SMU SINGAPORE MANAGEMENT UNIVERSITY SMU046 HAI SIA SEAFOOD: A TRADITIONAL BUSINESS'S JOURNEY OF INNOVATION AND DIGITISATION For every ten conventional jobs you can think of, there are 100 more unconventional ones that are often much more interesting. To take up these unconventional jobs and succeed, you have to take a dive and be committed. Ang Junting, Deputy Director, Hai Sia Seafood Pte Lid.' In May 2021, Ang Junting, the deputy director of Hai Sia Seafood (Hai Sia), a Singapore-based seafood company, was reflecting on the transformation the company had embarked upon five years earlier. He had an upcoming meeting with his senior management team to evaluate its impact and discuss next steps for the company. Hai Sia, a family business established by Junting's father about forty-five years earlier, focused on supplying high quality, fresh, and processed seafood at competitive prices for domestic consumption in Singapore. Singapore was a huge market with an annual per capita consumption of fish and other seafood at 22 kg, higher than the global average of 20 kg. However, despite the high demand, the seafood processing industry in the city-state, including the port, was woefully backward. In 2015, Hai Sia, like others in the industry, operated a manual processing plant that was twenty years old and relied completely on labour-intensive work processes, even though digitisation was on the rise in the country and consumers were increasingly migrating online in their buying behaviour. With quota constraints on the number of foreign workers that a firm could hire, inconsistency in quality due to human error, low productivity, and more importantly, the changing profile of Hai Sia's customer base, Junting undertook many steps to transform the company, which included plant renovation and automation, digitisation of work processes, expansion into e-commerce, launch of a consumer brand, and product development for the retail market. The results were promising, with Hai Sia's business growing from 1800 tons in 2015 to 2500 tons in 2020. However, as there had been considerable corresponding investments to support these initiatives, the company's profitability was adversely impacted. Junting commented, Over the next few years, we will need to continue to invest to enhance our current system and the digitisation processes. Hopefully, we can taper down our investments by 2024. The benefits to Victoria Sek, "Just 28, this S'porean Evolved His Father's Seafood Business from a Magikarp into A Gyarados", Vulcan Post, 2017, https://vulcanpost.com/618227/hai-sia-seafood-second-gen-business/, accessed July 2021. 2 Alice Kwek, "Singapore Seafood Report", USDA Foreign Agricultural Service, June 11, 2017, https://apps.fas.usda.govewgainapi/api/report/d wnloadreportbyfilename?filename Seafood%20Report%202017 Singapore Singapor 2 11-6-2017.pdf. accessed July 2021. This case was written by Professor Gary Pan, Benjamin Lee and Dr Sheetal Mittal at the Singapore Management University. The case was prepared solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This case was developed with the support of SMU-X and School of Accountancy Research Centre (SOAR). Copyright @ 2021, Singapore Management University Version: 2021-03-10SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation our P&L (profit and loss) will only come when the capabilities have been built and there are no additional costs for every retail unit that we are producing. I expect to see a greater ROI (retiin on investment) and profits in about two to three years. Junting recognised that if he were to continue spending time and resources in automating and digitising the business, it was imperative to convince the senior management about the returns these investments would eventually bring. More importantly, he wondered if going forward, a similar business model that centred on automation, upskilling, training, and consumer retail could be successfully replicated in the neighbouring Southeast Asian economies. Hai Sia Seafood In 1976, Ang Jwee Herng expanded his hawker stall to become a wholesaler of seafood, and incorporated his business as Hai Sia Seafood Pte Ltd.; Hai Sia, translated from Teochew, meant 'the sound of the sea'. By 1988, he had set up a large plant with a daily processing capacity of three to five tons at Singapore's Jurong Fishery Port with warehousing and storage facilities at -18 degrees Celsius. By 2015, Hai Sia had grown into one of the leading seafood processing companies of Singapore with a production volume of seven to eight tons per day (refer to Exhibit 1 for an image of the old processing plant). It sold both fresh and processed seafood to a wide range of customers, including commercial kitchens at hotels and hospitals, airline caterers, food service outlets, restaurants, hawkers (e.g., nasi padang stalls, fish soup stalls, and Hainanese curry rice stalls) and private chefs. Of Ang Jwee Heng's three children, Junting was the only one who decided to work in the family business. Although he too had initially opted for a career in the food and beverage industry, working as a chef first in Europe and later in China, a chance conversation made him realise the value of Hai Sia as his legacy. In 2015, he joined the company as the second-generation owner. Push for Transformation The push for change came in several forms. The first trigger was the profile of Hai Sia's existing workforce. The employees in the company were largely elderly and found the plant work, which involved sharpening knives, manually slicing fish and standing for eight to 10 hours a day, physically demanding. At the same time, the company was not able to attract young Singaporeans. Junting explained, As a traditional seafood processing plant, the jobs we offered were quite mundane and tedious, which the technology-oriented young generation of Singapore did not relate to. Consequently, we could not find enough takers among the locals. It was clear that a digital