fglea manufacturing industry
TRANSCRIPT
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FGLEA MANUFACTURING INDUSTRY
A Business PlanPresented to the
Faculty of the Graduate SchoolASIAN FOUNDATION DEVELOPMENT COLLEGE
Tacloban City, Philippines
In Partial Fulfillmentof the Requirement for the Degree
MASTERS IN BUSINESS ADMINISTRATION
By
Frederick Carlos Bartolome
Ma. Gina FrancoLoreta Baldonaza
Erlette MendozaAsel Dacatimbang
2011
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TABLE OF CONTENTS
Page
Title Page i
Table of Contents ii
List of Tables v
List of Figures vii
Executive Summary 1
THE BUSINESS PLAN 2
THE BUSINESS NAME 2
BUSINESS BACKGROUND 2
THE MANAGEMENT TEAM 3
STRATEGY FORMULATION 4
Vision 4
Mission 4
MARKET SUMMARY 5
STRENGTH-WEAKNESSES OPPORTUNITIES-THREATS 6
External Factors 6
Economy 6
Demography 7
Customers 7
Competition 8
Technology 8
Political/Social Forces 11
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Government Taxation 11
Climate 12
Internal Factors 13
Products and Services 13
Financial Resources 14
Facilities, Machineries and Equipments 14
Management and Labor Relations 15
Managerial Competence 16
Human Resource Management 20
Marketing 21
Finance and Accounting 22
Operations/Production 23
Research and Development 25
Management Information System 26
BUSINESS STRATEGY (STRATEGY SELECTION) 29
OBJECTIVES AND GOALS 32
Projected Sales 32
Market Share 33
Return on Investment (ROI) 34
Human Resource Requirement 34
PROCESS: FUNCTIONAL PLANS 35
Marketing Plan 35
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Historical Demand Analysis 35
Historical Supply Analysis 36
Historical Demand-Supply Analysis 37
Projected Demand-Supply Analysis 40
Market Share Computation 41
Marketing Mix Strategies 42
Marketing Budget 43
Production Plan 43
Product Specification 44
Production Process 44
Equipment and Machinery 49
Management and Labor Relations 50
Production Management/Personnel 50
Organizational Plan 51
Legal Form of the Organization 51
Organizational Structure 51
Personnel Policies 55
Financial Plan 56
Total Capitalization 56
Source of Funds 57
Projected Income Statement 57
Projected Balance Sheet 59
Projected Cash Flow 63
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Financial Analysis 66
CONCLUSION 73
SCHEDULES 74
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LIST OF TABLES
Table Page
1 Permits and Licenses 12
2 Projected Sales 33
3 Human Resource Requirement 35
4 Historical Demand for Agar-agar Products 36
5 Historical Supply of Agar-agar Products 37
6 Historical Demand-Supply Analysis for Agar Products 38
7 Projected Demand 39
8 Projected Supply 40
9 Projected Demand-Supply Analysis for Agar-agar Products 40
10 Market Share 41
11 Equipment and Machinery 49
12 Production Personnel 50
13 Administrative Personnel and Support Staff 52
14 The Project Cost 57
15 Projected Income Statement 58
16 Projected Balance Sheet 60
17 Projected Cash Flow 64
18 Annual Net Profit Margin 66
19 Return on Investment 68
20 Current Ratio 69
21 Debt Ratio 70
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22 Equity Ratio 71
23 Growth Ratio 72
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LIST OF FIGURES
Figure Page
1 Graphical Presentation of the Management Information System 28
2 Schematic Diagram of the Production Process Flow 46
3 The Marketing Plan Layout 48
4 The Organizational Structure of FGLEA Manufacturing Industry 53
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EXECUTIVE SUMMARY
Highlights of the Study
Name of the Project : FGLEA Manufacturing Industry
Project Proponents : Frederick Carlos Bartolome
Ma. Gina Franco
Loreta Baldonaza
Erlette Mendoza
Asel Dacatimbang
Estimated Project Cost : P 17,278,150.00
Fund Source
Loan : P 10,000,000.00
Equity : P 7,278,150.00
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THE BUSINESS PLAN
I. THE BUSINESS NAME
The name of the business is FGLEA Manufacturing Industry. The first five
letters is an acronym consisting of the first letter of the given names of the five project
proponents. Virtually, the choice of this acronym will avoid duplication which is a
common problem when registering a business with the government.
On the other hand, the words manufacturing industry are included in the
business name to indicate the main features of the project.
II. BUSINESS BACKGROUND
FGLEA Manufacturing Industry is a processing plant for Agar-agar seaweeds with
Region VIII as the target market. The idea of processing agar-agar was conceived when
five individuals agreed to establish a business that will venture into the
manufacturing/processing niche. The proponents decided to establish their business in
Brgy. Bagacay, Tacloban City. It is located in the agro-economic section considering that
there is a vacant and spacious lot. Tacloban City was the best choice since the location is
the regional economic epicenter of Region 8. Hence it is advantageous for the business.
Seaweed is a mass growth of marine algae from natural stock or from pond culture.
One of the most important varieties of seaweeds is Agar or Agar-agar, which is commonly
grown in the Philippines. Agar is the source of agarose, one of the world's foremost food
and industrial additives. It is a valuable substance used in gelling, suspending, thickening
or water-holding properties in various products.
Agar or agar-agar is a gelatinous substance derived from a polysaccharide that
accumulates in the cell walls of agarophyte red algae. It is chiefly used as an ingredient in
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desserts and also as a solid substrate to contain culture medium for microbiological work.
Agar can be used as a laxative, a vegetarian gelatin substitute, a thickener for soups, in
jellies, ice cream and other desserts, as a clarifying agent in brewing, and for sizing paper
and fabrics.
However, this business will concentrate and specialize on a product for human
consumption. It is called Organic Gelatin which is to be derived from the raw material of
red and brown seaweeds that are grown in large and commercial quantities in the country.
Hence, there is no problem in so far as the availability of raw materials for the processing
plant is concern.
The processing of agar seaweeds into gelatin has a large business opportunity. The
demand is high even if there are competitors. And this demand will continue to rise since it
is use for human consumption. It will click in the market being health-friendly as an
organic derivative rather than the one with animal origin. Hence, the project has a good
prospect for a viable business endeavor.
III. THE MANAGEMENT TEAM
The management team of the business is the project proponents and/or owners of
FGLEA Manufacturing Industry. They have very wide spectrum of experiences in the
government and private sectors that make it very advantageous in so far as managing the
business is concern.
The members of the Management Team are:
1. Frederick Bartolome - He is a member of the Board of Directors of PHCCI, the
biggest Cooperative in Tacloban City. He is experienced in managerial work.
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2. Ma. Gina Logronio Franco She is a Cashier at the Department of Work and
Highways. She knows accounting and/or financial management.
3. Loreta Baldonaza - She is the Planning Officer of the Department of Environment
and Natural Resources. Obviously, she is a planner.
4. Erlette Mendoza She is a Registrar of the National Maritime Polytechnic. She is
an expert in records management.
5. Asel Dacatimbang She is a Social Welfare Officer at the Department of Social
Welfare and Development, hence good in managing the management
information system or promotion and/or advertisement.
Actually, all of the officers listed above have been in the service for more than ten
(10) years and all of them are still active in their present positions. However, Frederick
Bartolome will act as the General Manager because his present work is not full-time. In
fact should there be a need for him to resign as Board of Director of PHCCI, he is willing
to do so anytime.
IV. STRATEGY FORMULATION
Vision
FGLEA Manufacturing Industry seeks to be one of the leading business
organizations in the processing of agar-agar seaweeds producing high quality Organic
Gelatin for human consumption.
Mission
To produce steady supply of agar processed products in order to satisfy the needs for
gelatin as derivative for food, beverage, and snacks in Region VIII.
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V. MARKET SUMMARY
The Philippines is a dominant producer of the cultured Gracilliara and
Gellidium species upon which the Agar industry depends (DTI, Bureau of Trade and
Exports). Mindanao accounts for 50% of the agar seaweeds production of the entire
Philippines. It was estimated in 2009, that some 100,000 families are engaged in seaweeds
farming and about 72% of these families are located in Mindanao, particularly in the
ARMM provinces and the Zamboanga Peninsula. In Zamboanga City, it has more than
2,000 hectares devoted to the agar seaweeds farming providing livelihood to more than
3,000 families. At present, there are three processing plants in Zamboanga City producing
agar gel, agar powder and dried agar. Another processing plant will operate in year 2011
that will also produce the same products.
