INTRODUCTION market and the declining strength of the Malaysian

INTRODUCTION

It was 6 p.m. on a Wednesday in 12 July 2017
when Mr. Ch’ng Poh Tee (to be subsequently known as Mr. Poh), the Manager director of Miaow Miaow Food Products Sdn Bhd (subsequently known as MM) finished the
cycle meeting with MM top management. He was driving home while thinking about
the challenges MM management would face upon completion of the new factory
plant in Batu Pahat by the end of 2017 and starting operation to meet the
growing export demand, specially after venturing into the Middle East and
Chinese markets. The new factory will be able to push up the pellet output from
the current 9 tons per day to 25 tons per day. Unfortunately, MM was facing
operational management problems with the current output, and Mr. Poh was
feeling stressed that the situation would get worse when the output was to
increase by more than 2.5x by the start of 2018.

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A report from Research and Markets says the global market for snack
food is expected to reach US$620 bil (RM2.65 tril) by 2021, growing at a CAGR
of 5.8%. This trend along with the saturation of the Malaysian market and the
declining strength of the Malaysian Ringgit pushed MM to explore the global
market several years ago. MM was successful to develop into new markets,
specially in the middle east and the ASEAN region. In 2016, MM snacks were
enjoyed in more than 40 countries worldwide, especially in Saudi Arabia and
China. In fact, MM attributes these exports to 66% of the revenue it makes.
MM’s flavor design and flexibility were of its main competitive advantages.
MM’s cuttlefish flavored snack is widely popular in China, while the green pea
flavor is a hit in Malaysia. The HALAL certification was a strong asset for the
penetration to the Middle East market.

However, over the past 6 months, MM had been facing difficulties in
fulfilling all the shipment. This has drawn the attention of the top management
that the late shipment and un-fulfillment of sales order would cause the
company to lose its distributors’ confidence and eventually lose its market share
if the problem wasn’t properly identified and resolved. Within 6 months, the
construction of the new factory would be completed and would need lots of new
skilled labor and a set of experienced management team. Mr. Poh was assigned to
come with a successful strategy to achieve full control on the operations, not
only of the current factory, but also of the new factory in 2018. While Mr. Poh
was sitting with the HR manager, planning for restructuring the management tree
and identifying the new positions he will need to recruit for the new factory,
he was thinking about how the operating system of MM was still semi-automated
and outdated while the F industry was moving towards the era of the
fourth industrial revolution. He thought that this approach, not only would
solve MM’s problem, but even could create a competitive advantage for MM in the
global market. He had only 6 months to come up with a solution.

 

About the
Snacks Food Industry

The snacks industry Globally and in the ASEAN region:

According to Focus Malaysia 2017, A report from Research and
Markets says the global market for snack food is expected to reach US$620 bil
(RM2.65 tril) by 2021, growing at a CAGR of 5.8% (1).  According to Nielsen Global Snacking Report September
2014, consumers spent $374 billion on snack foods annually between 2013
and 2014, a year-over-year increase of 2%, according to a new global report
released today by Nielsen. While Europe ($167 billion) and North America ($124
billion) make up the majority of worldwide snack sales, annual snack sales are
growing faster in the largely developing regions. Asia-Pacific ($46 billion)
and Latin America ($30 billion) increased 4% and 9%, respectively, while sales
in the Middle East/Africa ($7 billion) grew 5% (2).

 

According to MarketsandMarkets Analysis 2014, the extruded snacks
market is projected to reach $31 billion by 2019. In 2013, the Asia-Pacific
market dominated the global industry on the basis of consumption, followed by
North America (3).

ASEAN region is an attractive market for snack producers due to its
young and growing population base, strong economic prospects and
under-development potentials. Within the ten ASEAN countries, Malaysia,
Thailand, Indonesia, Philippines and Vietnam (here under referred to as
“TIPMV”) are the most populous, accounting for more than 85% of the population
of the region. These five countries represent a $3.5B snack market growing at
11% a year in 2013 (2).

