A Proposal of Recycled Polyester Manufacturing Facility Establishment

1 | P a g e

Table of Contents1. Introduction:............................................................................................................................................3

1.1 Background of business:....................................................................................................................3

1.2 Objectives of the business:................................................................................................................4

2. Analysis of the process involved in the entrepreneurial venture:...........................................................4

2.1 Idea Generation:................................................................................................................................5

2.2 Planning:............................................................................................................................................6

2.2.1 Selection of country:...................................................................................................................6

2.2.2 Conduct of market analysis and identifying target market:.........................................................6

2.2.3 Projection of sales:......................................................................................................................7

2.2.4 Production plan:..........................................................................................................................7

2.2.5 Direct material plan:...................................................................................................................7

2.2.6 Direct labor plan:........................................................................................................................8

2.2.7 Planning of production facility:..................................................................................................9

2.2.8 Overhead plan:............................................................................................................................9

2.2.9 Selling and Administration overhead expenses:........................................................................10

2.2.10 Cash Budget:...........................................................................................................................10

2.3 Resources collection:.......................................................................................................................11

2.4 Legal processes:...............................................................................................................................12

2.5 Building facilities:...........................................................................................................................12

2.6 Implementation:...............................................................................................................................13

3. Statement of financial projection:.........................................................................................................13

4. Conclusion:............................................................................................................................................16

5. References:............................................................................................................................................16

6. Notes and assumptions:........................................................................................................................17

2 | P a g e

1. Introduction:

In today’s hyper competitive business environment, assurance of cost effectiveness and eco-

friendliness can help every business organization to run business operations successfully.

Through bringing new business venture which reduce of environmental pollution and reach the

underserved or poorly served market segment can protect the human race from extreme

population. Plastic which is a major cause of pollution can be used to make polyester yarn. The

PET bottles used to meet human needs of serving mineral water, soda and other different sorts of

beverages can be used in this purpose. Coats Bangladesh Ltd. can use these PET bottles as raw

material for producing polyester yarn which will not only reduce the ecological threats but also

will contribute to the textile industry.

1.1 Background of business:

Coats PLC is the largest sewing thread manufacturing company in the world. It was founded in

1755 in UK. It is an unrivaled industrial thread manufacturer operating in over 70 countries and

employing over 20000 people (Coats official website). Almost 1 in every 5 garments and textile

industries in the world use the thread manufactured by Coats. It has a long heritage of over 250

years and is famous for producing quality sewing thread. For more than 250 years, it has been

acclaimed a pioneer in industrial thread manufacturing. Coats Bangladesh is a subsidiary of

Coats UK Ltd. and has been operating in Bangladesh for quite a long time.

1.2 Objectives of the business:

Some of the main objectives behind preparing this report are given below.

i. Proposing a specific and feasible polyester yarn business idea in terms of the

appropriateness and market structure of a geographic location.

ii. Describing the ins and out of the venture and the possible challenges in the

implementation of project plan.

iii. Analyzing and measuring feasibility, allocation of resources, financial prospects etc.

3 | P a g e

2. Analysis of the process involved in the entrepreneurial venture:

Some of the necessary steps involved in the startup and implementation of the project are given

below. All of these steps must be sequentially followed in the organization to ensure successful

implementation.

Idea Generation

Planning

Resources Collection

Legal Processes

Building Facilities

Implementation

Coats Bangladesh Ltd. will start their business operation of making polyester yarn from recycled

pet bottles in Bangladesh by 1st July 2015. To make the project marketable, they will require 16

months to complete as this project will be started from 1st January 2014.

The company will utilize the following time frame to implement the venture as it is required to

make it feasible.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16Idea generationPlanningResources obtainingLegal processing

4 | P a g e

Building facilitiesImplementation of venture

2.1 Idea Generation:

The Business Idea is generated for Coats Bangladesh which includes production of polyester

yarn for the company from recycled PET bottles in Bangladesh. Bangladesh is a country with

great potentials in Ready-made garments (RMG) sector. In 2011, RMG sector contributed to

almost 13% of the GDP in Bangladesh (The World Bank, 2012). Although Coats is producing

polyester yarns in Bangladesh, the idea of producing polyester yarn from recycled PET bottles is

new in the country. Also it will be cost efficient for the company and will reduce the cost of

production by approx. 55%. Supply of Polyester yarn produced from Recycled PET bottles will

reduce PET bottles out of landfills and, consequently, decreases the amount of trash (Centre for

Policy Dialogue (CPD) Bangladesh. 2002.). Bangladesh had about 27500 tons of waste PET

bottles in 2009. And every year this amount increases by approximately 20% (Bangladesh

Bureau of Statistics, 2009). Production of Polyester Yarn by Coats Bangladesh will prove to be

an excellent strategy since it has both domestic and foreign demand.

