PROJECT PROPOSAL ON WOOD FURNITURE

MANUFACTURING PLANT

PROJECT TO BE IMPLEMENTED IN
OROMIA SPECAIL ZONE GELAN TOWN

PROMOTED BY: -Yerga Kebede Nigatu.

Project Location: GELAN

July, 2020
Gelan, Ethiopia

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Table of Contents
1. INTRODUCTION................................................................................1
1.1 General Background Information...................................................1
1.2 Company /Owner Profile................................................................2
2. MARKET STUDY...............................................................................3
2.1 Past Supply and Present Demand................................................3
2.2 Projected Demand.......................................................................6
2.3 Marketing Strategy......................................................................7
3. THE PROJECT..................................................................................8
3.1 Project Location and infrastructure.............................................8
3.2 Product Description and Application...........................................8
3.3 Objectives of the project..............................................................9
3.4 PLANT CAPACITY AND PRODUCTION PROGRAMME..................9
3.4.1 Plant Capacity.......................................................................9
3.4.2 Production Program.............................................................10
3.5 MATERIALS AND INPUTS..........................................................11
3.5.1 Raw and Auxiliary Materials................................................11
3.5.2 Utilities................................................................................12
3.6 Technology And Engineering......................................................13
3.6.1 Technology..........................................................................13
3.6.2 ENGINEERING....................................................................18

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3.7 ORGANIZATIONS AND MANAGEMENT......................................25
3.7.1 Organizational Structure.....................................................25
3.7.2 Manpower Requirement.......................................................26
3.7.3 Types of Skills Required.......................................................27
3.7.4 TRAINING REQUIREMENT..................................................27
3.8 FINANCIAL ANALYSIS...............................................................28
3.8.1 Total Initial investment........................................................29
3.9 THE PROJECT EXPENDITURE AND SALES PLAN.....................30
3.9.1 Production cost....................................................................30
3.9.2 Depreciation Cost................................................................30
3.9.3 Sales....................................................................................31

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 I. EXECUTIVE SUMMARY
Name of the promoter: -Yerga Kebede Nigatu
Nationality: - Ethiopia
Address: -0911203718
Type of the Project: - Wooden Furniture Manufacturing
Plant
Project Location: -The Project will be located in Gelan Town Finfinne
Surround Oromia Special Zone of Oromia
Regional State.
Project Capital: -The total investment capital of the project is
estimated at birr 60,000,000.00of which birr
42,000,000is for fixed investment items, while
the remaining birr 18,000,000will be initial
working capital.
Source of Finance: -The total investment capital of the project is
financed from the promoter’s equity 30% and bank loan 70%.
Out of the total capital Br. 9,046,000 (30%) is contributed by the
promoter of the project. While remaining balance of br.
42,000,000(70%) is financed by local banks Loan.
Land requirement: -The promoter requires 5,000m2 of land.
Employment: -The project creates job opportunity for 126 permanents
and 100 temporary employees.
Profitability: -The financial analysis of the envisaged project was
carried out for the following ten years. Based on the 10 years’ financial
projections the project average annual net profit after payment of bank
interest, depreciation and tax amounts to birr 34,237.

The cash flow statement shows positive balance right from the first year
of project operation life. The computation of the project present

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worthiness indicates an internal rate of return of 30% this indicates the
project is profitable and its implementation entails no financial risks.

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 2. Introduction
2 .1 General Background of the project

It is obvious that the centralized entomic policy of the previous

government seriously handed the overall economic progress of the
country. the previous government had nationalized several privately
owned enterprises and private investment on industrial sector was
similarly impossible during the period.

Pursuant to the announcement of a free market economic policy by the

government currently in power private investment has been flourishing
the last decade. Taking advantage of this favorable situation.

Therefore, it is the right time to take part in establishing Furniture for

Domestic project in the area taking the advantage of the conductive
policy environment created which underscores and encourages the
participation of private investors either individually or in part.

As the country is part of the world its liberal economic policy pavers a
way for market oriented economics system. The counter opens its door
for invertors the government has recognized the perception of private
sectors in construction leasing which could play it role in satisfying of
the growing demand. The strategy is designed to eradicate poverty or
encouraging investment because of this fact the former planned
economic policy was replaced with a market based economy there is
increasing private sector participation in industrial sector.

The industrial sector including handicrafts and small scare industries

play an important role in national by supply consumer goods generating
employment opportunities. Industrial sector is still in its early stage as
compared to agriculture. the volume of production in most of these fields
is still fairly limed and any covers a very small production of domestic
demand. All these can be seen as one of the back wardens of your
country in the level of industrialization. which is probably one of lowest

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in the world in and the government of Ethiopia currently taking some
majors encouraging the inured sectors.

The introduction of practical measure to improve the economic policies

that helped the nation to move steadily towards modernization of
production marketing and better standard of living. therefore, based on
the conductive policy environment and unmet demand for the sector the
promoter of this project has decided to invest its private’s capital and
generate revenue from Wooden Furniture Manufacturing.

2.2 Company /Owner Profile

The owner is the citizen of Ethiopian with versatile business experience
and adequate educational background. He is highly encouraged by the
conducive investment atmosphere prevailing in Ethiopia as an eye-
witnessed by the suitable socio economic situation, conducive
investment policies and the adequate resources abundant in the Oromia
Region.

The Promoter, having with relevant and rich experience in mixed spheres
especially in the area of Wooden Furniture Manufacturing Industry.
The promoter will go into other important selected manufacturing area
and other fields of Processing Industry in the near year.

3. THE PROJECT

3.1. Project Location and infrastructure

The project is planned to be implemented in Finfinne Surround Oromia
Special Zone in Gelan. It will be operated at suitable location for
Wooden Furniture Manufacturing that situated at a distance of 25km
from Addis Ababa. Gelan is one of the priority area for the proposed
project attracts investments as the raw materials are available for this
selected project and it is the node of development corridor and service

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availability. Availability of infrastructure services such as Express way,
hydro power, telephone and related basic structures, which are basic to
make a project effective as soon as investment land delivery is secured.

