erp_in tata

8/3/2019 erp_in tata

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Ashish DagaIBS

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ASHISH DAGA

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ERP Implementation At Tata

Steel



Analyzing SAP ERP's success in TISCO

The critical success factors of ERP systems mainly include proper

implementation and usage. Beside this there are several other factors thatdecide the regular functioning of ERP in organizations.

While many organizations have not incurred the necessary benefit interms of money and other measures there are lots who have witnessedmultiple profits. Studying them will help in understanding the criticalsuccess factors for ERP implementation. They will help in deciding ERPsuccess.

TISCO PROFILE

This company founded and established in the year 1907 is known to beone of the leading steel giants in the country offering multiple productsand successfully running many subsidiary corporations. Being a largeentity does not stop things from being subject to scrutiny and internalaudit. They are regularly implemented with the help of committees whoreport to the selected members from the senior management. Thecompany is dedicated to providing laudable services to the stakeholdersimprove on the quality and as thrive for innovations and improvementsconstantly.

BACKGROUND

TATA steel is India’s largest integrated private sector steel company thatstarted its corporate journey in the year 1907. Backed by captive iron oreand coalmines, Tata Steel runs state-of-the-art Cold Rolling Mill complexat Jamshedpur, Eastern India. The enterprise has undergone amodernization programme costing $2.3 billion, resulting in production of steel at the lowest cost in the world. Being a large entity does not stopthings from being subject to scrutiny and internal audit. They are regularlyimplemented with the help of committees who report to the selectedmembers from the senior management. The company is dedicated toproviding laudable services to the stakeholders improve on the qualityand as thrive for innovations and improvements constantly. Tata Steel is arelentless pursuer of excellence. ASPIRE, Tata Steel’s quality initiativedrive combining TPM, Six Sigma, Total Operational Performance,Suggestion Management and Quality Circles has reaped rich dividends forthe company.

Tata Steel's Jamshedpur plant has a capacity of 4 mn tons per year, andproduces flat as well as long products. Currently, to meet growing

demands, the plant is being expanded to accommodate another million. Tata Steel has set up an ambitious target of 15 mn ton capacity per year



by 2010. As part of its expansion plans the company recently madeinvestments in NatSteel Singapore, which will expand its footprint in sixcountries in the Asia Pacific region and China.

Tata Steel's products include hot and cold rolled coils and sheets,

galvanized sheets, tubes, wire rods, construction re-bars, rings andbearings. The company has introduced brands like Tata Steelium (theworld's first branded Cold Rolled Steel), Tata Shaktee (GalvanizedCorrugated Sheets), Tata Tiscon (re-bars), Tata Pipes, Tata Bearings, TataAgrico (hand tools and implements) and Tata Wiron (galvanized wireproducts). The Construction Solution Group explores new avenues forsteel utilization by techniques that are economical. Tata Steel has alsodeveloped 'galvannealed' cold rolled steel with technical assistance fromNippon steel for high-end auto applications.

ERP IMPLEMENTATION

TISCO deserves lot of credit for implementing ERP because of thefact that many organizations in the global level have given up the veryidea of ERP due to the fact that there are lots of failures associated with iteven in the implementation stage. ERP implementation did in wrongmanner have caused havoc to organizations more than bringing profits. This being the case it is natural to expect a large company (in terms of Size and volume of operations) like TISCO to discourage the idea of Enterprise resource planning. However TISCO proved to be different fromthe others by choosing ERP in the right time and implementing it in aproper manner. They have also reported a whooping profit and reductionof costs in the whole process. Another amazing fact is that theyimplemented it into the whole systems in one single spree. The method of implementing it in one spree carries a lot of risks especially for a biggercompany. Infact the success rate of this method itself is low in generaland very low as far as bigger companies are concerned. Incase of the raresuccess organizations will experience effective results in their enterpriseoperations. TISCO has achieved that by way of meticulous handling and

professionalism. The net results of their ERP software have beendescribed to be pathbreaking and a trendsetting one.

WHY ERP IN TISCO

TISCO faced two major problems from the systems that existed for a longtime. Firstly they were not customer friendly. The whole system was tunedto the process and very little attention was paid to the customerdemands. Secondly the systems were outdates and the modalities of operation were too complex and not error free. In order to rectify these

issues which would otherwise prove to be major setbacks to the companythe organization resolved to take up ERP. This was instigated by the



concerned departments. Leading consultants were hired and the businessstructure was studied and suitable plans were drafted accordingly.