On the other hand, Western Visayas accounts for 35% of the total agar production
while Region VIII,which is the target market of this business has only a share of 15% of
the total production. Farms for the culture of seaweed in Region VIII are mostly located in
the province of Southern Leyte. Presently processed and dried agar seaweeds are exported
to numerous international markets, shipped to Cebu or Manila (Bureau of Fisheries and
Aquatic Resources).
What is lacking in the present marketing of dried agar seaweeds is packaging. In
this business, small bars of gelatinous extracted agar will be packaged and labeled with a
catchy name Organic Gelatin.
In terms of volume of production, the Philippines as of 2009 had a total production
of 283,785 metric tons of cultured seaweeds. Of this production, Eastern Visayas
contributed 2,482 metric tons which is about 0.88% only (http:/www.fao.org/docrep/field/
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003/ACO72E/ACOP72E04.htm). On the same period, the value of these cultured seaweeds
in the Philippines is P1,670,220,000.00. However, for Eastern Visayas the value of cultured
seaweeds is P388,000.00 only (http://www.zamboanga.net/ InvestmentSeaweeds.htm). Inother words, the value of cultured seaweeds in Eastern Visayas is nil. Roughly, it is only
0.023% of the entire countrys value. Therefore, the target market of this business (Eastern
Visayas) has rich potential for FGLEA Manufacturing Industry.
Indeed, the market performance of seaweed industry has manifested a remarkable
performance. According to the website cited above, the industry (seaweed) is finding a
growing use of processed seaweeds as evidenced by the increasing demand in the market.
It is full of unexplored opportunities. However, local seaweed processing is limited only to
agar-agar which is utilized purely for food.
Along this line, Organic Gelatin as the sole product of this business will be sold in
the market forthickener for soup, fruit preserves, ice cream, beverages, and other desserts.
VI. STRENGTH-WEAKNESSES -OPPORTUNITIES-THREATS
(SWOT ANALYSIS)
A. External Factors
1. Economy
It has been said that seaweed is an important component of the marine ecosystem
along with the mangrove and coral reefs and can be viewed into two perspectives, from the
ecological value as well as its economic uses. In terms of its economic considerations,
seaweed industry contributed about 27% of the total 2002 fisheries production. The steady
increase in production for the past five years (1997-2002) can be attributed to high market
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demand, better price, and good weather condition that encourage farmers to expand their
areas for seaweed culture.
Seaweed farming used to be an alternative livelihood in the 80s. But it is now
emerging to be an important and major livelihood in the coastal areas. According to the
website (http//www.bfar.da.gov.ph/pages/Programs/prog-seaweed.html); In the
Philippines, the industry employs between 100,000-120,000 manpower where 90% are
seaweed farmers and the rest are seaweed processors and traders.
The seaweed industry in the Philippines is considered to be a huge contribution to
the economy of the country. According to the Bureau of Trade and Exports of the
Department of Trade and Industry, the Philippines is the worlds largest supplier of Agar-
agar products garnering 68% of the total demand.
2. Demography
The targeted market of agar products is Eastern Visayas. The center of distribution
are Tacloban City, Ormoc City, Maasin City, Naval, Biliran, Catbalogan, Calbayog,
Borongan, and Catarman. However, the population of the younger generation who are
frequenting fast-foods, snack bars, eateries, canteens who are servicing meals and snacks
that include gelatin.
Nonetheless, Tacloban City, the location of the processing plant is the focal point of
the marketing network.
3. Customers
FGLEA Manufacturing Industry seeks to specifically capture a portion of the local
market where customers consist of End-users (for home consumption) and Consumer-
market (sellers of food and beverage). End-users are those who will be served by door-to-
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door delivery system. They are the household members who would purchase food items to
be cooked at home. On the other hand, the consumer-market are groceries and/or stores
who are either retailing or wholesaling food items.
The major consumer-market in Tacloban City identified for this business include
Robinsons Tacloban Place, Gaisano, Highway Commercials, Nenas Trading, and
Wilmars.
4. Competition
In Region VIII, FGLEA Manufacturing Industry has no competitor as regards
marketing. The only one industry processing agar seaweed (TBK Manufacturing Industry,
Inc.) located in Brgy. 74, Hollywood Hills, Nula-Tula, Tacloban City is not into selling its
product in the local market the fact that it is exporting to foreign market.
However, as to the use of raw materials, it can be considered a competitor. But this
problem can be easily solved with the idea of establishing contract growers and
supporting seaweed farmers to expand their seaweed culture.
5. Technology
Most processors are using the press/syneresis technology; although some are using
the freeze/thaw technology. However, a combination of these two technologies is also
used. While the basic processes may not have changed, improvements in presses and
freezing equipment must be noted. High-pressure membrane presses have greatly improved
dewatering of agar and thereby reducing energy requirements for final drying before
powder milling. Gracilaria and Gelidium are the principal seaweeds for commercially
producing agar. Gracilaria has become the preferred seaweed for making food grade agar;
because it has been successfully cultivated in the country. Gelidium continues to be the
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preferred seaweed for making bacteriological and pharmaceutical grade agars and agarose.
Strong-gelling agar is extracted directly from Gelidium with a dilute acid solution to break
down cell walls in a pressure cooker; whereas extracting strong-gelling agar from
Gracilaria requires the use of a boiling alkali solution. The alkali treatment converts the
galactose 6-SO4 to 3, 6 anhydrogalactose, well-known chemistry that de-kinks the
polygalactose molecules and enhances the gelling process. These process differences
explain why it is difficult to optimize the production of agar from both seaweeds in the
same process line.
The project proponents have studied some basic procedures in processing agar-agar
seaweeds. Among many other things, the one summarized by the website
(http://www.mixph.com/2008/10/seaweeds-processing-village-level.html) will be adopted
by them. There are eleven (11) steps in this chosen technology, to wit:
a) Washing of raw materials to remove the sea salts, dirt, mud, and sand entrained in
the seaweeds to produce a clean and good quality product,
b) Alkali treatment to improve the getting properties of the product (agar) and
making it more valuable. Alkali treatment results in a purer product and
facilitates the filtering stage as the viscosity of the agar solution is lowered by
this treatment,
c) Post-alkali washing to remove as much of alkali from the treated Glacilaria. This
is important for agar product quality and yield,
d) Bleaching to improve the color and appearance of the product. It also reduces
bacterial contamination in the seaweed,
e) Chopping to increase the efficiency of extraction,
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f) Extraction of agar from the Glacilaria is facilitated by utilizing the highest
temperature as possible. In order to dissolve the contained agar, the temperature
must be above the agar melting point, normally above 90 C,
g) Gelification to get the filtered extract solution by cooling at ambient temperature;
saves energy during the freezing process for agar bars. Gel is cut into correct size
for agar bars and into small pieces for gel de-watering operation,
h) Freezing as the only way to manufacture agar strips and bars. The agar solid
contained in the gel form a matrix surrounded by ice. This is a convenient
method of recovering agar from dilute solutions, although this procedure costs
considerably more both in equipment capital cost and operational cost than the
alternative pressure de-watering method,
i) Thawing to remove the water from the chilled agar bar or frozen gel blocks by
exposing it to a normal temperature and air,
j) Drying to obtain the maximum of 15% moisture content for good quality product
results. It can be done in a solar dryer or homemade dryer, and
k). Grinding or milling in order to pulverize the agar bar.
It appears from the enumerations of the step by step activities in processing agar-
agar that it is not highly technical. The procedure can be considered easy and simple. It is
noteworthy however, that the procedure is labor intensive aside from the need to use
machines. But since there is more than enough cheap labor in the project area, there would
be no problem in recruiting labor force for the project.
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6. Political/Social Forces
Tacloban City is one of the best locations in establishing a new business considering
that the present set of elected leaders is encouraging entrepreneurs to open investment in
the City. Apparently, there are no restraining forces that will slow down the
implementation of programs related to commerce and industry since the incumbent City
Mayor is aptly supported by the majority of the City Councilors. In fact the city was
recently approved as a Highly Urbanized City, which is a brainchild of the City Mayor. In
other words, there is stability of the present governance which naturally supports economic
activities in the City. Only recently, Robinsons was opened in Tacloban, and it keeps on
expanding. Gaisano had opened another branch. The existence of other equally popular
establishments, like MacDonald, Shakeys, or Jollibee have changed the eating habit of the
people that more and more are consuming foods and beverages with agar-agar as an
indispensable ingredients.
Specifically, there is the livelihood program of the city government which highly
supports small time entrepreneurs to put up economic activities. The City had recently
organized the Office of Cooperative and Development in support of the livelihood
program.