The reasons of selecting the location for the proposed project are
attributed to:-

 Its proximity to the capital, Addis Ababa, with good weather

condition.
 Its proximity to services & facilities like road and transport
facilities, and utilities like electric power, water and telephone
line.
 The existing conducive social and investment situations and
increase number of private investment in the area.
 Its accessibility and ease of future development are some of the
reasons behind selecting the area for the proposed project.
3.2. Infrastructure Facilities
Gelan town is which the proposed project will be established is
accessible throughout the year by any type of vehicle because it is
connected to Addis Ababa and South West parts of Oromia
Regional state part of the country by relatively modern asphalt
road.
There are also reliable services with regard to communication
services like telephone and postage, hydroelectric power and pure
water supply are also available. Other such as Education, Health
facilities, and etc other are relatively bettered developed in the
town.

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3.3 Project Description

The main component of the project is later products (Wooden Furniture

Manufacturing) plant and then for exporting. The project is expected to
generate substantial revenue to the government in the form of tax. And also
implementation of the project will create employment opportunity.

3.4 Project Objectives and mission

The main objective of the project is aimed at to maximize the return on

the invested capital in the form of profit for the promoters. In addition to
this other secondary objective will be also be attained. Therese are:

 To export the product so that earns foreign exchange.

 To create employment opportunity for the people of the project
area.
 To supply quality product for foreign market at fair price and
 To generate income for the Government in the form of income tax
and VAT tax payment.
The establishment of this project has the following mission. This also
emanates from the existing investment policy, the natural and cultural
offers of the project area that creates unique and quality Furniture
products in meeting customer’s satisfaction to bring real benefit to the
nation, the community and promoter.

The Project
1. Wooden Based Furniture Manufacturing

1.1 Product Description and Rationale

The proposed project is for setting up a “Wooden Furniture

Manufacturing” in Gelan town. This project will be capable of integrated
manufacturing of wooden furniture starting from cutting of wood to

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retailing of product to the customer. Auxiliary processes like carving will
be met through sub-contracting.

Furniture of all kinds either with or without carving and including but
not limited to tables, chairs, dressing tables, beds, rock chairs, dining
tables are to be manufactured in the Unit. The factory will produce 700
completed units in a year, at 100% capacity utilization. The total capital
cost of the project is Birr 10 million. The major raw material used will be
fine quality wood which is readily available for use in furniture
production. Approximately 24 employees will be employed in this
furniture factory. This factory will be able to start manufacturing in 4
months. The financial summary revealed that gross profit margin is 26%;
net profit margin of 15% and IRR of 57%.

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. The project will be able to employ skilled labor to add value
for the local wood in to finished product i.e. wooden furniture. The high
growth rate of population and increasing forest cover of the country
makes the opportunity for investment in this sector. Therefore, the
opportunity of display and marketing of furniture exists. Skilled Labor
Force is readily available and so are the wooden seasoning centers. All
the tools required in the manufacturing of the furniture are readily
available at low costs. Consortiums can be developed to market the fine
furniture. Export potential also exists. Strong historical background of
craftsmen is also an added advantage of this project. However, there are
constraints on the latest technology know-how.

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 3.1 Market Study and Plant Capacity
3.1.1 Market Study

Wooden furniture forms the major portion of sales in Ethiopia. With the
rapid increase in the development of new housing schemes, the
increased demand of wooden furniture is anticipated. According to the
MUDC, the annual additional requirement of housing units is estimated
to exceed 570,000 whereas the annual production is estimated very low.
The household size is greater than 5.5 persons on average and the
occupancy per room is 3.3 persons. 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
elegant appearance. The demand of wooden furniture in the International
market is increasing gradually at an annual average rate of 4 percent.
There seems to be a growing trend in the gap of supply and demand in
the future. Over all Export target is set with millions of dollar by
Government. Export growth trend of the country simultaneously applies
to furniture industry as well.
3.1.2 Plant Capacity
Furniture of three qualities will be made: Superior, Fine, and Normal; to
cater to the need of both local and export markets. Highly skilled labor
will be employed so that the finished product is of superior quality.
Production capacity will be increased to achieve maximum capacity.
Some of the orders will also be sub contracted.

Table 3.1: Annual Production of Furniture

Products Unit Price
Qt in units
(Birr)
Aspender door 185 53,000

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 Perge door 165 51,000
Asos door 90 32,000
Perge glass door 200 10,000
Tv stand 178 47,000
Slide door 200 10,000
Hit door 185 53,000
Chairand table 90 32,000
Computer table and etc 178 47,000
Total 1471 -

3.2 Materials and Inputs

3.2.1 Raw Materials
The basic raw material for manufacturing of furniture is wood. Wood
obtained from the forest is of prime quality. Generally dry wood is
recommended for manufacturing of quality wooden furniture. Forest
wood is easily available in the market such as Shashemene, Jima and
Metu. Furniture manufacturing units in Ethiopia mostly use ply wood,
Zegba, juniper, hygenia and wanza. Other types of wood used in
manufacturing furniture are imported from abroad.

Raw material wood is easily available from the forest reserve of the
country. Other material used in the furniture manufacturing process is
nails, screws, glue/solution, spirit, thinner, lacquer, sealer, hardener,
etc. These raw materials are easily available in the market. The cost of
goods for the production of furniture is summarized and presented in
table 3.2 below.

