Masikhule Steel Works

We finished our final report for our client today highlighting our deliverables over the past 6 weeks as well as recommendations to achieve future growth targets and better management practices for the business life span.  Last Thursday, 27 July, we visited three schools in Khayelitsha with our client and two sales were made.  We sensed the excitement from our client as he told us how motivated he has become seeing that he could go out and make two sales in one morning. It may have helped having Rebecca and myself by our client’s side but we tried to interject as little as possible during the discussions we had with the school principals. Now, these are three new contacts for our client that he can keep in touch with for future reference and follow up.

Masikhule Steel Works

We met with the owner of Masikhule today and he was receptive to the logo we presented him that will be stenciled and painted on his finished products with customer approval.

The owner is meeting with the man who is preparing his business plan for him tomorrow, Tuesday,  and we are meeting with him on Thursday to visit some schools in Mfuleni and Khayelitsha where he feels there are potential jobs. When a customer came today that needed to have his muffler repaired, the owner fixed the muffler for R 25 but did not record anything in the books. We have to still work on getting the idea into the owner’s head that every transaction should be recorded to see what the real earnings of the business are.

Branding Masikhule

One of our partners in the program came up with a cost effective and creative idea for putting a logo on our client’s products. We’ve been thinking of a way to use some of the scrap metal that the client has lying around and using it as a welding piece to place on the door or window frames and bars that he makes. Initially, I had the idea of finding someone to supply outdoor stickers with a graphic design for a backdrop with ‘Masikhule Steelworks’ and the phone number on the label.

The problem with this route is the cost and the reliance on a supplier that we never located in the first place. SO the new idea is this. We still recommend using scrap metal for a diamond, oval or square shaped weld but now, instead of a sticker, we will make a stencil out of some durable plastic and spraypaint onto the welded scrap the business name and number. A silver galvanized security door with a blue welded piece placed directly at eye level for the future customer to become acquainted with ‘Masikhule Steelworks’.

Masikhule Steel Works

Today we visited Lolo’s supplier in Mitchell’s Plain. The name of the company is Steel World and Lolo buys most of his materials there including tubing, screws, hinges, primer, paint, cutting blades and welding rods. This is the type of company Lolo would like to see himself in someday. How effectively he would position himself within this industry is questionable given the capacity of his current operations.

Lolo has been very receptive to our pricing recommendations of 15% above total costs. We still have to do a break-even analysis to find out how much Lolo needs to earn in any given month to cover all monthly costs of operation. We have also discussed possible marketing/advertising strategies which we will carry out in our next session, beginning with walking around Mfuleni distributing pamphlets that Lolo has made copies of at the local primary school.

Masikhule Steelworks: Meeting II

Book keeping 

Today, we began implementing our first deliverable; book keeping.  Masikhule has a receipts books for cash received from customers but nothing in terms of receipts from its supplier indicating material costs or transport costs.  Nkoso could remember prices of material off of the top of his head and we practiced simple accounting to calculate profits from order to order. His assignment for Thursday is to calculate all expenditures, revenues and profits for the months of April, May and June.

Pricing 

We will work together to develop a systmatic book keeping method so monthly profits can easily be figured and operations and marketing strategies can be based off.  We also need to develop a systematic pricing system and come up with a viable percentage above cost for Masikhule security doors, windows and gates.  One factor that needs to be taken into account when pricing however, is the fact that Masikhule’s customer base is very price sensitive.  We will see on Thursday, after Nkoso has calculated his profits for the last three months, the variance in profits from order to order.

Inventory 

An inventory analysis is also needed to determine Masikhule’s stock value and fixed assets/costs incurred previously.   

Masikhule Steelworks

Nkosoxolo Makhasini is the owner of Masikhule Steelworks, situated in Mfoleni township. After going to welding school in 2001, Nkosoxolo started his business and has been welding security bars for township residents since then.

Staff and accounts 

Currently, there are three employees that have been trained by the owner and work on a order to order basis.The employees are paid 60 Rand per day. On average, Nkoso said he makes about 1000 Rand per month. We still have to look at his book keeping to see if we can get more detailed accounts and see which months are busier than others.

Customers 

All of Nkoso’s customers are people from township areas and many purchase security bars on a credit basis. Customers must pay 50% up front in order for Nkoso to procure steel tubing from a nearby supplier, Steelweld. Nkoso does experience late payements from some of his customers who are unable or unwilling to pay remaining costs. We need to inquire as to whether there are any late fees charged and whether or not it would be a viable strategy for recovering costs quicker.

There are three elements of Masikhule Steelworks that need to be analysed and worked out at this stage. First, Nkoso has expressed a need for a better marketing strategy. Second, there has been limited and disorganized book keeping to date. And third, Nkoso has expressed his desire to expand the business into becoming a supplier in a bigger township, Khayelitsha, supplying tubing to local welders as well as continuing with his own welding for residential households and potentially, subsidized government housing that is being constructed in Khayelitsha.

When asked what it is about the business that Nkoso most enjoys, he will tell you it is the production of security bars and practicing his trade of welding.  This leaves us with the question of whether or not taking on a supplier position in a bigger township is viable at this point. Nkoso is in the midst of applying for a 206,000 Rand loan from the Umsobomvu Youth Fund, a government subsidized business support and micofinance provider. This figure is the amount quoted from MacSteel, a steel supplier closer to Capet Town (if not in Cape Town) that will supply in bulk to different welding outlets.

Expansion 

Nkoso wants to move to Khayelitsha (he now pays no rent in Mfoleni and works out of his cousin’s house), where he would rent a building space for roughly 700 Rand per month, subcontract transportation of steel to customers as well as delivery from MacSteel.While there will be many hidden costs (eg.electricity)we have not discovered in this type of venture, this is where (expansion) Nkoso is spending a larger share of is time and energy at the moment. It cost Nkoso 200 Rand for the business support he is receiving from Umsobomvu.

Marketing

In terms of marketing, Nkoso is currently buying advertisment space for 26 Rand per week in a weekly local newspaper. He also walks from door-to-door attempting to sell security bars to residents that have not secured their households with bars. One potential marketing strategy that is not being implemented to date is advertising by placing stickers or small welded plates on finished products from Masikhule Steelworks.

Book keeping

For Monday, 3 July, our first deliverable for Masikhule Steelworks will be to implement a standarized and simple book keeping method that will help to organize and analyze revenues and operating costs and therefore profit margins on past sales and where future profits will accrue from.

here is a short list of costs that we found after meeting 1.

Costs

60 R/day x 3 workers = 180/day (when there is an order to be filled)

Electricity ??

Materials for: door??? window??? gate??? (depending on size)

Installation: (drill, screws, paint, etc.)

Transportation: (currently uses taxis and buggies for transport)

Communication: (client has mobile phone he uses to contact customers)