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

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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.

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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.

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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

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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.

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- 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

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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.

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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

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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

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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

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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

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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.

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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

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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.

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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

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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

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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.

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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.

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