The following figure from Euromonitor 2013 showed that the Malaysian market is
maturing while other markets in the ASEAN region have higher potential for
growth:

 

China’s Increasing Appetite for Imported Food and Beverage

China was always seen as the biggest
future growing market, seeing their increased of consumption per capita by 6.1%
in 2016(5) and its huge population representing 18.8% of the world
population (6). Not surprisingly, this rapid development has helped
fuel the demand for imported F, with China becoming the largest importer
of F in the world as of 2012. The Chinese National Bureau of Statistics
reported that the average annual growth rate of F imports was around 15%
during the last five years, reaching an aggregated value of approximately US$
98 billion by 2012, according to the World Bank (4). It is widely
acknowledged that the increase in household disposable income and the prevalent
food safety scandals in recent years are two key drivers that have helped boost
the rapid growth of China’s imported F&B market (4).  As seen in the chart below, in 2005 imported
food trade was valued at over EUR 8.7 billion (USD 10 billion) and by 2014 this
has more than quadrupled to EUR 42.0 billion (USD 48 billion) (4).

 About Miaow Miaow Food
Products Sdn. Bhd.

Inception and Timeline:

It started in 1975 when the brothers and founders Mr Chuang Poh Lim
and Mr. Chink Poh Cheng used RM8000 as capital to start the micro-family
distribution business which created the ‘Miaow Miaow’ brand. In 10 years, MM
diversified into various food businesses along the supply chain of F&B
industry including repackaging, pastries, frozen, snacks and confectionaries
distribution.

In 1989, Miaow Miaow Food Products Sdn Bhd (subsequently known as
MM). was established and its first snacks production facilities covered over
1-acre land mass. After 10 years of success in Malaysia, MM ventured into the
international export markets in the Middle East. To cope with their overseas
success and increasing demand, MM moved to a new 99,910 sq feet production
facilities and upgraded our business operating systems by obtaining ISO
9001:2008 and HACCP certification to meet the competitive landscape of snacks
manufacturing (12).

During 2009 – 2013, MM garnered recognitions from several key
Malaysian awards including Golden bull award, Top 100 SME, National Mark of
Malaysian Brand and the prestigious E50 Awards (12).

In 2015, a 43,600sq feet acre new factory plant is in planning to
cater for growing exports’ demand specially after venturing into the Middle
East and Chinese markets. An investment of RM10 million was spent in building
this new factory. Upon completion at the end of 2017, the new factory will be
able to push up the pellet output from the current nine tons per day to 25 tons
per day. (7)

 

Company Sales Performance and Future Expectation:

MM snacks are enjoyed in more than 40 countries worldwide and
observed promising growth in other markets such as the Middle East and Asia
Pacific, especially in Saudi Arabia which is the biggest contributor by 20%
followed by China which is a highly potential market for MM to penetrate
further (8). In fact, MM attributes these exports to 66% of the
revenue it makes (9). MM expects turnover for 2017 to reach RM53 mil
and RM61 mil in 2018. Nevertheless, it is aiming for RM100 million sales by
2022 (9) through planning to expand further to markets in Europe,
Africa and United States by targeting 60 countries, while continuously
strengthening their market growth rate in Middle East and China. (9)

According to Poh Cheng, this is because, “The ‘Made in Malaysia” is
a strong selling point to the Chinese market and beyond.” (9) MM’s flavors
are one of its main competitive advantages. MM’s cuttlefish flavored snack is
widely popular in China, while the green pea flavor is a hit in Malaysia.
(10) In 2017, MM has invested over RM10 million in building a 43,600 sq.
feet new factor, next to its existing 99,910 sq. feet factory in Batu Pahat,
Johor. Upon completion at the end of this year, the new factory will be able to
push up the pellet output from the current 9 tons per day to 25 tons per day. (7)

MM’s products can be classified into 4 main variants: Seafood,
Spices, Cheese & vegetable, but it provides a variety of more than 30
flavors customized according to the target market for maximum customer
satisfaction. This high customization allowed MM to explore into OEM services
both local and intentional. (11)

Management Team & the Organization (12):

Mr Chuang Poh Lim, the Group Director and Mr. Chink Poh Cheng, the
group managing director are the founders of MM in 1975. In mid-1980, their
younger brother Mr. Ch’ng Poh Tee (Mr. Poh), managing director of MM joined
them to take up the task to help MM continual development in the field of
snacks manufacturing.

Under the leading of Ch’ng family, MM has grown from a small
company with 25 workers and yearly revenue of RM0.7 million, to now a Mid-Tier
company with 350 over workers and yearly revenue of RM 53 million.