7. Government Taxation
The FGLEA Manufacturing Industry will be subjected to the required taxes and
other tariffs that the government may impose upon it. These are basic requirements for the
business to operate. On its pre-operation period, it will pay the needed permits, licenses and
certifications. During the operation period, the business will pay its annual income taxes
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and other necessary tariffs that may be levied upon it by the government on its operational
activities.
Table 1 shows the list of permits and licenses with their corresponding cost.
Table 1
Permits and Licenses
Permits and Licenses Cost
DTI Registration 600
City and Business Tax 1500
Mayor's Permit 1800
Application Fee 100Clearance Fee 100
Sanitary's Fee 500
Weight and Measure 500
Fire Inspection 600
Total 5,700.00
Annual projections:
2012 5,700.00
2013 5,985.00
2014 6,284.25
2015 6,598.46
2016 6,928.39
Note:
Permits and Licenses are assumed to increase 5% annually.
8. Climate
One of the major factors that affect FGLEA Manufacturing Industrys operation is
climate. In the Philippines with so many weather depressions and/or storms in a year, the
cultural management of the seaweed is naturally affected by the disturbance of the sea in
the form of strong waves. This is a major factor which could contribute to the fluctuation in
the supply of raw materials. In other words, during months and/or periods that these
weather depressions and/or storms are less expected, contracts to purchase with seaweed
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producers can be optimized. On the other hand, when climate is not favorable to the culture
of the seaweed, the need for raw materials will be reduced by lowering its operation target.
It is noteworthy that the reason why the project is highly feasible is the climate in
the Region. The hot and humid temperature of the Philippines is an ideal climatic condition
for the cultivation of the said seaweeds. This is so because according to the website
(http://en.wikipedia.org/wiki/Seaweed), one of the two specific environmental
requirements for seaweed ecology is the presence of sunlight to drive photosynthesis. The
other one is seawater or at least brackish water. Obviously, there is sunlight to hasten
photosynthetic activity to assimilate food nutrients by the seaweeds.
In view hereof, the FGLEA Manufacturing Industry management will jibe its
production target with the supply of raw materials. But to handle the bad effects of
fluctuation in the supply of raw materials, management will establish network of contract
growers who will be the exclusive suppliers of seaweeds to the business.
B. Internal Factors
1. Products and Services
The FGLEA Manufacturing Industry will concentrate and specialize on the
production of Organic Gelatin. This is to be utilized purely for food as substitute for animal
origin gelatin.
The specialized service that will be offered by the business is door-to-door
delivery of packaged agar gelatin.
At present, this product and kind of service are exclusive of The FGLEA
Manufacturing Industry.
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2. Financial Resources
The financial resources of the FGLEA Manufacturing Industry will be generated
from two sources, namely; the internal and the external sources. The internal fund is the
equity of the project proponents as their investment to the business. The external fund
amounting to P 10,000,000 on the other hand, will be loaned at the Development Bank of
the Philippines with an interest of 12.00% per annum payable in 10 years. The equity
contribution amounting to P 7,278,150 will be equally divided among the five project
proponents. Hence, the total estimated project cost of the business is P 17,278,150.
3. Facilities, Machineries and Equipments
The proposed business will build two buildings, the administration building and
processing plant building with modern equipment and machineries in order to provide
quality, fast and efficient processing of agar.
3.1 Project Facilities The proposed project will occupy a lot area of 1,500 square
meters with a one-storey administration building occupying about 225 square meters and a
processing plant building using approximately 297 square meters. The remaining area will
be allocated for parking lots, water treatment facility, quarters for production personnel,
and for future plant expansion. The ground development plan, building plan, building
design and estimates, including building construction supervision will be entrusted to a
Civil Engineer.
The proposed project will be located at the Agri-Economic Zone of Tacloban City in
Brgy. 93 (Bagacay), Tacloban City. The floor plan of the processing plant that will be
constructed will have nine (9) sections such as; 1) raw materials storage area, 2) cleaning
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area, 3) extraction area, 4) filtration area, 5) gelation area (bleaching), 6) gelation area
(syneresis), 7) drying area, 8) milling area, and 9) finished goods storage area.
On the other hand, the Administration Building will be furnished with electric funs
and will be provided with one computer. It will have adequate fixtures of a presentable
office.
3.2 Equipment and Machineries - The proposed Agar processing plant will be
equipped with different equipment from preliminary process up to the last stage of
processing network. In addition, vehicles will also be purchased to transport raw materials
from the source to the processing plant and deliver finished products to the costumers.
All equipment and machineries to be installed in the processing plant including
tricycles will be brand new, while cargo trucks and vans are to be slightly used second-
hand units. The table on equipment and machineries is to be presented later (Table 11).
4. Management and Labor Relations
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Understanding legal decisions and legislations is fundamental in the increasingly
litigious society. Hence, the management should make it a point to be cautious in making
managerial decisions that may pertain to labor relations. The upper level management in
adopting a policy of directive democratic managerial system shall respect the right of its
employees and shall give them their respective benefits tantamount to the service that they
provide to the company. In order to uphold its reputation as an employer of choice, FGLEA
Manufacturing Industry shall maintain trust and cohesion with the employees and shall
avoid wrongful and unjust terminations. Moreover, the decision to terminate an
individuals employment carries with it the risk of a possible legal challenge, hence it is but
wise to determine first whether it is rightful to terminate an employee or not. To avoid this
problem, labor requirement that can be classified as seasonal shall be hired on contractual
basis.
It's a good idea for business to maintain a personnel file for each employee.
Documentation of employment history, records of contribution and achievement,
disciplinary notices, promotions, and performance record shall be kept on file in the hard
disk. For the benefit of the company, there should be confidentiality agreement which is a
written legal contract between the business and its employees. The confidentiality
agreement lays out binding terms and conditions that prohibit the employee from disclosing
company confidential and proprietary information. A confidentiality agreement is in effect
for the duration of an employees employment.
On the other hand, a Code of Conduct should be imposed by the company to its
employees. A Code of Conduct is a written collection of the rules, principles, values, and
employee expectations, behavior, relationships that an organization considers significant,
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and beliefs that are fundamental to successful operation. A code of conduct enumerates
those standards and values that make an organization remarkable and that enable it to stand
out from similar organizations. This would avoid conflict of interest, which causes an
employee to experience a struggle between diverging interests, points of view, or
allegiances. By applying these methods, FGLEA Manufacturing Industry will have a
smooth sailing operation.
5. Managerial Competence
In order to have a successful business, the proponents of this study who will
compose the Management Team of the project will ensure managerial competence on all
levels of operation. Although they have different college educational qualifications and
disciplines, they are both studying Masters in Management (MM) that unifies them to a
common denominator of being potential effective business managers. They understand
how to exercise their managerial functions.
The desire of the project proponents to acquire managerial competence is shown in
their present desire to graduate MM. While it is true that they lack actual experience in
running a business, but they are certainly very adequately prepared to put the theories in
their heads into actual practice.
, less soluble matter remains, so the agar is more pure. Less energy is also needed in
the drying process since less water needs to be removed. This process based on syneresis
has been widely adopted by large agar producers who can afford the higher capital costs for
this equipment.
10. Research and Development
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In the area of research and development of, R&D of FGLEA Manufacturing Industry
is specializing in just one product. It will require high quality control that the new product
will meet the product specification. On the other hand, researching the product according to
allocated budget, checking if the product meets production costs, delivering products in
time and in full range, and developing the product to comply with regulatory requirements
and specified quality levels are serious concerns of the business.
The business will endeavor to maintain and even enhance the quality of the product.
It will strive to keep the company product range ahead should there be any competitor in
the near future. The business will sustain that the new product will be able to comply with
some regulations and/or requirements pertaining to quality.
11. Management Information System
FGLEA Manufacturing Industry will install a centralized Management Information
System (MIS) that keeps a database using a computer programmed for the purpose. The
equipment will have a password only known to the Administrative Head who will handle
MIS to avoid from being corrupted if other users are free to open it. The system's remote
users are served by transporting input and output data physically or electronically. This
would be advantageous for the business since it provides for the standardization in the
collection of data and the release of information.
The MIS of FGLEA Manufacturing Industry will reduce the need for multiple
hardware, software, space, personnel, and databases because it is centralized. It will be
using the Databank Information System which will observe, classify, and store any item of
data which might be potentially useful to the decision maker. Examples of the kind of data
that might be recorded in the database are; supplier of raw materials, production quota
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(daily, monthly and annual basis), production inputs (daily, monthly and annual basis),
production staff assigned in the working area, number of work hours devoted by staff to the
respective working area, and total production cost (materials, labor and over head).
