000 000
Year 4 8 000 000
Year 5 10 000 000
Payback period= (10 000 000/12 000 000)x 3
=2.5 years
The payback period for the project is reasonable enough for a profit minded investor.
10.4.2 Break even point
10.4.2 a Break Even (Quantity)Point
56
The intersection of the total costs line with total revenues generated from the sales of the
compact fluorescent lamps determines the break even point. Mathematically we find this
point in units by first noting that profit operating profit (EBIT)equals revenue minus variable
and fixed operating costs:
EBIT=P(Q)−V(Q)−FC
=Q(P−V) –FC
Where EBIT=Earnings before interest and taxes (operating profit)
P=price per unit($4)
V = variable costs per unit($1.50)
(P– V)=unit contribution margin
Q=Quantity produced and sold
At the break even point EBIT = 0 THEREFORE
0=QBE(P−V)- FC
THEREFORE QBE=FC/(P – V).
Therefore be is equal to 600 000/(4 – 1.5) =240 000 units
Therefore increments in volumes above break even point increases profits as volume
below break even increases losses. Below is a diagram showing the break even point of
the lamp manufacturing plant
Figure 10.4 Break even analysis
57
Revenues and costs $ milllions
Total revenues
Profit
Total costs
Units produced
This shows that in order to operate at a profit the plant should produce and sell more than 230
760 compact fluorescent lamps annually. Any sales below this value yield a loss.
(a) Internal rate of return
This is a method of investment appraisal which is used to evaluate the profitability of an
investment project. It is a discount rate which when applied to the future cash flows ,will
make them equal the initial outlay. In another way it is a discount rate which will have the
effect of producing a net present value of precisely zero.
Calculation for the internal rate of return
IRR = ∑ A/ (1+r) n
The above formula will be used to evaluate the IRR by equating it to zero and
calculating the value of r and the value must be one of those listed above depending
on economic conditions for a successful lamp manufacturing in Zimbabwe.
Where A.....net cash outflows
58
600 000 UNITS
$2.4 milli
Loss
Total costs
Variable costs
Fixed costs
R......internal rate of return.
N …..Number of years of expected cash inflows
10.4.3 Sensitivity analysis
Sensitivity analysis can help in the CFL manufacturing process in a variety of other
circumstances which can be handled by the settings illustrated below:
- to identify critical assumptions or compare alternative model structures
- guide future data collections
- Detect important criteria
- Optimize resources allocation
Usually variations in life, annual costs and revenues result in variations in selling price and
operation at different levels of capacity. If the operating level is purged at 90% of its capacity
operating costs and revenue per unit lamp produced will increase as compared to operations
at 50%. The new proposed production operating costs and revenue may increase but lifespan
of machinery will probably decrease only slightly. In a decision problem, the managers may
want to identify cost drivers as well as other quantities for which we need to acquire better
knowledge in order to make an informed decision. On the other hand, some quantities have
no influence on the predictions, so that we can save resources at no loss in accuracy by
relaxing some of the conditions. Sensitivity analysis can help in a variety of other
circumstances which can be handled by the settings illustrated below:
-to identify critical assumptions or compare alternative model structures
-guide future data collections
-detect important criteria
-optimize the tolerance of manufactured parts in terms of the uncertainty in the
parameters
-optimize resources allocation
However there are also some problems associated with sensitivity analysis in the business
context: Variables are often interdependent, which makes examining them each individually
59
unrealistic, for example changing one factor such as sales volume, will most likely affect
other factors such as the selling price. Often the assumptions upon which the analysis is based
are made by using past experience/data which may not hold in the future.
10.5 National economic e valuation(Economic costs benefit analysis)
The benefit costs ratio is based on a ration of costs associated with the lamp manufacturing
industry. The investors of the project are attracted with the benefits derived from the
implementation of which are reduced by the disbenefits of the project. The project is
estimated to have a positive cost benefit ratio since benefits are estimated to be greater than
disbenefits. The only disbenefit to be considered is the debts which have to be sourced from
other projects by the main shareholders and the risks of realizing losses.The following
10.5.1a Exchange rate.
Zimbabwe has been using the multiple currency system meaning that the exchange rate is
determined by the situation of the respective countries’ economy. The countries reserve of
liquidity are not healthy since it is coming from a financial breakdown. The export of
compact fluorescent lamps to other countries by the firm will generate
10.5.1b Value Addition
This is the difference between the costs of a finished compact fluorescent lamp and the
overall costs met in manufacturing. Hence the value generated is the profit realised by the
firm.
10.5.1c Employment effects
The establishment of a compact fluorescent lamp manufacturing plant will create 111
employment opportunities in Zimbabwe. This will reduce the unemployment rate of the
nation and improve the livelihoods of those employed by the company. There is need to set
up many manufacturing and processing industries for a significant reduction of the
unemployment rate which was pegged at 80% in 2009.
60
10.5.2 Determination of significant distortions of market prices
The suppliers of compact fluorescent lamps sold about 300 000 compact fluorescent lamps
since 2009 January. The low demand of individual customers causes distortions in prices of
CFLs. The very low demand is caused by the relatively high price of CFLs as compared to
incandescent lamps which are installed in about 98% of Zimbabwean homes. However there
is need for the government to subsidies CFL production so that the price lowers and the CFL
will get a good position in the lighting market. The influx of low quality compact fluorescent
lamps whose costs are less than that of standard lamps has also affected market prices
negatively. There is need for the government to put stringent measures on importation of low
quality products to protect consumers as well as other players in the industry. The prices of
incandescent lamps in Zimbabwe have been the major drawback in the implementation of the
CFL technology since some of them cost a dollar for 10 units. There is need to ban the
importation of incandescent lamps in Zimbabwe but the Zimbabwean government has
insisted on increasing import duty on incandescent lamps and the importation of CFLS at
zero import duty. Increasing import duty on incandescent lamps will not help as it will still
leave the incandescent lamps cheaper than CFLs even after increasing duty by 300%.Duty
cannot be increased further after a certain percentage.
10.5.3 Economic industrial diversification.
The plant can be improved to produce other bulbs of the energy saver type. This requires the
injection of extra capital or reinjection of profits realized back into the business. Other than
producing U shaped CFL lamps the plant can move on to produce spiral shaped lamp by just
putting the spiral bending machine on the production line. Research and development of lamp
technology can also be done at the plant as the LED technology is becoming the most
favoured in the lighting industry. Other CFL technologies like the cold cathode lamps can be
produced at the plant .The firm can also move a step further to manufacture its own electronic
ballasts and other circuit boards which can be used in the electronic industry.
Conclusion
The data acquired in this research shows that it is feasible to manufacture compact
fluorescent lamps in Zimbabwe commercially. This however requires the generation of an
innovative mindset by the local business people and the creation of an investment friendly
environment by the Government of Zimbabwe.
61