TL;DR – Innovate to stay ahead.
We keep reading that there are economic headwinds. Many companies are bleeding. Some have died. Yet, amidst such a gloomy economic backdrop, there are some companies who are still able to increase their profits. Sheng Siong is one example. In the first nine months of this year, its net profit came in at SGD42.2 million. That is 12.1% higher than the net profit of the first nine months of last year.
That’s right. Even though the economy as a whole is facing considerable headwinds, Sheng Siong has managed to grow its profit by 12.1% year-on-year. Not only that, it managed to increase its net profit margin. Its net profit margin for the first nine months of this year is 7.9% compared to 7.3% for the first nine months last year. That’s an 8% increase in net profit margin.
How did Sheng Siong pull that off?
One word. Innovation.
We visited Sheng Siong as part of a learning journey organised by NTUC U-SME. These are some of the innovations we saw that Sheng Siong has implemented to grow their business and increase their profit margin.
Fleet management with RFID
The gates of the warehouse has a gantry similar to the one used in the ERP. The moment a delivery truck passes the gate, the gantry will scan the in-vehicle unit (IU). The system will then know which vehicle has entered the warehouse and the driver driving the vehicle.
Information about which loading bay the vehicle should go to will then be sent to the handphone of the driver. The driver will also be notified on his handphone where the delivery should be sent. All these are part of an RFID fleet management system. With this system, Sheng Siong is able to greatly reduce the the amount of administrative work needed to manage and track the movement of the delivery vehicles.
This system is part of Sheng Siong’s broader effort to leverage on the digitalisation of data to increase productivity.
Digitalisation of data
Another area where Sheng Siong uses digitalised data is in their inventory management system. They have a system where they know exactly how much goods they have in their warehouse and each store. Such a system allows Sheng Siong to know, in real time, when certain stock is running low in their warehouse or their stores.
This means that Sheng Siong has in place a ‘just-in-time’ ordering and delivery to their stores. The moment the quantity of a certain product in a store drops below a certain level, an alert is sent to the warehouse to request for re-supply. Similarly, if the quantity of certain product in the warehouse drops below a certain level, an alert is sent for the product to be re-stocked in the warehouse.
Digitalisation of data also means that they are better able to analyse a whole host of data. What brands sell better? When do goods move faster? Such analyses allow Sheng Siong to make a better judgement on when to order and how much goods to order. Put together, the digitalisation of data allows Sheng Siong to make use of their space more efficiently and lower carrying costs.
In addition, the digitalisation of data allows Sheng Siong to better audit their stock. Instead of taking stock once every six months, the digitalisation of data allows Sheng Siong to have real-time check of how their products are moving. With this system, Sheng Siong has been able to dramatically reduce the amount of goods unaccounted for.
Using technology isn’t the only way to improve productivity. As Mr Lim Hock Chee, CEO of Sheng Siong, emphasised that even if you have the best technology, if you don’t change the mindsets and behaviour of your staff, you still won’t be able to improve productivity. An example Mr Lim gave us was how he improved the productivity of his delivery drivers by changing their behaviour.
In the past, Sheng Siong paid their delivery drivers a fixed monthly salary regardless of the number of trips they make. As a result, they will drag out each delivery so that they can minimise the number of trips they need to make. When Mr Lim realised this, he changed the system. Now Sheng Siong pays their drivers according to the number of trips they make. With that change, instead of finishing all their deliveries at 4pm, Sheng Siong is able to finish all their deliveries by before 3pm.
Innovation is a continuous process
Even though Sheng Siong has already put in numerous innovations to improve their productivity and profit margins, they aren’t resting on their laurels. As we have written before, Mr Lim is constantly thinking about how to improve. That is the key to doing well even in the face of headwinds.
How do other supermarkets manage its warehousing and distribution?
To date, Sheng Siong has 43 stores and over 2300 employees. For a “born and bred in Singapore” company, it definitely has done certain things right to get to where it is today.
What about other supermarkets?
FairPrice has over 120 stores islandwide and this is approximately three times the scale of Sheng Siong’s operations. It used to have a similar warehouse management system like Sheng Siong. However, to meet growing consumer demand amidst a tight labour market, it had to seek innovative ways to keep its manpower lean while increasing productivity. This way, they can keep labour costs down, and the savings can be passed on to consumers.
In 2014, FairPrice launched its new hub which houses the chain’s third distribution centre. This is no ordinary warehouse. It is highly automated as they use robotic technology and autonomous vehicles mounted on a monorail to facilitate its warehouse operations. They call it the “Automated Storage and Retrieval Machine (ASRS)” that is integrated with the “Caddy Pick System”.
In layman terms, the entire process of storing and retrieving cartons of goods is handled by machines. From the time goods are delivered to the warehouse to how its stored across 19 levels (approximately 2 meters high for each level) to how it is eventually retrieved to be sent to individual FairPrice stores, it is completely automated. The only time humans will intervene is at the retrieval stage where they will use a smart machine mover to pick up products for the stores.
How do the productivity gains look like?
A significant 28 per cent less manpower is needed compared to another distribution centre in Joo Koon. It can also handle up to 10,000 cartons of groceries per hour, which is 25 per cent faster than other FairPrice warehouses.
To better visualize how the ASRS and Caddy Pick System work, check out this video below.
With the clever use of technology and changing mindsets, supermarket chains like Sheng Siong and FairPrice have been able to grow their profits even in the face of challenging economic conditions. Hopefully other Singaporean businesses will follow suit and come out of this slowdown even stronger.