Home appliances manufacturer I-Berhad is capitalising on its long-time experience of serving consumers to rake in the returns as it enters the computer and communication market.
The 33-year old company, previously known as Sanyo Industries, started out as a original equipment manufacturer (OEM) producing air-conditioners, refrigerators, rice cookers, microwave ovens, blenders and ceiling fans.
In 1996, Taiping Super Corporation acquired 31.59% of the company and changed its name to Neico Industries. Three years later, Neico was bought out by local conglomerate Sumurwang Group.
Sumurwang Group re-named Neico to I-Berhad with the intention of diversifying its business to include the sales of products under its own “i” brand.
“The long term plan is to make products for the ‘Home of the Future’—the smart home,” said I-Berhad’s CEO Eu Hong Chew.
He added that the challenge over the next two years is to create smart products and have signed collaborative agreements with major IT companies such as Microsoft and Intel to this end.
“We believe we have a role to play in bridging this gap as we have over 30 years of experience in the home market. We know our consumers and believe we can contribute towards making products for the smart home.”
I-Berhad also set up I-R&D and allocated RM25 million (US$6.5 million) from its recent RM117 million (US$30.7 million) rights issue to undertake research and development activities for the group in order to upgrade its product development capabilities.
“Our vision is to shift from a manufacturer of home appliances to become a manufacturer of products for the Home of the Future. In the smart home, there are three elements—smart appliances, home management system or the PC, and the connectivity,” said Eu.
He added that a high-tech home can be achieved by incorporating microprocessor controls into home appliances and linking the appliances to a home computer.
“As a traditional home appliance manufacturer, we can easily upgrade our product set and put in intelligence and networking technology to make appliances for the smart home. The PC is essential—which is why we ventured to the market—as we believe PCs will act as the server for the home. Eventually, all home appliances will be connected to the PC, and if necessary, to the Internet as well.”
Eu concurred that I-Berhad, as yet, does not have all the necessary elements such as communication devices in place. But this issue is addressed through its R&D activities and collaboration with technology partners.
He added that the company’s intention is to package PCs, devices and appliances into a single product package to be offered to consumers.
He also foresees that the industry will come together and set a single standard and protocol for appliances. The improvement of the Internet infrastructure in Malaysia will also drive the adoption of his company’s smart home concept.
“We see this happening over the next five years and what we are doing is developing the business in that direction. Big players like Microsoft and Intel are developing products for the smart home and we want to tap on their expertise so we can grow together in that area,” revealed Eu.
To drive its vision, I-Berhad is evaluating its current manufacturing practices to hone its marketing and sales strategy. To achieve its aim, it is planning to implement an enterprise resource planning (ERP) system and Eu has already short-listed two parties for the system.”
Prior to its plans to shift to ERP, the manufacturing factory relied on a Japanese-based production planning and control system that ran on IBM hardware. The just-in-time integrated manufacturing facility is equipped with a plastic injection moulding plant, metal stamping plant and painting plant, supplying parts to its four assembly lines.
The monthly production capacity at its 4.8 hectare manufacturing plant located in Kamunting, Perak, stands at 4000 units of air conditioners, 2500 refrigerators, 30,000 electric rice cookers and 20,000 ceiling fans.
According to Eu, the efficiency of the system has resulted in less than a month’s inventory of raw materials and an average of two weeks of work in progress to deliver products. The sales forecast is tied to the bill of materials.
“The return on investment (ROI) on the manufacturing side has paid for itself. With the implementation of an ERP system, we are no longer talking (worried) about efficiency as we [can then] focus on marketing advantage or giving ourselves a business advantage.”
Eu also foresees two problems when it comes to linking dealers’ network to the main ERP system as he believes that the Malaysian distribution network is not ready for the electronic way of conducting business although many claim to have access to e-mail.
“Psychologically, the distribution network is not ready to transact via a network. Secondly, the Malaysian consumer profile indicates that many still want to touch the product they want to buy.”
The current situation also means that transacting over the ’Net will not take off for another two to three years, especially in the line of products that I-Berhad is dealing with.
Despite the constraint, Eu expects the distribution business to change in four years’ time and it will continue to sell through its traditional channels apart from building the foundation to sell online.
Furthermore, selling electrical goods online too have their share of problems. For instance, national electrical board regulations and safety requirements for each country differ, making it difficult to market home appliances made in Malaysia in some countries directly through the Web. Given that situation, selling home appliances to a global market directly online is not viable.
With over 700 dealers scattered all over Malaysia, I-Berhad is planning to work with its 130-strong IT dealers who are familiar with the technology to build the e-commerce infrastructure. The other categories of distributors are in the home appliances and air-conditioner sectors that Eu believes lag behind in applying technology to business.
“At the end of the day, it is the bottom line—the financial benefits—that counts and we need to demonstrate to the other partners the benefits of using technology before they come around. The biggest benefit will be to those who buy and keep stocks. By linking their distribution system to ours, we can reduce their inventory by 70-80%,” reasoned Eu.
He added that the online distribution system will be rolled out among its tech-savvy dealers once the new ERP system is up and running, which is likely to be in the middle of next year.
With specific range of models available, manufacturing products to meet demand is not an issue. The production plan can be operated independent of orders received from dealers. The home appliance market is fairly structured and demand is steady. For instance, demand for air-conditioners is tied to the weather.
I-Berhad is also excited with its involvement in the PC market as the shorter product cycle adds greater impetus to its foray into the IT industry, said Eu. In addition, the PC ownership scheme through the Employees Provident Fund (EPF) that I-Berhad is part of provides the company an access to a larger market. Through this scheme, members can withdraw part of their contribution to the EPF to buy PCs at 630 post offices and 450 Bank Simpanan Nasional branches. About 5000 PC have been sold locally since its launch middle last year.
The company has also set its sights abroad—it wants to export its home appliances to countries in the equatorial belt such as Southeast Asia and Tahiti. The export market currently contributes 5% to the total sales and is expected to contribute 20% in the next three years.
While demand for its home appliance products have dropped slightly, the group is not suffering a setback as demand for PCs is rising. Components for PC assembly are sourced directly from manufacturers and the supply chain runs like clockwork.
“In terms of this supply chain, we are there. The downturn is a good time to take stock of what we have |and really maximise our existing resources,” said Eu.
Anita Devasahayam can be reached at firstname.lastname@example.org