Financial control was always the main focus of Mr. Ch’ng Poh Cheng
ever since the startup of business. Unlike most of the company who performed
stock count yearly or half yearly, Mr. Ch’ng requested the team to perform
monthly stock count in order to get the most accurate figure for the financial
performance of the company. Besides, cash collection was always closely
monitored in order to keep the bad debt amount at the minimum. This has allowed
the company to have a very strong financial support and liquidity.

There are four major divisions in MM, which are factory management
division, sales and marketing division, quality management division, and HR
& admin division. It also supported by purchasing department and IT
department. All the division and department head are directly reporting to Mr.
Ch’ng Poh Tee (Mr. Poh).

To have real time data of the staff attendance, and to ease the
administration job in payroll calculation, MMF has recently upgraded and
installed smart touch system in its in-house server. It tracks the workers
attendance by thumbprint system, and allows the automation of payroll
calculation. This has eased the job of HR department, in controlling and
monitoring the attendance of 300 over workers, and gives effective payroll
counting every month.

 

Certifications, Recognition and Product Safety (12):

MM was the first snacks food manufacturer who has its own
microbiological laboratory in ensuring its product safety. They are accredited
with ISO9001, HACCP and HALAL.

 

 

Intense competition locally and overseas

The extruded
snacks industry experiences intense competition. In Malaysia, MM had been
facing several local competitors including Oriental Food Industries Sdn Bhd and
Hua Huat Manufacturing Sdn Bhd. Oriental Food was producing extrusion and
pellet snacks under brand Rota, Super Ring and Bika; and is strong in
wholesales and general trade, and Bika is famous with its low price. Despite
the abundance of local brands, MM is also facing strong competition with MNC
Company such as Mondelez who produces Cheezes and Twisties which is also
categorized as extrusion snack.

Globally, the
competition is more intense. According to Technavio, it has announced the top
six leading vendors in their recent global extruded snacks market report from
2016 to 2020 to be: Calbee, Diamond Foods, Frito-Lay, ITC, Kellogg’s, and Old
Dutch Foods.

MM’s Competitiveness

Although the
high level of rivalry strength locally and globally, MM was able to excel in
this industry and became a Malaysian pride. The competitive advantages of MM
are its variety choice of flavors, consistent quality, and strong distribution
network in hypermarkets, supermarket, and petrol kiosk at competitive price. MM
could produce a diverse collection of products and tastes customized to be
suitable for each market it is tapping into. MM is having a R&D team that
works closely with Sales & Marketing team toward meeting customer and
market needs. This flexibility is its main competitive advantage against its
rivals locally and globally. For example, Cuttlefish snack has been selling
well in China market, while chicken cracker and the Hot & Spicy cracker is
the top selling item in Middle East.

MM had
appointed Desa Southern Agency (DSA), the parents company of MM as its sole
distributor in Malaysia. DSA has 8 branches in Johor, Perak, Sabah, Pahang,
Kelantan, Penang and Selangor. These branches are trading houses and agencies
to assist local and overseas distribution.

MM has also
developed its own system named “DIS II”, that enable the customer order key in,
generating of invoices and allow the analysis of the sales performance of each
customer’s past account. The system also allows the analysis of the sales
performance by customer, by product range, by distribution channel and by
salesperson. In addition, MM has an installed in-house server including CRM
software and HR smart-touch for attendance and payroll.

The Challenge

As the market goes globally, maintaining consistent product
quality, competitive pricing, and timely supply and lastly to maintain good
customer relationship with the export partners (eg. distributors of export
countries) are the crucial factors in wining export markets. Mr Poh was glad to
see the rapid growth of sales in export markets. Company has also invested in
building up a new factory and installing new machine line in coping the
increasing of order. However, over the past 6 months, they have been facing
difficulties in fulfilling all the shipment. It has drawn the attention of the
top management that the late shipment and un-fulfillment of sales order will
cause the company loss its distributors’ confidence and customer satisfaction
and eventually loss the market share if the problem wasn’t properly identified
and resolved.