Although there are certain challenges and opportunities that will likely be faced by the company.

The challenges include:

1. Availability of adequate skilled worker.

2. Bureaucratic behavior of the country.

3. Corruption in the country.

The Opportunities are also tremendous for Coats Bangladesh. Its greatest opportunities are:

1. No restriction regarding the amount of foreign investment is imposed.

2. Since Textile is a potential industry in the country, government subsidizes and helps the

organization helping textile industry.

3. There is not much of a competition of Coats and certainly none as polyester manufacturer

in Bangladesh.

5 | P a g e

2.2 Planning:

2.2.1 Selection of country:

Selection of country to implement the project requires the favorableness of different factors

where the company will continue their operation. As the company is currently operating their

business operation in Bangladesh, they have already been familiar with the prospects of the

market. The textile industry of Bangladesh is one of the most attractive industries to the world

business market. The abundance and cheapness of labor in Bangladesh makes the business

operation more cost effective comparing to other countries (Nelson D. et al. 2006.). On the other

hand, the availability of input and the higher demands of Bangladeshi products instigate the

Coats Bangladesh Ltd to pursue this cost effective venture in Bangladesh.

2.2.2 Conduct of market analysis and identifying target market:

As there is an ever-increasing demand of polyester yarn in Bangladesh, making necessary yarn

from recycled pet bottles can be a great business opportunity to the company because of the cost

effectiveness of production and abundance of pet bottles. According to a statistics of 2009, in

Bangladesh there were about 27500 tons of waste PET bottles that year and every year this

amount increases by approximately 20% (Bangladesh Bureau of Statistics, 2009).

As the textile industry of Bangladesh contributes 81% of the export earnings of the country each

year, there is an ever increasing domestic and international demand of polyester yarn. The initial

target market of is RMG (Ready Made Garments) sector. Currently the total market of polyester

yarn in Bangladesh is BDT 275, 83, 96,210. After fulfilling the demand of domestic market, the

company can grasp the opportunity of exporting in future. For capturing the market, Coats

Bangladesh .Ltd. can focus on 3R as a marketing strategy which refers to the reuse, recycle and

reduce.

6 | P a g e

2.2.3 Projection of sales:

Sales Budget 1st Quarter 2014

2nd Quarter 2014

3rd Quarter 2014

4th quarter 2014

1st Quarter 2015

2nd Quarter 2015

Budgeted unit sales (metric tons)

800 1000 1150 1250 1400 1550

Average selling price ($)

1500 1500 1500 1500 1500 1500

Budgeted sales revenue

1200000 1500000 1725000 1875000 2100000 2325000

2.2.4 Production plan:

Production Budget 1st Quarter 2014

2nd Quarter 2014

3rd Quarter 2014

4th quarter 2014

1st Quarter 2015

2nd Quarter 2015

Budgeted unit sales (metric tons)

800 1000 1150 1250 1400 1550

Add: ending inventory (6% of production)

48 60 69 75 84 93

Total requirements 848 1060 1219 1325 1484 1643Less: beginning inventory

0 48 60 69 75 84

Total requirements of production

848 1012 1159 1256 1409 1559

2.2.5 Direct material plan:

Direct Materials Budget: Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter5

Quarter 6

Total requirements of production

848 1012 1159 1256 1409 1559

Total PET Flakes needed (Metric Ton)

2120 2530 2897.5 3140 3522.5 3897.5

Add: Desired inventory (6%) 127.2 151.8 173.85 188.4 211.35 233.85Total Material needs 2247.2 2681.8 3071.35 3328.4 3733.8

