Project Feasibility & Planning

Raw Materials (Inputs) & Supplies

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 Flour Mill Flowchart

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 Dairy industry flow chart

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 Cement factory flow chart

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 Raw materials and supplies
 There is a close relationship between the input requirements and other aspects of project,
such as the plant capacity, location and selection of technology and equipment, as these
inevitably interact with one another.

 The selection of raw materials and supplies depends primarily on the technical requirements
of the project and the analysis of supply markets.

 Important determinants for the selection of raw materials and factory supplies are;
 environmental factors such as resource depletion and pollution concerns
 as well as criteria related to project strategies, for example, the minimization of supply risks
and of the cost of material inputs.

 In order to keep the cost of feasibility studies at a reasonable level, key aspects are to be
identified and analysed in terms of;
 requirements
 availability
 costs
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 risks, which may be significant for the feasibility of a project June 2, 2024
 Factory supplies
Auxiliary materials and utilities
 Apart from basic raw materials and processed industrial materials and
components, all manufacturing projects require various auxiliary materials and
utilities, usually listed as factory supplies. such as chemicals, additives,
packaging materials.

 The requirements of such auxiliary materials and supplies should be accounted

for in the feasibility study.

 A detailed assessment of the utilities required (electricity, water, fuels, effluent

disposal) can only be made after analysis and selection of location, technology
and plant capacity.

 Input studies frequently do not allow for, and even the overall feasibility study
tends to underestimate, the utilities required, often resulting in miscalculation of
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 Factory supplies
 An estimate of utilities consumption is essential for identifying the existing sources of
supply and any bottlenecks and shortages that exist or are likely to develop, so that
appropriate measures can be taken to provide for either internal or external additional
supplies stored in good time.
 Such identification is particularly important since it may materially affect the
investments to be made, if such major utilities are in short supply in the plant and need
to be provided internally.

Electricity.
 An analysis of the energy situation must specify the requirements and the sources,
availability and costs of supply of electric power.
 The maximum power demand, the connected load and possible stand-by requirements
and annual consumption in total, must therefore be estimated in a feasibility study.
 Industrial projects with high-energy requirements at sites where electric energy can
only be supplied by obsolete high-polluting power plants, such as coal fired power
plants, may have to be rejected for environmental reasons.
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 Factory supplies
Fuel.
 When using large quantities of solid and liquid combustion materials, all the
relevant environmental protection technologies will have to be integrated in
the planning and calculation of a project.

 Consequently, the price of energy inputs will have to be increased by the costs
of disposal measures (filters etc.).

 Given the world-wide carbon dioxide pollution and the probably resulting
increase in global temperatures, the growing use of coal favoured by the
exploitation of huge coal mines is liable to reach a critical point.

 This problem can only be solved through enhancing the net efficiency factor
of the industrial plants concerned, achieving less energy consumption for the
same output.
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 Factory supplies
Water.
 A general estimate should be made of water requirements (taking
into account recycling arrangements) for the production process,
auxiliary purposes (cooling, heating, cleaning, steam generation)
and general purposes, so that these can be considered in locational
decisions, at which stage the cost can be specifically defined.

 Especially in the case of production processes with substantial

water requirements at locations with shortages in water supply, so-
called closed-circuit processes should be promoted.

 The quality of intake water should be tested in order to avoid

problems such as the damaging of pipes and pumps by aggressive
substances.
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 Factory supplies
Packaging materials, containers, crates.
 All types of containers and packaging materials serve in principle the following two
purposes:
 physically holding and protecting a product (semi-finished or finished) stored by the
producer, distributor or consumer;

 achieving the marketing objectives defined in the marketing concept, such as the functional
design of bottles and boxes in line with the objectives of product design and promotional
functions of packaging.

 The costs of the materials may be considerable in relation to the production costs of the
product sold; for example, goods produced for export may need special protective
packaging if transported by ship. Goods with a highly visible product image (brand policy)
may require costly packaging to be competitive in the local or foreign market.