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 Table 3.2: Cost of goods
Description Product Mix Cost Price (Birr)
Bed Set
Superior 20% 56,024
Fine 30% 42,883
Normal 50% 36,975
Dinning Set
Superior 20% 54,279
Fine 30% 39,745
Normal 50% 30,894
Sofa Set
Superior 20% 43,366
Fine 30% 29,033
Normal 50% 23,937
Miscellaneous
Furniture
Superior 20% 14,561
Fine 30% 11,153
Normal 50% 8,812
Office Furniture
Superior 20% 56,193
Fine 30% 33,168
Normal 50% 24,742

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 3.3 Technology and Engineering
3.3.1 Technology
3.3.1.1 Production Process

This section describes the major industrial processes within the Wood
Furniture and Fixtures industry, including the materials and equipment
used, and the processes employed. The following description of
production processes focuses on the manufacturing of wood furniture.
The primary input for wood furniture manufacturing is raw lumber, and
the production processes include steps such as drying, sawing, planning,
sanding, gluing, and finishing. Each of these activities is described
below.

Wood is cut into different sizes of blocks and slabs. If the wood
purchased is not seasoned 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.

Before start of manufacturing of any furniture product a desired design

is selected. Selection of elegant design is important to ensure attractive
finished product. The seasoned wood blocks are cut into desired shape
and slices according to the requirement of design. The slices of wood are
molded into the desired shape according to the design. Carving means
different elegant pattern carved in the wood. Quality of carving depends
on the skills of the labor. Once the different pieces are carved & molded
than these parts/pieces are assembled or fixed together to give the shape

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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 to the
requirement of design.
Fig. 3.1: Manufacturing process of Wooden Furniture

3.3.1.1.1 Drying

Some furniture manufacturing facilities may purchase dried lumber, but

others perform drying on-site. Drying of raw lumber is accomplished by
using a drying kiln or oven, fired by a boiler. According to some sources,
furniture manufacturing facilities generally burn wood waste (from later
stages of the production process) in boilers to heat the drying kilns and

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to alleviate possible solid waste disposal problems. The following boiler
firing configurations are used for burning wood waste: Dutch oven; fuel
cell oven; spreader stoker; suspension-fired; and fluidized bed
combustion. The primary outputs of burning wood waste in boilers are
point-source emissions to the atmosphere. A more detailed discussion of
all material inputs and pollution outputs will be covered in the following
section.

Types of Boilers: One common type of boiler used in smaller operations

is the Dutch oven. This unit is widely used because it can burn fuels
with very high moisture content. Wood waste is used as fuel and is fed
into the oven through an opening in the top of a refractory-lined furnace.
The fuel accumulates in a cone-shaped pile on a flat or sloping grate.
Combustion is accomplished in two stages: 1) drying and gasification,
and 2) combustion of gaseous products. The first stage takes place in the
primary furnace, which is separated from the secondary furnace
chamber by a bridge wall. Combustion is completed in the secondary
chamber before gases enter the boiler section. In the fuel cell oven, fuel is
dropped onto suspended fixed grates and is fired in a pile. Unlike the
Dutch oven, the refractory-line fuel cell also uses combustion air
preheating and positioning of secondary and tertiary air injection ports to
improve boiler efficiency. Because of their overall design and operating
similarities, fuel cell and Dutch oven boilers have comparable emission
characteristics.

The most common firing method employed for wood-fired boilers larger
than 45,000 kg/hr steam generation rate is the spreader stoker. With
this boiler, wood enters the furnace through a fuel chute and is spread
either pneumatically or mechanically across the furnace, where small
pieces of the fuel burn while in suspension. Simultaneously, larger
pieces of fuel are spread in a thin, even bed on a stationary or moving

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grate. The burning is accomplished in three stages in a single chamber:
1) moisture evaporation; 2) distillation and burning of volatile matter;
and 3) burning of fixed carbon. This type of operation has a fast response
to load changes, has improved combustion control, and can be operated
with multiple fuels. Natural gas or oil is often fired in spreader stoker
boilers as auxiliary fuel. This is done to maintain constant steam when
the wood waste supply fluctuates and to provide more steam than can be
generated from the wood waste alone. The suspension-firing boiler can
be used for wood combustion, and differs from a spreader stoker in that
small-sized fuel (normally less than 2mm) is blown into the boiler and
combusted by supporting it in air rather than on fixed grates. Rapid
changes in combustion rate, and therefore steam generation rate, are
possible because the finely divided fuel particles burn very quickly.

A recent development in wood firing is the fluidized bed combustion

boiler. A fluidized bed consists of inert particles through which air is
blown so that the bed behaves as a fluid. Wood waste enters in the space
above the bed and burns both in suspension and in the bed. Because of
the large thermal mass represented by hot inert bed particles, fluidized
beds can handle dirty fuels (up to 30 percent inert material). Wood fuel is
burned faster in a fluidized bed than on a grate due to its immediate
contact with hot bed material. As a result, combustion is rapid and
results in nearly complete combustion of the organic matter, minimizing
unburned organic compound emissions.

3.3.1.1.2 Machining

Once the lumber is dried, it is sawed into a shape of the approximate

dimensions of the final furniture part, such as a table leg or a chair rung.
Sawing across the grain in called crosscutting, and sawing parallel with
the grain is referred to as ripping. Types of power saws used in furniture
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manufacturing include circular saws, band saws, scroll saws, radial
saws, and portable handsaws. After sawing, the surfaces of the wood
which will be flat in the final product are planned. Planning involves
shaving one surface of wood by using a wide edged blade or blades called
a planer. The type of power planer usually used in this manufacturing
process is the jointer or jointer planer, which consists of blades fastened
to a rotating cutter head. The primary outputs from the sawing and
planning processes are wood chips.

The design of some furniture pieces requires that certain wooden parts
be bent. This production step follows the planning process and usually
involves the application of pressure in conjunction with a softening agent
and increased atmospheric pressure. While soaking wood in water alone
does increase its plasticity, the combination of heat and steam does
increase further the plasticity of wood. The actual bending is
accomplished by compressing the wood into the desired shape and then
drying it to remove excess moisture. Drying after bending is
accomplished in much the same way as the drying of raw lumber, in
drying kilns using boilers to generate heat.