environment was paramount to our ability to hire young workers. Opportunity to cross-hire from within the industry was also negligible as the seafood industry in Singapore was not advanced and suffered from a manpower shortage. In addition, there were government restrictions on the number of foreign workers the industry or a company could employ. Another issue that Hai Sia faced was its labour-intensive manual processing operations. The increase in its production volume over the years had led the company to not only incur high labour costs but also bear frequent inconsistencies in performance due to human error. The company's ordering 2/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation system too was outdated and manual, relying fully on people and their tacit memories. This severely curtailed its efforts towards data collection, ability to process the orders, and manage the inventory efficiently. The most important catalyst for change for Hai Sia was the evolving profile of its customers. Prior to 2015, the company operated in the business to business (B2B) domain, with its customer base comprising traditional brick and mortar retailers, restaurant chains, and food service wholesalers. However, with digitisation, end-consumers' preference for buying online was growing, and the digital retail platforms were fast becoming a force to reckon with. To be relevant in this changing environment, Junting recognised the need to adapt and cater to these new age businesses. He pointed out, The big point was that the customers were evolving, and so we needed to do so too. This meant that we had to change internally in our processes to engage with and service the online retailers. Besides innovation in our operations, this also required us to develop an end-consumer-oriented mindset towards product development. Over 2015 and 2016, Junting initiated many projects in tandem, which included the renovation and automation of Hai Sia's 20-year-old processing plant, digitisation of its work processes, launch of the company website, and adoption of new product and marketing strategy to target e-commerce platforms. Infusion of Technology: Automation and Digitisation Plant Automation Junting's approach was to automate all Hai Sia's operations that could be performed better and more efficiently using machines, while being conscious of keeping the craftsmanship part of the work manual. For example, in filleting fish, while most steps in the task were mechanised, the final touches were still completed by hand. He explained, We try and do as much possible using equipment and only those which have to be done by hand are done by hand. Actually, automation has helped us free our time to do the complicated or artisanal things that can only be done manually. To reduce the impact of the renovation on the plant's daily production, it was carried out in stages, beginning with the premises that were used for storage. As and when machines and equipment were installed for different processes, workers who were technically astute, quick to learn and not shy of asking questions were identified to be trained as master trainers. These workers then trained others on how to use the machines for different operations. Junting added, Training never stops because of two reasons. First, we keep upgrading or changing the machines. Most seafood processing machines available in the market are meant for the large-scale production of specific species. We deal with at least 40 species a day, so finding the right machine is often challenging. Second, there is a certain attrition rate, and new people keep joining us who then need to be trained. in 2017, the renovation at the production plant was completed, although certain extensions were built over the next three years (refer to Exhibit 2 for an image of renovated plant). The upgraded and refurbished plant comprised state-of-the-art capabilities, including mechanised processes for fish scaling and filleting, sashimi processing, packaging and vacuum packing, cold chain with contact 3/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation freezing at minus 40 degree Celsius and 100% air-conditioned plant, as well as 100% stainless steel interior and environment friendly heat recovery system. This boosted the plant's productivity manifold, while improving precision, hygiene, and quality. The new plant also streamlined the operations, enabling better workflow that minimised the risks of cross-contamination and better manpower planning. Digitising Work Processes Hai Sia's earlier ordering and pricing system comprised two employees taking orders on the phone from 50 to 60 customers per day and issuing handwritten invoices. While they kept a master price list with them for reference, the company followed a flexible pricing model, offering a unique price to each customer depending upon the weight, size, grade, and cut of the seafood ordered. Junting shared, For example, depending upon the volume that you buy, you will get a different rate. So, we could be selling an item to a customer at say $25 per kg, while to another at $27 per kg. And because we knew our customers well, the employees manging the orders used to remember specific prices for each customer. However, as our scale of operation grew, this had become increasingly tedious to manage. Recognising that digitisation of the ordering process would allow Hai Sia to continue to offer customised pricing as before but with more consistency and fewer mistakes, Junting engaged his customer service team that handled the pricing and ordering process to understand the complexity of the task at hand. Active discussions with the team members during the project requirement gathering phase helped establish the essential features required for an efficient and sustainable e-ordering and pricing management process, which balanced the company's needs vis-a-vis its customers well. In addition, Hai Sia implemented c-invoicing and e-filing, reducing not