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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. Therefore, the content of this
memorandum should not be relied upon for making any decision, investment or otherwise.
The prospective user of this memorandum is encouraged to carry out his/her own due
diligence and gather any information he/she considers necessary for making an informed
decision.
The contents of the information memorandum do not bind SMEDA in any legal or other
form.
DOCUMENT CONTROL
Document No. PREF-70
Revision 2
Prepared by SMEDA-Punjab
Approved by GM Punjab
Issue Date January, 2004
Revision Date May, 2007
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1 Introduction to SMEDA ......................................................................................................52 Purpose of the Document.....................................................................................................53 Crucial Factors & Steps in Decision Making for Investment ................................................54 PROJECT PROFILE...........................................................................................................6
8.1 Raw Material Requirement ........................................................................................168.2 Production Process Flow............................................................................................17
8.2.1 Purchase of Wood..............................................................................................178.2.2 Cutting of Wood ................................................................................................178.2.3 Seasoning/Drying of Wood ................................................................................178.2.4 Selection of Design ............................................................................................188.2.5 Cutting into Slices..............................................................................................188.2.6 Molding .............................................................................................................188.2.7 Carving ..............................................................................................................188.2.8 Assembly/Fitting................................................................................................188.2.9 Finishing (Paint/Polishing).................................................................................18
8.3 Product Mix Offered..................................................................................................188.3.1 Superior Quality.................................................................................................188.3.2 Fine Quality .......................................................................................................198.3.3 Normal Quality ..................................................................................................19
8.4 Proposed Production Mix...........................................................................................198.5 Product / Project Standards and Compliance Issues....................................................19
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9.1 Technology and Processes .........................................................................................199.2 Technology/Process Options......................................................................................209.3 Merits and Demerits of Particular Technology ...........................................................209.4 Factory Machinery Requirement................................................................................209.5 Supplier of Machinery ...............................................................................................209.6 Factory & Showroom Equipment Requirement ..........................................................219.7 Office Equipment Requirement for Factory & Showroom..........................................219.8 Machine Maintenance................................................................................................22
10 HUMAN RESOURCE REQUIREMENT..........................................................................2211 LAND & BUILDING REQUIREMENT ...........................................................................23
11.1 Land Requirement .....................................................................................................2311.2 Covered Area Requirement for Factory Area .............................................................2311.3 Recommended Mode of Acquisition ..........................................................................2311.4 Rent Cost...................................................................................................................2411.5 Land & Construction Cost of Factory & Showroom...................................................2411.6 Utilities Requirement.................................................................................................2411.7 Suitable Location.......................................................................................................25
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11 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA
The 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 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.
22 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT
The Objective of the 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 is regarding setting up a “Wooden Furniture Manufacturing Unit”.In meeting the above tasks we have obtained information from industry sources and officials of major wooden furniture manufacturers in Pakistan.
Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. For Financial Model, since the forecasts/projections relate to the future, actual results are likely to be different because events and circumstances frequently do not occur as expected and the differences may be material.
Whilst due care and attention have been taken in performing the exercise, no liability can be inferred for any inaccuracies or omissions reported from the results thereof. It is essential that our report be read in its entirety with Financial Model in order to fully comprehend the impact of key assumptions on the range of values determined.
Manufacturing of wooden furniture requires the basic knowledge of wood quality. Wood is the main raw material and the entire finished product depends on quality of wood. The information and technical know how about the quality of wood and use of seasoned (dry) plays a vital role in the manufacturing of good quality furniture.
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Moreover, establishment of factory in the vicinity of Lahore, Chiniot or Gujrat gives the added advantage of easy availability of skilled labor.
Strong competition exists in the international and domestic market. Manufacturing of high quality trendy designs and aggressive marketing is essential to get a permanent place in the market.
44 PPRROOJJEECCTT PPRROOFFIILLEE
44..11 PPrroojjeecctt BBrriieeff
The proposed project is for setting up a “Wooden Furniture Manufacturing Unit”. The project will cater to the needs of the domestic market. This project will be capable of integrated manufacturing of wooden furniture starting from cutting of wood to retailing of product to the customer. Auxiliary processes like carving will be met through sub contracting.