 The feasibility study should not only identify needs for the various types of packaging
material, but also assess the timely availability of the necessary quantities, the qualities
10 required and available, as well as the corresponding costs. June 2, 2024
 Factory supplies

Recycled waste
 The issue of waste disposal is assuming increasing importance in developing countries,
depending on the type of production process.

 Today the issue of waste disposal has become so controversial in developed countries that
specific new production plants can only be installed provided extremely sophisticated
recycling methods are used, since the dumping of specific types of waste is no longer
possible.

 Waste combustion, especially combustion of high risk waste, is technically feasible,

provided adequate measures are taken and the appropriate technologies applied.
However, such measures sometimes fail because of resistance from the population in the
surroundings.

 The disposal of effluents is technically feasible, provided the appropriate installations

have been selected. Investments, however, can reach enormous dimensions in relation to
the total investment costs. Today the most critical sectors in this regard are the chemical
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 Factory supplies
Spare parts
 In spite of regular maintenance, all machinery and equipment will finally break down after a certain
lifetime. Various spare parts will be required to keep a plant in operation.
 The importance of correctly identifying essential spare parts, the quantities required and available suppliers
is emphasized, because interruption of production owing to lack of essential spare parts is often the reason
for project failure.

 Spare parts comprise numerous small items, but also major components and parts for the equipment in
question. The list of spare parts required is determined as part of the technical design.
 Usually the initial investment includes spare parts for the first one or two years of plant operation under the
heading of the initial net working capital.

 The consumption of spare parts during plant operation is a part of the annual production costs.

 Some projects will require provision of materials and inputs that are not directly related to the production.
 A remote location, or some other reason, might require the project (or the company) to provide and pay for
foodstuffs, medicine, clothing, education and training materials etc. for the employees and perhaps also
their families.
 Sometimes it may be necessary for the investing company to take responsibility for maintenance of external
infrastructure. This might be the case if the plant depends on external infrastructure and the local
government does not allocate adequate resources to maintain it.
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 Specification of requirements
 In order to estimate the requirements of materials and supplies
during the future operation of the plant, such requirements should
be identified, analysed and specified in the feasibility study, both
quantitatively and qualitatively.

 The specification of raw materials and factory supplies, as

required for the foreseen production technologies, is the basis for
the assessment and analysis of the availability of the project
inputs.

 Normally these specifications will be based on a preliminary

project design, and only when the detailed specifications of the
inputs available are known, the final design of the project can be
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prepared. June 2, 2024
 Project characteristics and material inputs
 For a given type of industry the foreseen technology can be capital- or labour-intensive,
computerized or mechanized, complex or fairly simple.
 Machinery and equipment can likewise be of different types and sizes, manually or
automatically operated and controlled, mechanized or electronic, driven by electricity
or steam.
 The feasible plant capacity will have to be defined on the basis of varying supply
conditions.

 Any significant dependencies on raw materials and factory supplies of the production
target will have to be identified, and should be analysed, in view of;
 market potential expected sales
 transport facilities
 the production capacity

 The feasible capacity and projected production level will depend not only on technical
factors as discussed above (technology, machinery, equipment & process), but also on;
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 Project characteristics and material inputs
 the numbers and skills of the labour force
 marketing strategies
 management and availability of external infrastructure.

 A useful means of facilitating a better understanding of the project design is to

draw up flow sheets.
 A process flow sheet should identify vital sections of the process and illustrate
how production proceeds via those sections. The purpose is to present main
activities rather than to go into details.
 Flow sheets for materials and inputs as well as material and energy balance or a
diagram indicating the quantitative flows, should also be prepared. These sheets
should indicate how and when different items enter various sections of the
process.
 Machinery, equipment and other facilities are to be specified in such diagrams,
which should include the type of machinery, capacity, technical standards etc.
 Together with other project specifications described earlier, this information
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requirements of raw materials and factory supplies
 | Water balance sheet of the project

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 Availability and supply
 A feasibility study must show how the materials and inputs required
will be provided. General availability, data about materials, potential
users and supply sources and programmes will have to be analysed
and described.