What Should They Do?

Let’s say you’re the CEO of a large multi-national steel company, andyou’re running a global operation with plants on four continents. You needto make good business decisions, and you rely on your IT systems toprovide the data to make those good decisions.

But your IT systems are not well integrated. There are too many differentsystems, and too many gaps between them, a legacy of the company’shistory of mergers, acquisitions, and improvement initiatives. You need acommon information backbone. You’ve heard that ERP systems can dothat, but you’ve also heard about ERP project failures from years ago.

Can ERP handle the challenges of a steel company today? And will thatlead to business benefits for the company? answer are yes, and yes.

Information Systems For A Quickly Changing Steel Industry

In a quickly changing industry like steel, one need information systemswhich quickly provide them the data they need. We believe that ERP,especially in its mature implementations today, is the crucial componentfor a company’s IT data backbone. ERP can play an essential role in:

• Driving accurate and fast decisions (product profitability,procurement spend) with consistently defined data

• Running broadly known and supported applications

• Harmonizing and optimizing back-office processes across theenterprise that comply with finance requirements such as SOX andIFRS

• Enabling best-practice demand planning for supply-chain processes

• Future-proofing global applications that support global enterprises

What is ERP?

ERP or Enterprise Resource Planning is IT software that integratesbusiness activities across an enterprise—from product planning, partspurchasing, inventory control, and product distribution, to order tracking.ERP may also include application modules for the finance, accounting andhuman resources aspects of a business. SAP and Oracle are the two ERPleading vendors.

From a business perspective, ERP today has expanded from simply

coordinating manufacturing processes to being the integrator of enterprise-wide backend processes. ERP has also evolved technologically



from a monolithic legacy implementation into flexible, tiered, client-serverarchitecture.

ERP Project Risks

In the late 1990s many ERP projects started, but more than a few failed.While ERP projects remain challenging even today, most can now besuccessful because the best practices have been identified and ERPprofessionals are more knowledgeable and more experienced with makingthe projects successful.

ERP Business Benefits

ERP is an enabler of business benefits, and should not be viewed as a

standalone initiative with the requirement to pay back its implementationcost. The most immediate ERP benefits include

(1) Improved visibility of procurement spend and savings from improvedsourcing policies,(2) Decrease of work-in progress and days-of-sale-outstanding,(3) Improved productivity through better sales order handling, betterprocurement operations and more efficient planning.

However, the most important business benefits will often be delivered

after the ERP backbone is established, by other initiatives that use theERP backbone:

• Integrated supply chain: from network planning through schedulingand Manufacturing Execution Systems (MES)

• Easier integration of business processes with business partners

• Shared services and outsourcing of support functions

• Increased information transparency to enable better decisions

• Agility in acquisitions and “carve-outs” or divestments

• Increased regulatory compliance

• Robust and future-proofed backbone systems

There are cost savings on the IT side, often around 10-15%, especiallywhen different ERP implementations are being harmonized. These ITsavings include:

• Reduced ERP implementation costs due to a common template

• Reduced application maintenance costs

• Lower integration cost due to standard interfaces

• Lower infrastructure costs

With an awareness of the best practices and a good understanding of ERPproject complexities, the risks in an ERP implementation are usually



drive production, shipping and purchasing processes across the supplychain

Challenge 3: Flexible planning

Planning for steelmaking often needs to happen on short notice, withunstable production processes and unplanned outputs. This requirescontinuous re-assignment of products to processes and orders dependenton the Characteristics described above. ERP systems today allow re-assigning flexibly to handle these situations.

Challenge 4: Specific Customer Service Requirements

To cope with high-demanding customer segments such as automotive andconstruction, tight integration with business partners on forecasts,electronic customer orders (EDI, internet etc.) are typically needed. ERPsystems today support electronic integration with partners.

Challenge 5: Complex production scheduling combiningboth continuous and batch production

Figure 2 below illustrates the flow in a typical steel mill. While the blastfurnace and converter work in batches, the caster works continuously and

the finishing lines work in batches again.