3.3.1.1.3 Assembly

Wood furniture can either be finished (coated) and then assembled, or

assembled and then finished. Residential and office/institutional
furniture manufactured in the U.S. is generally made up of irregularly
shaped, curved components, and for ease of production is assembled and
then finished. Cabinets manufactured in the U.S., however, are
frequently finished before assembly. After the wood parts have been
planned and, if necessary, bent, they are assembled to form one
furniture part, such as a tabletop. The assembly process usually involves
the use of adhesives (either synthetic or natural) in conjunction with

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other joining methods, such as nailing. The wood furniture
manufacturing industry uses adhesive formulations containing solvents
(typically used for upholstered wood furniture) and hot melts or polyvinyl
acetate (typically used for non-upholstered wood furniture). The vast
majority of adhesives used to assemble non-upholstered wood furniture
are hot melts or polyvinyl acetate. The amount of adhesives used
depends on the type of product. The next step in the production process
is the application of veneer. Veneer is a thin piece of wood of uniform
thickness which is usually rotary-cut from a bolt of wood using a lathe.
Not all furniture manufacturing involves the application of veneer. The
veneer is applied to the furniture part using adhesives, some of which
require the use of heat and/or pressure. While not a significant source of
releases, gluing operations and the use of adhesives for assembly and
veneer are a source of atmospheric solvent releases. After veneer
application or furniture assembly, the furniture part is sanded to ensure
that its surface is as smooth as possible for the finishing stages of the
production process. Sanding is usually accomplished by a disk, belt, or
roller sanding machine using either open – or closed – coated sand
paper. For open – coated sand paper, approximately 50 to 70 percent of
the paper surface is coated with abrasive. For closed – coated sand
paper, the paper surface is completely covered with abrasive. Closed-
coated sand paper is generally used in operations requiring higher
removal rates. The sanding process can also be employed at other stages
of the production process, such as prior to the application of veneer or
between the applications of several coats of varnish during the finishing
process. The primary outputs from sanding are wood particulates.

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 3.3.1.1.4 Pre – finishing

After initial sanding, an even smoother surface is attained by spraying,

sponging, or dipping the furniture part with water, which causes the
fibers of the wood to swell and "raise." After the surface is dried, a
solution of glue or resin is applied and allowed to dry, causing the raised
fibers to become more brittle. The raised fibers are then sanded down to
form a particularly smooth surface. The primary outputs from second
sanding are wood and glue or resin particulates. Because certain types of
wood contain rosin (a naturally occurring resin) which can interfere with
the effectiveness of certain finishes, a process known as deracination
may be employed. Deracination is accomplished by applying a mixture of
acetone and ammonia to the surface of the wood. Spent acetone and
ammonia are the primary outputs from deracination.

Once the unwanted rosin is removed from the wood, a process known as
bleaching is used to lighten the color of the wood when the natural color
is darker than that of the stain or finish to be applied. The process
entails spraying, sponging, or dipping the wood into a bleaching agent,
such as hydrogen peroxide. Spent bleaching agents are the primary
outputs of this step of the production process.

3.3.1.1.5 Coating Application

There are various coating application techniques used by the wood

furniture manufacturing industry for applying finishing coatings. The
two principal methods are flat line finishing and spray application. Flat
line finishing is used only to coat truly flat furniture parts and cannot be
used for curved pieces, preassembled pieces, or pieces with many
recesses. Although, spray application is the most commonly used
method to finish these furniture parts, brushing and dipping can also be

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used. The two principal ways of performing flat line finishing are roll
coating and curtain coating. Roll coating involves the transfer of coating
material by a roller or series of rollers, while curtain coating involves
passing the furniture part through a cascade, or curtain, of coating
material. The methods used to spray apply coatings include air, airless,
air-assisted airless, high-volume low-pressure (HVLP), electrostatic, and

the UNICARB spray system. The conventional air spray technique uses
compressed air to atomize the coating materials as they are being
sprayed, by forcing them through a small opening at high pressure. The
liquid coating is not mixed with air before exiting the nozzle. Air-assisted
airless spray uses an airless spray unit with a compressed air jet to
finalize the breakup of the coating material.

HVLP spraying involves the use of a high volume of air delivered at low
pressure to atomize the coating material into a pattern of low-speed
particles. The use of low pressure can result in decreased overspray,
which translates into less coating usage and less volatile organic
compound (VOC) emissions.

Electrostatic spraying has long been used in the metal working and
automobile industries to coat metal products. In the wood furniture
industry, electrostatic spraying has somewhat limited use, mostly by
cabinet and chair manufacturers. This finishing process is performed by
spraying negatively-charged coating particles onto positively-charged
wood products. If the wood piece has sufficient moisture content, it can
be electrostatically sprayed without pretreatment. However, some wood
must be pretreated to allow the piece to hold a positive charge. The
material used for pretreatment often contains VOCs. The UNICARB
system is a relatively new system for spray coating developed by Union
Carbide. A coating normally contains both coalescing (slow-evaporating)

and diluent (fast-evaporating) solvents. The UNICARB technology

21
replaces the diluent solvents with liquid carbon dioxide. The carbon
dioxide/coalescing solvent coating mixture is used to coat the wood with
an airless spray gun. When the coating leaves the spray nozzle, the
carbon dioxide in the mixture immediately flashes, and the coating
material, which still contains coalescing solvents, continues enrooted to
the piece and cures in the conventional way.

