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Pre-Feasibility Study
CCOORRRRUUGGAATTEEDD PPAACCKKAAGGEESS
Small and Medium Enterprise Development AuthorityGovernment of Pakistan
7.1 PRIMARY FUNCTIONS ............................................................................................................ 107.1.1 Protective Function.......................................................................................................... 107.1.2 Loading and Transport Function ...................................................................................... 10
7.2 SECONDARY FUNCTIONS........................................................................................................ 107.2.1 Sales Function .................................................................................................................107.2.2 Promotional Function ...................................................................................................... 10
7.3 SERVICE FUNCTION ...............................................................................................................117.4 PRODUCTION PROCESS FLOW.................................................................................................117.5 PRODUCT MIX.......................................................................................................................137.6 RAW MATERIAL REQUIREMENT .............................................................................................13
7.6.1 Take Up Factor (Liner Paper).......................................................................................... 147.6.2 Waste Margin...................................................................................................................157.6.3 Major Suppliers of Raw Material...................................................................................... 15
The purpose and scope of this information memorandum is to introduce the subject matter and
provide a general idea and information on the said area. All the material included in this document
is based on data/information gathered from various sources and is based on certain assumptions.
Although, due care and diligence has been taken to compile this document, the contained
information may vary due to any change in any of the concerned factors, and the actual results may
differ substantially from the presented information. SMEDA does not assume any liability for any
financial or other loss resulting from this memorandum in consequence of undertaking this activity.
The prospective user of this memorandum is encouraged to carry out additional diligence and
gather any information he/she feels necessary for making an informed decision.
For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk
DOCUMENT CONTROL
Document No. PREF-79
Prepared by SMEDA-Punjab
Issue Date September, 2004
Up-dation Date January, 2007
Issued by Library Officer
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1 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA
Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.
SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.
2 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT
The objective of a pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself.
This particular pre-feasibility relates to Corrugated Packages. Before studying the whole document one must consider following critical aspects, which form the basis of any investment decision.
Before making the decision, whether to invest in the corrugated packaging business or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors which can play important role in making the decision.
3.1 Strengths
Corrugated packages provide efficient and convenient unit for marketing of theproduct.
They allow weighing of produce as well as handling and transport to be accomplished in fewer steps.
When compared with wooden crates, corrugated boxes are light to carry and are preferred by air freight companies.
They are recyclable unlike non-recyclable packaging that has to be burnt at the end of its life.
3.2 Weaknesses
Corrugated packages are not reusable. They cannot be produced economically on a small scale. Cost of labour for each
batch and cost of overheads keep on decreasing with the increasing production. They are easily damaged by water and rough handling unless impregnated with
wax at extra cost. They offer most practical and economic choice for packaging but availability of
suitable designs at the right price remains the greatest challenge to improvements.
3.3 Opportunities
Corrugated packages allow for easy printing of labels and can be manufactured to a wide range of sizes, shapes and strength specifications.
Manufacturing sector of Pakistan showed a record growth of 12.6% in the year 2003-2004, which in turn increases the demand for packaging facilities as well.
3.4 Threats
Innovations in the packing industry like plastic crates, plastic bags etc. may affectthe market demand for corrugated packages.
4 PPRROOJJEECCTT PPRROOFFIILLEE
4.1 Opportunity Rationale
Corrugated Packaging is visible wherever goods are produced, transported and displayed. Since its invention years ago, corrugated packaging has ensured efficient safe and sanitary transit of goods, protecting and wrapping about 70% of the world’s liquid and solidmaterials from producer to consumer.
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In Pakistan, the demand for corrugated packages is increasing, as the growth in the manufacturing industry touched a level of 12.6 %1 last year Corrugated packaging protects the product during storage, transportation and handling. Thus the package, by virtue of its protective function-becomes a vital link in the distribution chain. Also corrugated cartons offer the most practical and economic choice for packaging for inter island trade.
Product range includes consumer packages, food and non food-packages, transport packages.
4.2 Project Brief
The proposed project will be producing corrugated packages. Corrugated packages are paperboard made from one or more plies of fluted paper, which is glued onto, paper or cardboard. The said business will be producing 7-ply corrugated sheets.
Different sizes of boxes will be produced to facilitate the customers nationwide. The proposed business will be manufacturing corrugated boxes for meeting the local demand.
4.3 Market Entry Timing
Corrugated Packages are used in so many different sectors that the demand never gets affected with seasons, changing trends and emerging attributes. So the proposed business can be started at any time of the year.
At the commencement of the proposed business, it is important that the entrepreneur must have good public relations in the market and should have some orders in hand.