The batches need to be selected based on characteristics duringproduction, preparation and shipment planning. This means that theplanning process needs to be able to derive batches with characteristicsinheritance and history tracing. Finally, the scheduling part of the planningsystem needs to be able to work with multiple and dynamic bottlenecks –that is, bottlenecks which can change based on incidents such asproduction problems in certain process steps. ERP systems today canhandle all of these situations.

Challenge 6: Detailed margin analysis

In today’s steel industry when prices are high and capacity short, marginanalysis becomes the essential method to tell what money is being made



on which customer/product segments. On top of segment analysis, it isalso essential to differentiate between “strategic materials” (cokes andore, Ni and Cr for stainless) and the other cost elements that may beeasier to control. ERP systems provide the tools to support thesedecisions.

The ERP system will also need to work closely with the company’sBusiness Information Systems (BIS) to optimize the business benefits.Working together, the ERP and BIS systems can, for example, improveinventory allocation to late orders.

Integrated IT Model for Steel

An integrated IT model as in Figure 3 is important because it lets you seethe systems involved in planning and production. A typical flow would be:

• The Supply Chain Management (SCM) application provides therough-cut planning in “Demand Planning.” The result is planningblocks of similar products which are then handed over to productionplanning.

• When orders are being entered, availability checks assign the orderto a block (unless inventory already exists that meets the order) andfeeds back a promise date (at the end of the block to allow for theflexibility of possibly moving to an earlier date).

• The mill optimizer then typically would re-shuffle orders in betweenthe blocks, and feed results back into the SCM application in orderto optimize the load balancing.

• Right before production starts, planned orders from the SCMapplication are converted into production orders and, via the ERPsystem, are transferred into the MES layer. It is at that time whenquantities are being translated into pieces (slabs, coils etc.).

• Detailed scheduling then takes place, sequencing and combiningpieces from various orders throughout the mill into lots foroptimization.

• Production completion then posts an updated status of the ordersinto the ERP system, including stock receipts of finished products,and so forth.



Figure 3 is also important because it lets you identify gaps among acompany’s different IT systems. A typical gap occurs between the ERP andMES (process control and machine control) systems, where the “system”is actually combination of custom-built applications and manual

spreadsheets. “Bridging this gap” properly is essential forrealizing thebusiness benefits of the IT investments.

If the applications in Figure 3 are to provide true value, they need to berobust, integrated and cost efficient. A recent IBM survey indicates thatsteel clients process control and MES systems are custom-builtapplications 66% of the time, and that these custom-built applicationsusually differ from mill to mill. Clearly, this risks creating sub-optimalprocesses and leaves the company open to all the problems of maintaining custom-built, legacy applications.

Implementation Approaches for ERP

The key element for ERP success is to know how to implement an ERPproject. Past experiences recommends best practices such as:

• Rapid/realistic project timelines due to external pressures(acquisition synergies, legal reorganization)

• Command-and-control approaches from a central projectmanagement office

• A global business process owner who has the authority and

credibility to approve process designs and business model/organization changes



However, there’s much more to it than these few general principles.Implementing ERP is complex and takes a team of knowledgeable andexperienced ERP professionals to successfully implement an ERP project.

Implementation Process At Tata Steel The company knew well that they had a tough time especially toimplement the software in one stroke. They had to choose top ERPsoftware in order to ensure that it meets the demands of a big firm like TISCO. They went ahead with associating and implanting TISCO to all thestakeholders so that they become compatible. These ideas alsocontributed to the success. They were also shrewd enough in adopting themodern and most recent technology available in the market. The periodset for implementation seemed to be another major challenge. The timegranted for the process was 8 months.

The business process was divided into two main segments. The corefunctions were denoted to be major ones. Similarly the supportingfunctions were named minor ones. A plan of action on the proposed ERP'simpact was drafted depicting their relation to one another and to thebusiness process. All of them were made to bear in mind the fact thatERP's implementation was imperative and that the deadlines were notvery comfortable. The company took all efforts to ensure that the changedid not produce any sort of resentment in the organization. This was doneby educating everyone on the need and desirability of change. In additionall apprehensions relating to change werediscussed and clarifications made to the fullest satisfaction.

It sounds almost Utopian doesn't it? But that's exactly the result of TISCO's ERP implementation completed within eight months. TISCO isAsia's first and India's largest integrated private sector steel company. Ithas a state-of-the-art 3.5 million tonne steel plant and is capable of meeting the most rigorous demands of its customers worldwide.

