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Raw Materials And Inputs

RAW MATERIALS AND INPUTS

RAW MATERIALS SOURCING

A major preliminary step to be undertaken by project promoters is how to source adequate raw materials and other inputs to ensure a smooth and uninterrupted flow in the production process. Many times, promoters just assume that the raw materials are available in large quantity with no consideration for its demand by other household, industrial and commercial consumers. It is therefore necessary to carefully consider the source from which the raw materials will be procured i.e. whether locally or from overseas. Also, it has to be determined whether the raw materials will be purchased in bulk quantities or not as this would impact on transportation, handling and other costs of production.

Raw materials / inputs in feasibility study

Another major consideration is the specification of raw materials. Efforts should be made to ascertain exact quantity and quality of the raw materials suitable for the plant and the machinery. Once this is done according to the manufacturer’s specifications, suppliers of raw materials should be located and contacted in advance and supply arrangement on a long term basis entered into. In cases where raw materials of exact specifications are not available, alternative or substitute raw materials which are also suitable for products to be manufactured must be located.

If there is a perceived risk of discontinuance of supply of raw materials either before or during project implementation at the source already identified and decided upon, attention must be paid to specification of alternative raw materials and the effect on the production process proposed. The possible consequence on the type of plant and machinery selected should also be examined.

An appreciation of these problems in the initial stages of project formulation will ensure that a reasonable degree of flexibility is built into the design and selection of plant and machinery. Other considerations in raw materials sourcing recommended by UNIDO (1991) include seasonal constraints, storage, transportation and wastage.

(a) Seasonal Constraints.
The impact of seasonal changes in the supply and availability of raw materials should be taken into consideration when designing an industrial project. Most industrial raw materials, particularly agro-based produce, are seasonal in nature and are therefore not available all the year round. Because of this, project sponsors should make adequate arrangements to stock the raw materials and ensure its availability during the off season. This could be done by entering into a strategic alliance or long term contract with the suppliers to guarantee a regular supply.

(b) Storage.
Because of the factor of seasonality identified above, promoters should make provision for storage facility within the business premises. Such facility should take into consideration the prevention of deterioration and obsolescence due to corrosion, weather, quality, pilferage etc. This is especially true for many agro based raw materials.

(c) Transportation.
Another consideration is the transportation of raw materials including the mode and cost of transportation. Depending on the nature of the raw materials whether it is in liquid form, an explosive, a food product or whether it will be transported in bulk or small quantities, a suitable mode of transportation may be contemplated and costs involved in such modes should be considered. Possibilities of deterioration of raw material specifications during transportation is also important. Precautionary measures should be taken to mitigate the risk while the cost implication should be included in computing the cost of transportation. For this purpose, it is advisable to factor in the cost of insurance for the goods in transit.

(d) Government Regulation.
Sometimes it is possible that there may be some statutory regulations by the government agencies such as NAFDAC, SON etc. on specifications of raw materials to be used in a given process. In such cases, it is absolutely necessary for the promoters to procure materials and inputs of standard specifications. This could be done by visiting the zonal or state offices of the agencies to collect relevant information on the statutory guidelines for establishing the proposed industry. Failure to do this will result in the non-certification of the end product for use by consumers.

(e) Wastage.
The possibility of wastage of raw materials in the production process should be considered. A means of avoiding such wastage is through the selection of appropriate technology and the employment of suitable skilled and unskilled manpower and training them to operate the machinery and equipment. In addition, the feasibility of recycling such materials to minimize wastage should be put into consideration.

In summary, the following factors should be taken into consideration in the purchase, handling and storage of raw materials:
(a)Raw Materials Characteristics.
The characteristics of raw materials and its conformity with the standard specifications in terms of quality, size, moisture contents etc. including its suitability for products to be manufactured.

(b) Supply and Demand Factors.
In the market place, the fundamental ideas of supply and demand have long been known to practical merchants and traders particularly the effect of price on the quantity demanded. Demand in this context is the number of units of goods or services that customers are willing and able to purchase for a given price during a period of time. In many respects, the important determinant of profitability is the demand for its products or services. No matter how efficiently a business is being run, it cannot operate profitably unless it can find a new set of products for which demand exists. Because of the critical role of demand as a determinant of profitability, estimates of expected future demand in project formulation constitute a key element in all planning activities. Production decisions are profoundly influenced by a company’s underlying demand function.

An understanding of the quantity of raw materials available for production including the estimated supply and demand factors from domestic and foreign sources should be determined. Very often, the information could be accessed from secondary data available from various government publications such as the Federal Office of Statistics (FOS), Raw Material Research and Development Council (RMRDC), Central Bank of Nigeria (CBN), Nigerian Investment Promotion Commission (NIPC), Universities Research Institute and so on.

(c) Auxiliary Materials (Other Inputs).
Auxiliary materials which are sometimes referred to as other production inputs are also essential components in the production process. Adequate provision should be made for them when formulating industrial projects. In some projects, the type and costs of auxiliary materials such as packaging materials in the fruit juice and mineral water industry could be far more than the cost of raw materials required for production. Efforts should be made to identify these auxiliary materials or inputs and make adequate provision for their procurement and storage during project implementation.

In summary, project promoters should ensure the availability and regular supply of raw materials and other inputs. The seasonal nature of raw materials and other factors should be taken into consideration when formulating an industrial project. A situation where the proposed industry will be forced to operate at below the installed or normal feasible capacity due to lack of suitable raw materials should be avoided. If the raw material or any other inputs is to be imported, adequate arrangements should be made to obtain the foreign exchange and other necessary documentations. Many projects have failed because of lack of or inadequate raw materials which have resulted in production bottlenecks, delays in product delivery, loss of goodwill by customers and negative effects on profitability.

Related Readings

Introduction To A Feasibility Study

Project Background and History

Feasibility Study Project Location, Site And Infrastructure

How To Write A Business Plan In Nigeria

 

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