only the processing time, but also its carbon footprint significantly ERP System Investment in an enterprise resource planning (ERP) software solution was undertaken to integrate and streamline many Hai Sia's operations to drive agility and efficient use of resources. For system implementation, Junting put in place a novel approach of teaming young staffers with senior employees. He explained, We relied on younger staff, who with their hands-on work experience understood most, if not all, of the pain points of individual departments, and [we relied] on the senior staff for their strong experience in project management. Although no specific training was given, over time, we have found that such a combination helps smoothen the transition between different systems by ensuring both the operational and reporting needs are taken care of. Over 2015-2019, the company struggled with several ERP systems. Its first ERP system was specifically geared for operational purposes without much emphasis on other capabilities such as data management or reporting. Recognising its inadequacy, it had to be soon phased out for a more sophisticated ERP system that enabled data utilisation to help inform decision-making, for instance the ability to share with its purchasers some of the pre-orders that customers placed for the upcoming weeks through automated emails. This allowed Hai Sia to plan its purchases in advance for better inventory management. However, although the customised report builder was very flexible, the second ERP system had issues with the case of search for information. Instead of being able to search by stock keeping unit (SKU) number and bring up all order details associated with a particular SKU, individual orders had to be extracted one by one to see the prices across different customers. 4/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation The third and the most recent ERP system acquired by the company was an established name in the industry. Its myriad features offered a lot of learning opportunities in terms of the best practices used by big companies globally and its information search functions were very robust. Nonetheless, because it was a highly established system, it was more rigid and formal in terms of the user interface compared to modern alternatives. The less user-friendly interface posed a challenge during the onboarding of new employees. In addition, the data analytics function was hard to learn for young staff who had no prior experience in data analytics software. The not-so-friendly user interface led Hai Sia to explore Robotic Process Automation (RPA) and other technologies to automate the data input process by setting out certain templates and freeing its staff for better value-added work. However, RPA relied on a standard user interface, so that the bot was able to follow the same command with a pre-defined logic. Any changes in Hai Sia's customers' platforms would require higher maintenance at the company's end to ensure that the bot ran smoothly. The main challenge came in cases when customers on-boarded new platforms or updated the old ones for their purchase order issuance. This required Hai Sia to keep up to date with such changes and regularly adapt to the workflows dictated by its customers' systems. While the latest ERP system was a big improvement over the earlier ones, Hai Sia had to continue searching for a system, which was built specifically for the seafood industry. Adoption of Innovation and Consumer-crientation Contract Processing While food services outlets (restaurants and hotels) and grocers comprised the largest customer segment for Hai Sia, Junting recognised the tremendous value and growth potential in offering contract processing services to fish farmiers and wholesalers. He pointed out, If we measure by the number of customers that we can serve, or by the production volume, however much we might push our brand and our products, we are able to capture only 2% of the market. But if we are able to work with others - farmers and other wholesalers who require their products to be processed to be retail ready or more kitchen friendly (home kitchen and commercial kitchen) - and provide them with these services, we can have a larger coverage of the market, about 5 to 10% more. Junting understood that farmers' focus was on growing the fish and making sure they were healthy and of a certain quality, and that they would not and could not spend their resources on building a processing plant. The use of machinery had multiplied Hai Sia's processing capacity, and thus it could play the role of an enabler by offering fish processing and packaging services to the farmers and allowing them to focus on their core competency of growing the fish. However, the lack of adequate manpower was an impediment in the beginning. Adding Daytime Operations Hai Sia's production team, which was technically strong, handled intricate work that required experience and expertise. They worked overnight under tight schedules and used their skills and finesse to produce finished goods for delivery. However, their productivity was low as they also had to perform several low-skilled but time-consuming tasks in the process. Junting figured that another group of workers, with a lower skill set, was required during the daytime for doing these simpler but important jobs. 5/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation One of the big limitations of the seafood industry in Singapore was its culture of night-time only operations, although overseas seafood processing plants and markets operated during the daytime too. For Hai Sia, plant automation proved to be a game changer in resolving this issue. Junting explained, The machines allow our staff to work during the day as well. Before, if I were to start production in the day, I would need technical skills for, say, filleting of fish, or physically demanding work such as heavy lifting of seafood. Now, the day shift is