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    [22nd Sept 2011]

    ERP IMPLEMENTATION | AMIT NASKAR

    IBS ERP IMPLEMENTATION AT TATA STEEL

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    ERP IMPLEMENTATION AT TATA STEEL

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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 in terms ofmoney and other measures there are lots who have witnessed multiple profits.Studying them will help in understanding the critical success factors for ERPimplementation. They will help in deciding ERP success.

    TISCO PROFILE

    This company founded and established in the year 1907 is known to be one of

    the leading steel giants in the country offering multiple products and successfullyrunning many subsidiary corporations. Being a large entity does not stop thingsfrom being subject to scrutiny and internal audit. They are regularlyimplemented with the help of committees who report to the selected membersfrom the senior management. The company is dedicated to providing laudableservices to the stakeholders improve on the quality and as thrive for innovationsand improvements constantly.

    BACKGROUND

    TATA steel is Indias largest integrated private sector steel company that startedits corporate journey in the year 1907. Backed by captive iron ore andcoalmines, Tata Steel runs state-of-the-art Cold Rolling Mill complex at

    Jamshedpur, Eastern India. The enterprise has undergone a modernizationprogramme costing $2.3 billion, resulting in production of steel at the lowest costin the world. Being a large entity does not stop things from being subject toscrutiny and internal audit. They are regularly implemented with the help ofcommittees who report to the selected members from the senior management.

    The company is dedicated to providing laudable services to the stakeholdersimprove on the quality and as thrive for innovations and improvementsconstantly.Tata Steel is a relentless pursuer of excellence. ASPIRE, Tata Steelsquality initiative drive combining TPM, Six Sigma, Total Operational Performance,Suggestion Management and Quality Circles has reaped rich dividends for the

    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, theplant is being expanded to accommodate another million. Tata Steel has set upan ambitious target of 15 mn ton capacity per year by 2010. As part of itsexpansion plans the company recently made investments in NatSteel Singapore,which will expand its footprint in six countries in the Asia Pacific region andChina.

    Tata Steel's products include hot and cold rolled coils and sheets, galvanizedsheets, tubes, wire rods, construction re-bars, rings and bearings. The companyhas introduced brands like Tata Steelium (the world's first branded Cold RolledSteel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata

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    ERP IMPLEMENTATION AT TATA STEELPipes, Tata Bearings, Tata Agrico (hand tools and implements) and Tata Wiron(galvanized wire products). The Construction Solution Group explores newavenues for steel utilization by techniques that are economical. Tata Steel hasalso developed '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 the fact thatmany organizations in the global level have given up the very idea of ERP due tothe fact that there are lots of failures associated with it even in theimplementation stage. ERP implementation did in wrong manner have causedhavoc to organizations more than bringing profits. This being the case it isnatural to expect a large company (in terms of Size and volume of operations)

    like TISCO to discourage the idea of Enterprise resource planning. HoweverTISCO proved to be different from the others by choosing ERP in the right timeand implementing it in a proper manner. They have also reported a whoopingprofit and reduction of costs in the whole process. Another amazing fact is thatthey implemented it into the whole systems in one single spree. The method ofimplementing it in one spree carries a lot of risks especially for a biggercompany. Infact the success rate of this method itself is low in general and verylow as far as bigger companies are concerned. Incase of the rare successorganizations will experience effective results in their enterprise operations.

    TISCO has achieved that by way of meticulous handling and professionalism. Thenet results of their ERP software have been described to be pathbreaking and a

    trendsetting one.

    WHY ERP IN TISCO

    TISCO faced two major problems from the systems that existed for a long time.Firstly they were not customer friendly. The whole system was tuned to theprocess and very little attention was paid to the customer demands. Secondlythe systems were outdates and the modalities of operation were too complexand not error free. In order to rectify these issues which would otherwise proveto be major setbacks to the company the organization resolved to take up ERP.

    This was instigated by the concerned departments. Leading consultants were

    hired and the business structure was studied and suitable plans were draftedaccordingly.

    What Should They Do?

    Lets say youre the CEO of a large multi-national steel company, and yourerunning a global operation with plants on four continents. You need to makegood business decisions, and you rely on your IT systems to provide the data tomake 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 companys history of

    mergers, acquisitions, and improvement initiatives. You need a common

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    ERP IMPLEMENTATION AT TATA STEELinformation backbone. Youve heard that ERP systems can do that, but youvealso heard about ERP project failures from years ago.

    Can ERP handle the challenges of a steel company today? And will that lead tobusiness 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 systems whichquickly provide them the data they need. We believe that ERP, especially in itsmature implementations today, is the crucial component for a companys IT databackbone. ERP can play an essential role in:

    Driving accurate and fast decisions (product profitability, procurementspend) with consistently defined data

    Running broadly known and supported applications

    Harmonizing and optimizing back-office processes across the enterprisethat comply with finance requirements such as SOX and IFRS

    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 integrates businessactivities across an enterprisefrom product planning, parts purchasing,inventory control, and product distribution, to order tracking. ERP may alsoinclude application modules for the finance, accounting and human resourcesaspects of a business. SAP and Oracle are the two ERP leading vendors.