Mr. Poh Knew that the main reason was not only about the shortages
of skilled labor issues, but because of the lack of integration of the existing
production planning system, inventory control system and customer ordering system.
Mr. Poh was revising some of the scenarios that were keep repeating and causing
the current problem:

Scenario 1: When
production is planning to produce Hot & Spicy chips for customer A, they
realize the ingredient B is not sufficient. In a result, shipment was delayed.
Reason behind is the production clerk forgot to issue purchase requisition for
ingredient B which has been finished use off by a sudden order receives two
days ago.

Scenario 2: Product
cuttlefish cracker is meant for export customer C whose shipment will be
delivered tomorrow. However, packing department wrongly packed it for local
customers. In a result, shipment was delayed.

Scenario 3: Packaging
material A which was in charge by purchasing department for the ordering, was
found running out of stock. This has resulted as the shortages of Product C for
3 weeks.

Scenario 4: Free production
capacity could not be calculated on-the-spot. This had delayed the progress of
answering customer about the actual stock and delivery date of shipment.

Scenario 5: Production and
packing department couldn’t follow FIFO (logistics First In, First Out)
logistics practice. While dealing with goods with an expiry date for export,
the first produced should be the first delivered to avoid archaic inventories
and ensure consistency of the product quality.

Scenario 6:  approximately, 3-5 days monthly are consumed in closing the monthly
inventory stock check report. The collection of the data from various
departments and the manual checking on the accuracy of the stock figures was
time-consuming and tiresome.

The existing system used by MM is Microsoft Excel format. Each
department has its own worksheet & formula in working out their production
planning, ingredients required, and the recording of products output. As the
product range increases, results as the increase of the ingredients and
packaging material, the existing system can no longer support. A better
integration system is required.

            Industry 4.0

In the Era of Industry 4.0, the fourth industrial revolution, the
world is shifting towards digitization and automation of manufacturing processes.
This involves incorporating advanced sensors, machine-to-machine communication
links, 3-D printing, robotics, artificial intelligence, big data analytics and
cloud computing technology to cover the entire value chain, including
suppliers, procurement, design, logistics and even sales, resulting in higher
productivity and flexibility, less wastage or storage, better monitoring and
maintenance of machinery, and improved security and safety.

Mr. Poh recognized from the global competition that several ASEAN
countries, as Vietnam and Thailand, were surpassing Malaysia in embracing this
technology and already had Industry 4.0 policy frameworks while the Malaysian
Government was still in the process of formulating the National Industry 4.0
Blueprint, which was expected to be ready before the end of 2017. In May 2017,
Minister in the Prime Minister’s Department Datuk Seri Abdul Rahman Dahlan said
65% of jobs in Malaysia could be lost because of technological advancements.
“We are unable to catch our breath because the world is moving at a fast pace
with the digital economy,” he was quoted as saying (14).

 

Opportunity Recognition and Implementation

Mr. Poh’s intuition guided him that this
technological megatrend would be the answer to MM’s situation. He had to
collect data and know more about how this opportunity cab benefit MM, so he
called the IT manager to discuss the potential of applying this technology in
MM. They went through many options, but Mr. Poh was interested in the
Enterprise Resource Planning (ERP), which is a MIS that integrates various value creating activities such as planning,
purchasing, inventory, sales, marketing, finance, human resources and customer
relationships.

The first challenge for the ERP implementation is the cost, which
ranges for a mid-sized business from $150,000 to $1 million. He tried to
analyze MM’s situation towards this approach. He found that MM had several
resources that can reduce the costs to 50%.

First, MM had already a Customer Relationship Management (CRM) and
Human Resources Management (HRM) systems, and wouldn’t need to implement the
whole ERP package. MM could only ask for the Manufacturing Resource Planning (MRP
II) package. The advantage of MRP II is that it would need less customization,
acquire less cost and is less complicated to operate.

Second, Mr. Poh had to choose between 2
main options for implementations, either using a Cloud server or On-premise
server. Luckily, MM had a good infrastructure of IT equipment which Mr. Poh
would exploit for implementation. Besides, the Cloud option would need a strong
broadband infrastructure which would not be reliably present in Malaysia.
Further, the On-premise option would save much cost which would be incurred for
licensing & subscription fees.

Third, MM had already an IT team which
would save the costs of follow-up and maintenance of the system upon
implementation, and would make it faster to implement compared to recruiting
and training or outsourcing.

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