54131.35

Less: Beginning inventory 0 127.2 151.8 173.85 188.4 211.35Total purchase of materials (Metric ton)

2247.2 2809 3223.15 3502.25 3922.25

4342.7

Expected cash disbursement for Material

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6

Total purchase of materials (Metric Ton)

2247.2 2809 3223.15 3502.25 3922.25 4342.7

7 | P a g e

Average cost per metric ton ($) 150 150 150 150 150 150Cost of material 337080 421350 483472.5 525337.5 588337.5 651405

2.2.6 Direct labor plan:

To ensure successful production operations of the venture, the company will require a total of

100 employees. Among these employee requirements, there will be 5 managers, 10 mid-level

foremen and 85 production line workers.

The cost structure of required labor is given below.

Managers will get remuneration of $350 per month.

Foremen will get remuneration of $225 per month.

Production line workers will get $50 per month.

Total labor wage per quarter = $50*3*85

= $12750

Direct labor budget 1st Quarter 2014

2nd Quarter 2014

3rd Quarter 2014

4th quarter 2014

1st Quarter 2015

2nd Quarter 2015

Wages of production line workers

$12,750 $12,750 $12,750 $12,750 $12,750 $12,750

Total cost of labor $12,750 $12,750 $12,750 $12,750 $12,750 $12,750Budgeted production units

800 1000 1150 1250 1400 1550

Labor cost per metric ton

$15.94 $12.75 $11.09 $10.20 $9.11 $8.23

2.2.7 Planning of production facility:

Item AmountLand $137500Factory Building $25437.5Machineries and Installation $247000Vehicles $18750Office building & warehouse $37750Office equipment and accessories (Furniture, Computer etc.) $9375Total fixed cost $475812.5

8 | P a g e

2.2.8 Overhead plan:

The overhead plan includes two types of cost such as variable overhead and fixed overhead.

Manufacturing overhead Budget

1st Quarter 2014

2nd Quarter 2014

3rd Quarter 2014

4th quarter 2014

1st Quarter 2015

2nd Quarter 2015

Total requirements of production

848 1012 1159 1256 1409 1559

Variable overhead:Cost of packing and purchasing PET Flakes(metric ton)

190 190 190 190 190 190

Total variable overhead

161120 192280 220210 238640 267710 296210

Fixed overhead:Factory building depreciation (10%)

2543.75 2543.75 2543.75 2543.75 2543.75 2543.75

Machineries depreciation (5%)

12350 12350 12350 12350 12350 12350

Vehicles depreciation (3%)

562.5 562.5 562.5 562.5 562.5 562.5

Office building and warehouse depreciation (10%)

3775 3775 3775 3775 3775 3775

Office equipment and accessories depreciation (10%)

937.5 937.5 937.5 937.5 937.5 937.5

Total fixed overhead 20168.75 20168.75 20168.75 20168.75 20168.75

20168.75

Total factory overhead 181288.75 212448.75 240378.75

258808.75

287878.75

316378.75

Less: Non cash cost(depreciation)

20168.75 20168.75 20168.75 20168.75 20168.75

20168.75

Required disbursement of cashTotal overhead per 213.78390

33209.9295949

207.401855

206.057922

204.31423

202.9369788

9 | P a g e

2.2.9 Selling and Administration overhead expenses:

Selling & administrative expense budget

1st Quarter 2014

2nd Quarter 2014

3rd Quarter 2014

4th quarter 2014

1st Quarter 2015

2nd Quarter 2015

Budgeted unit sales(metric tons) 800 1000 1150 1250 1400 1550Variable Expenses: Delivery expense (Per metric ton) 5 5 5 5 5 5Total variable selling cost ($) 4000 5000 5750 6250 7000 7750Fixed Expenses: Advertisement ($) 4500 4500 4500 4500 4500 4500Administrative cost 2000 2000 2000 2000 2000 2000Total fixed selling & administrative cost

6500 6500 6500 6500 6500 6500

Total selling & administrative cost 10500 11500 12250 12750 13500 14250

2.2.10 Cash Budget:

Cash Budget for Coats Bangladesh

Quarter 1 Quarter 2

Quarter 3 Quarter 4

Quarter 5

Quarter 6

Initial Cash Balance 168000 178080 188764.8 200090.7

212096.1

224821.9

Collections of Cash:Sales Revenue 1200000 150000

01725000 1875000 2100000 2325000

Total Available Cash 1368000 1678080

1913764.8

2075091 2312096 2549822

Less: Cash paymentsMaterial Cost 337080 421350 483472.5 525337.