 The interdependencies between project design, material and input

requirements and supply of these items should be considered.

 A final assessment of input requirements can be made only after the

plant capacity as well as the technology and equipment to be used are
defined.

 If a basic input is available within a country, its location and the area
of supplies, whether concentrated or dispersed, should be determined.
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 Supply programme
 The overall purpose of the outline of a supply programme in the
feasibility study is to show how supplies of materials and inputs will be
available;
 Evidence should be presented to justify the assumptions and suggestions.
 Cost estimates should be based on the supply programme presented.

 A supply programme should deal with the following:

 Identification of supplying sources and suppliers
 Agreements
 Quantities and qualities
 Consignments
 Means of transport
 Storage
 Risk assessment

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 Supply programme
In the identification of a particular key supplier,
consideration should be given to its;
 geographic location
 ownership
 main activities
 financial strength and profitability
 production capacity
 output over the last years
 key customers and business experiences

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 Supply programme
 The qualities and quantities that can be supplied from various sources should be
indicated. This means that a comparison with the specified input requirements
must be made, taking into account not only quality, but also environmental and
health aspects, physical and chemical properties etc.

 Means of transport for key materials and inputs, by air, water, road or rail, should
be identified in the study. The availability, capacity, reliability and technical
condition of the facilities must be analysed.

 For example, an existing railway line does not necessarily mean that reliable
transport can be arranged;
 The railway company may be badly managed, lack required spare parts and
maintenance materials, suffer from ageing and deteriorating facilities etc.

 On the other hand, railway facilities may be in good physical condition and
professionally managed, but suffer from high capacity utilization and bottlenecks.
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 Supply programme
 Loading, unloading and storage facilities should be analysed in a similar way. Congested and
inefficient port facilities and reloading bottlenecks are common problems in many countries.

 In addition to an analysis of technical conditions, organizational and management matters and

administrative routines should be examined in the study.
 It may well be that technical facilities are adequate, but customs clearance and administrative routines
are bureaucratic and time-consuming.

 Storage facilities are usually required at the plant, but may also be needed at ports or other places.

 The study should indicate the capacity of such facilities, describe their utilization, and present
estimated quantities to be stored on the basis of anticipated production levels and deliveries of
materials and inputs.

 An attempt should be made in the feasibility study to identify and assess risks and uncertainties in the
supply programme presented.
 This may lead to certain modifications in the project design (such as the addition of stand-by facilities
and extra storage capacity and the use of alternative suppliers and means of transport), but can also
serve to alert users of the feasibility study to potential risks.
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 Costs of raw materials and supplies
Unit costs
 Not only the availability but also the unit cost of basic materials and factory supplies
have to be analysed in detail, as this is a critical factor for determining project
savings.

 In the case of domestic materials, current prices have to be viewed in the context of
past trends and future projections of supply.
 For domestic inputs the costs of alternative means of transport should also be
considered.

 For imported material inputs, c.i.f. prices (including costs, insurance and freight)
should invariably be adopted together with;
 clearing charges (including loading and unloading)
 port charges
 local insurance and taxes
 costs of internal transport to the plant.
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 Costs of raw materials and supplies
Annual costs
 Estimates of annual operating costs for materials and supplies are to be made.

 The price basis for the estimates ( quotations from suppliers, world market
prices, comparisons with similar inputs in other projects etc.) should be stated in
order to check their reliability.
 Cost estimates are to be divided into foreign and local currency components.

 The currencies most likely to be used and the exchange rates applied for the cost
estimates should be identified.

 This will enable the impact of exchange rate variations to be determined later by
analysis.

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