44..22 OOppppoorrttuunniittyy RRaattiioonnaallee
The demand for wooden furniture is increasing in the domestic market as well as in the international market due to its traditional appeal and durability despite the introduction of new materials in furniture manufacturing.
Furniture, which is given as dowry, forms the major portion of sales of wooden furniture in Pakistan. As a result, the demand for household furniture increases substantially in winter and spring season due to weddings.
With the rapid increase in the development of new housing schemes, the increased demand of wooden furniture is also anticipated. According to the National Housing Policy 2001, The annual additional requirement is estimated around 570,000 housing units whereas the annual production is estimated around 300,000 housing units resulting in a recurring backlog of 270,000 housing units annually. The household size is 6.6 persons and the occupancy per room is 3.3 persons1. Furthermore, introduction of new schemes by different banks for house and consumer financing have also raised the purchasing power of public.
In the international market, demand for wooden furniture is increasing for its unique style and aristocratic and elegant appearance. The demand of wooden furniture in the International market is increasing gradually at an annual average rate of 4 percent2.
Year 2003 2004 2005 2006World 9,318 9,618 11,816 9,794
Growth 3.22% 22.85% -17.11%
Though till now Pakistan’s share in the international market is not convincing, but its exports of wooden furniture are increasing rapidly due to appealing designs, craftsmanship and quality of wooden furniture manufactured in Pakistan.
1 National Housing Policy 2001. Board of Investment Government of Pakistan.2 Sector Brief – wooden furniture SMEDA.3 UN Comtrade Database, www.comtrade.un.org
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Major trading partner of wooden furniture manufactured in Pakistan are USA, UK, Italy, France, Saudi Arabia, UAE, Germany4 and earning substantial foreign exchange for the country and contributing towards the strengthening of economy.
In 2006 the global exports of wooden furniture was valued at US $ 16.191 billion. The top exporters for wooden furniture in 2006 were China, Germany, Malaysia, Canada, Romania, Denmark and USA. Pakistan share in the furniture exports is around 0.08%5. Following is the table showing the world imports and exports of Office, Bedroom and Wooden Furniture (other then bedroom & office furniture).
Following are the pie charts showing the world top importers and exporters of Office, Bedroom and other Wooden Furniture for the year-2006.
4 Export by Commodity. EPB Statistics(www.epb.gov.pk)5 UN ComTrade Database, www.comtrade.un.org/db6 UN Comtrade Database, http://comtrade.un.org7 UN Comtrade Database, http://comtrade.un.org
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World Top Importers of Office Furniture in Year 2006
Others21%
USA55%
China, Hong Kong SAR
3%
Norway5%
Belgium5%
Canada5% Germany
6%
World Top Exporters of Office Furniture in Year 2006
China22%
Germany13%
Denmark9%
Malaysia6%
USA6%
Canada24%
Others20%
World Top Importers of Bedrom Furniture in Year 2006
China, Hong Kong SAR
1%
USA70%
Ireland1%Austria
3%
Belgium3%
Canada5%
Germany7%
Others10%
World Top Exporters of Bedrom Furniture in Year 2006
Others14%
Denmark12%
Germany12%
Canada7%
Brazil6%
Malaysia6%
China40%
USA3%
World Top Importers of Wooden Furniture other then Bedroom & Office Furniture in Year 2006
Germany13%
Canada5%
Belgium5%
Austria4%
Denmark2%
USA54%
Others17%
World Top Exporters of Wooden Furniture other then Bedroom & Office Furniture in Year 2006
USA5%
China31%
Denmark7%
Romania7%
Canada8%
Malaysia8%
Germany10%
Others24%
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In 2006 Pakistan’s exports of wooden furniture was valued at US $ 9.7 million. The top importers for wooden furniture from Pakistan in 2006 were USA, UAE, UK, Canada and China. Pakistan’s share in the furniture exports in 2006 is around 0.08%8. Following is the table showing the Pakistan’s exports and imports of Office, Bedroom and Wooden Furniture (other then bedroom & office furniture).