5588337.5

651405

Direct Labor Cost $12,750 $12,750 $12,750 $12,750 $12,750 $12,750Factory Overhead 161120 192280 220210 238640 267710 296210Selling and Administration Cost

22500 26500 29500 31500 34500 37500

Fixed Assets:Land 137500 0 0 0 0 0Factory Building 25437.5 0 0 0 0 0Machineries and Installations 247000 0 0 0 0 0Vehicles 18750 0 0 0 0 0Office Building 37750 0 0 0 0 0Office equipment and accessories

9375 0 0 0 0 0

Total cash payments 1009262.5 652880 745932.5 808227.5

903297.5

997865

Ending cash balance 358737.5 1025200

1167832.3

1266863 1408799 1551957

10 | P a g e

2.3 Resources collection:

To start up the venture, the organization will require both financial and physical resources.

Initially the organization needs to invest $168000 to acquire necessary fixed assets and to meet

preliminary expenses. Through having a deep look over the projected cash budget, we can infer

the requirements and their cost structure. They must ensure the establishment of necessary

factory building to start their operations. They also must collect necessary raw materials, PET

bottles, from different available sources such as hotels and restaurants, grocery shops and local

confectionaries etc. After running of business activities for some days, they can construct their

own facilities and factories for getting their raw materials.

Possible challenges in resource collection:

i. Availability of PET flakes.

ii. Environmental issues.

Existing opportunities in resources collection:

i. Availability and cost effectiveness of PET bottles in Bangladesh

ii. Strong infrastructure of textile industry

iii. Strong financial position of the company.

2.4 Legal processes:

The legislations in Bangladesh are not too strict. And foreign investment is always welcomed at

the country. Coats Bangladesh is a subsidiary of Coats PLC in UK. But they can easily register

as a public limited company. In such case, they will need to acquire in the office of registrar of

Joint Stock Companies in Bangladesh where they have to be registered as per the legislation of

Joint Stock Company Act, 1994. The investment types of Coats Bangladesh fall under the

category of Act of Foreign Private Investment of 1980.

Challenges:

1. Availability of adequate skilled worker.

11 | P a g e

2. Bureaucratic behavior of the country.

3. Corruption in the country.

Opportunities:

4. No restriction regarding the amount of foreign investment is imposed.

5. Since Textile is a potential industry in the country, government subsidizes and helps the

organization helping textile industry.

6. There is not much of a competition of Coats and certainly none as polyester manufacturer

in Bangladesh.

2.5 Building facilities:

Building a facility in Bangladesh requires the authorization of respective authorities. The

building of facilities includes a number of activities. These activities are mandatory and

legislation stands to impose punishment if all of them are not properly maintained (Scott, A. S.

2010). The supervision process of building a facility or factory might include:

Inspection of the site

Testing the resistance level of Soil.

Designing the building

Construction of the building.

Building adequate safety measures at the facility.

Challenges:

1. In most of the cases the soil in Bangladesh is not perfect for building a very high storied

facility.

2. It is often hard to finish building the facility in time.

3. Often natural calamities hinder the construction.

Opportunities:

1. The labor cost for building facilities is lower than other countries.

2. There is availability of high quality building material at the country.

12 | P a g e

3. The government of Bangladesh appreciates industrialization and building of facilities at

the country.

2.6 Implementation:

Often the actual operation may vary widely from the planning segment. Proper observation must

be given to align the implementation as planned earlier. The main steps can be as follows.

Care has to be taken in case of distributing authority and responsibilities to the

employees (Drucker P. F. 2006).

The production line should be up to date and able to meet the uncertainties.

Control of the implementation should be continuous; this will ensure that there is no

problem regarding the process and the quality of production (Ries, E. 2011).

