Marketing Plan of Pure Gas

Marketing Plan Pure Gas

MARKETING PLAN FOR

PURE GAS PLANT

MEHWISH AKBAR MBA 2nd SEMESTER

GROUP B

INSTITUTE OF MANAGEMENT SCIENCES December, 2007

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TABLE OF CONTENTS

1. Executive Summary.....................................................................................................52. Company Overview.....................................................................................................63. SWOT Analysis...........................................................................................................94. Marketing Plan...........................................................................................................12

4.1. Overview of the Industry...................................................................................124.2. Marketing Environment.....................................................................................14

4.2.1. Macro Environment...................................................................................144.2.1.1. Demographics....................................................................................144.2.1.2. Technological Forces.........................................................................174.2.1.3. Economic Factors..............................................................................18

4.3. Marketing Strategy............................................................................................194.3.1. Market Segmentation.................................................................................194.3.2. Target Marketing.......................................................................................204.3.3. Market Positioning.....................................................................................21

4.4. Marketing Mix...................................................................................................224.4.1. Product.......................................................................................................224.4.2. Price...........................................................................................................234.4.3. Promotion..................................................................................................244.4.4. Place...........................................................................................................25

5. Production Plan..........................................................................................................275.1. Raw Material.....................................................................................................275.2. Manufacturing Process......................................................................................295.4. Project Capacity.................................................................................................305.5. Machinery Requirement....................................................................................305.6. Cost of Good Sold.............................................................................................31

6. Organizational Plan...................................................................................................336.1. Type 0f Organization.........................................................................................336.2. Organizational Chart..........................................................................................336.3. Roles & Responsibilities....................................................................................34

6.3.1. Plant Manager............................................................................................346.3.2. Finance Manager.......................................................................................356.3.3. Administrative Manager............................................................................366.3.4. Sales Manager............................................................................................366.3.5. Shift Engineer............................................................................................376.3.6. Maintenance Supervisor............................................................................376.3.7. Cylinder Tester/ Inspector.........................................................................386.3.8. Plant Operators..........................................................................................396.3.9. Gate Keeper...............................................................................................396.3.10. Sales Representatives.................................................................................396.3.11. Sweeper......................................................................................................406.3.12. Finance Clerks...........................................................................................40

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6.3.13. Secretary....................................................................................................417. Financial Plan............................................................................................................43

7.1. Land Requirement.............................................................................................437.2. Office Equipment and Vehicle Requirements...................................................437.3. Human Resource Requirement..........................................................................447.4. Startup Cost.......................................................................................................467.5. Cost of Capital...................................................................................................467.6. Key Assumptions...............................................................................................467.7. Costs..................................................................................................................487.8. Income Statements.............................................................................................49

7.8.1. Year 1.........................................................................................................497.8.2. Year 2.........................................................................................................507.8.3. Year 3.........................................................................................................51

8. Conclusion.................................................................................................................528.1. Future Prospects.................................................................................................52

9. References..................................................................................................................53

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Introductory Page

PURE GAS

www.puregas.com.

Description of Business

The business has been names Pure Gas and will be producing oxygen. The idea is to provide corporate customers, who need oxygen gas as a raw material, with pure oxygen to help in their business operations.

Financing

The cost of setting up the project is Rs. 46,255,000. A debt of Rs. 5,000,000 is taken and is to be paid in 5 years.

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http://www.puregas.com./


1. Executive Summary

The document is a feasibility report that has been documented primarily to assist

potential entrepreneurs who want to enter this business. It provides investment

information and a detailed overview about Oxygen Gas Manufacturing Plant.

The document is a complete and a thorough business plan and can safely be used

as a basis of judgment for investment into this business.

This document covers the financial, marketing, production and the organizational

plan of the company in detail. The financial plan covers a three year analysis and

shows the company making huge profits since the very first year of its operations.

The marketing plan discusses short term marketing strategies in view of the

current market shortage of oxygen along with long term marketing strategies

when the gap between demand and supply gets filled due to mushroom growth of

small oxygen production plants. The organizational plan includes the

organizational hierarchy to get a clear understanding of departments and flow of

command within the company. It also clearly outlines and defines the roles and

responsibilities of each employee so that there are no delays and

misunderstandings due to ambiguities in job responsibilities.

It also covers factors in the macro environment that could affect the business and

gives a detailed industrial analysis with special emphasis on competitors, their

problems and strengths. Each of these studies revealed that the business is quite

feasible and has huge prospects of growing in the future since the steel sector of

Pakistan has been showing a tremendous increase in the recent years and oxygen

is a major raw material for producing steel.

Although this looks to be a feasible and lucrative project but hard work, devotion

and appetite to succeed are the key ingredients that make any business successful.

5


2. Company Overview

Pure Gas is going to be set up with a vision to charge forward to become leaders

in industrial gasses. The business will be manufacturing oxygen gas and will only

be having corporate customers. It is going to be a sole proprietorship. The CEO

will be the sole owner of the business and will have the final decision making

power in his hands. It will be having a man power of 26 employees, carefully

selected to fit their job descriptions. Its production line will be able to produce up

to 500 cylinders of oxygen per day. Constant innovation is what sets Pure Gas

apart from other oxygen production plants.

The biggest strength of Pure Gas is that the only raw material required for the

production of oxygen is atmospheric air, which is totally free and easily

accessible. This completely eliminates the hassle of having to negotiate, maintain

relationships and deal with suppliers for raw materials. The company’s primary

focus will be on maintaining excellent long term relationships with customers.

An efficient overview of organizational responsibilities has been established to

ensure efficiency, which translates to high credibility amongst the public.

Initially, Pure Gas will be targeting the scrap cutting and rolling mills segment.

The reason for targeting this segment is that it accounts for about 65% of the total

market demand and has the highest turnover of cylinders per day. Later it will

also target hospitals since hospitals are a very high price segment.

Although the proposed business can be established anywhere, but Pure Gas has

been setup in Mistri Shah in an area of about 5 to 6 Kanals. This location was

chosen to take advantage of being close to the target market so as to serve the

customers best and understand their needs. Thus, Pure Gas would lower it

transport costs, be quick on knowing changing customer requirements and

develop supplier-customer relationships easily.