3.3.1.1.6 Finishing

Wood finishing processes include coating, drying, and sanding the

furniture in a series of steps which are repeated until the desired final
appearance is achieved. While in small facilities the assembled furniture
is sometimes moved between finishing stations manually, in most
facilities the furniture is moved along the finishing line mechanically by
tow-lines, overhead chain conveyors, and other conveyors including belt,
roller, and slat conveyors. Tow-lines, chains or cables mounted in or on
the floor, move a pallet, on which the assembled piece of furniture rides
along the finishing line. The pallets can rotate and can be automatically
disengaged from and reengaged to the tow-line to allow for pauses, as
needed. Some facilities move the furniture on pallets that are hung from
overhead chain conveyors. Many facilities use a combination of these
methods to transport the furniture along the finishing line.

Staining involves the application of a clear colorant which adds initial

color, evens out color, and accents without hiding the natural wood
grain. Stains usually consist of transparent or semitransparent color
solids (typically less than five percent by volume) suspended in a volatile
liquid solution with a certain amount of a nonvolatile binder, which
facilitates spreading, penetration, and fixation of color. Commonly-used
stains, all of which are used in conjunction with organic solvents,
include: non grain-raising, dye-type, no-wipe, and toners. Non grain

22
raising stains are dye-type stains which are intended to give clarity and
depth to the wood finish. Dye-type stains consist of dyes that are
completely dissolved in methanol. No-wipe stains are pigmented stains,
containing a small amount of oil, pigment, and solvent that are sprayed
on and not wiped off. No-wipe stains are used to accent the wood grain,
provide color uniformity and color retention. Toners are stains that
contain nitrocellulose or vinyl binders, dissolved in solvent. Toners are
not wiped, and are often pigmented.

After staining, a wash coat, consisting of 2 to 13 percent solids by

volume, is applied to the furniture piece. Wash coating is used to aid in
adhesion, assist in filling or color uniformity, and partially seal the wood
from subsequent staining operations. Wash coat also prepares the wood
surface for another sanding after stain application. Some facilities buy
sealer in bulk, and dilute their sealer to make wash coat. There are three
main types of wash coat materials: standard nitrocellulose; vinyl or
modified vinyl; and vinyl-modified/”conversion” types. Advantages of
nitrocellulose wash coats include quick drying, easy sanding, and clarity.
Vinyl and vinyl-modified wash coats consist of nitrocellulose and vinyl
and provide better toughness and adhesion than pure nitrocellulose
wash coats; however, some clarity is sacrificed. The “conversion” or pre
catalyzed type wash coats also provide good adhesion and toughness,
and are good for open pore woods. Because they react in place, they are
impervious to solvents contained in subsequently applied sealers and
topcoats.

Fillers are applied to the wood surface to produce a smooth, uniform

surface for later stages in the finishing process. Fillers, which consist of
colorless or covering pigments, can be combined with stains or other
pigments and are usually dispersed in a vehicle of drying oils, synthetic
resins, and thinners based on organic solvents. Fillers are usually

23
supplied as heavily pigmented, high-solids, low-VOC materials, which
are reduced on the job. As supplied, solids contents of fillers are in the
75 percent solids by volume range. Once reduced, the solids contents
usually range from 10 percent to 45 percent by volume. Fillers are
usually spray applied, then wiped into the wood.

Sealing, which is completed after staining and either before or after

filling, consists of applying one or many coats of sealer? Sealers are
usually a nitrocellulose-based lacquer, although vinyl or vinyl-modified
sealers and catalyzed sealers are also available and provide advantages
similar to those of the wash coat counterparts. The primary purposes of
sealers are to provide adhesion, make sanding more effective, and to seal
the wood and establish a foundation for further coating applications.
Solids contents of sealers typically range from ten to 30 percent by
volume.

One alternative to staining is painting. The process for applying paints is

similar to that of applying stains or other finishes, although the chemical
composition of paints differs from the other finishes. Paint is a viscous
fluid, usually consisting of a binder or vehicle, a pigment, a solvent or a
thinner, and a drier. Pigments are insoluble in the coating material and
are deposited onto the wood surface as the vehicle dries.

After the furniture part has been stained or painted, a topcoat, such as
varnish or shellac, is applied in one of the final stages of the finishing
process. Topcoats provide a clear coat whose function is to protect the
color coats, enhance the beauty of the furniture, and provide a durable
final finish. Typical solids contents range from 13 to 30 percent solids by
volume. There are four categories of topcoats: standard nitrocellulose
topcoats; acrylic topcoats; catalyzed topcoats; and conversion varnishes.

24
 Rubbing, polishing, and cleaning are the final steps of the production
process. Rubbing consists of the application of an abrasive in
conjunction with a lubricant to level or dull the luster. Polishing consists
of the application of soft abrasives or possibly only waxy ingredients to
increase the gloss. The furniture parts are then ready for shipment and
sale after a final assembly stage, if appropriate (i.e., attaching table legs
to a table top). Exhibit 7 illustrates the steps of the wood furniture
manufacturing process.

3.4 Distribution and Marketing Channels

Though the demand for wooden furniture in domestic market is

persistent throughout the year, but it significantly increases during the
period of January to April because of the wedding season and August to
October due to cultural festivals and New Year ceremonies.
The Factory will be able to manufacture 700 complete units of furniture
at 100% capacity. Table 3.6: Estimated Production at Full Capacity
Year 01 Year 02 Year 03 Year 04 Year 05+
Items/products
Qty in Qty in Qty in Qty in Qty in
units units units units units
Aspendos door 111 130 148 165 185
Perge door 99 116 132 185 165
Asosa door 54 63 72 81 90
Perge glass 150 170 200 200 200
Office furniture 103 120 138 155 178
Total 517 599 690 786 818

The demand for the furniture almost doubles during this period. Hence,
the primetime to enter into market is start of December. Billboards,
Radio, F.M Channels, and Newspapers are the conventional mediums,
which have been powerfully used for the promotion of products.
25
 1.1.1ENGINEERING

1.1.1.1 Machinery and Equipment

Table 3.4 below gives the list of machinery and equipment required by
the leather garment manufacturing plant with their respective quantity
and cost.