possible without the need of technically skilled employees or hard labour, as the machines do most of the work. The day staff only needs to handle simpler tasks such as operating a machine or doing quality assessment. The possibility of having a day shift and easy-to-do tasks helped the company attract local ageing labour - for whom night shifts were difficult, besides the challenge of finding transportation in those hours. The daytime working hours also allowed the flexibility of parttime work, especially for women who had to manage household responsibilities. Hai Sia's workforce grew from 42 in 2015 to 70 in 2021, with about 15% aged above 60. The automation had not only boosted the company's productivity but also helped it redesign jobs for an ageing workforce. Junting emphasised, "We are keen on hiring older staff as well as the differently abled, as long as they are open to learning how to use the machines". E-commerce It was in April 2015 that Hai Sia engaged with its first online customer, RedMart, which was looking to venture into retailing of fruits, vegetable, poultry, meat, and seafood. Junting felt that Hai Sia's timing to enter the online retail was just right. He explained, In 2015, the business processes across our value chain and partners were becoming digital, the customers were increasingly becoming comfortable with the idea of ordering on a digital platform, and the staff also was open to using systems and computers. The use of smart phones had become second nature with most people, and there was greater acceptance of anything digital across the board. Junting was quick to recognise the ongoing shift from brick-and-mortar grocers to online ones in consumer behaviour, and hence ensured that Hai Sia was ready to make up for the decline in the demand of its seafood from supermarkets with an increase in demand from online grocers. However, to support its c-commerce operations, Hai Sia had to make significant investment in product development, packaging, modification of its production lines, and warehousing. Processes Innovation and Modifications Previously, Hai Sia had only dealt in wholesale-sized packs of 2 to 5 kg, mainly for commercial kitchens and food service customers. For e-commerce, it developed retail packs of 200 to 300 gm, suitable for small families and individuals for one meal. The company decided to keep the pack size to the smallest possible unit so that it was modular and allowed end-consumers the flexibility to choose as per their needs. This led Hai Sia to modify some of its production lines to make them suitable for producing smaller pack sizes. Moreover, as the wholesale size cartons were split into smaller and single-serve pack sizes, a change in warehouse stock keeping and inventory management was also undertaken. Packaging these retail units entailed incorporating certain design elements, as the packs needed to look professional and attractive. In addition, unlike the bulk packs that carried limited information such as date, product name, and weight, these consumer packs required more details as per the legal 6/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation guidelines and what retail buyers sought, such as barcodes, storage temperature, and expiration date. Hai Sia's team studied other online grocers and supermarkets to understand what the retail packs typically looked like and the information they carried. Junting added, Besides figuring out 'what to say', it was important to know 'how to say'. Lacking such a specialised skill-set in-house, we decided to outsource the retail design, and over the years we have had several iterations. For the retail brand name, Junting opted for the single word 'Serve', as it was simple, meaningful, and had all the positive connotations associated with a meal. He added, We decided to use Hai Sia Seafood [ manufacturer brand] along with Serve [retail brand] on the packaging, as it was important to show who Serve was. Having the name of the company gave it backing and credibility in the consumer market. Also, this helped us to promote Hai Sia Seafood as well. Pricing strategy for Serve was not based on the cost, but on the average retail prices prevalent across retail stores like FairPrice and Giant, and the expected retailer margin of about 30 to 35%. To meet these expectations, Hai Sia had to reduce its own margins, while pushing the online grocers to sell at higher prices. However, the bigger challenge was that it was not possible to cut seafood into precise weight specifications of the retail units. Junang explained, Traditional grocers always sell by weight. So, if they pack 255 gm, they will charge you for that weight. But in a retail pack which is fixed a: 240 gm, even if the weight of the seafood is say 245 gm or 250 gm - as it is not possible to cut seafood exactly, I cannot charge more. That extra is called in the industry "give away ' This is also why our first range of retail products comprised two pieces of seafood in a pack of 240 gm. This was to allow us some leeway and flexibility in cutting the pieces. This is how automation helped Hai Sia to gain competitive advantage in the industry, where most players used manual cutting and hence incurred losses due to the inevitable 'give aways'. Machines helped Hai Sia to cut precisely, in much less time, and have single piece packs. Digital Media In 2016, Hai Sia launched its website. Initially comprising only two webpages with basic information, it soon expanded to multiple pages detailing the company background, showcasing its capabilities, product and brand related information, home-made recipes, its community related activities, and contact details. The company also organised free factory tours to educate the public and promote local fish market culture. During Chinese New Year, it conducted live cooking shows and Q&A (questions and answers) sessions on Lazada (an e-commerce platform) to promote its products and consumer brand. Hai Sia also collaborated