Initially, the business will only focus on producing oxygen, but later will diversify

its products to other industrial gasses like acetylene and nitrogen.

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Vision

Pure Gas expands its product to other industrial gasses and becomes the first choice of its customers.

www.bartlettcommunications.com

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Mission Statement

To satisfy customer's needs and aspirations by meeting established

standards, statutory regulations, customers agreed requirement and

ensuring timely supply to end users.

Source: www.odysseywallcoverings.com

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3. SWOT Analysis [1]

Before making the decision, whether to invest in setting up the Oxygen Gas

Manufacturing business or not, one should carefully analyze the associated risk

factors. A SWOT analysis can help in analyzing these factors, which can play

important role in making the decision.

Strengths

Continuous availability & easy access of the raw material, which mainly

comprise free atmospheric air.

Availability of Cheaper Labor.

Latest technology oxygen producing plant with high working efficiency and

trouble free operations, safety & low power consumption.

Oxygen gas producing plant is very simple to operate.

Easy availability of spare parts.

Latest molecular sieve technology with out recurring cost of chemicals. About

3% of nitrogen gas is used for the regeneration of the molecular sieve battery

and nitrogen cascade cooler

Weaknesses

The big players in the Oxygen Gas manufacturing business have captured the

market and require the heavy promotional charges and some orders already in

hand.

The process is totally automated and requires technical expertise of Plant

Engineer and Machine operator on a continuing basis.

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Opportunities

Demand for Oxygen gas is influenced by the growth in the industrial sector as

well as increase in the consumption in medical sector.

For filling high-pressure nitrogen up to 99.999% simultaneously with oxygen

production cylinders, an additional nitrogen pump and nitrogen exchanger can

be used.

For compressed nitrogen gas at 0.1 Kg /cm2 to 1.1 up to 155 bar or higher a

separate nitrogen compressor can be installed with a nitrogen cylinder filling

manifold.

Threats

In case of the power failure to the engine its braking mechanism will fail and

this accelerating speed of the machine.

The fire extinguisher should be installed and smoking should be banned near

the production area as the project is very sensitive and highly flammable.

Expected losses during the initial stages of the Project as a result of

competitors’ campaign.

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MARKETING PLAN

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4. Marketing Plan

4.1. Overview of the Industry

Competitive nature of the global economy has forced industry and technical

establishments to constantly improve on the quality of their products. Keeping in

view the stringent standards of quality prescribed for industrial products, it has

become imperative to identify and quantify the samples for maintaining quality

and standards of materials and finished products. For this purpose the importance

of highly sophisticated analytical facilities can hardly be over emphasized.

The oxygen gas market faces only the local market as its competitors as cost of

transporting cylinders is very high. Therefore we will only be analyzing the local

market situation and its future trends.

Following is a table briefing the plants and their respective capacities in Lahore.

PLANTS Cap. M3/hr LOCATION CAP.TM3/Yr Utilization%

BOC 1600 LAHORE 10440 100

FINE GAS 3200 LAHORE 24960 0

LHR Welding 50 LAHORE 390 100

Mirza/Naseem 165 LAHORE 1188 95

Super Oxygen 165 LAHORE 1188 100

Ravi Gas 165 LAHORE 1188 90

Sharif Oxygen 200 LAHORE 1440 95

Sharif Oxygen 200 LAHORE 1440 95

General Gas 165 LAHORE 1188 90

Medi Gas 400 LAHORE 1200 40

Source: market research

It is also important to state here that the overall manufacturing recorded an

impressive and broad based growth of 8.45 percent, against last year’s growth of

9.9 percent. Large-scale manufacturing, accounting for 69.5 percent of overall

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manufacturing registered an impressive growth of 8.75 percent in the current

fiscal year 2006-07 against last year’s achievement of 10.68 percent. [2]

This upward trend in the manufacturing sectors has been because of high levels of

liquidity in the banking system, an investment friendly interest rate environment,

a stable exchange rate, low inflation, comfortable foreign exchange reserves, and

stronger domestic demand for consumer durables and high business confidence

among other things will again boost the manufacturing sector growth rate up to a

reasonable level. This would obviously lead to an increase in the demand of

oxygen cylinders too since many products need oxygen in the production process. [3].

However, the oxygen producing plants are currently being run at full capacity and

are still not able to meet the current demand, let alone meeting the future

increased demand. Following is a table showing the demand of cylinders per day

of each segment identified.

Market Segment Cylinders/Day

Scrap Cutting 5000

Misc. Industries 1500

Hospitals 1000

Automobile Sector (denting) 1000

Total 8500

Source: Market Research

The current per day production of oxygen cylinders in Lahore is only 3500. This

means that there is a shortage of almost 5000 cylinders per day in Lahore. Around

4000 to 5000 cylinders per day are demanded in the scrap cutting segment. The

Gap is not being filled by other companies since they are already producing at full

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capacity. Furthermore, Fine Gas, the biggest plant in Lahore, is currently facing

difficulties in its production because of problems in their compressor which will

take a year to fix because of non availability of spare parts. Fine Gas’s plant is

completely out of production these days. Moreover, it would take around 2 years

for BOC to import and install a bigger plant to meet this demand. BOC is not

attracted towards cylinder business as their plant is already loaded for bulk users

in steel, chemical and oil wells industry where gas in liquid form is being supplied

through tankers.

Therefore, there is great potential for a new business to enter into this market as a

new small plant target at consumers in scrap cutting market can be installed in

around 3 to 6 months.

4.2. Marketing Environment

A company’s marketing environment consists of the actors and forces outside

marketing that affect marketing management’s ability to build and maintain

successful relationships with target customers. Successful companies know the

vital importance of constantly watching and adapting to the changing

environment. [4].

The marketing environment is made up a microenvironment and a macro-

environment. Let’s take a look at each of these environments in view of the

objectives to Pure Gas.