4.4 Project Capacity and Rationale
The proposed corrugated packaging facility will handle 5000 boxes per day of proposed sizes in 8 hours shift. Details are given in the following table.
TTaabbllee 44--11 PPrroojjeecctt CCaappaacciittyy
Hours utilized by one batch 2Number of product lines 4Maximum box capacity per day per shift 5,000
The industry norm is to run the unit for one shift per 8 hours. However, it can vary depending on the level of orders received from the market. This feasibility is based on one shift of 8 hours.
Selection of a district or a particular city for a project has an imperial effect on fixed and operational costs. The proposed location should be located near the industrial areas as this would reduce the transport cost. Suitable locations in Pakistan for setting up the proposed business are mentioned in the table below:
The numbers of corrugated packaging facilities in Pakistan has increased at a rapid pace over the last few years. The size of this sector is still growing. Large corrugated packaging facilities have been set up in the industrial areas of Pakistan. Approximately 2,000 corrugated packaging facilities are being operated in Lahore. Few of them are as follows:
Fine Packages Packages Limited
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Roshan Packages Al-sheikh Packages Convertec Packages Bismillah Packages General Packages
Similarly, large corrugated packaging facilities are also working in prime business locations in Karachi and Rawalpindi, Faisalabad.
6 MMAARRKKEETT IINNFFOORRMMAATTIIOONN
6.1 Market Potential
The trend for packaging has changed from the primitive packaging (wooden boxes) to a modern and up-to-date packaging (corrugated packaging). Nowadays, corrugated packaging is used by almost every manufacturer and supplier or perishable, non perishable and fragile products. Corrugated Packages have inherent benefits as they are environment friendly and have recycling capability. This is the major reason, the international market prefers corrugated packages.
Partner Trade Value (US$)Afghanistan 5,495,404Iran 3,830,161 United Arab Emirates 3,308,145 United Kingdom 2,017,029 USA 1,748,040
2 UN comtrade
3 UN comtrade
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6.2 Target Customers
As mentioned above, the target customers are manufacturers and suppliers of all types of goods. Following are some of the target clients for a manufacturer of corrugated packaging.
Pharmaceutical Industry Textile Industry Home Appliances Garments Confectionary Fruits and Vegetables Shoes Cosmetics
7 PPRROODDUUCCTT
The proposed project will be producing 7 ply corrugated packaging boxes of different sizeswhich will be serving several purposes. The functions of the product can be classified into three different categories.
7.1 Primary Functions
77..11..11 PPrrootteeccttiivvee FFuunnccttiioonn
The protective function of packaging essentially involves protecting the contents from the environment and vice versa. This is intended to ensure full retention of the utility value of the packaged goods or in other words it is intended to protect the goods from loss, damage and theft.
Convenient goods handling entails designing transport packaging in such a manner that it may be held, lifted, moved, set down and stowed easily, efficiently and safely. Packaging thus has a crucial impact on the efficiency of transport, handling and storage of goods.
7.2 Secondary Functions
77..22..11 SSaalleess FFuunnccttiioonn
The purpose of the sales function of a package is to enable or promote the sales process and to make it more efficient
Promotional material placed on the packaging is intended to attract the potential purchaserand to have a positive impact upon the purchasing decision.
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7.3 Service Function
The various items of information printed on packaging provide the consumer with details about the contents and use of the particular product i.e. dosage information on medicines.
7.4 Production Process Flow
A 7 ply corrugated box consists of 7 layers of sheets. 2 sheets of kraft paper are used on both sides and 5 sheets of flutter paper are used in between them. 3 three sheets of flutter paper will be lined and 2 sheets will be of plain flutter paper. A 7 ply sheet is shown in the figure below:
The process of manufacturing starts from corrugating followed by cutting in accordance with different shapes and sizes, pasting, rotary, bending according to the design and finally stapling to form a shape and to remain strongly intact.
FFiigguurree 77--22 PPrroocceessss FFllooww
Corrugating Cutting
Printing
Pasting
Stapling
RotarySlanting/ bending
The above process takes approximately 8 hours to complete from corrugation to stapling. Each process is explained as below:
a) Corrugation: - In this process the flutter paper is firstly heated up, then passed over the tray, which contains pasting fluid, along with the kraft paper. It is then passed through a corrugating machine, where 5-ply paper corrugated board is manufactured by using glue making unit and reel stand.
b) The Liner paper can also be used instead of Flutter paper for better quality upon clients’ special request.
c) Cutting: - The sheet is cut according to the required size using a paper cutter.
d) Pasting: - The corrugated sheet is then pasted on to another set of corrugated sheet, making it 7 Ply.
