A Business Plan On Palm Oil Production Submitted To: Dewan Mahboob Hossain Assistant Professor Department Of Accounting & Information Systems University of Dhaka Submitted By: Roll Ibrahim Khan 13090 Md.Faruk Hossain 13061 Md.Aslam Hossain 13010 Ripon Biswas 13070 Azizul Hoque 13048 Monirul Islam 13029 13 th Batch,Sec:A Department Of Accounting & Information Systems
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A Business Plan OnPalm Oil Production
Submitted To:
Dewan Mahboob HossainAssistant ProfessorDepartment Of Accounting & Information SystemsUniversity of Dhaka
Submitted By: Roll
Ibrahim Khan 13090Md.Faruk Hossain 13061 Md.Aslam Hossain 13010Ripon Biswas 13070Azizul Hoque 13048Monirul Islam 13029
13th Batch,Sec:ADepartment Of Accounting & Information SystemsUniversity of Dhaka
Date of Submission: 2nd July, 2010
EXECUTIVE SUMMARY
Palmo’s product line comprises one basic category of oil which is four bottle size of 500ml, 1 litre,3 litres and 5 litres. A new generation of edible oil with Palmo, is a delicious-tasting, fat free, cholesterol free, that can be used as edible. Palm fruit based Palmo is an excellent source of bio available calcium and least allergic of all edible oil available on today's world.
The total demand of edible oil is 16,570,000 tonnes (per head 1120 ml) and supply is 13,326,000 tonnes including the imported edible oil. Among the edible oil producers Rupchanda is the biggest by holding 20% of demand so it grabs almost 40% of total supply. Teer, Fresh, are holding sizeable portion of the market. Palmo uses cost leadership and differentiation strategies to gain competitive edge over its competitors. It gets the first mover advantage over all potential edible oil brands.
Palmo is not only an entrepreneurship venture but also an ecopreneurship endeavor. The production process is eco-friendly because there are no chemical or harmful particles used in the production and the disposal system is safe. The company also emphasizes safety and hygiene issue of the human resources.
The firm has a marketing strategy of positioning its product on the basis of low price and quality. The objective of its marketing campaign is to make people aware about palm oil concept and its benefits over ordinary edible oil. To reach the segmented portion of buyers in Dhaka Palmo uses all the four means of marketing mix and marketing tools like TVC, FM radio ads, newspaper ads, campus campaign, assurance program and 24/7 help desk.
The production of Palmo is done in the own operational plant in Narayanganj because of the convenient transport and communication. The operation of Palmo consists of three phases— procurement and storage, production and packaging phase. The finished products are distributed by the help of local distributor.
The project is associated with risks like demand risk, supply risk, economic risk, political risk etc. which is reflected in the discount rate (20%). The estimated project cost is BDT 8,493,500 in FY 2011-12 which is financed by 69% equity from partners and 31% debt from lenders. The ratio analysis shows net profit margin of 3%, 16.8%, 20.2%, 20.8% and 21.2% in FY 2011-12, 2012-13, 2013-14, 2014-15, and 2015-16 respectively. The projected financial statements also portray liquidity and solvency of the firm. The NPV of the project from 5-year financial projection is positive by BDT 113,979,595. The IRR of the project is 52%. The payback period is 2.10 years and discounted payback period is 2.54 years. The stress testing shows positive NPV in all the three cases— base (BDT 113,979,595), best (BDT 120,053,800) and worst (BDT 14,275,886). The social cost-benefit analysis also reveals positive social NPV of BDT 123,024,450 at 25% discount rate and the social IRR of the project is 56%.
TABLE OF CONTENTS
SERIAL NO
PARTICULARS PAGE NO
1 Chapter 1:
Business Idea, Product offering, Business Model 01
Palmo is the vegetable oil brand which is produced from high quality palm fruits imported from Malaysia.Palmo is an option for the edible consumers of Bangladesh and it is also an innovative value added product of palm fruits. The edible oil industry of Bangladesh has encountered problem due to huge shortage of supply. Also the price and the quality of the edible oil are not reasonable enough. Palmo identifies these top problems as opportunity and combines solutions into one direction which is producing edible oil from palm fruits to introduce vegetable oil in Bangladesh market as an offering.