4.2.1. Macro Environment

The macro environment consists of the larger societal forces that affect the micro

environment of the business.[5]. These factors are uncontrollable and together

shape up opportunities or pose threat to the business.

4.2.1.1. Demographics

Demography is defined as the study of human population in terms of size,

density, location, age, gender, race and occupation. The demographic

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environment is of major interest to a business because it involves people and

people make up markets. [6].

The population of Pakistan is currently witnessing a demographic transition. It

is evident from the harts below that there has been a decline in the birth rate,

mortality rate and thus a decline in the population growth rate in Pakistan.

Source: Economic Survey 2006-07

In Pakistan, decline in mortality rate is due to the elimination of epidemic diseases

and improvement in medical services. Between FY05 and FY06, health

expenditure increased by 24.8 percent to Rs.39.2 billion. Largest increase in

health expenditure was incurred in Sindh (43.1%), followed by Federal

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Government (40.4%), NWFP (17.4%), and Punjab (14.6%), whereas health

expenditure declined by 6.6 % in Balochistan. [Economic Survey 2006-07,

Overview of Health and Nutrition]

Source: economic survey 2006-07, heath and nutrition

The above chart shows that there has been a consistent increase in health

expenditure over the years.

Source: economic survey 2006-07, heath and nutrition

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As can be clearly seen, there has been a consistent increase the number of

hospitals and dispensaries to cater the growing population of Pakistan. All

these hospitals require oxygen and therefore as a result of growing population

there are prospects of increased demand in the future.

4.2.1.2. Technological Forces

The technological environment is perhaps the most dramatic force since it

changes rapidly. New technologies create new markets. However, new

technology replaces older technologies.

Plant Technology [7]

Competitive nature of the global economy has forced industry and technical

establishments to constantly improve on the quality of their products. Keeping

in view the stringent standards of quality prescribed for industrial products, it

has become imperative to identify and quantify the samples for maintaining

quality and standards of materials and finished products. For this purpose the

importance of highly sophisticated analytical facilities can hardly be over

emphasized.

The oxygen gas separation process is totally automated and requires technical

expertise of Plant Engineer and Machine operator on a continuing basis. The

technology used for the plant in this feasibility report is “Non Cryogenic.

Non-cryogenic air separation processes are used to produce gaseous nitrogen

and oxygen. They are cost effective choices when demand is relatively small

(tens of tons per day) and when very high product purity is not required. They

are compact and operate at near-ambient temperature and pressure. Once

installed, they can be brought on-line in, in most cases, in less than half an

hour.

Non-cryogenic air separation processes operate at near-ambient temperature.

They use physical property differences other than boiling point, such as

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molecular size and mass, to produce commercially valuable gaseous products

such as nitrogen and oxygen.

The most common technologies are PSA (Pressure Swing Adsorption), used

in nitrogen generators and oxygen generators; VPSA (Vacuum-Pressure

Swing Adsorption), used in oxygen generators; and Membrane Separation,

used to produce nitrogen gas. The plant is usually imported from either India

or China.

4.2.1.3. Economic Factors

Economic factors can not only greatly influence the level of investment in a

country but also where people prefer to invest. These factors include changes

in the economic factors that have a direct impact on the operations of the

business.

Per Capita Income

Per capita income has a direct influence on the level of consumption. The high

the per capita income, the more will be an individual’s disposable income and

hence higher consumption. The more the consumption, the more will the

manufacturing sector grow and since most of the manufacturing sector

requires oxygen for its operation, its demand will increase.

An example of this would be cars. The more cars on the road, the more the

likelihood of accidents and the more people bring in cars for denting the

higher the consumption of oxygen. Same is the case is with steel for

construction of buildings since steel requires oxygen as a raw material.

The graph below shows that the per capital income of Pakistan is on a rise.

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http://www.uigi.com/noncryo.html#Membrane%23Membrane

http://www.uigi.com/noncryo.html#VSA%23VSA

http://www.uigi.com/noncryo.html#PSA%23PSA


Source: Economic Survey 2006-07

4.3. Marketing Strategy

Marketing strategy serves as a foundation of a marketing plan. It is defined as the

marketing logic through which the business hopes to build profitable relationships

with customers. Companies know that they cannot serve all consumers in a given

market. There are too many different types of consumers with different types of

needs. And most companies are in a position to serve some segments better than

others. Thus businesses must divide the total market, choose the best segment and

design strategies for profitably serving chosen segments. This process involves

three steps: market segmentation, target marketing, and market positioning. [8]

For this matter, let us identify different market segments for Pure Gas.

4.3.1. Market Segmentation

Oxygen is the largest volume industrial gas and has a very limited demand in the

consumer market. Therefore, Pure Gas is basically going to cater the corporate

market as they are going to be very profitable customers due to the larger volume

of business and huge demand.

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However, the corporate market can be divided into different segments based on

their market share.

Steel Scrap Cutting and Rolling Mills

Industrial use

Ampules Manufacturing

Automobile Denting/Painting

Hospitals

4.3.2. Target Marketing

Targeting a market is a critical factor in the marketing strategy of a company. A

company should target segments in which it can profitably generate the greatest

customer value and sustain it over time. However a new business should first

target a relatively small market so that it can be serviced well and then expand the

target market in the long run.

Initial Target Market

At the birth stage the business is going to target the Steel Scrap Cutting and

Rolling Mills segment. The reason for targeting this segment is that this segment

makes up about 65% of the total market demand. This segment is geographically

concentrated with many steel scrap cutting and rolling mills in one area, which is

the Mistri Shah area. This area is spread over approximately 8 km square.

Furthermore, this is the only segment that has a daily cylinder turnover and a

consistent demand.

Long Term Target Market

As the business will grow, Pure Gas will also target Hospitals. Since patients face

a matter of life and death in hospitals, there is a very critical need for oxygen

there. However providing oxygen to hospitals requires a heavy infrastructure

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which means a big investment. Therefore, after building reserves in the short run,

Pure Gas will be targeting Hospitals in the long run.