The data that will be contained in the databases stated above can be summarized and
converted to single tabular presentation of information easy to understand to management.
Figure 1 is the graphical illustration of the Management Information System.
It is obvious in the figure that the MIS needs reports and/or information. So, data are
collected, classified, processed, and presented to aid in the decision-making. If data is
insufficient, projections and models of the business will be re-studied to design possible
alternative, strategies, and forecast. The best alternative will be selected. If the selected
alternatives or strategies will not yield to a satisfactory solution, changes in assumptions
will be done before such alternative is implemented. There will becontinuousfeedback and
follow-up to review the outcome. Hence, monitoring of implementation is important to the
MIS.
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Figure 1: Graphical Presentation of the Management Information System
.
DECISION STAGE INFORMATION REQUIRED
INTELLIGENCE
(Collection, classification,processing, andpresentation of data)
- Status reports
- Trend reports- Other reports
- Ad-hoc inquiry
DESIGN
(Outline alternative, strategies,
forecast, and possible outcome of
each alternative)
CHOICE(Selection of the best alternative)
REVIEW(Monitoring of implementation)
- Models and analytical tools
- Projections
- Alternatives(Expected scenario)
- What if?- Evaluation of alternatives
Feedback and follow-up
Insufficient data
No satisfactory solution
Change in assumptions
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VII. BUSINESS STRATEGY (STRATEGY SELECTION)
The main strategy of FGLEA Manufacturing Industry is stated in its vision and
mission; that of being socially concern of its customers by producing high quality product.
It means that if its high quality, it satisfies the taste of the users.
The Management Team of FGLEA Manufacturing Industry is conscious that any
business venture, like its business, is most susceptible to failure during its first few years of
operation. A key to getting through these early years is to avoid the obvious mistakes.
FGLEA Manufacturing Industry management will try to avoid these obvious mistakes
which include the area of finance, market/sales, management, operations, and offering.
It is apparent from the listing above that there are very many obvious mistakes that
the business needs to avoid if only to shun from early failure. The trick in avoiding them is
to anticipate them by executing appropriate strategies at the outset. FGLEA Manufacturing
Industry will avoid these causes of failure by using market research to confirm demand and
assess suitability of proposed offerings, creating a management team to offset any gaps in
experience or expertise, and raising equity to reduce exposure to interest from loans.
VIII. OBJECTIVES AND GOALS
The discussion on this topic deals on sales, market share, return on investment,
production and operations, and human resource requirement. The discussions are all linked
with the business vision and mission of being a producer of high quality organic gelatin
agar product.
A. Projected Sales
After conducting its market study, the five project proponents have laid down the
proposed capacity of the business. Table 2 in the next page reflects the projected sales that
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the business has targeted over the period of five years. These projected sales were
computed by multiplying the proposed capacity of the processing plant by the unit selling
price of the product. In the table, the business will start with a production capacity of
100,000 kilograms of dried agar with a selling price of six hundred pesos per kilo. After
five years, the proposed capacity of the processing plant is 121,550 kilograms with a selling
price ofP 675.00.
Table 2
Projected Sales
YearProposed Capacity*
(Kgs.)
Unit Price/Kg.**
(Pesos)
Projected Sales
(Pesos)
2012 20,000 600 12,000,000
2013 21,000 618 12,978,000
2014 22,050 637 14,045,850
2015 23,153 656 15,188,368
2016 24,310 675 16,409,250
Legend:
* - Expected to increase by 5% annually.** - Expected to increase by 3% annually.
B. Market Share
While it was said earlier that the business has no competitor in Region VIII in
marketing agar organic gelatin, it is actually competing with the animal gelatin products.
Hence, getting a market share will indicate the business market competitiveness, e.g. how
well FGLEA Manufacturing Industry will par against businesses dealing with similar but
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not the same products. The market share will supplement the changes in sales revenue of
FGLEA Manufacturing Industry and help its Management Team evaluate both primary
and selective demand in the market. That is, it will enable them to judge not only total
market growth or decline but also determine customers selections between organic gelatin
or animal gelatin.
The business will translate its sales targets into market share in order to demonstrate
whether forecasts are to be attained by going with the market or by capturing share from
those buying animal gelatin. Nonetheless, FGLEA understands that market share is almost
always difficult to achieve. Hence, it will closely monitor for signs of changes in the
competitive landscape. The computation of market share for FGLEA Manufacturing
Industry is presented in the financial plan aspect that will be discussed later.
C. Return on Investment (ROI)
The Return on Investment will be used to evaluate the investment efficiency of
FGLEA Manufacturing Industry. It will be adopted in assessing the financial consequences
of business as to whether it is gaining, losing, or just break-even so that appropriate
decisions and/or actions can be made.
Therefore, the profitability of FGLEA Manufacturing Industry will be measured
through its income growth and the marginal return of its invested capital. Thus, the Return
on Investment (ROI) is being computed in order to ascertain whether the proposed project
has garnered a positive performance or whether it is a financial failure, and in order to
determine whether the business was capable of handling its assets in order to gain profit, or
the rate of return that the business has on its investment.
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The ROI of FGLEA Manufacturing Industry is computed and presented in the
Financial Plan to be discussed later.
D. Human Resource Requirement
The human resource requirement of FGLEA Manufacturing Industry is presented in
Table 3. Their corresponding salaries are also indicated. There are 47 personnelto be hired
for the project. For this number of personnel, the total annual salary is P 4,386,000. It is
assumed that this expense will increase 7% per annum.
Table 3
Human Resource Requirement
Name of PositionNumber of
Personnel
Monthly
Salary
Total Monthly
Salary
Manager 1 20,000 20,000Production Head 1 12,000 12,000
Production Unit Operators 7 8,000 56,000
Production Helpers 16 7,000 112,000
Administrative Head 1 10,000 10,000
Supply Officer 1 8,000 8,000
Storekeepers 2 7,000 14,000
Accounting Clerk 1 7,000 7,000
Truck and Van Drivers 2 7,500 15,000
Tricycle Drivers 3 5,000 15,000
Janitors 2 5,500 11,000
Marketing Head 1 10,000 10,000
Marketing Assistants 2 8,000 16,000
Total 47 NA 365,500
IX. PROCESS: FUNCTIONAL PLANS
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A. Marketing Plan
The marketing plan of FGLEA Manufacturing Industry will describe the demand-
supply analysis, market share computation, five-year sales forecast, marketing mix
strategy, and marketing budget for promotions, advertisement and merchandizing.
1. Demand Analysis - Based on the gathered data from the Department of Trade
and Industry and the National Statistical Coordinating Board, the demand for Agar
Seaweeds has showed a very promising investment opportunity. Since year 2006, the
demand for dried agar has shown a relative increasing trend in the market. This clearly
manifest that the said venture is indeed profitable as reflected by its continued growth in
demand. Table 4 shows the historical demand for dried agar.
Table 4
Historical Demand for Dried Agar
Years
Demand
(Metric Tons)
2006 4,368
2007 4,605
2008 4,954
2009 5,278
2010 5,605
It is reflected in Table 4 that the historical demand for dried agar is steadily
increasing every year. Over the past five years the supply of dried agar had increased by
22% [5,605 4,368] [5,605].
2. Supply Analysis - In order to meet with the growing demand, producer of these
products continued to supply the market. As shown by the data gathered from the same
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source above stated, the quantity of supply for these products has also shown a relative
increasing trend. This increasing trend in the supply does not only reflect the efforts of the
suppliers to produce more but also a natural phenomenon of trying to meet the increasing
demand in the market.
The historical supply of dried agar in metric tons is shown in Table 5.
.
Table 5
Historical Supply of Dried Agar
Year Supply(Metric Tons)
2006 3,334
2007 3,542
2008 3,822
2009 4,179
2010 4,569
A close look at Table 6 shows that the supply has an increasing trend every year.
Over the past five years the supply of dried agar had increased by 27% [4,569 3,334]
[4,569].
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3. Demand-Supply Analysis - A close scrutiny of Tables 4 and 5 presented above
reveals that the supply is always lower than the demand. While the trend of both demand
and supply are increasing annually, but supply always lags behind throughout the period
covered by this analysis.
The data above reflect that the commercial potential of the Agar-agar seaweeds is an
example of a demand-driven development, wherein the right mixes of financial and
institutional support in tandem with private investments has made the prospect of this
industry bright. The continued growth of its market has made it an important industry in the
seaweed sector. The market study conducted by the project proponents showed that not
only in Region VIII but also in the entire Philippines that agar seaweed is a profitable
business.