Following are the pie charts showing the world top importers and exporters of Office, Bedroom and other Wooden Furniture from Pakistan for the year-2006.
Export of Office Furniture from Pakistan in Year 2006
United Arab Emirates
21%USA19%
Lebanon11%
Canada5%
Others14% Italy
30%
Import of Office Furniture from the World to Pakistan in Year 2006
United Arab Emirates
21%
USA19%
Lebanon11%
Canada5%
Others14% Italy
30%
8 UN ComTrade Database, www.comtrade.un.org/db9 UN Comtrade Database, http://comtrade.un.org10 UN Comtrade Database, http://comtrade.un.org
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Export of Bedroom Furniture from Pakistan in Year 2006
Afghanistan31%
Others24%
Malaysia5%
United Arab Emirates
12%
United Kingdom
13%
USA15%
Import of Bedroom Furniture from the World to Pakistan in Year 2006
Others15%
Switzerland27%Netherlands
10%
Singapore10%
USA7%
Germany5% China
26%
Export of Wooden Furniture other than Bedroom & Office Furniture from Pakistan in Year 2006
United Arab Emirates
17%
Germany5% France
6%
Afghanistan7%
United Kingdom
7%
USA13%Others
45%
Import of Wooden Furniture other than Bedroom & Office Furniture from the World to Pakistan in Year 2006
USA11%
United Arab Emirates
7%
United Kingdom5%
Thailand3%
Others22%
China52%
Over the last 10 years this trend has been positive and by the year 2010 it is estimated that the global furniture trade would increase to US $ 42.02 billion. The forecasted figures of the global furniture trade are depicted in the figure below:
However over the years the entry into the furniture global market is becoming more competitive as the market demand has become more subjective to relevant safety and environmental requirements. Some of the factors contributing to the change in international trends include Green furniture, Multi-functionality, Simplicity and neutral colors, Home office, Ready-to-assemble (RTA) and Do-it-yourself (DIY) furniture. Malaysia, Philippines, Indonesia and China
27.7230.15
32.7935.67
38.842.21
45.92
0
10
20
30
40
50
2004* 2005* 2006* 2007* 2008* 2009* 2010*
Total Wooden Furniture trade (US $ BLN)
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have already established their brand name on their products being comparatively cheaper and of high quality and are emerging as market players.
Pakistan’s growth in this particular region appears to be independent of the international growth trend and show no correlation with the World’s Wooden Furniture Exports, as the major trading partners of Pakistan do not include any of the major importers of the world in any real value sense. Moreover, Pakistani industry has peculiar issues related to technology, human resource development, lack of formal credit and consequently access to export destinations. Additionally there is a significant presence of SMEs in this sector.
44..33 MMaarrkkeett EEnnttrryy TTiimmiinngg
Though the demand for wooden furniture in domestic market is persistent throughout the year, but it significantly increases during the period of October to March because of the wedding season. The demand for the furniture almost doubles during this period. Hence, the prime time to enter into market is start of August.
It is recommended that this project should be started as sole proprietorship or partnership as this does not involve heavy investment. Moreover, less complications and costs are involved in forming, administrating and running the sole proprietorship or partnership business. Lower tax rates for this type of business legal status would be an added advantage.
The proposed project is capable of manufacturing the complete range of wooden furniture and other allied products to meet the demand of domestic market.
Show room will work on 11 hours a day for 300 days, while factory will work on 8 hours shift for 300 days.
44..66 PPrroojjeecctt IInnvveessttmmeenntt
Total cost of project is Rs 10.25 million.
44..77 PPrrooppoosseedd PPrroodduucctt MMiixx
This unit is capable of producing different sort of wooden furniture. As this project involves craftsmanship of human resource, different type of product can be manufactured but for the purpose of this pre-feasibility, the project is assumed to manufacture bed sets, dinning sets, sofa sets, misc. furniture (centre table & end tables for sofa set) and office furniture..