Target Market Strategies

The only customers that Pure Gas has are the corporate customers. All of these

corporate segments require similar services; therefore the services designed by

Pure Gas are going to be standardized and undifferentiated. Thus the business is

going to adopt an undifferentiated marketing strategy for its target markets.

However, if in case a segment requires some differentiated services, Pure Gas will

work towards providing those services only if they prove to be feasible.

4.3.3. Market Positioning

Building the position in the customer’s minds is a very crucial factor for the

success of the business. For this a business should focus on its competitive edge

over competitors.

The Vision Statement of Pure Gas clearly states the market positioning strategy as

fully meeting the established standards, statutory regulations, customers agreed

requirement and timely supply to end users. The company’s focus on delivering

persistent value to customers will position it well in the industry.

Since there is an acute shortage of Oxygen in the market, corporate customers

have to bear with long waits before actual delivery and this has an adverse effect

on their business. Keeping this in mind, Pure Gas is going to work on positioning

its product by building a competitive edge over all others competing in the market

through timely delivering high quality oxygen to the selected customers.

Furthermore, when compared with other competitors competing in the market,

Pure Gas is going to follow the more for same strategy for positioning. The

services being provided are going to be of better quality as compared to

competitors for the same market price.

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4.4. Marketing Mix

The marketing mix is defined as a set of controllable tactical marketing tools –

Product, Price, Place and Promotion – that the firm blends to produce the

response it wants in the target market. The marketing mix consists of everything

that the business can do to influence the demand for its product. [9]

Following is a one by one discussion of the four P’s in relation to Pure Gas to get

a better understanding of the marketing mix that the business is going to offer.

4.4.1. Product

Pure Gas comes under the manufacturing sector. Its only product is going to be

Oxygen.

Air from the atmosphere is made up of a mixture of several gases. The main

components are nitrogen, oxygen and argon, with other gases present in smaller

quantities.

Source: ASU-01-01-PAP-BOC.pdf

Oxygen is one of the basic chemical elements and is about 21% of the

atmospheric air. It is a colorless, odorless, tasteless gas composed of the simple

diatomic molecule; O2. It is used in many industrial, commercial, medical, and

scientific applications and thus has a huge demand in any economy. It is also used

22


in blast furnaces to make steel, and is an important component in the production

of many synthetic chemicals, including ammonia, alcohols, and various plastics.

Oxygen and acetylene are combusted together to provide the very high

temperatures needed for welding and metal cutting. [10]

4.4.2. Price

Price is the only element in the marketing mix that produces revenue; all other

elements represent cost. Price is also one of the most flexible elements of the

marketing mix. Unlike other things, prices can be changed quickly. [11]

Oxygen production comes under the perfectly competitive market. There are no

barriers to entry into the market, all firms produce a homogenous product and

there are a large number of buyers and sellers in the market. As a result no single

seller or buyer can influence the price of the product. Moreover, there are no

government regulations for controlling the prices of oxygen cylinders.

The price of oxygen cylinders is thus set by the forces of demand and supply in

the market and each firm has to follow that price. However, currently there is a

big gap between the demand and supply of oxygen cylinders in the market, where

the demand exceeds the supply. As a result the buyers have bid up the price to get

hold of there required supply and today the price of an oxygen cylinder has gone

up by three folds. This shortage is expected to continue for another three to four

years.

As already mentioned above, Pure Gas is going to follow a “more for same”

pricing strategy. Since the business is facing a perfectly competitive market, it

makes no sense to price the product below the going price and earn lower profits.

Similarly, if we charge a higher price, buyers will not buy from us. Therefore the

only way to gain an increasing market share is to provide better services, create

customer value and build profitable customer relationships while following the

market prices.

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4.4.3. Promotion

Pure Gas is entering a market that has multinationals as competitors. However,

despite having huge competitors, the market it is entering into is facing a shortage

of supply and even the multinationals are not successful in catering the huge

demand of oxygen. As a result, buyers are more than willing to buy oxygen

cylinders from where ever they can get them from. This current shortage is

expected to last 2 years; by the time more people would have entered the market

to fill the gap. This scenario would lead Pure Gas to follow a short and a long

term promotion strategy.

Short term promotion strategy

In face of the current excess demand, Pure Gas does not have to spend a great

deal on promotion as buyer are more than willing to buy the product from where

ever they can get it from. There are dealers in the market who themselves bring

cylinders to factories to get them filled and then sell them to end consumers.

These dealers amount to about 70% of the sales per day.

However, to get dealers and other businesses aware of a new oxygen production

plant, some promotion is necessary. This can be done through direct selling and

sales representatives who would directly approach dealers to make them aware of

a new plant in the market.

Long Term Promotion Strategy

In the long run, when many businesses would have entered the market to fill the

gap, Pure Gas would have to promote its product relatively extensively. During

the time the gap is getting filled, the business should have trained and built a

strong, effective and skilled sales force. This sales force would again approach

business consumers directly, convince them of the product, get to know about

their concerns with the product and convey them to the business so that proper

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action can be taken. Direct marketing will help in ‘obtaining an immediate

response and cultivate lasting customer relationships’. [12]

Therefore, Pure Gas marketing communications mix will consist of a blend of

public relations and direct marketing in the long run.

4.4.4. Place

Industrial gases are only transported over distances that are economically viable.

Since these distances are limited by transport costs and the physical properties of

the gases, production facilities are located close to the markets they serve.

Pure Gas will be locates at Mistri Shah and Badami Bagh area. The reason for

choosing this location for the plant is that the Mistri Shah and Badami Bagh area

of Lahore has a lot of workshops for scrap cutting of metal. Oxygen is used to

provide the high temperature needed for welding and metal cutting and thus this

area has the biggest demand of oxygen than any other place in Lahore. Together

this area makes up about 65% of the total market demand per day. The demand is

approximated to be around 4000 cylinders per day. There are currently 5 plants in

the Mistri Shah area that produce around 2000 cylinders/day. The two giants of

the gases sector in Lahore, BOC Pakistan limited and Fine Gas are also unable to

bridge this gap.

Having a plant in this location would mean less transport costs and being close to

the market for quick response to market environment and to develop supplier-

customer relationships easily.