3.1 Historical Demand-Supply Analysis - With the discussions above, and with
the records on demand and supply taken from DTI and NSCB, the proponents studied the
market situation for the project. As what can be observed from the data below, the supply
cannot fully supplement the growing demand of the local and world market. Hence, a gap
has occurred resulting to an unsatisfied demand in the world market, which might be
attributed to different kinds of production or technical factors. This clearly implies that the
situation can offer a market space for another player. Table 6 reflects the historical demand
supply analysis.
Table 6
Historical Demand-Supply Analysis for Dried Agar
Year Demand Supply D-S Gap UD (%)
2006 4,368 3,334 1,034 24
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2007 4,605 3,542 1,063 23
2008 4,954 3,822 1,132 23
2009 5,278 4,179 1,099 21
2010 5,605 4,569 1,036 18
It is shown in Table 6 that the demand is higher than the supply. Noteworthy to
mention is that the gap between demand and supply is increasing annually. The gap in 2006
was 398 metric tons and gradually increased every year that hit 486 metric tons in 2010.
Hence, the unsatisfied demand in 2006 and 2010 were 24.32% and 23.72%, respectively.
This is computed by dividing the gap by the demand multiplied by a constant of 100.
The reason why dried agar seaweed is in demand is it is very nutritious. According
to the website, seaweed draws an extraordinary wealth of mineral elements from the sea
that can account for up to 36% of its dry mass. The mineral macronutrients include sodium,
calcium, magnesium, potassium, chlorine, sulfur and phosphorus; the micronutrients
include iodine, iron, zinc, copper, selenium, molybdenum, fluoride, manganese, boron,
nickel and cobalt. Seaweed has such a large proportion of iodine compared to dietary
minimum requirements (http://www.itmonline.org/arts/seaweed.htm). The same website
also cited that aside from iodine, seaweed is one of the richest plant sources of calcium,
protein, several vitamins, and has very little fat, ranging from 1-5% of dry matter.
3.2 Projected Demand - In order to determine the market situation of the business
venture, the proponents conducted a study based on the trends from the gathered data. In
the historical demand shown in Table 5, it is reflected that the percentage increase is 22%
over five years. Roughly this is 4.4%. Hence, using the Straight-Line Method of the Time
Series Analysis, the projected demand using 5% increment yearly is adopted.
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The result of the study is shown in Table 7.
Table 7
Projected Demand
Year Demand in Metric Tons
2012 5,885
2013 6,180
2014 6,490
2015 6,814
2016 7,154
3.3 Projected Supply - Supply was likewise projected in order to have a clear idea of
the future market situation of the products. The projection is based on the trend of the historical
supply shown in Table 5. Obviously, there is a growing market for the products.
Table 8 indicates the projection of the supply.
Table 8
Projected Supply
Year Supply in Metric Tons
2012 4,798
2013 5,037
2014 5,289
2015 5,554
2016 5,830
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3.4 Projected Demand-Supply Analysis - By using the data on the projected demand
and projected supply, the Projected Demand-Supply Analysis was computed and presented in
Table 9.
Table 9
Projected Demand-Supply Analysis
Year Demand Supply D-S Gap UD (%)
2012 5,885 4,798 1,087 19
2013 6,180 5,037 1,143 19
2014 6,490 5,289 1,201 19
2015 6,814 5,554 1,260 19
2016 7,154 5,830 1,324 19
The results in the projection on demand-supply as indicated in the table shows that
the unserved demand is 19% yearly. However, the gaps between demand and supply are
increasing annually. This indicates that there is a potential market for the product.
Obviously, the data disclosed that demand cannot be satisfied by the supply, hence opening
another market for a new player.
4. Market Share Computation - The equation used in computing the market share
is as follows:
Market Share =Proposed Capacity
x 100Proposed Capacity + Projected Supply
The results of the computation of the market share of the FGLEA Manufacturing
Industry for the next five years are shown in Table 10.
Table 10
Market Share
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It is shown in the table below that there is a good market opportunity for the
products of the business.
Year
Projected *
Supply
Proposed **
Capacity
Proposed Capacity +
Projected Supply
Market
Share(Tons) (Tons) (Tons) (Percent)
2012 4,798 50 4,848 1.03
2013 5,037 52.5 5,089.5 1.03
2014 5,289 55.13 5,344.13 1.03
2015 5,554 57.88 5,611.88 1.03
2016 5,830 60.77 5,890.77 1.03
* - Refer to Table 8 on projected supply.
** - Refer to Table 2 on projected sales.
It is shown in Table 10 that the market share of FGLEA Manufacturing Industry for
the next five years is only 1.03%. These data indicate that there is a good market
opportunity for the product of the business since the market share that it requires will not
require getting most of it.
5. Marketing Mix Strategies - Since the primary objective of FGLEA
Manufacturing Industry is to gain profit, a thorough marketing plan is indeed needed in
order for the business to be successful. It is a process through which the customers may
gain interest of the product thereby producing vital sales to the business. It generates the
strategy that underlies sales techniques, business promotion, and business developments. It
is an integrated process through which the business will build strong customer relationships
and create value for their customers and for themselves. Specifically, FGLEA
Manufacturing Industrys marketing mix is a combination of marketing tools that are used
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to satisfy customers and company objectives. Its strategy is controlled by the following
variables:
3.1 Product The best marketing strategy of FGLEA Manufacturing Industry
is its product. The business will produce and deliver quality products to its
customers and will make sure that its product satisfies the consumers. The product
will be promoted as health-friendly being non-fat.
3.2 Price FGLEA Manufacturing Industry will adopt the generally accepted
pricing of adding 20% net income over and above its production cost. Therefore, the
selling price of the product will be influenced by the factors affecting production
cost, such as; raw materials, labor, and other expenditures directly related to it.
3.3 Place The FGLEA Manufacturing Industry will distribute its product in
wholesale to its consumers-market (grocery stores) and retail to end-users
(homeowners). Our marketing strategy will depend on how effective and efficient
we are in reaching our targeted market identified earlier.
3.4 Promotion The marketing strategy of FGLEA Manufacturing Industry
will include less expensive modes of promotion but are effective and efficient. It will
distribute printed leaflets at the main entrance of malls/grocery stores. It will also
take advantage of the free ads at http://www.google.com. It will also distribute free
samples in limited quantities from time to time.
4. Marketing Budget The marketing budget of FGLEA Manufacturing Industry
is mainly for promotions. All other expenses, such as salaries for employees making the
promotion are built-in in the other areas of budgeting. And the cost of promotion is very
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minimal since it will utilize free-of-charge advertisement in the Mozilla Firefox, printed
leaflets, and limited samples.
Therefore, from the above stated mode of promotion, this business has a very
conservative estimate of ten thousand pesos (P10,000) for marketing budget for the first
year of operation. But it is assume that these expenses for promotions will increase by 3%
annually.
B. Production Plan
The production plan of FGLEA Manufacturing Industry states in general terms the
product specifications, the product process, the product facilities and equipment, and the
product management. They are discussed as follows:
1. Product Specification - The proposed business will offer good quality products
of processed seaweeds (Gelidium and Gracilaria) into a dried agar bar called organic
gelatin with a dimensions of 12 inches x 1.5 inches. It is to be used for thickening agent. It
is a non-fat and non-caloric fiber good for the human health. As a thickening agent, it will
substitute animal gelatin in making ice creams, cakes, pastries, soups, soft drinks, and other
beverages.