Capacity Human Resource Technology/Machinery Location
- 24 Local Major Cities
Project Cost IRR NPV Payback Period Cost of Capital
10,249,390 57% 70,896,02411 3.48 18.5%
11 NPV is high because Showroom is to be build in Year-6 having a capital cost of Rs. 45,493,270 which increases the Project Cost up to Rs. 55,742,661
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44..99 PPrrooppoosseedd LLooccaattiioonn
Local Furniture demand is directly related to the population living in a locality. Therefore, the demand for wooden furniture is higher in heavily populated cities of Pakistan like Lahore, Multan, Karachi, Peshawar etc. & developed cities like Rawalpindi, Islamabad.
1. Proper selection of wood is important for the success of business as wood is the major raw material and it plays an important role in achieving good quality finished product. Properly seasoned (Dry) wood ensures high quality furniture as it minimizes deforming due to dampness in wood.
2. Proper selection of labor is also important as it can improve quality of finished product by better craftsmanship & lower wastage. Hence, specialized labor should be used for the particular design and product, which will give high quality furniture at lower cost.
3. New designs and styles can build brand equity for the business. As there is high competition in the market, to make the project commercially viable, creation of new designs and styles and setting new trends is vital.
4. Reasonable number hiring of permanent labor is important to maintain lower overhead cost, as the business is labor intensive and skilled labor is readily available in the local industry. So, it is important to hire permanent skilled labor according to production requirement. Skilled labor is easily available in the market and additional manufacturing workload can be sub-contracted.
5. The final objective of the business is to sell the final product in the market to get the desired return. The location of show room is very important for success. The showroom should be located in heavily populated or developing cities and its location within the city should be in accordance with the target market of the business.
6. While selecting the location for production, proximity to raw material and availability of skilled labor should be taken into account, as this will reduce cost of production.
55 SSWWOOTT AANNAALLYYSSIISS
55..11 SSttrreennggtthhss
Skilled Labor Force
Wood seasoning facility centre is available
Suppliers of raw material are available
Local tools available
Strong historical background of craftsmen
Many big cities are link-up with this cluster including Lahore, Islamabad, Sargohha, Jhang, Faisalabad and Gujranwala etc.
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55..22 WWeeaakknneesssseess
High cost of production due to high rate of raw material
Lack of educated, certified and professionally trained work force
Unavailability of ready to use raw material
No Designing and R&D facilities available
Unawareness of Social compliance and Environmental issues
Unawareness of any quality control and standards
Unavailability of ready-to use seasoned wood
Constraint of Technology
Fluctuating prices of the raw material.
55..33 OOppppoorrttuunniittiieess
Technical up gradation
Networking & linkages of cluster players/stakeholders
Development of consortiums with specified objectives
55..44 TThhrreeaattss
Migration of trained work forces from the sector
Raw material cost increase (shortage in the stock of Sheesham wood at any stage because no further plantation as required)
The Lahore cluster is basically based on the traders of wooden furniture. There are more than 1500 retail shops in Lahore in different locations which basically trade in MDF furniture, office furniture, and bedroom and living room furniture. However in the last decade this market has diversified its product range to all kinds of furniture articles. These traders usually purchase furniture in semi-finished form from Chiniot and polish and upholster it in their workshops. There profit margins are quite high as all the value addition is done in Lahore according to the requirement of the customers.
However, there are around 100-200 small cottage sized workshops in Lahore which are engaged in wooden furniture manufacturing. Majority of these manufacturing facilities use low-tech machinery which are either locally assembled or are second hand imported machines. There is only a hand full of furniture manufacturers which have established a production line based on
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new modern machinery and seasoning kiln facilities. On average each manufacturing facilities employs 5-20 workers depending on its scope of work.
At present there are around five large clusters of furniture markets within Lahore i.e. Fortress Stadium, Gulberg, AIlama Iqbal Town, Ferozepur Road and Multan Road. These markets mostly cater to the needs of the domestic market. Because of the poor finishing quality and inferior packaging the exports are restricted.
