How Much Capital is Required?

Starting a new disposable diaper factory right from scratch is a major decision for anyone, particularly when there is little knowledge about this industry.   There are a lot of wrong notions regarding capital requirements.  Many people believe it is a simple process where you just push a button and make lots of money; others believe you can buy a machine for about the cost of a car and hope to be very rich in a year or two.   The reality is that a modest used diaper line (10 to 20 years old) costs a few hundred thousand dollars ($300,000 to $700,000).   A brand new baby diaper machine, complete with peripheral equipment and most basic features, can cost anywhere between $750,000 and 3.5 million dollars, depending on the design of the diapers proposed to be produced and the speed of the machine.  There are new diaper machines “Made in Asia” that are cheaper than even used machines. However, you should be aware that  a cheaper machine generally means cheaper components and less reliable working and product quality.  If they keep their current trends, China will perhaps be an important supplier of diaper machines in a few more years.    Amazing this may sound but it is a fact that you can buy a new disposable diaper machine for as little as $20,000. But you need to be aware of their limitations.   I call this kind of machines “Home Garage” equipment, because they can fit in your own garage and do cost the same as a typical family car.    Considering the enormous price range, how do you decide then which machine should you buy?  Let me explain in greater detail.

      The very small “Home Garage” machines are designed to compete in very under-developed areas, where disposable incomes are extremely low.   They use  more labor to make the products with the help of very simple technology.  Due to their limited capacity and lower efficiency, the variable cost of  production is very high.  They can survive only in a very low labor cost environment, where labor cost compensates for the higher variable costs.   Another important restraint for these machines is access to raw materials.  Most suppliers will not even answer your E-mails if you are not ready to buy at least one full container per month of each individual raw material required.  If you use one of these little machines, that would be enough material for a year’s production.  Of course there are a few suppliers interested in these small volume clients also, but price charged for small quantities of materials are often 20 to 35% higher than normal prices.   Because of these limitations, “Home Garage” machines are intended for areas where the big companies have not penetrated the markets and the overall market penetration is also low.  They (the Home Garage machines) are suitable for countries with strongly protected commercial boundaries or for countries that do not have efficient tax collection systems in place.   As soon as the market opens up or tax collection becomes efficient, these machines shut down.  I have seen this phenomenon in many areas of the world.     Is it a mistake to buy such equipment?  That depends on your own expectations. For example, how long will it be before the large diaper companies get into your market, or how large is market penetration in your area?  Surely there is still a market for them.  The best known “Home Garage” machines are made in Brazil and South Africa.

     OK, you may not want a “Home Garage” machine, then what should you buy? A new or a used diaper line?  Of course spending $500,000 instead of a million or more is a very tempting proposition but  the answer has to do with your intended product design and your market volume expectations.  A common misconception is that a diaper machine has to be very fast in order to be competitive.  The reality is that speed is important only when labor cost is very high.  Many times the variable cost is more important than the labor cost, specially in under-developed countries.  What you need to be sure about is that  your variable cost will be competitive in your target market.   A very big high speed machine comes with several important limitations, such as longer and expensive machine down times required to make changes in diaper sizes.   Another issue is the requirement of technical know-how and engineering infrastructure to master the large high speed machines (digital electronics instead of mechanical controls).   In such environments it is better to have two smaller size machines rather than a very big one.   Many times a used diaper machine can make products that are as good as products made with new machines, specially when the (used) machine has been upgraded with latest features.  To take a look at some used disposable diaper machines, please visit this link: Used Machines.   To look at brand new diaper machines, use these links: America. Europe, Asia.  You can take a look at many photos of diaper machines using this link: Machine photos. The final decision has to be based on expected profits and training support.  All issues need to be considered.  Be careful when you buy a used machine.  Some times, specially when the machine was not un-assembled properly or when you are not provided with good basic training, it could be a big headache.  Never buy a used machine without proper training unless you already have similar equipment!

       In addition to the capital required to buy the diaper machines, another very important issue is the working capital.  If you are new to the diaper industry, it is unlikely that you will get any credit from the raw material suppliers, specially at the very start of your operations.  Capital required to have just 15 days’ inventory of raw materials and 15 days’ inventory of finished products could be around one half of the capital invested in the whole diaper machine.   You will also need to rent or buy a building.  Please read my section: Building requirements.    Take your time and plan well; you do not want to start your diaper factory being dry of money ( I know of people who had this problem and believe me it is a major issue).

      Please be aware that a diaper factory is much more than just buying a diaper machine, a building, and a few raw materials.  You will have to set up diaper specifications and an internal laboratory, select the right people, give the right training to your technical staff. You want to be aware of the building and layout requirements, the peripheral equipments, the required logistics, etc.

      I have a profound disrespect for used baby diaper machine brokers who will try to sell you used diaper machines without informing you about the basic requirements of starting a diaper factory.  You worked hard to build a capital base; you should invest wisely. Please be careful!

      For a nice video of an actual diaper machine in operation, please use this link (courtesy of Abena in Denmark): The same site also has a video of the finished product and typical everyday warehousing operations of a large diaper factory

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