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PRODUCTION PLAN

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5. Production Plan

5.1. Raw Material

Following is the description of raw materials required for the production process.

Atmospheric Air

The raw material for air separation is air from the atmosphere, called feed air on

an air separation site. This means that there is a continuous, easy and free

availability of raw material in this business. This completely eliminates the hassle

of having to negotiate, maintain relationships and deal with suppliers for raw

materials. Almost every other business has to go through this hassle and is

exposed to a constant risk of reduced production because of either problems with

suppliers or late/short availability of raw materials.

Air from the atmosphere is made up of a mixture of several gases. The main

components are nitrogen, oxygen and argon, with other gases present in smaller

quantities. Water vapour is also present in feed air. The water content of air varies

considerably with local ambient conditions.

Following is the detail of the composition of atmospheric air.

27


Source: http://www.uigi.com/compair.html

Electricity

Electrical power is just as much a raw material as air for the manufacture of

industrial gas products as the cost of electricity is the largest single operating

cost incurred in air separation plants. Electric motors are used to drive most of

the compression equipment (and power process heaters, instrumentation systems

and cooling systems). Small gaseous product plants may also use hundreds of

kilowatts (kW) while large liquid plants may have power demands measured in

thousands and tens of thousands of kilowatts (megawatts or tens of megawatts -

MW). The cost of power is usually between one third and two thirds of the

operating costs incurred when producing gas and liquid products. [13]

Gas

Ratio compared to Dry Air (%)Molecular Mass

- M -(kg/kmol)

Chemical SymbolBoiling Point

(oC)

By volume By weight

Oxygen 20.95 23.20 32.00 O2 -196

Nitrogen 78.09 75.47 28.02 N2 -183

Carbon Dioxide 0.03 0.046 44.01 CO2 -78.5

Hydrogen 0.00005 ~ 0 2.02 H2 -252.87

Argon 0.933 1.28 39.94 Ar -186

Neon 0.0018 0.0012 20.18 Ne -246

Helium 0.0005 0.00007 4.00 He -269

Krypton 0.0001 0.0003 83.8 Kr -153.4

Xenon 9 10-6 0.00004 131.29 Xe -108.1

28

http://www.uigi.com/compair.html


5.2. Manufacturing Process

The diagram below provides a very simplified overview of the air separation

process. However, each air separation plant has a different, much more complex

version of this process. The function of each piece of equipment is then described.

The warm equipment includes all of the equipment that operates at ambient

temperature or above. The cold equipment is housed inside the cold box.

Source: ASU-01-01-PAP-BOC.pdf

29


5.3. Project Capacity

Hours utilized one day 24

Production Capacity in cubic meters per hour 165

Production Capacity in Cylinders per day 550

Working Days per month 25

The plant is going to be utilized 24 hours per day since the cost incurred for

restarting the plant is huge. The plants capacity is going to be 165 cubic meters of

oxygen per hour. This means that in one day about 550 cylinders of 6.8 cubic

meters will be produced and dispatched to customers. Since the plant is totally

automated it requires technical expertise and plant operator on a continuing basis,

the plant will run only 25 days in a month with 5 days reserved for maintenance

and observation.

5.4. Machinery Requirement

Machine Description Make Quantity Cost (Rs)

165 m3/hr Plant China 1 Complete set 12,000,000

The Plant contains the following equipments:

Complete Oxygen Production facility

High Pressure filling manifold of Oxygen

Cooling tower

Cooling unit

Compressor

Gas compressor

Column

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5.5. Cost of Good Sold

Following is the break up of my cost of good sold for the first three years of the

business operations.

COST TYPE Year 1 Year 2 Year 3

Direct Material

Raw Material

20

0,000

20

0,000

Maintenance Cost

20

0,000

20

0,000

Electricity

4,75

2,000

9,50

4,000

9,97

9,200

Total Variable

Cost

4,75

2,000

9,90

4,000

10,37

9,200

Employee Cost

1,38

0,000

2,006,

400.0

2,207,

040.0

Depreciation

1,39

2,167

2,01

7,667

2,01

7,667

Other Expenses

Insurance

11

0,000

11

0,000

11

0,000

Others

54

0,000

594,

000.0

653,

400.0

Total Fixed Cost

3,42

2,167

4,72

8,067

4,98

8,107

TOTAL COST OF

GOODS SOLD

(VAR + FIX)

16,34

8,333

29,26

4,133

30,73

4,613

31


ORGANIZATIONAL PLAN

32


6. Organizational Plan

6.1. Type 0f Organization

The organization is going to be a sole proprietorship where the CEO will head all

activities of the organization and will have the final decision making power in his

hands. Under him will be the plant manager, sales manager, administration

manager and the finance manager who will carry out the responsibilities delegated

to them by the CEO.

6.2. Organizational Chart

Following is the organizational chart of Pure Gas.

33


34


6.3. Roles & Responsibilities

Following are the roles and responsibilities of different employees who would be

hired by the business.

6.3.1. Plant Manager

Qualification : BE Mechanical / ElectricalAge (Max) : 35Experience (Min) : 5

Direct and coordinate plant operations within company policies and procedures.

Maintain a clean and safe plant.

Establish and direct plant policies and procedures.

Responsible for plant production goals.

Confer with department heads to ensure coordination of purchasing, production,

and shipping.

Responsible for establishing all shift production schedules.

Conduct employee performance reviews.

Schedule and conduct plant meetings.

Responsible for the product quality control for the plant.

Monitor and keep check on the maintenance activities

Play a visible leader ship in all aspects.

A site safety coordinator of Plant.

35


6.3.2. Finance Manager

Qualification : ACCA / MComAge (Max) : 35Experience (Min) : 5

To manage the payments, income, debt recovery and expenses functions

(including contracts with suppliers), and deliver service improvements in line

with agreed targets.

To manage all aspects of the Authority’s treasury management function including

the development of a treasury management strategy, the development and

implementation of systems and procedures, and the assessment and monitoring of

investment counterparties and deposit-taking institutions.