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e) Printing: - It is then printed as required by the customers i.e. fragile, some object, recycle after use etc.
f) Rotary: - In this process the flaps and the Four Corners of the box are made using rotary machine.
g) Slanting: - The sheet is bent in this process, forming a box shape.
h) Stapling – To give the box a firm and a proper shape, they are finally stapled.
7.5 Product Mix
Different sizes of boxes are produced for various target industries. They are as follows:
TTaabbllee 77--11 PPrroodduucctt RRaannggee
Sizes Measurements Target IndustryA 24” x 24” x 8” Textile SectorB 14.54” x 10.5” x 6.25” Pharmaceutical SectorC 19.69”x17.72”x13.78” (50cm x 45cm x 35cm) Multi purpose D Others Fridge, Electronic products etc.
Production capacity varies with the size of the box. Production for each size of box will be taking one batch of two hours. Proposed production for each size at 100% capacity will be as under:
TTaabbllee 77--22 PPrroodduucctt MMiixx
Box Sizes Per Day Production Per Annum Production24”x24”x8" 750 225,00014.54”x10.5”x6.25 1,000 300,00019.69”x17.72”x13.78” 750 225,000Others(avg.) 500 150,000Total 3,000 900,000
7.6 Raw Material Requirement
Following raw material are used in corrugated packages.
Kraft paper Flutter paper (Plain) Flutter paper (Liner) Pasting fluid (Silicate)
Raw material used for each size of box and their costing is shown in the tables below4:
4 Calculations for quantity required are provided in the Financial Analysis section.
A 7 plied corrugated sheet consists of 2 kraft papers on both sides, 2 plain flutter papers and three sheets of lined flutter paper. The proposed business will only be buying kraft paper and plain flutter paper from the market. A plain flutter paper is converted into a lined flutter paper during the process of corrugation. A lined flutter paper consumes more flutter paper and the take up factor is 40% on average. In other words, a lined flutter paper is 40% heavier than a plain flutter paper.
While costing for lined flutter paper it is very important that the cost of additional take up of flutter paper is considered.
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77..66..22 WWaassttee MMaarrggiinn
Wastage is a common feature for corrugated packages business. It is estimated that 1% of the total production goes into waste. But as the wastage occurs during the production process, it is generally charged to the client. The wastage on the other hand is sold as scrap by the manufacturer at the rate of Rs.8.00 per kg.
The raw materials are easily available in Lahore and other major cities. Some of the suppliers in Lahore are having their sales point on Bund road and Gunpat road.
7.7 Sales Price
It is generally observed in the corrugated packages business that the sales price is fixed 25% above the cost of raw material consumed for the proposed box size. This 25% includes the profit margins, cost of pasting fluids and printing costs.
On the other hand, cost of printing is approximately Rs.1 per box and pasting fluids are available at the rate of Rs.6 per kilogram. Consumption of pasting fluids depends upon the size of the box.
This particular pre-feasibility assumes that the sales prices are 25% above the cost of raw material which include the costs of printing and pasting fluids.
In Pakistan, there are several manufacturers of corrugated packaging machines. There are around 10 suppliers in Lahore i.e. Muhammad Hussain in Misree Shah, Mr. Shafiq in Shah Jamal, almost 42 suppliers in Karachi and 2 suppliers are in Islamabad. These machines can also be imported from the following countries. However, the cost of imported machinery is too high as compared to local machinery.
German Brazil Sweden USA Taiwan China Korea
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The locally manufactured machinery is comparable to the imported machinery in terms of production and quality of the output, whereas price wise, local machinery has an edge over imported machinery. Some of the corrugation machinery manufacturers are listed below: Chughtai Engineering Works, Lahore Prime Tech International, Lahore Sama Engineering works, Karachi
The above mentioned suppliers also export the corrugated packaging machinery to Tashkent and South Africa, which proves the fact that local machinery is comparable to international standards.
8.1 Machinery & Equipment Requirement
The major cost involved in establishing a well-equipped corrugated packaging facility is primarily the cost of plant and machinery. Basically there are three types of machineries available in the market, which are as follows:
TTaabbllee 88--11 MMaacchhiinneerryy TTyyppeess
Machine type Estimated Cost of PlantSemi automated corrugation plant Rs. 1.9 millionFully automated corrugation plant Rs. 8 million
Production capacity for the three types varies. Fully automated machinery employs lesser labor and gives the highest production but as the proposed business will be order based, it is recommended that initially it should concentrate on capturing the market while keeping the project costs at lower end therefore the proposed project will be operating on manually operated corrugation machine.