66..22 CChhiinniioott
Although wooden furniture industry Chiniot is approximately 150-200 years old, but still exists on a cottage sized scale. There are almost 3000-4000 manufacturing units in Chiniot, which use primitive technology and techniques for manufacturing. Around 40,000 people are directly employed by this industry. The stakeholders can be categorized into manufacturers, craftsmen, traders, timber merchants, exporters, transporters and financial institutions. Declining number of skilled craftsmen comprise the majority of the industry’s workforce. The semi-finished items (Kora) are sold to all major cities throughout Pakistan. Direct export from this industry/cluster is negligible.
Chiniot is a major cluster engaged in the manufacturing of handmade wooden carved furniture. The demand for this kind of furniture is increasing in the international market. The basic raw material used for hand carved furniture is Sheesham wood, which is under an attack of an unknown kind of disease. This has resulted in a shortage of raw material and increase in its price.
66..33 GGuujjrraatt
There are about 300 units (including shops) in Gujrat associated with this cluster. The approximate sector breakdown shows that majority of the sector is based on 225 -250 micro units, 40-50 small units and 5 medium units. There are approximately 7,000-8,000 people directly employed in this industry. Gujrat is well known for its top quality furniture all over Pakistan. A few units are exporting furniture to different countries including, UK, US, Saudi Arabia, Middle East etc. The total export of Furniture from Gujrat is about US$ 4.5 million. (Directorate of industries), however due to limited production capacity these firms are not able to fulfill the large export orders and hence can not compete vigorously in international markets. China and India are the major competitors. Their prices are less and quality is better.
66..44 KKaarraacchhii
Furniture items produced in Sindh comprise of chairs, tables, musical instruments and other items like doors and windows. However, in the last decade units have started diversifying their products into office and kid’s furniture which is designed more trendy designs.
At present there are two main clusters of small furniture manufacturers in Karachi, i.e. Manzoor Colony and Akhtar Colony. There are some 1200 – 1300 units in these clusters that have employed almost 6000 – 7500 people. One small unit covers an area of 720 to 1000 square feet. The machinery used includes four basic tools/machines for furniture making. The average wood requirement of each of these units is around 150 -200 cubic feet per month. Wood is purchased by unit owners and seasoned naturally. This market mostly caters to the needs of the domestic
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market and because of the poor finishing/polishing quality the furniture manufactured here is not exported.
Two smaller clusters in Patelpara and Liaqatabad are also engaged in the manufacturing of low quality (MDF and Keekar wood) furniture. Almost three hundreds small/micro units are operating in these areas.
Ayshamanzil, Arambagh, Nursery, Liaquatabad and Manzoor Colony are some of the major furniture retail markets in Karachi selling hardwood, steel, MDF furniture. The prices of raw material fluctuate tremendously and quality raw material is scarce. Seasoned quality rosewood trades at around Rs. 650-850 per cubic ft. American Oakwood and Burma teakwood can be purchased at a price of Rs. 2400 and Rs. 3200 respectively in this market. H.D.F. from this market is currently being used in making door frames. Another issue this cluster is facing is the declining number of skilled craftsmen.
Lacquer work is another powerful traditional craft of Sindh. These items have grown popular over the time period. However furniture items are simple in design. Articles such as table lamps, chairs and sofa sets produced by Lacquer industries of Hala in Hyderabad district and Kashmir in the Jacobabad district, are very popular.
The above clusters of furniture are rich for the availability of raw wood and skilled labor. Moreover, these areas are also in close proximity from retail markets.
Majority of the wooden furniture-manufacturing units are classified as small and medium sized having small and specified production. Most of the manufacturers do not have the complete manufacturing facilities to manufacture the complete range of products. The orders are sub contracted to independent workshops for manufacturing. This reduces the capital cost of the manufacturer but increases the quality control cost.