The company adopted ERP technology to take a lead in the competitive

steel industry and through constant learning, innovation and refinementof its business operations, has transited seamlessly from a production-driven company to a customer-driven one. The existing technology was asimple replication of the manual system. Not only did it operate asindividual islands of information but the technology had outlived itslifetime and was completely obsolete. The employees and management at TISCO faced a cumbersome task exchanging and retrieving informationfrom the system.

Further, the reliability of information obtained was questionable becauseof inconsistency and duplication of data from different departments. Also

there was no built-in integrity check for various data sources. Besides,several times the information against certain items was found missing.



An Early Response

Responding to changing customer needs started as early as 1991, with astudy on cost competitiveness and a formal business plan, followed by ISO9002 certification and benchmarking initiatives. Realizing the need tofurther support the re-engineered core processes and quickly align thebusiness processes to radical changes in the market place, Tata steeldecided to go for a new robust solution.

Design

In 1998-99 a small cross-functional in-house team along with consultantsfrom Arthur D. Little (Strategy Consultants) and IBM Global Services (BPRConsultants) redesigned the two core business processes: OrderGeneration & Fulfillment and the Marketing Development processes. This

was done to improve customer focus, facilitating better credit control, andreduction of stocks. In keeping with this commitment it adopted the latestproduction and business practices to offer innovative processes that meetthe changing demands of its global and local customers.

Choosing The Platform And Technology

The management at Tata Steel wanted the software to seamlesslyintegrate with its existing information system and further providecompatibility with its future implementations. After an in-depth study of

functionality, cost, time, compatibility, esteem, operability, support andfuture organizational requirements was done, SAP topped the list of contenders.

The implementation of SAP software was associated with certain strategicgoals in mind. With this implementation, TISCO wanted to bring forth aculture of continuous learning and change. This would enable TISCO toachieve a world-class status for its products and services and strengthenits leadership position in the industry. Besides this, TISCO also wanted thesoftware to result in quick decision-making, transparency and credibility of data and improve responsiveness to customers across all areas.

The Real Challenge

B Muthuraman, MD (Designate), said, "Implementing any ERP system is achallenge for an organization because of the declining success rate of ERPimplementations world-wide.” The challenge is compounded if the ERPprovider is a world leader - SAP. At Tata Steel however the real challengefor us did not lie in successfully implementing SAP or in rolling it out to our46-odd geographic locations across the country under a big bangapproach in just eight months. The real challenge lay ahead in building a

conducive environment where SAP will be embedded in the hearts andminds of the people and the customers of Tata steel. They all looked



forward to knowledge-based, successful organization. It is inspiring toknow that our TEAM ASSET with support from Pricewaterhouse Coopersand SAP successfully lived up to our axiom and truly demonstratedleadership skills by going live across 46 locations within a record timeframe of eight months.

Mapping Technology To Business Processes

The path was set to achieve success through SAP. All the branches, whichhad huge numbers of transactions and complexity, were identified as aHUB while the smaller branches along with the consignment agents weredefined as SPOKES which were attached to these branches. In January 99the team from TISCO was decided and christened 'TEAM ASSET' anacronym for Achieve Success through SAP Enabled Transformation. The TEAM ASSET had two simple axioms:

• Go-Live date - 1st November 1999• There are only 24 hours a day

Preparatory task forces activities were conducted and core businessprocesses were mapped to SAP modules. Also another parallel activitycalled 'Change Management' was initiated within the company. The primeobjective of 'Change Management' was to reach out to people involvednon-directly in the project to apprise them of the developments takingplace. "We wanted that Tata Steel be the number one in the steelindustry…we wanted to be the first to have the latest systems…" said Mr.

Sandipan Chakravortty, GM (Sales), TISCO.

Tata Steel planned a big-bang approach of going live with all the modulesat the same time, in just a span of eight months. Driven against the speedof time, the pace of implementation was fast with all activities backed bya lot of thought process and meticulous planning. On 1st November 1999 Tata Steel pulled off a big bang implementation of all SAP modules at onego across 46 countrywide locations, as per the set deadline.

Achieving Business Agility Through SAP

Marching ahead, Web enabling of SAP R/3 is on the cards. On the surface,it means it would allow anyone to access our SAP R/3 over the Internet.But beneath it, the implications are tremendous, as it would result insharing of information with enterprise accounts and key customers. Thesuccess in Marketing and Sales has prompted a re-visit of the existingsystem in the works and a detailed rollout is expected as below.