There is a huge difference in the costs of the three types of machineries. As the total project cost is directly related with the cost of machinery, the proposed project will be using manually operated corrugation machine set.
Manually operated corrugation machine set comprises of 9 machines to form a complete corrugated setup.
Details of required machinery are shown in the table below:
A regular inspection is imperative for the smooth running of machines. The maintenance cost can be suppressed by these regular checkups. However, maintenance will be required to ensure its long life and better output.
Annual repair & maintenance of the plant and machinery is estimated to be 1 % of the total machinery cost in the initial year and this rate is expected to grow at 0.05% in the proceeding years.
Spare parts i.e. Rollers, Bearings and Cutter Blade are easily available from the suppliersof the machinery.
8.3 Erection & Installation
Erections and installation cost is assumed to be 5% of the total cost of machinery.
8.4 Office Equipment
Following office equipment will be required for the proposed project:
Description No. Cost Per Unit(Rs.) Total(Rs.000)
Split Unit 1 25,000 25.00
Computer 2 20,000 40.00
Printer 1 15,000 15.00
Telephone sets 4 500 2.00
Fire Extinguish 2 4,000 8.00
Fax machine 1 10,000 10.00
Total 10,000.00
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Depreciation on office equipment will be charged at 10% per annum on straight-line basis.
8.5 Furniture and Fixtures
Following furniture and fixtures will be required for factory and sales outlets.
Depreciation on furniture and fixtures will be charged at 10% per annum on straight-line basis.
8.6 Motor Vehicles
Along with the above mentioned machinery and equipment the proposed business will also be using two shehzore trucks. Each truck will cost approximately Rs. 649,000. Motor vehicles will be depreciated at 10% on straight-line method.
Section Total Area (Sq. ft.)Production HallStorage Area 1,125Finished Goods Area 900Plant & Machinery Area 5,625Wastage Area 900Total Production Area 8,550Administrative Block 900Total Covered Area 9,450
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Free Area 1,800Total Area Requirement 11,250
9.2 Rent Cost
As no major construction costs are involved in the proposed building so it is recommended that the area should be acquired on rent basis. The rent cost for the business varies with location. This project is proposed to be located in Kot Lakhpat industrial area, Lahore. An area of 2.5 kanal can be obtained on monthly rent of approximately Rs. 50,000 to 75,000.
Capital and Reserves Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Share Capital 3584 3584 3584 3584 3584 3584 3584 3584 3584 3584 3584Reatined Earnings 0 (1,192) (1,040) (4) 1,993 5,128 9,703 15,780 23,600 33,428 45,557
D im ensions Size in Inches Size in m illim etersLength L Lx 25.4W idth W W x 25.4H eight H H x 25.4W idth required(W +H )+25.4Length req uired(L +W )x2+ (2x25.4)
A rea of sheet W idth req uired x L ength requiredW aste M argin 5%K raft P aper R equirem entW eight of K raft paper (K gs per square m eter) 0 .125N o. of kraft paper 2W eight of kraft paper required
P rice per kg . kraft p aper R s. 48C ost of kraft pa per price p er kg. x w eight of kraft p aper req uiredF lutter P aper R equirem entW eight of F lutte r P ap er (K gs per square m eter) 0 .12T ake up factor for lined flu tte r paper 40%N o. of flu tter paper (p la in) 2W eight of p la in flutte r paper required
N o. of flu tter paper (liner) 3weight of L ined flutter paper required
T ota l weight of flu tte r paper
P rice per kg . F lutte r paper R s. 12C ost of F lutter P aper price p er kg. x tota l w eight of flutter paper
T otal raw m ateria l cost cost of kraft pap er + cost of flutter paper
(A rea of shee t x w eight of kraft paper x N o. of kraft paper) x (1+W aste M argin)
(A rea of shee t x w eight of flutte r paper x N o. of flutte r paper) x (1+W aste M argin)
(A rea of shee t x w eight of flutte r paper(1+ take up fac tor for lined paper) x N o. of flutter paper(Liner)) x (1+W aste M argin)weight of p la in flutte r p aper required + weight of lined flu tter paper required
Annual production capacity (boxes) 900,000Operating Shift per day5 1Operating hours per shift 8Days operational per year 300No. of Batches 4Hours consumed for one batch 2
Accounts Receivable in days 7Accounts Payable in days 7Raw Material Inventory (days) 15Stores and Spares Inventory (days) 30Minimum Cash Required Rs.194,000