1.2 PRODUCT OFFERING
Palmo original— Original vegetable oil.Palmo markets its products in 4 bottle sizes: 500ml, 1 Liter, 3 Liters and 5 Liters
1.3 FEATURES AND UNIQUE SELLING PROPOSITION
Palmo palm oil is world’s new edible oil innovation. Palmo palm oil is commercially and technically viable edible oil option for Bangladesh
which is best taste comparing to Soyabean. Cholesterol and lactose free oil which is helpful for lactose intolerant people and also free
from allergy. No artificial sweetener, color and flavor and no animal ingredients, preservative used in
Palmo. Palmo is vegan friendly and Non-GMO (Genetically Modified Organism) product.
1.4 BUSINESS MODEL
Palmo’s business model is entirely production or manufacturing-based. Palmo’s production process transforms and adds value to the quality palm fruits and produces edible oil. Palmo will:
Produce oil in its own operational plant using eco-friendly production process. Sell oil in 4 bottle sizes in the local market.
material is abundant in the foreign market at a cheap price
WEAKNESS1. High dependency on
import of raw material2. High dependency on
other ingredients3. Interruption of any sub
system may cause disruption of total production process
4. Return on assets and return on equity show increasing in assets and equity is proportionally higher than increasing in net profit.
OPPORTUNITIES1. Market growth rate
25%2. Going to be the thrust
sector3. Government and
customers encouragement
4. The value added palm products’ demand is increasing all over the world.
SO SRATEGIES1. To attract customers
by focusing on price to increase market share (S2, O1)
2. To create foreign market by using natural advantage(S5,O4)
WO STRATEGIES1. To spend marketing
budget efficiently to attract segmented customers
2. To utilize government encouragement for uninterrupted other ingredients’ supply (W2, O3)
THREATS1. Threat from the
popular substitute2. Potential competition
from the other vegetable oil
3. Level of acceptance by people is not reasonably certain
4. Economic recession may lessen the purchase power of potential customers
WT STRATEGIES1. To use low price
strategy for protecting from substitute and acceptability threats(S2,T3)
2. To get an edge over potential edible oil competitors, utilize first mover, low cost and viability strength(S2,3,T2)
WT STRATEGIES1. To provide low price
oil for greater range of customers because with low price still the firm produce sizable net profit(W4,T4)
1 .6 GOALS AND OBJECTIVES
1.6.1 Vision statement: Palmo’s vision is to make a safe oil consumption platform to create a healthy nation.
1.6.2 Mission statement: Palmo’s mission is to be the most successful edible oil producing company in the Bangladesh at delivering the best customer experience in markets we serve. In doing so, Palmo will meet customer expectation of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; financial stability. We seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our employees.
1.6.3 Short-term goals: To offer quality products at a competitively lower price to capture market share. To create a demand for edible oil as a best taste option. To persuade the target customers regarding the benefits of palm oil that will bring
familiarity among customers.
1.6.4 Long-term goals: To expand its operation beyond Dhaka in the year 2015 and further goes for export. To set up new industrial unit in the west region of Bangladesh by the year 2018. To ensure sustainable development of the nation by creating newer utility of quality palm
fruits.
1.6.5 Objectives: To attain 20% growth rate by the year 2014. To attain net profit margin of 25% in year 2017. To achieve BDT 20,000,000 free cash flow by the year 2015 to setup another operational
plant by the year 2018. To utilize 1200 tonnes of palm fruits by the year 2018. To repay loans by the year 2020 and lever up the firm with 25% debt by the year 2025.