To manage the cash flow of the Authority, monitor performance against agreed

targets, and liaise with the functional bodies, London boroughs and London

Travel Watch over the timing of receipts and funding arrangements.

To assist and support the budget development and budget monitoring processes.

To manage the Authority’s banking arrangements and reconcile all accounts.

To produce reports, analyses and briefings for senior managers of the Authority

on a wide range of financial issues.

To contribute to the management of Financial Services as a member of its

management team.

To support the Authority’s efficiency review programmed.

To resolve issues as they arise and to support service improvements in the areas

covered by the post.

To ensure financial regulations and other related governance controls are

reviewed and updated.

36


6.3.3. Administrative Manager

To deal with general and customer enquiries via phone and email

To be responsible for the day to day running of the office including supply

management.

Provide project support and ensure processes are followed

Carry out general administrative and office managerial tasks including filing,

telephone answering, data entry, record keeping, printing, binding etc.

To be responsible for organizing events e.g. tradeshows and seminars

Conduct web-based research projects as required

Responsible for the over all gate activities

Responsible for the house keeping of the site

Play the role of procurement department.

6.3.4. Sales Manager

Qualification : MBAAge (Max) : 35Experience (Min) : 5

Monitor the work and effort put in by the sales representatives

Be able to analyse the current market situation

Should be capable to understand customer needs and takes proper actions to meet

them.

Good communication and presentation skills.

Ability to work under pressure.

Conduct frequent consumer surveys to have a better understanding of the market

and take appropriate actions

Maintain good relations with team and customers.

Qualification : MBAAge (Max) : 35Experience (Min) : 5

37


6.3.5. Shift Engineer

Qualification : Diploma Mechanical / ElectricalAge (Max) : 30Experience (Min) : 2

Monitor the plant and maintenance activities

Take corrective action if plant enters into a abnormal mode

Maintain a safe operation all the time

Must have the skills to operate a plant on the optimizing level

Strong safety consciousness

Ability to take informed and timely decisions

Excellent communication skills

Team working

Leadership skills

Ability to work well under pressure.

6.3.6. Maintenance Supervisor

Qualification : B. Tech / Diploma Mechanical / ElectricalAge (Max) : 30Experience (Min) : 2

Supervises maintenance staff by determining workloads and schedules; develops,

interprets and implements policies and procedures; evaluates staff and makes

hiring and termination recommendations; and ensures that staff are trained in

complex maintenance activities and are following standard operating procedures.

Provides input into the development of the operating budget for the assigned area

of responsibility; orders materials and supplies; assists in the monitoring and

tracking of expenditures for the section.

Coordinates section activities with other sections, programs and departments,

including scheduling and resolving problems; coordinates and inspects work

performed by contractors.

38


Responds to emergencies as requested; coordinates activities with other

responders; directs the work of staff and utilization of resources to effect repair

and ensure the safety of the community.

May perform a variety of field maintenance tasks, depending upon experience and

level of certification.

Prepares records related to the work performed and materials and supplies used;

enters invoices in the computerized purchasing system.

6.3.7. Cylinder Tester/ Inspector

Qualification : B. Tech / Diploma MechanicalAge (Max) : 30Experience (Min) : 2

Hydrostatic tester Inspects gas cylinders to detect surface defects and tests

elasticity of cylinder walls

Removes valve from cylinder, using wrench or valve-removal machine Inspects

exterior and interior of cylinder to detect dirt, rust scale, dents, and arc burns.

Fills cylinder with water, seals cylinder and immerses cylinder in water-filled

jacket, using chain hoist.

Screws fittings and turns valve or starts pump to create pressure that expands

cylinder wall.

Stamps test data and company symbol on cylinder.

Records test results, cylinder serial number, and test date.

39


6.3.8. Plant Operators

Qualification : MatriculationAge (Max) : 25Experience (Min) : 1

Controls equipment to regulate flow and pressure of gas.

Observes, records, and reports flow and pressure gauge readings on gas mains and

fuel feed lines.

Determines causes of abnormal pressure variances and makes corrective

recommendations, such as installation of pipe to relieve overloading.

Adjusts Plant to maintain specified gas pressure and volume.

6.3.9. Gate Keeper

Qualification : MatriculationAge (Max) : 30Experience (Min) : 2

Keep the areas clean and tidy.

Responsible for checking & entry/exit of staff (Date & Time).

Make data base of IN/OUT of Vehicles.

Make a Gate Pass of all the IN material as per bill.

Maintain a safe environment on the company gate.

6.3.10. Sales Representatives

Qualification : GraduationAge (Max) : 30Experience (Min) : 1

Arranging appointments with customers

Building and maintaining positive working relationships with customers and

supporting administration staff.

40

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Keeping detailed records of all contacts, which may involve database

management.

Planning work, schedules and weekly and monthly timetables. This may involve

working with the area sales team or discussing future targets with the area sales

manager.

Regularly attending company meetings, technical data presentations and

briefings;

Monitoring competitor activity and competitors' products;

Developing strategies for increasing opportunities to meet and talk to contacts in

the industrial sector.

6.3.11. Sweeper

Age (Max) : 30Experience (Min) : 1

To work according to cleansing rosters as specified by management.

To start and finish at the appropriate Depot daily, in all weather conditions, and

the cleansing of all waste matter from private and commercial premises,

passageways, entries

To ensure that trolley carts, brushes etc. are in good condition at all times.

To ensure that all work is carried out to the required service standards.

To undertake such other relevant duties as may from time to time be required.

6.3.12. Finance Clerks


Use the telephone in a professional and courteous manner

Maintain accounts on daily basis as per accounting & finance standards

Data entry of vouchers

Comply with the local legislation accounting principles.

41


Comply with the Tax structure of the country.

6.3.13. Secretary


Maintains calendar, schedules appointments and meeting rooms.

Makes travel and accommodation arrangements.

Uses personal computer to prepare manuscripts, grant proposals, statistical

reports, tables, and charts using knowledge of scientific, medical, literary, or other

technical terms.

Maintains and balances petty cash fund.