with Google, and using its advertising tool, developed a promotional video that generated more than 30,000 views in a short time (refer to Exhibit 3 for more details). It was also active on social media through its Facebook, Instagram and LinkedIn accounts. Over the 2015-2020 period, Hai Sia's e-commerce sales grew and contributed 5% to 7% of its total revenue. The product range under Serve expanded from only raw fish, raw prawns, and raw squid to include ready-to-cook products and sauces as well (refer to Exhibit 4 for images of the retail products). Hai Sia's business from the grocery segment grew significantly, with its top ten customer profile changing to include four grocers, of which three were online ones. According to Junting, 7/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation Earlier we had only trading business - we just bought goods and sold them, with little scope of product development or customer service. But with e-commerce, we are also in a customer- fronting role. While the trading business provides the big margins and large volume, e-commerce has helped us establish a consumer brand, with huge scope of growth in retailing. In addition, having parallel processing capabilities that could serve both food service and retail put Hai Sia in a position of competitive advantage during the outbreak of Covid-19 in 2020. Most of the other seafood processing plants in Asia and Europe serviced either the food service market or retail outlets. With lockdowns imposed to curb the pandemic, demand for retail products had shot up while the food service business that comprised restaurants and hotels was adversely impacted. The processors that traditionally served the retail market could not cope with this deluge in demand, while the processors for the foodservice market with underutilised production lines were not suitable for making consumer packs. Junting recalled, There was demand of seafood in the market, but most companies could not supply, whereas we were in a unique position. Having decided to service both retail and wholesale markets much before the pandemic struck, we could produce both bulk packs for airline caterers and food services and small retail packs for online grocers and supermarkets. Thus, during Covid-19, we were flexible and could easily switch between our production lines as per nature of the demand. This flexibility was, in part, made possible by the elimination of choke points such as filleting and packaging, which we have automated. By end-2020, the largest share of Hai Sia's revenue was from grocers (online and offline) at 40%, followed by wholesalers (for contract processing and reselling) and the food service (restaurants and hotels) at 30% each. Key Challenges En Route The process of transformation mandated heavy capital investments over the 2015-2020 period, resulting in a significant drop in Hai Sia's profitability through the years. Plant renovation, new equipment and implementation of the change in the production line for e-commerce packs entailed an annual expense of about S$500,000 - S$800,000 over the six-year period, while the three ERP systems collectively chalked up costs upwards of S$600,000. According to Junting, the biggest challenge in adopting technology, besides the investments, was the time taken to implement it and for it to start showing returns. Four to five years was a long time to continue investing without clear and strong benefits on the P&L statements. He added, The cost of doing is indeed high. While in my opinion, the cost of not doing is even higher, it is debatable for others. Our senior management questioned the change, as they could see the financial investments, but not the ROI. In addition, in the early days of automation, there was a strong fear of retrenchment among Hai Sia's employees. Junting strived to communicate that the machines were not to replace them but a lot of the tedious work that they used to do. He shared, The key takeaway I keep telling everyone is that if you actively work towards adopting machines ke over the mundane work, you will grow in the organisation. Your mundane work will be replaced by more meaningful work through which you can add more value. That will reinforce your place in the company. 8/14SMU-21-0050 A Traditional Business's Journey of Innovation and Digitisation The resistance to change abated gradually as Hai Sia's business grew, and the company hired more employees rather than downsizing. However, Junting pointed out, I believe that adoption of technology has to be a top-down approach. Not only does it require big investments for a potential return sometime in future, but there is also always certain resistance to change from the employees. In such a case, bottom-up approach does not work. Future Outlook Buoyed by the success of Hai Sia's transformation into a modern and innovative company, Junting was looking to further expand Hai Sia's retail presence, develop new products, widen its customer base, and target new markets. His team actively sought product and marketing ideas from well- established companies in international markets and tested them for their suitability in the Singapore market. As immediate next steps, Hai Sia planned to extend its retail product range beyond seafood, change the retail branding to 'Serve' (without any mention of Hai Sia) and launch a separate website for the brand to widen its scope and not be limited by the image of the manufacturer. The company was also looking to diversify into opening retail outlets of its own over the next few years. Fully committed to the change process, Junting believed that it would reap big rewards in the future and that the innovative business model could become the basis for Hai Sia's successful expansion into international markets. However, he wondered, for how long would the company be able to sustain the continued heavy investments and reduced profitability? And would the senior management be on board with his plans