1.7 MARKET POTENTIAL
As there is 49% gap between the demand and supply of edible oil in Bangladesh this sector needs more supply of edible oil. The total demand of edible oil is 16,570,000 tonnes (per head 1120 ml) and supply is 13,326,000 tonnes including the imported edible oil. Whereas the present and projected scenario of Dhaka Metropolitan City estimated by Palmo is:
can be introduced to fulfill the demand-supply gap is more affordable for greater range of consumers can also serve the heart, diabetics and allergic patients which is big portion in the demand
but vulnerable soya bean oil with different flavors is cheap and better quality than available flavored oil
1.7.2 Growth prospect:
The edible oil market growth rate is 20% according to industry analysis. We are happy that private companies are coming up with big plans in this sector. There is
still a huge scope for growth for every player as together we are only catering to one-fifth of the market.
Edible oil industry is going to be a thrust sector. The government is encouraging agro-processed business. According to FAO all over the
world value added oil products’ consumption is increasing.
1.8 COMPETITOR ANALYSIS
Palmo offers edible oil in Bangladesh market in first phase. The domestic market of edible oil is less competitive but the firm faces huge competition from the existing edible oil brands which are offering the substitute product.
Rupchanda is the largest edible oil brand of Bangladesh. The daily demand of oil is 37.5 million and the company can meet only 20% of it. So it grabs about 40% of total supply.
Teer is the second largest edible oil plant in Bangladesh. The market share of Teer had increased to 35% from 20%.
Fresh is the third largest edible oil producer in Bangladesh has a daily processing capacity of 1 lakh litres of oil although it only processes 40,000 litres daily.
1.9 COMPETITIVE FORCE ANALYSIS
Porter’s five forces analysis has been conducted to evaluate competitive edge of Palmo from its existing and potential competitors (see Appendix A12). The analysis shows:
Bargaining power of suppliers (palm fruits and other ingredients) is low. Bargaining power of buyers is high because the consumers get several options. Threat of new entrants domestically is high as the market is quite lucrative and oil
demand– supply gap is huge. Threat of substitute although very high. The intra-industry rivalry is domestically low because the demand is quite high than the
supply.
1.10 ASSESSMENT
Among the competitors Rupchanda is the biggest by holding 20% of demand so it grabs almost 40% of total supply. Teer and Fresh are holding sizeable portion of the market. Palmo has competitive edge in price and taste. It gets the first mover advantage over all potential edible oil brands. Besides, competitive analysis reveals the market is lucrative in all terms of forces that indicate opportunity, profitability and sustainability. The competition among competitors is fair because all operate to make Bangladesh edible oil industry a self sufficient one which is still a gigantic task.
1.11 RISK ASSESSMENT
General risks: The project is associated with following general risks:
Demand risk— the price of substitute and other options’ production cost lowering may shiver the demand of edible oil.
Supply risk— the main raw material of palm oil is not abundant in Bangladesh and that’s why raw materials have to be imported. Also the other ingredients’ supply may impede the production.
Regulatory risk— the standard testing of the product and business approval is highly regulated by our government but the sector is going to be the thrust sector so regulatory risks are going to be lessened.
Risk from PEST analysis: The project is associated with following risks analyzed from PEST analysis:
Political risks—the political variables hamper are strikes, terrorism, instability etc. Economic risks— the project is affected by economic parameters such as inflation rate,
consumer price index, recession etc. Socio-psychological risks— Palm oil is compartively a new addition in people’s lifestyle
so it may have setback regarding people’s acceptance. Technological risks— technological changes, invention of new alternative oil may cause
problem
1.12 EXIT STRATEGY (Contingency Plan)
In the exporting phase the firm may apply for government assistance and tax benefits as an exporting agro-processor.
Firm’s primary exit strategy is converted into private limited company from partnership firm to reduce capital problem (if occurs) and skill managing.
Firm’s secondary exit strategy will be merged with another oil company to lessen the risk of being dissolute.
C HAPTER : 02
2. 0 OPERATION PLAN
2.1 Production:
We will import raw materials from Malayasia. The production of Palmo will be done in the own operational plant in Narayanganj because of the convenient transport and communication. The operation of Palmo would consist of three phases— procurement and storage, production and packaging phase.