2. Production Process - The basic extraction of agar from seaweeds starts with
washing and cleaning the seaweed to remove foreign matter. There are some differences in
the processing of the various seaweeds prior to extraction, depending on the type of
seaweed used. Gelidium is simply washed to remove sand, salts, shells and other foreign
matter and is then placed in tanks for extraction with hot water. Gracilaria is also washed,
but it must be treated with alkali before extraction; this alkaline pre-treatment causes a
chemical change in the agar from Gracilaria, resulting in a product with increased gel
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strength. Without this alkaline pre-treatment, most Gracilaria species yield an agar with a
gel strength that is too low for commercial use. The alkali treatment is heating the seaweed
in a 2-5 percent sodium hydroxide at 85-90C for 1 hour; the strength of the alkali varies
with the seaweed species and is determined by testing on a small scale. After removal of
the alkali, the seaweed is washed with water, and sometimes with a very weak acid to
neutralize any residual alkali. In the next processing step, the seaweed is heated with water
for several hours during which the agar dissolves in the water. Gelidium seaweed is more
resistant and extraction under pressure (105-110C for 2-4 hours) is faster and gives higher
yields. Gracilaria seaweed is usually treated with water at 95-100C for 2-4 hours. The
remainder of the process is the same for both types of raw material. The hot extract is given
a coarse filtration to remove the seaweed residue, filter aid is added and the extract is
pumped through a filter press. The extract is thick and will gel if allowed to cool. So it
must be kept hot during the filtration processes. The hot filtrate is cooled and forms a gel
which contains about 1 percent agar. The remaining 99 percent is water containing salts,
proteins, carbohydrates and colour molecules. The gel is broken into pieces, and, if
necessary, it is bleached to reduce the colour. Then it might be washed again to remove the
bleach and remaining salts. The next step is removing the remainder of the water from the
gel. There are two methods commonly used: either a freeze-thaw process or by using
pressure (synerisis). In the freeze-thaw process, the gel is slowly frozen so that large ice
crystals form. The structure of the gel is broken by the ice crystals and when it thaws again
a lot of the water drains away, leaving a concentrated gel which contains about 10-12
percent agar. Sometimes, this gel is placed between porous filter cloths and squeezed in a
hydraulic press to remove more water. However, this is a slow process, and usually the
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thawed material is simply drained and placed in a hot-air dryer. After drying, it is milled to
the required particle size. While the process involves press/syneresis technology is simply
by bleaching dialysis and syneresis. The press/syneresis is the most commonly use process
among different agar manufacturing company for it is not costly and becomes efficient to
operate. However, the proposed project will use the process of syneresis rather than the
freeze thaw process because of its cost effective viability.
The schematic diagram of the production process flow is reflected in Figure 2.
Washing and Cleaning of
Seaweeds
GELIDIUMRemove sand, salts, shells
and other foreign matter
GRACILARIA
Treat with Alkaliand wash
EXTRACTION
FILTRATI
GELATION
BLEACHING
DIALYSIS
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Figure 2. Schematic Diagram of the Production Process Flow
3. Product Facilities and Equipment - The proposed project will include product
facilities and product equipment vital to production. The main features of the facilities are
the administration building and processing plant. Whereas, the equipment are generally for
processing and transportation.
3.1 Product Facilities - The manufacturing plan layout is shown next page. It
is drawn to a scale of 1:100 in metric. The dimension of the plant layout is 14.90 by
19.95 meters.
The layout plan of the processing plant building has nine (9) main sections
which are: 1) the raw materials storage area, 2) cleaning area, 3) extraction area, 4)
filtration area, 5) gelation area (bleaching), 6) gelation area (syneresis), 7) drying
area, 8) milling area, and 9) finished goods storage areas.
SYNERISIS
DRYING
MILLING
AGAR
Block/Bar Form
Powder Form
Strip Form
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Figure 3 : The Manufacturing Plan Layout
3.2 Equipment and Machinery - The proposed Agar processing plant will be
equipped with different equipment suitable to the different processing stages. Table
11 reflects the brand new equipment that will be used for the production of Agar
products.
Table 11
Equipment and Machinery
Equipment Function No. of
Unit
Unit
Price
Total Cost
1. Cargo TruckTransport raw materials from sources
to processing plant1 300,000 300,000
2. Slightly used vanDeliver finished products to
customer-markets1 120,000 120,000
3. TricyclesDeliver finished products to end-
users3 80,000 240,000
4. Conveyors
Transport raw materials
mechanically from different areas ofproduction 5 50,000 250,000
5. Alkali treatmentMachine
Use for cleaning/washing graciliarabefore extraction
1 20,000 20,000
6. Boiler with 2
tanks
Use for extraction of Agar (Gelidium
and Graciliara)1 100,000 100,000
7. Filter Press Use in filtration process of agar 1 150,000 150,000
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8. Bleaching
Machine
Use in gelation process of Agar
through bleaching dialysis1 320,000 320,000
9. SyneratorMachine use for separation of agargel into water
1 250,000 250,000
10. High EfficiencyDrying Machine
Machine use for drying the gel andforms into sheets
1 270,000 270,000
11. Milling Machine
(w/ 3 class ofmill)
Machine use for milling Agar into 3
different class of Agar1 170,000 170,000
12. Water Tank 3 50,000 150,000
13. Storage Tank
(100cm x198cm)
Use for storing seaweeds and other
raw materials.5 10,000 50,000
14. Storage Tank
(23.50cm x
24cm)
Use for storing final goods/products. 3 35,000 105,000
Over-all Total Cost 2,495,000
4. Management and Labor Relations
4. Production Management/Personnel - The proposed project will employ
personnel in every area of production and it will have to operate 8 hours in a day from
Monday to Saturday. The operation of the production will start at 7 oclock in the morning
until 4 oclock in the afternoon. All production personnel must arrive on time because
operation will not start if anyone is not on their respective post before operation starts.
Table 12 shows the list of production personnel with their corresponding salary.
Table 12
Production Personnel
Particulars
Number of
Items
Monthly
Salary
Total Monthly
Salary
Production Head Assistant 1 8,500 8,500
Storage Area
Production Helper 2 7,000 14,000
Cleaning Area
Production Operator 1 8,000 8,000
Production Helper 2 7,000 14,000
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Extraction Area
Production Operator 1 8,000 8,000
Production Helper 2 7,000 14,000
Filtration Area
Production Operator 1 8,000 8,000
Production Helper 2 7,000 14,000
Gelation Area (Bleaching
Dialysis)
Production Operator 1 8,000 8,000
Production Helper 2 7,000 14,000
Gelation Area (Syneresis)
Production Operator 1 8,000 8,000
Production Helper 2 7,000 14,000
Drying Area
Production Operator 1 8,000 8,000Table 12 to be continued
Continuation of Table 12.
Production Helper 2 7,000 14,000
Drying Area
Production Operator 1 8,000 8,000
Production Helper 2 7,000 14,000
TOTAL 24 NA 176,500
C. Organizational Plan
The organizational plan briefly includes the discussions on the legal form of FGLEA
Manufacturing Industry, its organizational structure, and personnel policies.
1. Legal Form of the Organization
FGLEA Manufacturing Industry which is owned by five individuals shall have the
Partnership Style as its form of organization. Its business style is based on the premise that
the five individuals are general partners of the business, wherein each and every one has
co-equal share on its capital contribution and has equal responsibility in managing the
business being a management team. They have also equal share in the profit. And in case of
insolvency or bankruptcy, the liabilities will be equally shouldered by them.
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2. Organizational Structure
The five project proponents who are the members of the management team are the
decision makers as a body of the business. However, one of them will be the General
Manager.
The processing plant will hire 24 production personnel as previously shown in Table
12. In addition to these production personnel, administrative personnel and support staff
will also be hired. Table 13 shows the list of administrative personnel and support staff
with their corresponding salaries.
Table 13
Administrative Personnel and Support Staff
Particulars Number Monthly SalaryTotal Monthly
Salary
Manager 1 20,000 20,000
Marketing Head 1 10,000 10,000
Marketing Assistants 2 8,000 16,000
Administrative Head 1 10,000 10,000
Supply Officer 1 8,000 8,000
Storekeepers 2 7,000 14,000
Accounting Clerk 1 7,000 7,000
Truck and Van Drivers 2 7,500 15,000
Tricycle Drivers 3 5,000 15,000
Janitors 2 5,500 11,000
Production Head 1 12,000 12,000
17 NA 138,000
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Total
The organizational structure of the business was designed and reflected as Figure 4
on the next page.
Figure 4. The Organizational Structure of FGLEA Manufacturing Industry
Management
Team
ProductionHead
MarketingHead
AccountingClerk
Manager
Supply
Officer
Storekeepers Drivers
Janitors
Marketing
AssistantsProduction
Personnel
AdministrativeHead
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As shown in the above organizational structure, the Management Team will
perform a staff function as indicated by the broken line. The team is a policy-making body,
the adviser of the Manager,andthefinal arbiter should there be any problem/issue that the
Manager will find difficulty in solving it .
On the other hand, the primary function of the Manager is to serve as the chief
executive of the organization. He will oversee the over-all operation of the business and
will indulge in strategic activities among the three Division Heads of the business in order
to enhance coordination and inter-dependence. The Manager is Frederick Bartolome who is
one of the owners and a graduating student of Master of Management. He is also at present
a member of the Board of Directors of the Perpetual Help Credit Cooperative, Inc.
The Production Head has the primary function of overseeing the production
process of the business. His/her main concerns are quality control and production quota.