77 MMAARRKKEETT IINNFFOORRMMAATTIIOONN
77..11 DDoommeessttiicc MMaarrkkeett
In local market the target market comprises of the following segments:
77..11..11 TTaarrggeett CCuussttoommeerrss
In local market, the requirement for wooden furniture can be categorized into four namely:
1. For newly built house;2. For dowry;3. For renovation;4. For Institutional buyer.5. For offices (public & private sector)
The majority of customers in the domestic market belong to first and second category. These customers require furniture for their newly built houses and usually buy range of products like bed sets, dining sets and sofa sets with other decorative material for their entire house.
In Pakistani society, Furniture is given as dowry. Therefore, its demand increases in the spring and winter season due to weddings. Basic requirement of these customers is bed set of new designs and styles. These types of customers also buy sofa set or dining set along with bed set.
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Initially entrepreneur should target these customers to establish the business and to increase the customer base. These potential customers can play a dominating role in the successful break through of the business.
With the flourishing of tourism and hotel industry, considerable scope emerges for wooden furniture in this sector. Large orders can be secured to supply wooden furniture to these hotels and resorts.
The basic raw materials for manufacturing of furniture is wood. Wood obtained from the forest is of prime quality. Therefore, it is recommended to use dry wood from the forests for manufacturing of quality wooden furniture. Forest wood is easily available in the market. Furniture manufacturing units in Pakistan mostly use sheesham wood. Other types of woods used in manufacturing furniture are:
Teak wood Walnut wood Keekar wood
Besides this, substitute material like lasani, winboard are also used in the manufacturing of furniture.
Raw material wood is easily available from the forest reserves like Changa manga, Pakhowal, Kundian, Chicha watni, Bahawalpur and other natural forests. Changa manga forest is the major source of wood for furniture.
Other material used in the furniture manufacturing process are nails, screws, glue/solution, spirit, lakh, thiner, lacquer, sealer, hardener, etc. These raw materials are easily available in the market.
Pre-feasibility Study Wooden Furniture Manufacturing Unit
Season wood is higher in price than the fresh wood, so if the wood purchased is not properly dried wood than these blocks/slices are seasoned through different processes, namely:
Condensation Boiler System Vacuum System Seasoning through putting the wood slices under normal environmental temperature for
considerable duration.
Purchase of Wood (Timber
Market)
Wood Cutting at Trolley (Big
Saw)
Wood comes in Factory
Wood Seasoning
Furniture Designing on
CAD
Wood comes to Machine Man
Wood comes at Shaper Machine
Carpenter shape the wood into
Furniture
Furniture comes to Spindle /
Molding Machine
Furniture comes to Carver for
Carving
Carpenter assembles the
Furniture
Furniture comes to Inspection
before finishing
Furniture goes to Store or for Polishing
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88..22..44 SSeelleeccttiioonn ooff DDeessiiggnn
Before start of manufacturing of any furniture product a desired design is selected. Selection of elegant design is important to ensure attractive finished product.
88..22..55 CCuuttttiinngg iinnttoo SSlliicceess
The seasoned wood blocks are cut into desired shape and slices according to the requirement of design.
88..22..66 MMoollddiinngg
The slices of wood are molded into the desired shape according to the design.
88..22..77 CCaarrvviinngg
Carving means different elegant pattern carved in the wood. Quality of carving depends on the skills of the labor.
88..22..88 AAsssseemmbbllyy//FFiittttiinngg
Once the different pieces are carved & molded than these parts/pieces are assembled or fixed together to give the shape to the final product.
Assembled product is grind to make the surface smooth. Once the surface is smooth, finishing material is applied to make the surface ready for paint or polish. After the base is prepared final finishing is applied depending on requirement in term of paint/polish. Upholstery of fabric is carried out according requirement of design.
88..33 PPrroodduucctt MMiixx OOffffeerreedd
For the purpose of this pre feasibility, it is assumed that project will offer the following products: Bed SetWhich includes Bed, side tables, dressing table, dressing stool. Sofa SetWhich includes standard sofa set of three seats, two seats and one seat. Dining SetWhich includes Glass top dining table with eight chairs. Misc. Furniture SetA part of Sofa Set but not sold along with it. It includes glass top centre table along with two end tables for the Sofa Set. Office Furniture SetWhich includes an office table along with side table for computer with one executive and two visitors chairs.
