Bread Factory Investment, Investment Feasibility and Management

24 December 20137 min reading
Gürsel ERBAP  General Manager Doruk Marmara Un Sanayiciliği A.Ş. The history of bread which is the demanded foodstuff of every table dates back to before Christ. Coming to Mesopotamia from Central Asia in 5000s B.C., the Sumerians planted wheat and barley and made bread from these grains. Flour was produced in Syria, Egypt and Southern Anatolia in 4500s B.C. After 11th century, the bread culture was brought to Anatolia by Central Asian Turks with the emigration. At first, heated float stones were used for bread making in Egypt, but it was twice-baked bread different from the bread we know today. Then grates were used on the stoves but small furnaces made of brick or clay were invented in time. In the history, bread was also used instead of money. After getting more information about microorganisms and yeast; in order to meet the demands increasing with the development of the industry bread, production became industrial in 19th century. According to the studies; Turkish people get 44 % of their daily energy only from bread and 58 % from bread and other cereals. According to the data of TMO (Turkish Grain Board); in Turkey daily bread production is 25.295 tons, annual bread production is 9,2 million tons. If it is calculated on 250-gram standard bread, daily total is 101 million of bread and 37 billion of bread annually. Daily bread consumption is 23.809 tons and 8,7 million tons annually; If it is calculated on 250-gram standard bread, daily total is 95 million of bread and 35 billion of bread annually. Industrial bread factories are needed in order to meet this demand. BREAD FACTORY FEASIBILITY AND INVESTMENT The establishment of business is an event which has economical, technical, financial and judicial aspects. Therefor for success in establishment of business you should begin and carry out establishment studies in compliance with many fundamental principles. Business which is in establishment phase is called project or investment project. Which raw materials and production methods are going to use, how many and in which specifications products are going to produce, all of them are determined with project. Materials, facilities, vehicles and equipment which are purchased for establishment of business are investments. To make an investment decision, entrepreneur collects the preliminary ideas on the issues that are inclined to her/him and the place where the investment will be made. For this purpose he or she collects information below: • Status of raw materials which are required for investment • Status of domestic and foreign market of investment goods • Cost of goods which are going to produce • Price flexibility of goods • Place and size of the project • Required capacities • Amount of investment • Investment finance Such studies are known as feasibility study (or prefeasibility study). Feasibility studies are economical, technical and financial analyses which are done before final project for investment decision. FEASIBILITY STUDIES A. Economic Analyze It usually contains information about marketing survey, demand forecasting, business capacity and site of establishment. In the economical analyze these information are investigated and results are taken to the feasibility analyze report. B. Technical Analyze In technical analyses you should watch out to topics below: • Technical definition of the project, study of the ground where facilities are going to be established and raw material and auxiliary product analyses • Production method, identification of production method, the reason why this method is preferred and the search whether there is any patent for this production method • Types of goods to be produced, by-products and waste, physical and chemical conditions of waste in terms of environment pollution and waste utilization possibilities • Reasons for choosing the machinery and equipment to be used in the facility, availability of them in the domestic or foreign market, life and costs of the machineries and equipment (the required technological features, their affordability, their speed that ensure the necessary capacity) • Layout plan of the facilities • Facility buildings, water, electricity, fuel needs and types (an important factor in furnace selection), path connections and qualifications of the facility • Determination of how and who is going to make assembly line works and to cost of these works. • Business plan that shows the stages of the installation of the facility C. Financial Analyze The calculation of the amount of investment, income and expense estimations, financing analyze and organization are topics of financial analyze. 1. Calculation of the Amount of Investment In calculation of the amount of investment, all expenses until the facility starts full operation are taken into consideration. Investment cost generally consists of the items below: • Study and project expenses • Patent, know-how • Land cost • Land arrangement • Construction investments • Transportation investments • Machineries and equipment • Clearance expenses • Assembly expenses • Transfer vehicles • Operational expenses • Unexpected expenses • Interests and working capital But not every project requires patent, know-how and buying machinery and equipment from foreign market. As it is seen, investment amount comprises of fixed capital and working capital. 2. Income and Expense Estimations of Business Incomes and expenses of the business are calculated separately. Total expenses are removed from total incomes. Net profit is estimated by taking taxes and other deductions into consideration. 3. Financing Analyze It usually includes the dates when the capital contributions should be ready for the business, internal or external finance resources and amounts, usage charts of the resources and coefficients that show the stability of the financial structure of the business. 4. Organization Research is done in order to find answers for the questions below: • Type and general structure of the business which is going to be established • The organizational chart and staffs of the business at the investment phase • How to switch from the installation phase to the business phase • Judicial and institutional problems about business and how to solve them, patents and licenses • Actions that should be done by public organizations • Employment and training of the technical and administrative staff As it seen; the necessity and importance of the feasibility analyze is obvious. Besides the feasibility analyses, project studies also includes other studies at the project stages shown in the figure. OPPORTUNITIES AND THREATS AT THE BEGINNING OF THE PROJECT EVALUATION Opportunities • Increased demand • Accessibility of the raw material • Use of the labor force with low cost • Designated Market Threats • Price fluctuations and economic uncertainties • High competition • Complicated regulatory environment INVESTMENT Bread Factory Investment Example • Location of investment (process equipment selection according to the bread type demanded by the customer is important) • Distribution of population and income • Status of agriculture and livestock (it is important for the cost of wheat that is the raw material of flour) • Source of raw material (flour, water, yeast, salt, additive, etc.) • Being close to water sources • Being close to highways, railways and ports • Infrastructure works • What is the justification of project? • What types of bread are going to be produced? • What is the target market and consumer group? • What are the varieties and availability of raw materials? • What is the capacity of the investment? - Storage capacity (raw materials-flour and additive storing, packaged products storing, etc.) - Mixer capacities - Cutting, weighing and rolling capacities - Dough maturing - Shaping machine capacity - Fermentation capacity - Baking tunnel / furnace capacity - Speed and capacity of the bands used during the process -Bread boxes, bread carts, ice maker, freezer capacity if frozen production is made TIME-WORK PLAN • Land purchase and construction preparation • Construction • Patent, technical researches etc. • Machinery orders and purchases • Assembly of machinery • Auxiliary operation equipment • Installations • Vehicle supply • Raw material and auxiliary product supply • Staff employment • Test production • Production start FINANCIAL ANALYSE Fixed Investment Expenditures • Project and analyze costs • Patent, license and consultancy costs • Land cost • Land arrangement and construction costs • Machinery, auxiliary machinery and equipment costs (Laboratory equipment, social facilities, administrative building etc.) • Assembly and insurance costs • Transportation and administrative vehicles • General costs (Office equipment, training, communication etc.) • Periodic interests Calculation of Operational Capital • Calculation of raw materials stock amount and cost • Calculation of replacement parts stock amount and cost • The amount of cash should be kept Financial Plan • Determination of the dates and payment types of fixed investment expenditures • Determination of financial needs and financing resources Calculation of Operating Costs • Raw material costs • Auxiliary product costs (additives, package, bread boxes, pest management costs etc.) • Staff costs • Energy and fuel costs • Water costs • Maintenance and repair costs • Depreciation values • Interests and general costs • Other costs  
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