Procurement and storage— The pre-production is run by the procurement and storage unit. The procurement unit is responsible for purchasing 200 tones of palm fruits and other ingredients in FY 2010-11, 500 tonnes of palm fruits and other ingredients in FY 2010-11 and adds 50 tonnes each succeeding years. The storage unit stores the raw-materials in own 500-ton capacity cold storage.
Production phase— The production phase transforms the palm fruits into palm oil which is the finished product. The production unit produces 500 tonnes oil in FY 2011-12.
Packaging— In this phase produced palm oil is packed in bottle of 500 ml, 1 litre, 3 litres and 5 litres.
2.2 Placement of order:The distributors and dealers can place orders by using order form or through internet. The customers can place orders only through the website.
2.3 Delivery: Palm oil is delivered in 1 dozen retail pack or 50 bottles wholesale pack. The local dealers are responsible for home delivery with extra commission.
2.4 Billing: Palm oil distributors are required to make payment within 45 days. Accounts payable would be paid within next year.
2.5 Quality control: Internal quality control is closely monitored by the production manager and supervisors and low quality outputs are disposed. The weight of each bottle is automatically checked.
2.6 IMPLEMENTATION PLAN
Project implementation schedule: The project starts at January, 2011 and the commercial launch is on July, 2011. The 6-month project implementation schedule is as follows:
Resource ramp-up: With a view to implement the project, resource ramp-up is very vital. The financial resources (equity and debt) and human resources are the key elements. Financial resources are vital for uplifting capital investments and working capital. Human resources are significant throughout the entire business process.
Product roll out plan:
NO WAREHOUSE
YES
C HAPTER : 03
MIXER
PURCHASE PALM FRUITS
DISPOSEGRINDER
PACKAGINGQUALITY?STARCHER
WATER & OTHER INGERDIENTS
3.0 MARKETING PLAN
3.1 Marketing goals and objectives: To meet the growing needs of the target market and to evaluate the competitive
environment and Continue to establish a differential advantage.
To establish an effective and profitable marketing mix of product, place, price and promotion.
To establish a customer base of 50% of the defined target market within 2015 To exceed break-even selling point at FY 2011-12
3.2 Marketing strategies: Making people aware about palm oil, its nutritious value, taste and benefits. Focusing price, taste and unique selling propositions while developing marketing
campaign. Building brand proposition to different consumers according to their perception. Creating customer loyalty and making customer delight by proper quality assurance
campaign.
3.3 Target customer: Geographic location: Dhaka city for first 5 years (see Appendix A5). Demographic: Social class—middle class and high end consumer.
Prospective buyers: Around 2,500,000 (75% of total Dhaka city population fall under
Palmo’s target customer segments).
3.4 Market positioning:
Palmo positions itself in the market on the basis of low price and high quality edible oil. The product positioning map shows the unique positioning of Palmo relative to its competitors.
3.5 Marketing mix:
Palmos combination of product, price, promotion and distribution and other marketing activities needed to meet the marketing objectives is:
Product— Palmo offers only one basic type of product line. And the pack sizes of Palmo are 500 ml, 1 litre, 3 liters and 5 litres. Palmo uses state-of-the-art tetra pack technology for packing its offers. The shelf life of Palmo is 15 months.Distribution Channels:
— Palmo uses a simple distribution channel with zone-wise distributors. The Dhaka city has divided into 9 different zones covering 19 areas (see Appendix A5). Finished Palmo products come directly to a Dhaka city warehouse from the plant. Sales team uses firm’s covered van to
distribute the product to the dealers. It uses different specific day for specific zone. Then the secondary distribution channel leads by the dealers distribute the product by using their own resources. Palmo also make strategic alliance with super stores and restaurant to sell Palmo.