However, in the absence of the Manager, the Production Head will automatically act as
Officer Incharge. All the production personnel are directly under the Production Head. He
shall endeavor to periodically report to the Manager on the status of operation, especially
on problems that might transpire within the production area. The qualification for this
position is at least a graduate of a business baccalaureate course, but preferably with 2
years experience in processing and a holder of Masters Degree.
The Marketing Head shall oversee the distribution of the products to its respective
customers. He shall conduct studies on the existing marketing trends and shall recommend
changes in the marketing mode/strategy when needed. All Marketing Assistants are directly
under him/her. The qualification for this position is at least a graduate of a business
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baccalaureate course and with 2 years experience in marketing, but preferably a graduate of
Bachelor of Science in Commerce major in marketing.
The Administrative Head is responsible in providing administrative supports. The
most vital support is coordinating with the Production Head that there will always adequate
supply of raw materials. Other supports like financial and accounting management, project
facilities and equipment maintenance, and janitorial services are functions of the
Administrative Head. Therefore, the Supply Officer, Storekeepers, Accounting Clerk,
Drivers, and Janitors are directly under him/her. The Administrative Head will likewise
handle the responsibilities of human resource management, research and development, and
management information system.
In order for the organization to work harmoniously, FGLEA Manufacturing Industry
will adopt the following principles:
a) Specialization is encouraged to build up expertise.
b) The organization adheres to the principle of Command Responsibility.
c) Respect of duly constituted authority is a mandate. Obedience is required.
d) There shall be unity of direction by understanding goals.
e) Goals of the business are always paramount over personal interest.
f) The industry will give remuneration commensurate to services rendered.
3. PersonnelPolicies
The personnel policies that are deemed vital for the business include recruitment,
selection, training, and incentives and reward system.
3.1 Recruitment policy
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3.1.1 Announcement for the opening of positions will be posted in public places.
The qualification standard for each position will be indicated in the
announcement. Radio and TV plug-ins will also be made, including other
relevant information.
3.1.2 No recommendations from anyone will be entertained.
3.1.3 Applicants who will be late in submitting their bio-data will not be
entertained.
3.1.4 Applicants with bio-data that fits to the position he/she is applying will be
called for the selection process.
3.2 Selection policy
3.2.1 All applicants are given Psycho Exam
3.2.2 Those that will pass in the Psycho Exam will be interviewed. The Panel of
Interviewer is composed of the Management Team.
3.2.3 The best one that will come out during the interview will be selected.
3.3 Training
3.3.1 Technical training will be given to workers in the processing plant.
3.3.2 Only those who will pass the training will be hired.
3.4 Incentives and Reward System
3.4.1 Adopt a program on honor-system. Employees with high accomplishment
will be given a certificate as honor roll for the month and a cash incentive.
3.4.2 Annual bonuses will be given to the employees computed based on the net
income of the business.
D. Financial Plan
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The discussion on financial plan for this business includes total capitalization,
source(s) of funds, projected income statement, balance sheet, cash flow, and financial
analysis.
1. Total Capitalization
The FGLEA Manufacturing Industry will have a total project cost of P
17,278,150 as reflected in Table 14.
.
Table 14
The Project Cost
Fixed Asset
Land 1,500,000
Buildings 2,500,000
Furniture and Fixtures 86,000
Utilities Installation 50,000
Machineries and Equipments 2,495,000
Organization Cost 100,000
Total Fixed Asset 6,731,000
Working Capital (6 months)
Salaries Administration 828,000
Production Cost 7,542,850Operating Expense 2,176,300
Total Working Capital 10,547,150
Total Project Cost 17,278,150
2. Source ofFunds
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Each of the five proponents of the FGLEA Manufacturing Industry shall have a
capital share of P 1,455,630 amounting to the total owners equity of P 7,278,150 which is
42% of the over-all project cost. The remaining capital of P 10,000,000 will be borrowed
from the Development Bank of the Philippines with an interest rate of 12% per annum
payable in 10 years.
3. Projected Income Statement
Below is the projected Income Statement of the FGLEA Manufacturing Industry for
five consecutive years from 2012 to 2016 which is shown hereunder as Table 15. The data
on the table were taken from various tables and schedules previously computed.
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Table 15
Projected Income Statement
Account Titles 2012 2013 2014 2
Sales 12,000,000 12,978,000 14,045,850
Less: Cost of Goods Sold 4,910,700 5,576,235 5,918,441
Gross Income 7,089,300 7,401,765 8,127,409
Less: Operating Expenses
Salaries Administration 1,656,000 1,738,800 1,825,740
Office Supplies and Materials 18,700 19,260 19,838
Promotions and Advertising 10,000.00 10,300.00 10,609.00
Permits and Licenses 5,700.00 5,985.00 6,284.25
Building (Repair and Maintenance) 50,000.00 51,500.00 53,045.00
Machineries & Equipment (R&M) 30,000.00 30,600.00 31,212.00
Utilities Expenses 516,000 526,320 536,846
Miscellaneous Expenses 20,000.00 21,000.00 22,050.00
Interest Expenses 1,200,000 1,080,000 960,000
Depreciation 826,200 826,200 826,200
Amortization (Organization Cost) 20,000.00 20,000.00 20,000.00
Total Operating Expenses 4,352,600 4,329,965 4,311,824
Net Income Before Taxes 2,736,700 3,071,800 3,815,585
Less: Income Taxes 903,111 1,013,694 1,259,143
Net Income After Taxes 1,833,589 2,058,106 2,556,442
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4. Balance Sheet
A balance sheet is a financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time. The balance sheet gives
investors an idea as to what the company owns and owes, as well as the amount invested by
the shareholders.
The current assets in the balance sheet are all cash. On the other hand, the fixed
assets are land, building, furniture and fixture, utilities, and machineries and equipment.
The estimates are reflected in the Schedules.
The Balance Sheet of FGLEA Manufacturing Industry is presented in Table 16.
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Table 16
Projected Balance Sheet
Account Titles Pre-Operating 2012 2013 2014
ASSETS
Current Assets
Cash 10,547,150 13,130,050 15,144,939 17,793,030
Total Current Assets 10,547,150 13,130,050 15,144,939 17,793,030
Fixed Assets
Land 1,500,000 1,500,000 1,500,000 1,500,000
Building 2,500,000 2,500,000 2,500,000 2,500,000
Less:Accumulated
Depreciation 0 250,000 500,000 750,000
Net Book Value 2,500,000 2,250,000 2,000,000 1,750,000
Machineries and
Equipment 2,495,000 2,495,000 2,495,000 2,495,000
Less:Accumulated
Depreciation 0 499,000 998,000 1,497,000
Net Book Value 2,495,000 1,996,000 1,497,000 998,00
Furniture and
Fixtures 86,000 86,000 86,000 86,000
Less:Accumulated
Depreciation 0 17,200 34,400 51,600
Net Book Value 86,000 68,800 51,600 34,4
Utilities
Installation 50,000 50,000 50,000 50,000
Table 17 to be continued.
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Continuation of Table 17.
Less:Accumulated
Depreciation 0 10,000 20,000 30,000
Net Book Value 50,000 40,000 30,000 20,0
Total Fixed Assets 6,631,000 5,854,800 5,078,600 4,302,400
Other Assets
Organizational
Cost 100,000 100,000 100,000 100,000
Less:Amortization 0 20,000 40,000 60,000
Net Book Value 100,000 80,000 60,000 40,0
Total Other Assets 100,000 80,000 60,000 40,000
TOTAL ASSETS 17,278,150 19,064,850 20,283,539 22,135,430
LIABILITIES & CAPITAL
LIABILITIES
Current Liabilities
Income Taxes Payable 0 903,111 1,013,694 1,259,143
Loans Payable -Current 0 2,200,000 2,080,000 1,960,000
Total Current Liabilities 0 3,103,111 3,093,694 3,219,143
Noncurrent Liabilities
Loans Payable -
Noncurrent 10,000,0009,000,000 8,000,000 7,000,000
Total Noncurrent Liabilities 10,000,000 9,000,000 8,000,000 7,000,000
Total Liabilities 10,000,000 12,103,111 11,093,694 10,219,143
Table 17 to be continued
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Continuation of Table 17
CAPITAL
Owners Equity 7,278,150 7,278,150 9,111,739 11,169,845
Net Income 0 1,833,589 2,058,106 2,556,
Total Capital 7,278,150 9,111,739 11,169,845 13,726,278
TOTAL LIABILITIES &
CAPITAL 17,278,150 19,064,850 20,283,539 22,135,430
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5. Cash Flow
The Cash Flow is the movement of cash into or out of FGLEA Manufacturing
Industry. The movement of cash is used to calculate other parameters that give
information on the business like rate of return or liquidity.