• Phase I - To Extend SAP in Works with FI, CO, MM, PP & QM• Phase II - To implement SAP modules such as Asset Management &

Budget management sub-modules of FICO, Plant maintenance,

Human Resources, Production Optimizer (such as SAP APO)• Phase III - SEM (Strategic Enterprise Management)



The company also plans to adopt the my SAP Customer RelationshipManagement solution to enhance its customer relationships in the nearterm and eventually realize its dream of a becoming the most efficientand competitive company in the world in its vertical.

ARCHITECTURE AT TATA STEEL

Major IT initiatives and implementations at

Tata SteelSAP R/3 in Sales, Procurement, Finance and Accounting,Production Planning Systems for Steel plants using the APOmodule of SAP

Baan at Tisco growth shop and in spares manufacturing unit

Workflow, Document Management, Collaboration using LotusNotes

Data Warehousing and Data Mining for manufacturing processes

E-procurement, e-auction, and other e-enablement initiatives

Knowledge Management and Intranet

Videoconferencing, live video streaming for improved



communication across geographies

VoIP, Wi-Fi, integration with cell phones and PDAs to supportmobile computing

THE OUTCOME

In a Nutshell•

The Company TISCO is Asia's first and India's largestintegrated private sector steel company. It ispresent in 46 nationwide locations.

• The Need The company wanted to keep its lead in thecompetitive steel industry through constantlearning, innovation, and refinement of itsbusiness operations. It had to transit from a

production-driven company to a customer-driven one. The legacy systems had outlived itslife and was quite obsolete.

• The SolutionAn ERP SAP R/3 was deployed in a 'big bang'approach across all its locations nationwide.

• The BenefitsThe company now has efficient businessprocesses, enhanced customer service, reduced

costs, improved productivity, acceleratedtransaction time, workflow management andreduction in the number of credit managementerrors. There have also been significant savingsin manpower, inventory levels, and resources



SAP ERP solutions produced a remarkable result to the company in termsof financial technical and managerial parameters. The effective handlingand speed delivery resulted in greater sales .Similarly there was a drasticfall in the amount owned to creditors. The systems were made more userfriendly without any complexities and procedural lacunas. This improved

the quality of work and lessened the time taken for work and therebyincreased the productivity. This was followed by a massive change interms of accountability administration and control.

"Post the introduction of the ERP solution, the results have been terrific. Tisco has spent close to Rs 40 crore on its implementation and has savedRs 33 crore within a few months," said Ramesh C. Nadrajog, VicePresident, Finance. "The manpower cost has reduced from over $200 perton two years ago, to about $140 per ton in 2000. The overdueoutstanding has been brought down from Rs 5,170 million in 1999 to Rs4,033 million by June 2000. The inventory carrying cost has drasticallydeflated from Rs 190 per ton to Rs 155 per ton. To add to this, there havebeen significant costs savings through management of resources with theimplementation of SAP. With SAP's solution Tata Steel can now updatetheir customers on a daily basis and provide seamless services across thecountry improving customer management. The availability of onlineinformation has facilitated quicker and reliable trend analysis for efficientdecision-making. Besides the streamlined business process reduces thelevels of legacy system and also provides consistent business practicesacross locations and excellent audit trail of all transactions.

Future Moves This exercise undertaken by TISCO has been a motivating factor for both

companies and ERP vendors. TISCO is not determined to stop ERP or

attain a saturation point now. They are working on to improve and

increase the scopes of enterprise resource planning software in the

organization so that it benefits the stakeholders in all possible manners.

Organizations can take this as a model guide and combine it with the

critical success factors for ERP systems and critical success factors for ERP

implementation in order to enjoy ERP success.

Conclusion

ERP is a key backbone application for companies in a fast changingindustry like steel. Given an awareness of the best practices and a goodunderstanding of the project complexities, the risks in an ERPimplementation are usually outweighed by the benefits. The ERPdiscussion is often one of mindset more than one of standalone businesscases. While implementing ERP can be challenging and demandssustained commitment from top executive levels, it is fundamental to

enhancing the competitive position of a company in the dynamicenvironment of the steel industry today.

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