Integrated marketing communication
— Palmo’s marketing communication mix or promotion mix includes all the typical elements like advertising, sales promotion, public relations, personal selling and direct marketing to activate pull strategy (see Appendix A7). Some of the tools are—
TVC FM radio ads Newspaper ads Buzz Marketing “Palmo’s quality assurance campaign” SMS contest Point of purchase ads
3.6 Marketing budget:
The five year allocation of marketing budget at affordable method shown below:2011-12 2012-13 2013-14 2014-15 2015-16
Advertising 2,983,200 5,146,400 5,146,400 5,146,400 5,146,400Sales promotion 150,000 200,000 200,000 200,000 200,000PR and personal selling
24/7 call center always and retailer survey quarterly conducted by the marketing team to know the first hand information of the consumers. The total marketing plan is flexible and open for any required contingencies.
C HAPTER : 04
4.0 ORGANIZATIONAL PLAN:
4.1 ORGANIZATIONAL STRUCTURE
4.2 STAFFING NEEDS
Palmo Firm
Head of procurement and storage
Manager
Supervisor
Staff
Head of production
Manager
Supervisor
Staff
Head of sales and administration
Sales Manager
Assistant
Marketing Manager
Assistant
Finance Manager
Assistant
At the initial phase, the operation of Palmo is monitored by three department heads. One is head of procurement and storage, another is head of production and the other is head of sales and administration. The needs of staffs can be illustrated below based on the organizational structure:
Palmo firm is a partnership of three capital provider. Palmo’s organization structure is top-down hierarchical structure with same authority
among peers. Palmo’s management team consists of 14 executives.
Position No. of ManagersDepartment Head 3Manager 5Supervisor 6
5.2 ACCOUNTING PLAN:
1. Depreciation policy:
Straight-line method. Depreciation rate is 5% for long term assets.
2. Inventory valuation
FIFO method. Inventory holding time is maximum 6 months
3. Tax rate
Assumed to be 40% on net income before tax which is payable annually.
5.3 INSURANCE PLAN:
Declaration policy: We will take this type of policy for our inventory.
Blanket policy: This policy will be taken for same type of plant, machinery and buildings.
Employee group life insurance: The life of all the employees of our organization will be covered under this insurance.
5.4 COMPUTER PLAN:
Need for information: For every information we will take help of internet that is why we will have to set up an efficient computer information system.
Benefits taken from computer systems: We will give all the import order through online.Recommended computer systems: We will have the computer systems equipped with high speed internet facility.
C HAPTER : 06 6.0 FINANCIAL PLAN
6.1 Project Evaluation
Initial Investment BDT 8,493,500Net Present Value (NPV) at 20% discount rate BDT 13,979,595Internal Rate of Return (IRR) 52%Pay Back Period (PB) 2.10 yearsDiscounted Pay Back Period 2.54 years
6.2 Income Statement (summarized)
2011-12 2012-13 2013-14 2014-15 2015-16
Sales revenue 15,200,000 41,800,000 51,300,000
57,525,000 64,000,000
Less: Cost of goods sold 8,232,000 20,739,500 24,166,100
Notes: Base case values represent the values of 5 year projection. Best case’s sales growth is 25% and cost growth is 5%. Worst case’s sales growth is 15% and cost growth is 10%.
6.9 Social Cost-Benefit Analysis
2011-12 2012-13 2013-14 2014-15 2015-16
Total social benefits 17,204,200 46,508,200 56,732,200
63,525,450 70,573,200
Less: Total social cost 14,747,512 34,786,587 40,927,377
45,553,302 50,439,821
Social profit 2,456,688 11,721,613 15,804,823
17,972,148 20,133,379
Social discount rate 25%Discounted social profit 1,965,350 7,501,833 8,092,069 7,361,392 6,597,306Social PV 31,517,950
Less: Opportunity cost (8,493,500)
Social NPV 23,024,450
Social IRR 56%
Conclusion:
Palmo is not only an entrepreneurship venture but also an ecopreneurship endeavor. The production process is eco-friendly because there are no chemical or harmful particles used in the production and the disposal system is safe. The company also emphasizes safety and hygiene issue of the human resources.