3. Statement of financial projection:

Coats Bangladesh Polyester Manufacturing Facility

Income StatementFor the year ended December 31st, 2014

Item Amount

Sales 6300000COGS 966498

Gross Profit 5333502Less: Selling & Admin Expense 110000

Net Profit 5223502

13 | P a g e

Coats Bangladesh Polyester manufacture FacilityBalance Sheet

For the year ended December 31st, 2014Amount Total

AmountAssets

Non-Current Assets:Land 137500Factory Building 25437.5Less: Depreciation 10175 15262.5Machineries and Installations 247000Less: Depreciation 49400 197600Vehicles 18750Less: Depreciation 2250 16500Office Building 37750Less: Depreciation 15100 22650Office equipment and accessories 9375Less: Depreciation 3750 5625

Total 395137.5Current Assets:Cash 1266863.188Inventory 1744666.986

Total 3406667.674Liability and EquityEquity 168000Add: Net income 3238667.674

Total 3406667.674

14 | P a g e

Coats Bangladesh Polyester manufacture FacilityCash flow statement

For the year ended December 31st, 2014Amount Total

AmountCash flow from operation:Net income 3238668Add: DepreciationsFactory building depreciation 10175Machineries depreciation 49400Vehicles depreciation 2250Office buidling and warehouse depreciation 15100Office equipment and accessories depreciation 3750 80675Less: Inventory -1744667Total cash flow from operation 1574676Cash flow from investing activities:Land 137500Factory Building 25437.5Machineries and Installations 247000Vehicles 18750Office Building 37750Office equipment and accessories 9375Total Cash flow from investing activities -475813Total Cash flow from financing activities 1266863Ending Cash Balance 2365726

4. Conclusion:

From the above discussions, it is clear that there is a constant demand of polyester yarn and

threads in both Bangladesh and other countries. And building a facility which will recycle the

harmful PET flakes into wearable Polyester yarn will not only be cost effective but also will help

in maintaining the ecological balance of the environment. So if a renowned company like Coats

15 | P a g e

comes forward produce polyester in Bangladesh, it will financially benefit the company, help the

increasing demand and give Coats Bangladesh a competitive edge in their operations.

5. References:

1. Bangladesh Bureau of Statistics. 2009. Environmental Census. Ministry of Environment and

Forest. Statistics Division. Government of The People’s Republic of Bangladesh.

2. Centre for Policy Dialogue (CPD) Bangladesh. 2002. Contribution of RMG Sector to

Bangladesh Economy. Paper.50.

3. Coats PLC. 2013. Polyester Yarn. Online. Available at http://www.coats.com/index.asp?

pageid=18. Extracted on 26th August, 2013.

4. Drucker P. F. 2006. Innovation and Entrepreneurship. Reprint edition. Harper Business. page.

217.

5. Islam R. Ahmad, M. 2004. Living in the cost problems and opportunities and challenges.

Ministry of Water Resources. Government of The People’s Republic of Bangladesh.

6. Kawasaki, G. 2004. The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone

Starting Anything. First edition. Portfolio Hardcover, page. 68.

7. Moazzem, G. K. 2005. State of Compliance of the RMG Sector of Bangladesh. Research

Fellow. Center for Policy Dialogue (CPD).

8. Nelson D. et al. 2006. Vietnam – U.S. Textile Agreement. Available at

http://www.trade.gov/press/press_releases/2006/vietnam,%20viwed%20on%2014/02/2010

9. Ries, E. 2011. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to

Create Radically Successful Businesses. First edition. Crown Business. page. 219.

16 | P a g e

10. Scott, A. S. 2010. The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs,

Investors, and Policy Makers Live By. First edition. Yale University Press. page. 183.

11. Thorp, H et al. 2013. Engines of Innovation: The Entrepreneurial University in the Twenty-

First Century. Second edition. The University of North Carolina Press. page. 147.

12. The World Bank. 2012. Bangladesh: Towards Accelerated, Inclusive and Sustainable

Growth- Opportunities and Challenges. Volume I: Overview. September, 2012. Page 54-56.

6. Notes and assumptions:

Calculation of COGS & inventory 2014

Cost of direct material total ($) 1767240Cost of Labor ($) $51,000Total Overhead ($) 892925

Total Cost 2711165Total Material Requirement (Metric Ton)

11781.6

Cost per Metric Ton 230.1186COGS ($) 966498Inventory cost ($) 1744667

17 | P a g e