Case Study: Lay Hong hatches successful IT strategy

When the late Yeap Seak Yong started his poultry farming operations in Malaysia in the 1960s, he probably did not envision his business would grow to the extent of producing millions of eggs. He probably also could not have imagined that his poultry business would one day be driven by technology and its processes automated.

But that's exactly what happened when his three sons -- Yap Hoong Chai, Yip Kim Hoong and Yeap Weng Hong -- took over the management of the small layer poultry farm. In 1973, the company had only one farm producing 10,000 eggs per day. Today, however, the company registered as Lay Hong Bhd. churns out 1.3 million eggs a day and is listed on the Second Board of Bursa Malaysia.

Lay Hong has also established its own brand for the eggs that the company produces, known as Nutriplus. Add to that, the public listed company has also expanded its operations into producing poultry feed, breeding and hatching of day old chicks, manufacturing egg trays and processing of chicken manure into organic fertilizer. Lay Hong currently operates six layer farms, 13 broiler farms, four breeder farms, three hatcheries, two feed mills, a chick farm, an egg tray manufacturing plant, a poultry processing plant, and three organic fertilizer-processing plants. This year, it also ventured into producing pasteurized liquid egg.

Given the rate of expansion that Lay Hong had been going through, the company soon realized that it needed to streamline its various business operations. The company had to find a way to keep track of its customers and supplies databases, and also monitor its distribution, sales, customers' credit limit and daily cash collection. In short, Lay Hong needed to improve on the way it collected and processed daily business information in order to make better management decisions.

"We faced tremendous challenges in consolidating our accounts," says Lay Hong's group finance director, K.T. Ng, who adds that despite using ACCPAC (an accounting software) for more than 12 years, churning out monthly reports and analyses was still a tedious task.

"It would usually take more than two months for us to find out the financial results of the company," he says.

When Lay Hong went in search of an IT solution that could help manage its various business operations, one other requirement that the company dictated was that the solution had to be flexible to accommodate future business expansion.

"We evaluated several offerings from various companies including solutions from SAP and Microsoft's Axapta and Navision. We finally decided that ChemXPress from SAP and its business partner was the best fit for our current as well as future requirements," Ng says.

ChemXPress is an application jointly developed by SAP Malaysia and its local partner, ISS Consulting. This application is part of the mySAP All-in-One solution which is intended for companies with as few as 10 users that require a high degree of industry-specific functionality. ISS Consulting was able to customize ChemXPress to match Lay Hong's needs during the production of chicken feed, which involves similar processes to the manufacturing done in the chemical industry.

ChemXPress comprises the financial accounting, controlling, material management, and sales and distribution modules, and is able to support the complete logistics planning cycle from sales order and production planning, to delivery and billing.

The ChemXPress application runs on two Hewlett-Packard (HP) ProLiant servers which are powered by dual Intel Xeon 2.8GHz processors, 4GB RAM and Microsoft SQL database. The entire system is located at Lay Hong's headquarters in Klang, Selangor, and serves six of the company's major farms in the states of Selangor, Melaka and Sabah.

Because the farms are located in remote areas, various means of connectivity are utilized to ensure fast and reliable data transmission. Farms in the most remote areas are linked to an ISP's Network Operation Centre (NOC) via a 128Kbps satellite broadband connection. From the NOC, a 128Kbps leased line is utilized to connect to Lay Hong's headquarters.

Meanwhile, other farms in the outskirts of towns are equipped with broadband and leased lines running at 512Kbps and 128Kbps respectively. The headquarters, on the other hand, utilizes a 2Mbps broadband connection.

The project to deploy ChemXPress at Lay Hong commenced last December and was fully implemented in four months. According to Lay Hong executives, it was a "big bang" project whereby existing IT systems were completely shut down and fully replaced.

"It was an easy switch because no migration of legacy data was required," says Lim See Siong, Lay Hong's IT executive. "But we're keeping our previous servers for reference. Should we require any past information, we can simply retrieve the necessary data from our old machines."

Besides that, ChemXPress has a feature that allows raw data in text, spreadsheet or database format to be imported into the new system if required, adds Lim.

The implementation of this new IT system has cost Lay Hong approximately 2.4 million ringgit (US$631,000). Of this amount, 1.4 million ringgit is for the software and hardware solution while 1 million ringgit is for a five-year subscription to the satellite services utilized by the company's farms in remote areas.

With the new implementation, the company now has better control over its inventory, sales, purchasing, and financial postings of its fully automated chicken rearing, egg harvesting and processing operations. The ChemXPress system has also improved the efficiency of Lay Hong's sales and delivery orders, billing cycles, as well as the ERP process that determines the optimum amount of goods and other raw materials to procure.

"We are now able to check our stock level and obtain details of aging debtors instantly. Invoices can be issued at a faster rate and this helps the company with speedy collection, thus mitigating our credit position," says Ng.

"What used to take months to produce will now take only hours and days to complete," he adds.

It's only been less than a year since the new IT system was implemented, but Lay Hong's Ng claims that the company is already reaping the benefits. "We have yet to officially measure our ROI, but we also understand that there are no immediate returns," says Ng. "Instead, we look at the long term benefits of having the new system versus the business implication of not having one at all."

Clearly, Lay Hong is now in a better position to expand either geographically or in terms of introducing new product or service lines without having to worry about the limitations of the IT infrastructure. In addition, the new implementation would serve as a platform for future IT-related plans such as incorporating e-commerce activities, and collaboration and business intelligence applications.

"In 2001, Lay Hong's turnover was 50 million ringgit. As of 31 March 2004, it was 130 million ringgit. And we expect an additional 100 million ringgit yearly contribution from the chicken processing operations," says Ng. "Thus, our IT system must have the capability to support that kind of growth in our business."

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