Table 3.4 Machinery and Equipment Requirement and Cost

Machinery Description Unit Unit Price Total Cost

2,237,268.7
Saw 18” 1 0 2,237,268.70
2,517,268.7
Saw 27” 1 0 2,517,268.70
2,617,268.7
Saw 30” 1 0 2,617,268.70
Cutter sliding 1 200,000 200,000
Cutter round 1 150,000 150,000
1,417,268.7
Gauge 14” 1 0 1,417,268.70
1,734,537.4
Gauge 18” 1 0 1,734,537.40
3,034,537.4
Planer / Shaper 12” 2 0 3,034,537.40
Spindle Moulder Machine 2 634,537.40 634,537.40
Chapaka 22 117,268.70 117,268.70
Hand Chapaka (jug saw) 300,000 300,000
Grinder 2 130,000 130,000
Drill machine 10 167,268.70 167,268.70
Compressor 2 320,000 320,000
Miscellaneous Tools (Hand Tools,
Paint Gun etc.) 1 200,000 200,000
Installation costs for machines 1 300,000 300,000
Total Machinery and Equipment 16,442,687

26
 1.1.1.2 The furniture and Equipment
Table 3.5 below gives the list of furniture and equipment required by the
Wood Furniture manufacturing plant with their respective quantity and
cost.

Table 3.5: Lists, Unit costs and total costs of Office furniture and
materials

Unit cost Total Cost

No Description of Item Unit Qty (Br) (Br)

1 Side Tables No 30 1000 30,000

2 Ironing Tables (2mts length) No 4 2000 8,000

3 Shelf: 2Mx0.6mx2m No 2 2000 4,000

4 Founding & Inspection No 2 4,000

2000
Table length 2mts

5 Offices desks No 4 4000 16,000

6 Office chairs No 10 1500 15,000

7 Shelf No 2 2000 4,000

8 Calculator No 2 200 400

9 Filing cabinet No 1 2000 2,000

10 Computers wiz accessaries No 10 15000 150,000

11 Sofa set 3 20000 60,000

Total - 293,400.00

27
 1.1.1.3 Auxiliary Vehicle
Table 3.6 below gives the list of Vehicles required by the Wood Furniture
manufacturing plant with their respective quantity and cost.

Table 6C: Auxiliary Vehicle

Description of Unit cost

No Unit Qty Total Cost (Br)
Item (Br)

1 Izuzu No 1 500000 500,000

2 Pick up No 1 800000 500,000

3 Frieght car No 1 1500000 1000,000

Total - 3 1500,000

1.1.1.4 Land, Building and Civil Works

The total land requirement includes land for plant building, for
administration, utility and general purpose buildings. Considering land
area for expansion, gardening, internal roads and pathways and other
open spaces, the total land site area required for the envisaged plant will
be about 5,000 m2, of this a total of 2500m2 will be covered by buildings
and left for other purpose

The cost of land leasing, at the rate of Birr 18.75 Biir per m2 for 80 years
of land holding, will be Birr 4260000. A unit cost for building, Access
road and open space development based on the following Table 3.7 the
Total Construction cost for this investment will be Birr 580,000.

28
Table 3.7: Estimated building construction and Civil work costs (land
use plan)

Unit cost Total Cost

No Description of Item Unit Qty (Br)/m2 (Br)

A Land lease value Sq.m 7000 426 4260000

B Land Budget

1 Staff Office Sq.m 1000 100 6,000,000

2 Raw Materials Store Sq.m 1500 3000 12,500,000

3 Matching & Cutting Section Sq.m 1000 3000 9,000,000

4 Role Checking and Fusing Sq.m 450 3000 9,350,000

5 Stitching Hall Sq.m 1000 3000 9,000,000

6 Finishing Hall Sq.m 500 3000 2,500,000

7 Inspection & Packing Sq.m

Section/Output or Finished 1200 3000 6,600,000
Furniture Sore

8 Sales/Show Room Sq.m 500 3000 3,000,000

9 Cafeteria Sq.m 250 3000 750,000

10 Toilet and shower room Sq.m 100 3000 300,000

11 Guard/watch man room Sq.m 60 3000 180,000

12 Dressing room Sq.m 100 3000 300,000

13 washrooms) Sq.m 200 3000 600,000

14 Solid Waste Damping Area Sq.m 140 - -

15 Pavements/Driveway Sq.m 1000 - -

16 Open Spaces and Green Area Sq.m 1000  - -

Total - 60,000,000

29
 1.1.1.5 Pre-operation and Utilities installation
cost
The total cost for Pre-operation and Utilities installation cost is estimated
at about Birr 24,240,100. The pre-operation includes Advance payment
for land value, Architectural and Structural Fee as well as water drainage
structure and site development cost is estimated to be Birr
426,000,353,700, 471,600, 1,273,320 respectively. In addition the
erection and installation cost required 1,414,800 for a plant installation
and utilities. The Pre-operation and Utilities installation cost are listed in
the table 3.8 below.

Table 3.8: Pre-operation and Utilities installation cost

% Share F Total
Total Building Building Amount
No Description Of Item Cost Cost Br

Erection And Installation

1
Expense 6% Of Bldg Cost 80,000.00 6.0% 1414800

Architectural And Structural

2
Fee 1.5% Of Bldg Cost 80,000.00 1.50% 353700

Cost Of Storm-
3 Waterdrain,Fencing 2% Of
Bldg Cost 80,000.00 2.0% 471600

Site And Garden

4 Development (5.4% Buliding
Cost) 80,000.00 5.4% 1273320

Advance Payments For Land

 5 260000
Lease(10% Of Land Price) 10.0% 426000

Total 260000 2240100

30
 1.2 ORGANIZATIONS AND MANAGEMENT
A project manager will be assigned to run the overall management day-
to-day activities of the project. A production manager will be recruited
and assists the project manager. Technical professionals will be
assigned to run the day-to-day activities of the project. Non-professional
employees will be also hired to help run the project casual laborers will
also be employed on seasonal bases during and/or after construction
stage as required. the promoter that may manage the plant by herself or
she will assign the plant manager, who will manage overall activities of
the plant.