Locates and compiles information and formats reports, graphs, tables, records and

other sources of information.

Uses various software applications, such as spreadsheets, relational databases,

statistical packages, and graphics packages to assemble, manipulate and/or format

data and/or reports.

Types routine correspondence and reports from dictation or handwritten copy

using personal computer.

Picks up and delivers materials as required.

Answers telephone, screens callers, relays messages, and greets visitors.

Operates office equipment such as photocopier, fax machine, and calculator;

coordinates the servicing of equipment.

Operates personal computer to access e-mail, electronic calendars, and other basic

office support software.

42


FINANCIAL PLAN

43


7. Financial Plan

7.1. Land Requirement

Items Total Area Cost Per Kanal

(Rs)

Total Land Cost

(Rs)

Land Cost 5 Kanals 5,000,000 25,000,000

The project requires a land of 5 kanals. The recommended area is not only

sufficient for the smooth operations of the plant but is also enough for putting up

additional plants in future for increased capacity. This land will be able to provide

sufficient space for building, storage area, parking, management offices, loading

and unloading area.

I inherited this land and intend to use it for this project.

7.2. Office Equipment and Vehicle Requirements

Following is the office equipment and vehicle required for the startup of the business.

Office Equipment & Miscellaneous Expenses:

Items Cost (Rs)Computer system

2,000,000Fax machineTelephone exchangeFurnitureInterior & Glass work

Vehicle

Items Cost (Rs)Cars Suzuki Cultus (2 No.s) 1,200,000Motor Cycle 55,000Total 1,255,000

44


7.3. Human Resource Requirement

A total 26 persons will be required to handle the business operations of an oxygen

production plant.

Total approximate manpower required for the business operations along with their

respective salaries are given in the table below

Production Staff

Description

No. of

Employees

Salary /

Month (Rs)

Salary /

Annum (Rs)

Plant Manager 1 40,000 480,000

Shift Engineers 4 15,000 x 4 720,000

Maintenance Supervisor 1 15,000 180,000

Cylinder Tester 1 5,000 60,000

Plant Operator 4 6,000 x 4 288,000

Helper 2 4,000 x 2 96,000

Total Direct Labor 13 1,824,000

45


Administrative Staff

Description No. of

Employees

Salary /

Month (Rs)

Salary /

Annum (Rs)

Admin Manager 1 25,000 300,000

Gate Keeper 3 4,500 x 3 162,000

Sweeper 1 3,000 36,000

Gardener 1 3,000 36,000

Sales Representative 1 8,000 480,000

Secretary to Director 1 5,000 60,000

Secretary to Plant Manager 1 5,000 60,000

Total Administrative

Salaries

9 1,114,000

Finance Department

Description No. of

Employees

Salary /

Month (Rs)

Salary /

Annum (Rs)

Finance Manager 1 25,000 300,000

Clerks 2 8,000 x 2 192,000

Coordinator 1 5,000 60,000

Total Finance Dept Salaries 4 552,000

46


7.4. Startup Cost

The startup cost of my business comes out to be Rs. 46,255,000. Following is a

detailed breakup of the cost.

Requirements Rupees

Land 25,000,000

Building 6,000,000

Plant 12,000,000

Office Equipment & Misc Expenses 2,000,000

Vehicle Requirement 1,255,000

Total 46,255,000

7.5. Cost of Capital

Pure Gas will be acquiring a debt of Rs. 5,000,000 from Bank Alfalah which will

be paid back in 5 years.

Debt Rs. 5,000,000

Cost of Debt 14%

Debt to Equity Ratio 10.8%

7.6. Key Assumptions

Following are the key assumptions taken for the preparation of the financials.

1. Working/Operating Days

25 Days a month

2. Working Months in a year

12 Months

47


3. Days operational in a Year

312 Days

4. Hours per shift

8 hours

5. Shifts Operational

3

6. Maximum Capacity utilization

100%

7. Utilities

Cost of Electricity increase 5 % per Annum

8. Salaries

Employees salaries increase by 10 % per Annum

9. Sales Strategy

In the first year only customer owned cylinders will be filled.

Later, Company will purchase its own cylinders and will sell via

distributors and self marketing.

10. Depreciation

Straight line method is used.

Vehicles have a life of 10 years.

Furniture and office equipment has a life of 5 years.

Building has a life of 15 years.

Plant and equipment has a life of 15 years.

11. Marketing expense

Marketing expense is zero in the first year since there is no need for

marketing due to the sever shortage in the market.

48


12. Sales The demand for oxygen is so high that all the production will be

considered as Sales.

7.7. Costs

COST TYPE Year 1 (Rs) Year 2 (Rs) Year 3 (Rs)Direct Material

Raw Material 200,000 200,000Maintenance Cost 200,000 200,000

Electricity 9,504,000 9,504,000 9,979,200

TOTAL VARIABLE COST 9,504,000 9,904,000 10,379,200

Employee Cost 1,824,000 2,006,400.0 2,207,040.0Depreciation 1,392,167 2,017,667 2,017,667

Other ExpensesInsurance 110,000 110,000 110,000

Others 540,000 594,000.0 653,400.0TOTAL FIXED COST 3,866,167 4,728,067 4,988,107TOTAL COST (VAR +

FIX) 26,740,333 29,264,133 30,734,613

Cost / Cylinder 297 163 171

49


7.8. Income Statements

7.8.1. Year 1

Month 1 (Rs)

Month 2 (Rs)

Month 3 (Rs)

Month 4 (Rs)

Month 5 (Rs)

Month 6 (Rs)

Month 7 (Rs)

Month 8 (Rs)

Month 9 (Rs)

Month 10 (Rs)

Month 11 (Rs)

Month 12 (Rs) Year (Rs)