88..33..11 SSuuppeerriioorr QQuuaalliittyy
Superior quality bed set, dining set, misc. furniture set and office furniture set are made of supreme quality pure wood furniture with elegant hand carved design. Superior quality has extra carving with complex and elegant design and extra fine polishing and finishing. While Superior quality sofa set is manufacturer from best available upholstery material with elegant design & extra comfort.
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88..33..22 FFiinnee QQuuaalliittyy
Fine quality bed set, dining set, misc. furniture set and office furniture are made of fine quality pure wood. Simple but appealing hand carving is done with fine quality polishing. While fine quality sofa set has a quality upholstery material & elegant design.
88..33..33 NNoorrmmaall QQuuaalliittyy
Normal quality bed set, dining set, misc. furniture set and office furniture are made of a mixture of pure wood and substitute material (Lasani, winboard, etc). Lasani gives fine and even surface for finishing and paint Smooth surface gives eye-catching effect. The finish of bed set & dinning set are assumed to be of paint due to the extra fine surface. The normal quality sofa set a simple design sofa set with good quality upholstery material.
Manufacturing of wooden furniture involves skilled labor. Issues like use of minor labor, deviation from labor laws can influence the business significantly. To avoid issues like minor labor, social security and employee’s old age benefit schemes, it is recommended that minimum number of permanent skilled labor should employ and all other manufacturing should be outsourced on contractual basis to avoid such issues.
In Pakistan, manufacturing of wooden furniture is mostly done by hands. Hence, skilled manpower is the essential element in the manufacturing process of furniture.
Pre-feasibility Study Wooden Furniture Manufacturing Unit
Imported and locally manufactured machinery is available in the local market. As this project is labor intensive, not much based on technical machinery and technological advancement, therefore technology has less impact on the business. Imported machinery and plants are available for seasoning, cutting, molding, finishing, etc.
Imported machinery can be used in the manufacturing process but this requires high capital investment & high running. Moreover, Skilled labor required to operate these machines is not easily available in the market.
As skilled labor and craftsmanship plays an important role in manufacturing of wooden furniture in Pakistan, technological advancement doesn’t play an important role in manufacturing process.
Description Required Cost/Unit (Rs) Total Cost (Rs)Office Table Set for CAD Operator 1 10,000 10,000Visitors Chairs 4 1,500 6,000Table & Chair set for admin, store & production
3 8,000 24,000
Fire Extinguishers 1 4,500 4,500Total Furniture & Fixtures 44,500
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99..88 MMaacchhiinnee MMaaiinntteennaannccee
As technically advanced machines are not required in the manufacturing process, therefore, machine maintenance cost is low. The major maintenance cost is Oiling and Greasing of machines.
The labor required for manufacturing process is easily available on daily wages, per unit basis and permanently employed. It is recommended that selective highly skilled labor should be employed permanently and other labor should be hired as and when required. Following permanent human resource is required both at factory and show room.
Sub contracting minimized the implication of labor laws and increases the productivity. However, strategy can also result in increase of supervision cost. There will be one production supervisor sufficient for a labor of 30 but with the increase in labor one assistant to the production supervisor would be added and one machine man would be added to the production crew in order to run the production efficiently. For this project it is assumed that following staff would be added each year in order to increase the production uniformly each year.
The land sufficient for setting up the proposed wooden furniture manufacturing unit is approximately 3 kanal13 (13,500 sq. ft) production area (Factory area), while the covered area of furniture depends on area available & financial resources available. For the proposed project 1 kanal showroom area is assumed which will not be on lease. For such kind of business it is recommended to have own showroom which will be opened in year-6 when the business is enough liquid.
Description Area (Sq. ft)Factory Main Hall 4,000Carving Room 1,500Polish Room 1,500Store for un-finished products 1,000Store for finished product 2,300Office for factory admin officer & CAD operator
It is recommended to start the proposed business in own place as this will ensure the savings from the high rentals. Secondly, the machinery used in the project can easily be purchased locally. It can be seen from the table below that the rent cost is high and after establishing the showroom at a certain place there is no surety of ownership. That’s why it is assumed that showroom would be opened and operated at own premises.