The firm has a marketing strategy of positioning its product on the basis of low price and quality. The objective of its marketing campaign is to make people aware about palm oil concept and its benefits over ordinary edible oil. To reach the segmented portion of buyers in Dhaka Palmo uses all the four means of marketing mix and marketing tools like TVC, FM radio ads, newspaper ads, campus campaign, assurance program and 24/7 help desk.
APPENDICES:
PORTER’S FIVE FORCES ANALYSIS
Porter’s five forces analysis has been conducted to evaluate competitive edge of Palmo from its existing and potential competitors. The analysis shows:
Rivalry among competing firms:
Rivalry among competing firms is moderate as they are operating in edible oil sector that is our substitute product.
Comment:The intra-industry rivalry is domestically low because the demand is quite high than the supply.
Potential entry of new competitors:
Due to unavailability of raw-materials and the high profitability of this sector no firm can easily enter into this sector.
As there is huge supply-demand gap of edible oil in Bangladesh so it attracts any firm highly to enter in this sector.
Comment:Threat of new entrants domestically is high as the market is quite lucrative and oil demand–supply gap is huge.
Potential development of substitute products:
As several companies’ edible oil products are available in market and people are habituate to consume those so it’s a threat for Palmo
Edible oil market may encourage other vegetable oil as a potential substitute of PalmSo’s offerings.
Comment:Threat of substitute although very high
Bargaining power of suppliers:
The bargaining power of suppliers is very high because of the scarcity of palm fruits and other raw materials.
The price provided by Palmo to its suppliers of palm fruits is quite high and increase of that price yearly so the raw material producers are loyal to make supply uninterrupted.
Comment:Bargaining power of suppliers is high.Bargaining power of customers:
Bargaining power of customers is very high as they have several options to choose. Relatively low price may attract the customers and lessen the risk of switching from
Palmo’s product.Comment:Bargaining power of customers is high because the consumers get several options.
Jul-sep Oct-Dec Jan-Mar Apr-JunCash flow from operating activitiesCash received from buyers 0 0 6,840,000 6,840,000Cash paid for cost of sales 0 0 (4,116,000) (4,116,000)Cash paid to employees 0 0 (412,500) (412,500)Cash paid for promotion 0 (1,000,000
)(1,800,000) (1,500,000)
Cash paid for rent and utilities 0 0 (105,000) (105,000)Cash paid for other purposes (2,000) (3,000) (204,000) (1,000)Cash paid for interest 0 0 0 (393,409)Cash paid for income tax 0 0 0 (301,659)Net cash provided by operating activities
(2,000) (1,003,000)
202,500 10,433
Cash flow from investing activitiesCash paid for start-up assets (2,078,800) (4,202,600
)0 0
Cash paid for start-up assets expenses (368,500) (145,000) 0 0Net cash provided by investing activities (2,447,300) (4,347,600
)0 0
Cash flow from financing activitiesCash received from long term loan 2,622,725 0 0 0 Cash received from paid-up capital 5,870,775 0 0 0Cash paid for loan repayment 0 0 0 (522,583)Net cash provided by financing activities
8,493,500 0 0 (522,583)
Net increase in cash 6,044,200 (5,350,600)
202,500 (512,150)
Cash balance at the beginning of period 1,698,600 7,742,800 2,392,200 2,594,700Cash balance at the end of the period 7,742,800 2,392,200 2,594,700 2,082,550
Means of finance Amount in BDT % of TotalEquity 5,870,775 69%Debt 2,622,725 31%
LOAN REPAYMENT SCHEDULE
Loan taken (Million Tk.) 2,622,725Date of loan taken July 1,2009Repayment years 10No. of installment per year 1Interest rate 15%Periodic loan repayment 522,583
Year Net Income After Tax Present Value Factor of 20% Present Value1 452,488 0.8333 377,0732 7,013,413 0.6944 4,870,4263 10,372,623 0.5787 6,002,6754 11,971,698 0.4823 5,773,3885 13,560,179 0.4019 5,449,532
Present Value of Net cash inflow
22,473,095
Present Value of cash outlay 8,493,500Net Present Value 13,979,595