Sales 6,000,000

6,000,000

6,000,000

7,500,000

7,500,000

7,500,000

7,500,000

7,500,000

7,500,000

7,500,000

7,500,000

7,500,000

85,500,000

Cost of Sales (Rs.) 1,782,689

1,782,689

1,782,689

2,228,361

2,228,361

2,228,361

2,228,361

2,228,361

2,228,361

2,228,361

2,228,361

2,228,361

25,403,317

Gross Profit (Rs.) 4,217,311

4,217,311

4,217,311

5,271,639

5,271,639

5,271,639

5,271,639

5,271,639

5,271,639

5,271,639

5,271,639

5,271,639

60,096,683

Gross Profit margin 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29% 70.29%

Operating Expenses Administrative Expenses

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

1,606,000

Marketing & Selling Exp

Total 133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

133,833

1,606,000

Operating Income 4,083,478

4,083,478

4,083,478

5,137,806

5,137,806

5,137,806

5,137,806

5,137,806

5,137,806

5,137,806

5,137,806

5,137,806

58,490,683

Finance Cost 46,000

46,000

46,000

46,000

46,000

46,000

46,000

46,000

46,000

46,000

46,000

46,000

552,000

PROFIT BEFORE TAX

4,037,478

4,037,478

4,037,478

5,091,806

5,091,806

5,091,806

5,091,806

5,091,806

5,091,806

5,091,806

5,091,806

5,091,806

57,938,683

Tax @35 % 1,413,117

1,413,117

1,413,117

1,782,132

1,782,132

1,782,132

1,782,132

1,782,132

1,782,132

1,782,132

1,782,132

1,782,132

20,278,539

PROFIT AFTER TAX

2,624,361

2,624,361

2,624,361

3,309,674

3,309,674

3,309,674

3,309,674

3,309,674

3,309,674

3,309,674

3,309,674

3,309,674

37,660,144

Net Profit Margin 43.74% 43.74% 43.74% 44.13% 44.13% 44.13% 44.13% 44.13% 44.13% 44.13% 44.13% 44.13% 44.05%

50


7.8.2. Year 2

Quarter 1 (Rs)Quarter 2

(Rs)Quarter 3

(Rs)Quarter 4

(Rs)Year 2

(Rs)Sales 10,800,000 10,800,000 10,800,000 10,800,000 43,200,000 Cost of Sales (Rs.) 7,316,033 7,316,033 7,316,033 7,316,033 29,264,133 Gross Profit (Rs.) 3,483,967 3,483,967 3,483,967 3,483,967 13,935,867 Gross Profit margin 32.26% 32.26% 32.26% 32.26% 32.26%

Operating Expenses Administrative Expenses 444,950 444,950 444,950 444,950 1,779,800 Marketing & Selling Expense 445,000 445,000 445,000 445,000 1,780,000 Total 889,950 889,950 889,950 889,950 3,559,800 Operating Income 2,594,017 2,594,017 2,594,017 2,594,017 10,376,067 Finance Cost 184,000 184,000 184,000 184,000 736,000 PROFIT BEFORE TAX 2,410,017 2,410,017 2,410,017 2,410,017 9,640,067 Tax @ 35 % 843,506 843,506 843,506 843,506 3,374,023 PROFIT AFTER TAX 1,566,511 1,566,511 1,566,511 1,566,511 6,266,043 Net Profit Margin 14.50% 14.50% 14.50% 14.50% 14.50%

51


7.8.3. Year 3

` Year 3 (Rs)

Sales 45,000,000

Cost of Sales 20,355,413

Gross Profit 24,644,587

Operating Exp

Administrative Expenses 1,957,780

Marketing & Selling Expense 1,958,000

Total 3915780

Interest Expense @ 15% 1,427,400

PROFIT BEFORE TAX 19,301,407

Tax @ 35 % 6,755,492

PROFIT AFTER TAX 12,545,914

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8. Conclusion

Despite the diverse uses and the enormous demand of oxygen, Pakistan only has a

few oxygen producing plants which has lead to a severe shortage of oxygen in the

market. Due to the shortage, prices of oxygen cylinder have gone up by almost three

folds. This shortage clearly indicates that there is a potential for new entrepreneurs

to enter this market and take advantage of the current market situation.

Furthermore, the growth of the economy also indicates growth for this business.

8.1. Future Prospects

The company has a very bright future due to the current market shortage and the

tremendous increase in the steel sector of Pakistan. Oxygen is one of the major

raw-material needed for the production of steel. About 1 tone of oxygen is

required to manufacture 1 tone of steel.

Pakistan's economy has shown robust growth of 8.4% in 2005 compared to 6.4%

during the last year. This high growth of GDP has triggered staggering growth in

various sectors of the economy particularly bringing a surge in steel demand. The

per capita consumption of steel surpassed the level of 30 Kg per annum, thus

creating a large gap between demand and supply. [14]

Keeping this in mind, Pure Gas is going to have a long term plan of expanding its

production to meet market increasing demand and reap profits. Also, it will work

towards diversifying its product from oxygen alone to other special industrial

gasses.

Exit strategy

Although the odds of the company not being successful are very low, but its

always a good idea to have an exit strategy in mind. If, however, a mishap does

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http://www.engineeringpakistan.com/Steel/workshop/demandsupply.gif

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http://www.engineeringpakistan.com/Steel/workshop/demandsupply.htm

http://www.engineeringpakistan.com/Steel/workshop/majoreconomicindicators.htm


happen, I plan to make my company public by listing it on the stock exchange to

raise finances and expand operations.

9. References

[1]. Smeda Pre-feasibility report oxygen gas producing plant, pg 5

[2]. Economic Survey of Pakistan Manufacturing

[3]. Economic Survey of Pakistan Manufacturing

[4]. Philip Kotler; Principles of Marketing, Eleventh Edition, pg 65



[7]. Universal Industrial Gasses, http://www.uigi.com/noncryo.html



[10]. http://www.ch.ic.ac.uk/rzepa/mim/environmental/html/oxygen_text.htm



[13]. Universal Industrial Gasses, http://www.uigi.com/compair.html

[14]. http://www.engineeringpakistan.com/Steel/

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http://www.uigi.com/compair.html

http://www.ch.ic.ac.uk/rzepa/mim/environmental/html/oxygen_text.htm

http://www.uigi.com/noncryo.html

Marketing Plan of Pure Gas

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