1.2.1Organizational Structure

The Organization Structure presented below is envisaged to have

taken the activities of proposed project, and the manpower
requirement of the venture is determined based on this structure.

Project Manager

Marketing
Production Unit Administration
1.2.2 Manpower Requirement
Unit Unit

31
 The plant requires manpower both for production and administration.
The details of manpower and related annual expenditure are given in
Table 3.9 below.

Table 3.9 Man power Requirement

Monthly Annual
No Description Qty Qualification Salary
Salary (Br)
(Br.) Remark

Administration
A
Staff

Factory
1 1 MA/MSC 30,000 360,000.00
Manager/Owner

Executive
2 1 Diploma 3,500 42,000.00
Secretary

Administration
3 1 BA 10000 120,000.00
and Finance Head

4 Secretary 2 Diploma 2500 60,000.00

5 Accountant 2 BA 4,000 96,000.00

6 Book keeper 1 Diploma 3,000 36,000.00

7 Cashier 2 Diploma 3,000 72,000.00

8 Store keeper 2 Diploma 3,000 72,000.00

9 Purchaser 1 BA 4,000 48,000.00

10 Personnel officer 1 BA 5000 60,000.00

11 Clerks 3 Diploma 2500 90,000.00

12 Cleaners 4 Basic 1,400 67,200.00

13 Guards 6 Basic 1,600 115,200.00

14 Driver 4 Basic 3,000 12,000.00

Total 31 1,250,400.0
Administration

32
 Monthly Annual
No Description Qty Qualification Salary
Salary (Br)
(Br.) Remark

Staff 0

B Marketing Staff

Export
16 Documentation 1 BA 6,000 72,000.00
Officer

17 Salesman 2 BA 5,000 120,000.00

Total Marketing
3 192,000.00
Staff

C Production Staff

Production
17 1 BA/BSC 11,000 132,000.00
Manager

Production
18 2 BA 7,000 168,000.00
supervisor
19 Carpenter 2 BA/BSC 7,000 168,000.00

20 Machine man 9 BA/BSC 30 3,240.00 3Br/piece

21 Polish man 5 BA/BSC 1459.125 87,547.50

22 Skilled tailors 30 Diploma 100 36,000.00 100Br/piece

Quality 2 8000
23 BA/BSC 192,000.00
Controllers

24 Electrician 2 Diploma 1,945 46,691.52

Helpers/semi- 4 1621
25 Certificate 77,819.14
skilled Labor /

26 Mechanic 2 Diploma 1500 36,000.00

Total Production
59 947,298.16
Staff

33
 Monthly Annual
No Description Qty Qualification Salary
Salary (Br)
(Br.) Remark

Total Staff 93

D Casual Labor

27 skilled Labor 82 Basic 1000 984000

28 unskilled Labor 93 900 83,700

Total Casual
275 3068400
Labor

Total
268 -
Labor(A+B+C+D)

1.2.3 Types of Skills Required

Pattern-making, designing, cutting & stitching are the primary skills
required for running the unit. Moreover, matching of Furniture from
different Wood also requires an experienced matching expert.
Development of Furniture and its timely procurements is an important
skill also.Similarly knowledge about international trends in Furniture
and prices is also comes as a handy skill.

1.2.4TRAINING REQUIREMENT
Wood Furniture production has been a developed experience for some
time in the past. Therefore, it is anticipated that some trained labor is
available in the country. However, it is proposed that tailors and
designer will be given appropriate training for one month. A total of Birr
100,000 is allotted to cover the training cost.

34
 1.3 FINANCIAL ANALYSIS
The financial analysis of the Wood Furniture factory project is based on
the data presented in the previous chapters and the following
assumptions: -

Construction period 1 year

Source of finance 30% equity 70% loan

Tax holidays 3 years

Bank interest 9.5 %

Discount cash flow 8.5 %

Accounts receivable 30 days

Raw material local 30 days

Work in progress 2 days

Finished products 30 days

Cash in hand 10 days

Accounts payable 30 days

35
 1.3.1Total Initial investment

Capital expenditures are equivalent to the total financial requirements of

the project. In other words: they are initial investment outlays required
to enter operational stage. The total investment cost of the project
including working capital is estimated at Birr 60,000,000 these capital
expenditures are constituted of fixed investment costs and initial working
capital and the major breakdown of the total initial investment cost is
shown in Table 3.11.

Table3.11:.total initial investment cost

Cost Items Total Cost(‘Birr)

1 Land Value 834,000

2 Building and Civil Work 15,500,000

3 Plant Machinery and Equipment 16,441600

4 Office Furniture and Equipment 3,293,400.00

5 Vehicle 700,000

6 Raw material 5,000,000

7 Pre-operation and Utilities installation cost 240100

sub Total Fixed Total 42,000,000

Contingency 10% 509018.702

Fixed Cost 8,000,000

Working Capital 2,000,000

Total 60,000,000

36
 1.4 THE PROJECT EXPENDITURE AND SALES PLAN

1.4.1 Production cost

Table 3.12: -Annual Production Costs of the Project

SN Description Annual Cost(Birr)

1 Raw material cost 5,684,100.00

2 Utilities 20,058.00

3 Wage and Salary 389,698.16

4 Insurance fee (0.5%) of fixed assets 150,113.44

Annual Repair and maintenance (0.5%) of

117,900.00
5 construction cost

7 Administrative and Factory overhead (3.5

% of sales) 718,200.00

8 Office expenses(stationery, entertainment 51,300.00

etc)(.25 % of Sales)

9 Sales and Advertisings expense(0.25 % of 51,300.00

sales)

10 Fuel and Lubricant Oil(0.5 % of Sales) 102,600.00

11 Miscellaneous expense 1% of Gross sales 205,200.00

Total Operating Costs 490,469.59

12 Depreciation Cost 1,697,308.70

Total Production cost 9678247.89

37
 1.4.2 Depreciation Cost
Table 3.13 Depreciation Cost

Annual
Original Depreciation
No Depreciation Cost Cost (Br.) Rate (%)
Depreciation
(Br.)