13 Land assumed for the project is 3 kanal, because with the increase in labor each year it would be recommended not to have the factory less than that.14 Showroom to be built in Year-6.
Pre-feasibility Study Wooden Furniture Manufacturing Unit
For smooth operations of the proposed project following utility are required:
Electricity Telephone Water
15 Showroom to be build in Year-616 Showroom to be build in Year-6
Pre-feasibility Study Wooden Furniture Manufacturing Unit
PREF-70/May, 2007/2
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The major clusters of hand carved wooden furniture in Pakistan are Chiniot & Gujrat, which are renowned for its craftsmanship. Skilled labour required for manufacturing of wooden furniture is sufficiently and easily available in other cities like Peshawar & Lahore.
It is preferable to establish project and show room in vicinity of Lahore. Lahore is center of fashion and trends and a major market providing range of designs and styles and also fulfilling the demand of near off cities like Gujranwala, Kasur, Okara, and Sahiwal. As mentioned before, the retail outlet for the project can also be established in other major cities of the country i.e. Karachi, Islamabad, Multan & Rawalpindi.
Pre-feasibility Study Wooden Furniture Manufacturing Unit
PREF-70/May, 2007/2
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Description Amount (Rs.) Land for Factory 3,600,000 Building/Infrastructure for Factory 4,590,000Machinery & Equipment 523,500 Office Equipment, Furniture for Factory 91,100 Pre-operating Costs 248,790Total Capital Expenditure 9,053,390
Raw Material Inventory 696,000Cash 500,000 Total Working Capital 1,196,000
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 11,124,345 15,202,165 21,065,464 29,989,600 42,608,007 64,832,785 89,990,120 116,454,790 151,622,786 200,489,478
Other income (interest on cash)Earnings Before Interest & Taxes 1,542,121 3,346,122 6,383,861 11,568,683 19,771,930 35,379,423 52,681,379 68,930,212 90,602,612 120,837,470
Interest expense on long term debt (Debt facility : Bank 1) 756,010 664,932 512,982 338,616 138,528 4,026,782 4,026,782 3,541,664 2,732,326 1,803,592 Subtotal 756,010 664,932 512,982 338,616 138,528 4,026,782 4,026,782 3,541,664 2,732,326 1,803,592 Earnings Before Tax 786,111 2,681,190 5,870,879 11,230,066 19,633,403 31,352,641 48,654,597 65,388,547 87,870,286 119,033,878
Taxable earnings for the year 786,111 2,681,190 5,870,879 11,230,066 19,633,403 31,352,641 48,654,597 65,388,547 87,870,286 119,033,878 Tax 196,528 670,298 1,467,720 2,807,517 4,908,351 7,838,160 12,163,649 16,347,137 21,967,572 29,758,470 NET PROFIT/(LOSS) AFTER TAX 589,583 2,010,893 4,403,159 8,422,550 14,725,052 23,514,480 36,490,948 49,041,410 65,902,715 89,275,409
Annual Electricity Price Growth 10%Annual Salary Growth Rate 10%Rent Growth Rate 10%Annual Sale Price Growth Rate for other Showrooms 3%Annual Sale Price Growth Rate for own Customers 10%Annual Raw Material Price Growth Rate for Wood 40%Annual Raw Material Price Growth Rate other than Wood 10%
Initial Cash in Bank Rs. 500,000Accounts Payable Cycle in (Days) 7Finished Goods Inventory in (Days) 30Raw Material Inventory of Wood in (Days) 90Raw Material Inventory other than Wood in (Days) 30
Project Life (Years) 10Debt Equity Ratio 50:50Return on Equity 25%Interest Rate on Long Term Debt 14%Long Term Debt Tenure (Years) 5Number of Payment/Year 1Net Present Value Rate (Weighted Average Cost of Capital) 18.50%Income Tax Rates Sole Proprietorship Tax Slabs