It can be deduced from the results of the computation of cash flow that FGLEA
Manufacturing Industry has adequate cash to support its operational activities.
The cash flow of the business is presented in Table 17.
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Table 17
Projected Cash Flow
Account Titles Pre-operating 2012 2013 2014
Cash
Inflow
Cash received from
bank loan 10,000,000 0 0 0
Cash received from
owners 7,278,150 0 0 0
Sales 0.00 12,000,000 12,978,000 14,045,850
Total Cash Inflow 17,278,150 12,000,000 12,978,000 14,045,850
Cash Outflow
Purchase of Land 1,500,000 0 0 0
Purchase of Building 2,500,000 0 0 0
Purchase ofMachineries &
Equipment 2,495,000 0 0 0 Purchase of Furniture& Fixtures 86,000 0 0 0
Utilities Installation 50,000 0 0 0
Organization Cost 100,000 0 0 0
Cost of goods sold 4,910,700 5,576,235 5,918,441
SalariesAdministration 1,656,000 1,738,800 1,825,740
Office Supplies and
Materials 18,700 19,260 19,838
Promotions andAdvertising 10,000 10,300 10,609
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Permits and Licenses 5,700 5,985 6,284
Building (Repair andMaintenance) 50,000 51,500 53,045
Machineries &Equipment (R&M) 30,000 30,600 31,212
Utilities Expenses 516,000 526,320 536,846
MiscellaneousExpenses 20,000 21,000 22,050
Interest Expenses 1,200,000 1,080,000 960,000
Payment of Loan 1,000,000 1,000,000 1,000,000Payment of incometaxes 0 903,111 1,013,694
Total Cash Outflow 6,731,000 9,417,100 10,963,111 11,397,759
Net Cash 10,547,150 2,582,900 2,014,889 2,648,091
Add: Cash Balance, beg. 0.00 10,547,150 13,130,050 15,144,939
Cash Balance Ending 10,547,150 13,130,050 15,144,939 17,793,030
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6. Financial Analysis
The financial analysis presented herein includes the discussions as regards net
profit margin, return on investment, liquidity ratios, leverage ratios, and growth ratios.
6.1 Net Profit Margin - One of the financial analyses that will be used to
determine the profitability of this business is the net profit margin. The net profit
margin manifests how much profit this business makes for every P 1.00 it generates in
sales. This helps to determine whether the prices set by the business or its operating costs
are on a viable ceiling. For FGLEA Manufacturing Industry, a profit margin of 5%
indicates that its sales prices are relatively low or the costs are high or both.
The equation in computing net profit margin is reflected below:
Net Profit Margin =Net Income After Taxes
x 100Sales
Table 18below shows the annual net profit margin for the proposed venture.
Table 18
Annual Net Profit Margin
Year Net Income After Taxes Sales Net Profit Margin (%)
2012 1,833,589 12,000,000 15
2013 2,058,106 12,978,000 16
2014 2,556,442 14,045,850 18
2015 3,132,708 15,188,368 21
2016 3,701,383 16,409,250 23
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It is reflected in the table that during the first year of its operation, FGLEA
Manufacturing Industry made a net profit margin of 15% which is relatively high for it is
above 5%, the danger zone for a net profit margin. This suggests that despite its effort of
competing with the existing players in the market, the venture will still be able to manage
and earn a high income. Moreover, the project is able to maintain its high profit from the
first to the fifth years of operation. The same profit margin went up from 15% during the
first year to 23% in the fifth year of operation. In other words, despite the fact that the net
profit margin is already high, it has an increasing trend.
6.2 Return on Investment (ROI) Another way of measuring the efficiency of
investment of FGLEA Manufacturing Industry is with the use of ROI.
To calculate ROI, the benefit (net income after taxes) of an investment is divided
by the cost of the investment; the result is expressed as a percentage or a ratio. FGLEA
Manufacturing Industry has an ROI target of 6%. Therefore, any computed ROI higher
than this target is considered high, which means the business is financially viable.
The formula in computing ROI is shown below:
Return on Investment =Net Income After Taxes
x 100Total Investment
The results of ROI computation is shown in Table 19.
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Table 19
Return on Investment
Year Net Income After Taxes Total Investment ROI
2012 1,833,589 26,949,100 7%
2013 2,058,106 27,227,615 8%
2014 2,556,442 27,558,866 9%
2015 3,132,708 27,945,489 11%
2016 3,701,383 28,390,253 13%
During its first year of operation in the year 2012, FGLEA Manufacturing Industry
reflected an ROI of 7% which is above the suggested ceiling of 6%. This is normal for a
new business considering that there are lots of things to know about its operation and
marketing. However, the table above further indicates that the ROI is increasing which
means that the expected financial performance of the business is improving.
6.3 Liquidity Ratio - This ratio measures the firms ability to meet maturing
short-term obligations. The safety of the business provides a basis for the rational pursuit
of profit which is identified with the ultimate goal of business activities and serves as an
important means of measuring the safety of invested capital.
For FGLEA Manufacturing Industry, testing of liquidity will use Current Ratio.
This ratio indicates the extent to which the claims of short-term creditors are expected to
be converted into cash in a period corresponding to the maturity of claims. The solvency
of the business shall be appraised by comparing its current assets with current liabilities.
The Current Ratio is computed by dividing the current assets by the current liabilities. A
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current ratio below 1 suggests that the business would be unable to pay off its
obligations if they came due at that point.
Using the above procedure, the current ratio of FGLEA Manufacturing Industry is
presented in Table 20.
Table 20
Current Ratio
Years Current Assets Current Liabilities Current Ratio
2012 13,130,050 3,103,111 4
2013 15,144,939 3,093,694 5
2014 17,793,030 3,219,143 6
2015 21,055,771 3,382,976 6
2016 24,883,450 3,543,070 7
It is shown in the above table that the current ratio of FGLEA Manufacturing
Industry is very high since the current assets are exceedingly higher than the current
liabilities. It means that the business has the capacity to pay back its bank loan payables
because it has adequate current assets in cash.
6.4 Leverage Ratios - This ratio measures the extent to which the firm has been
financed by debt. Leverage ratio provides several implications. Firstly, creditors look at
the equity for margin of safety. Secondly, raising funds through debts allows answers to
gain benefits of controlling the firm with limited investments. Thirdly, the firm may earn
more on borrowed funds that it pays interest. However, it should be noted that when the
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return on assets goes below interest rates, the firm comes in trouble since cost of debt is
more than
what assets earn.
6.4.1 Debt Ratio - One leverage ratio is called Debt Ratio.It is a measure of the
company's total debt to its total assets. In other words, the Debt Ratio indicates the
percentage of the total assets provided by the creditors. A ratio less than one means that a
company has more assets than debt, while a ratio of more than one means the opposite. A
debt ratio is a measure of how risky it would be for a bank to extend a loan to a company,
with a higher ratio indicating great risk. FGLEA Manufacturing Industry is using this
ratio.
The formula for Debt Ratio is shown below:
Debt Ratio =Total Liabilities
Total Assets
Using the above formula and computing the debt ratios, the results are presented in
Table 21.
Table 21
Debt Ratio
Years Total Liabilities Total Assets Debt Ratio
2012 12,103,111 19,064,850 0.63
2013 11,093,694 20,283,539 0.55
2014 10,219,143 22,135,430 0.46
2015 9,382,976 24,601,971 0.38
2016 8,543,070 27,633,450 0.31
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It is reflected in Table 21 that all the computed debt ratios are less than 1. It
mans that FGLEA Manufacturing Industry is very bankable. Moreover, the trend of the
debt ratio is going down which means that the risk of having a loan is becoming lesser
every year.
6.4.2 Equity Ratio Another leverage ratio used in this study is the equity ratio.
Equity ratio is a financial metric that is used to measure the amount of leverage employed
by a company. This ratio indicates the percentage of the assets provided by the owners.
Since the equity ratio includes the firm's total assets in its calculation, it is therefore
relatively simple to calculate assets from the equity ratio.
The formula in computing equity ratio is shown below:
Equity Ratio =Total Capital
x 100Total Assets
The results of the computation of the equity ratio are presented in Table 22.
Table 22
Equity Ratio
YearsTotal Capital
(Pesos)
Total Assets
(Pesos)
Equity Ratio
(Percentage)
2012 9,111,739 19,064,850 47.79
2013 11,169,845 20,283,539 55.07
2014 13,726,278 22,135,430 62.01
2015 16,858,995 24,601,971 68.53
2016 20,560,378 27,633,450 74.40
The table above indicates that the capitalization that was provided by the project
propon