1 Building Constriction & Civil Work 23,580,000 2% 353700

2 Machinery and Equipment 15,602,687 10% 644268.702

3 Vehicles 4,700,000 10% 670000

4 Furniture & Material 5,293,400.00 10% 29340

Total 40 - 1697308.702

1.4.3 Sales
With the present conducive economic policy of Ethiopia, the participation
of the private sector has been increasing in production of various sectors
with competitive marketing strategy the Promoters can play it Share in
promoting the country’s Furniture product to domestic market. Based on
this fact and the capacity of the plant in terms of processing and
purchasing, the sales forecast quantity and value as per presented in
table 3.14.Table 3.14 Annual Sales/Turnover (per year)

UnitPric Total Amount at full

No Sales Item Unit Qty
e /pcs capacity production

1 Pcs 1080
Bed set 0 20000 2, 160,000.00

2 Dinning set with Pcs

5400
chairs 2500 13,500,000.00

3 Sofa set Pcs 900 30000 27,800,000.00

4 Parquet Pcs 450 1200 540,000.00

5 Office furniture Pcs 450 1300 585,000.00

38
 42425000

1.4.4 Source of Capital

The Source of capital needed for the project comes from the promoter’s
own fund and partially from bank loan. This contribution will be
materialized in such a way that of the total investment about 30% will be
covered by the promoter while the remaining 70% will be obtained from
financial institutions on the form of long loan an interest rate of 9.5%.

Total Own equity Bank Loan

# Description Investment (30%) (70%)

30% 70%

1 Fixed 18,000,00 42,000,00

42,000,000
Investment 0 0

2 Working capital 18,000,000 - -

Total 60,000,0 18,000,0 42,000,

00 00 000

FINANCIAL EVALUATION
1.4.4.1 Profitability
According to the projected income statement, the project will start
generating profit in the first year of operation. Important ratios such as
profit to total sales, net profit to equity (Return on equity) and net profit
plus interest on total investment (return on total investment) show an
increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that
the project is viable which is Birr 13,723,269 annual net profit .

39
 1.4.4.2 Break-even Analysis
The break-even point of the project including cost of finance when it
starts to operate at full capacity (year ) is estimated by using income
statement projection.

BE = Fixed Cost = 8.29 %

Sales – Variable Cost

1.4.4.3 Pay Back Period

The investment cost and income statement projection are used to project
the pay-back period. The project’s initial investment will be fully
recovered within 5 years.

1.4.4.4 ECONOMIC BENEFITS

The project can create employment for total of 226 people. Among these,
126 permanent base and for 100 persons in casual base.In addition to
supply of the domestic needs, the project will generate an average Birr
246,538 annually in terms of tax revenue. The establishment of such
factory will have a foreign exchange saving and earning effect to the
country by substituting the current imports and export.

Table :Term Of Loan Repayment

paymen Principal
t Year Payment Interest Reduction Balance

0 0 42,533,024.01

1 4,200,000.00 8,400,000 2,733,433.77 39,799,590.24

2 4,200,000 7,780961.073 2,993,109.98 36,806,480.26

3 4,200,000 6,3496615.62 3,277,455.43 33,529,024.83

40
 5

5,3185257.35
4 4,200,000 9 3,588,813.69 29,940,211.14

4,2844320.05
5 4,200,000 8 3,929,751.00 26,010,460.14

2,2470993.71
6 4,200,000 4 4,303,077.34 21,707,382.80

7 4,200,000 2062201.366 4,711,869.69 16,995,513.12

8 4,200,000 1614573.746 5,159,497.31 11,836,015.81

9 4,200,000 1124421.502 5,649,649.55 6,186,366.26

10 587704.795 6,186,366.26 0.00

41
 Projected Income Statement

Year

ITEM 1 2 3 4 5 6 7 8 9 10

Capacity
Utilizatio
n (%) 60% 70% 85% 100% 100% 100% 100% 100% 100% 100%

14,312 14,364 17,442 20,520 20,520 20,520 20,520 20,520 20,520 20,520
Sales ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000

Less
Operatin 5,813,7 6,782, 8,236, 9,689, 9,689, 9,689, 9,689, 9,689, 9,689, 9,689,
g Cost 42 699 134 570 570 570 570 570 570 570

Less 1,697,3 1,697, 1,697, 1,697, 1,697, 1,697, 1,697, 1,697, 1,697, 1,697,
Depriciat 09 309 309 309 309 309 309 309 309 309
ion Cost

Less 4,040,6 3,780, 3,496, 3,185, 2,844, 2,470, 2,062, 1,614, 1,124, 587,70
Interest 37 961 616 257 320 994 201 574 422 5

Income
before 760,31 2,103, 4,011, 5,947, 6,288, 6,662, 7,070, 7,518, 8,008, 8,545,
Tax 2 032 942 864 802 128 920 548 700 417

Income 228,09 630,90 1,203, 1,784, 1,886, 1,998, 2,121, 2,255, 2,402, 2,563,

42
Tax30 % 4 9 582 359 640 638 276 564 610 625

Net 532,21 1,472, 2,808, 4,163, 4,402, 4,663, 4,949, 5,262, 5,606, 5,981,
Income 9 122 359 505 161 490 644 984 090 792

43
44