    From a business perspective, ERP today has expanded from simply coordinatingmanufacturing processes to being the integrator of enterprise-wide backendprocesses. ERP has also evolved technologically from a monolithic legacyimplementation into flexible, tiered, client-server architecture.

    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 be successfulbecause the best practices have been identified and ERP professionals are moreknowledgeable and more experienced with making the projects successful.

    ERP BUSINESS BENEFITS

    ERP is an enabler of business benefits, and should not be viewed as a standaloneinitiative with the requirement to pay back its implementation cost. The mostimmediate ERP benefits include

    (1) Improved visibility of procurement spend and savings from improved

    sourcing policies,(2) Decrease of work-in progress and days-of-sale-outstanding,

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    ERP IMPLEMENTATION AT TATA STEEL(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 the ERP backbone:

    Integrated supply chain: from network planning through scheduling andManufacturing 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%, especially whendifferent ERP implementations are being harmonized. These IT savingsinclude:

    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 outweighedby the benefits. The ERP discussion on investment return is one of mindset more

    than one of standalone business cases.

    SIX ERP DESIGN CHALLENGES FOR STEEL COMPANIES

    A steel company presents six industry-specific design challenges forimplementing ERP, as described below. A successful ERP project will start byanalyzing these challenges in detail across all of the companys integratedprocesses. This analysis will result in the basic decisions that will be thefoundation of the ERP project.

    Challenge 1: More than one planning strategy

    Steelmakers often use a combination of production planning strategies. Typicallythe flat or strip products are make-to-order, whereas the long products are maketo- stock. Depending on the existence of a de-couple point, finish-to-ordercould be a relevant planning strategy as well. Such a combination of planningstrategies affects the design of most ERP processes, including supply chainprocesses as well as the financial/cost control processes. Cost control in make-to-stock tends to go for standard price approaches, but in a make-to-orderenvironment costing happens on an individual order cost collection and forecastbasis. ERP systems today can handle this kind of complexity.

    Challenge 2: Complex product variations

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    ERP IMPLEMENTATION AT TATA STEELA steel product is made up of a large number of characteristics, making theproduct difficult to configure when entering it in the ERP system. Configuration inthe make-to-order entries is typically done while entering the order, whereas forthe make-to-stock entries, configuration is done in the product definition, that is,on the material master.

    This burdens the early discussions during the design phase of an ERPimplementation. Fundamental decisions need to be made very early in theproject about how many (finished product) materials should be defined: oneextreme is to define by material group which needs to be configured completelyin the order, or the other end of the spectrum is to define all possible/feasiblecharacteristic combinations which can possibly explode into an extremely largenumber of finished product definitions.

    A steel product tend to explode towards the end of production processing; inother words, the bill of material stands on its head or is v-shaped, as shownin Figure 1. This means that the later in the process you define a product, thehigher the number of products to be defined becomes. ERP solutions today canreadily handle the complexities this of the V-shaped bill of material. They allowcharacteristics based product configuration with automatic deduction ofcharacteristics, characteristic value inheritance from sales order header to itemlevel, entry of multiple order units such as pieces, tons, dimensions, and so on.Characteristics then drive production, shipping and purchasing processes acrossthe supply chain

    Challenge 3: Flexible planning

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    ERP IMPLEMENTATION AT TATA STEELPlanning for steelmaking often needs to happen on short notice, with unstableproduction processes and unplanned outputs. This requires continuous re-assignment of products to processes and orders dependent on theCharacteristics described above. ERP systems today allow re-assigning flexibly tohandle 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, electroniccustomer orders (EDI, internet etc.) are typically needed. ERP systems todaysupport electronic integration with partners.

    Challenge 5: Complex production scheduling combining both continuous andbatch production

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

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    ERP IMPLEMENTATION AT TATA STEEL

    The batches need to be selected based on characteristics during production,preparation and shipment planning. This means that the planning process needsto be able to derive batches with characteristics inheritance and history tracing.Finally, the scheduling part of the planning system needs to be able to work withmultiple and dynamic bottlenecks that is, bottlenecks which can change basedon incidents such as production problems in certain process steps. ERP systemstoday can handle all of these situations.

    Challenge 6: Detailed margin analysis

    In todays steel industry when prices are high and capacity short, margin

    analysis becomes the essential method to tell what money is being made onwhich customer/product segments. On top of segment analysis, it is also

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    ERP IMPLEMENTATION AT TATA STEELessential to differentiate between strategic materials (cokes and ore, Ni and Crfor stainless) and the other cost elements that may be easier to control. ERPsystems provide the tools to support these decisions.

    The ERP system will also need to work closely with the companys Business

    Information Systems (BIS) to optimize the business benefits. Working together,the ERP and BIS systems can, for example, improve inventory allocation to lateorders.

    INTEGRATED IT MODEL FOR STEEL

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

    The Supply Chain Management (SCM) application provides the rough-cut

    planning in Demand Planning. The result is planning blocks of similarproducts which are then handed over to production planning.

    When orders are being entered, availability checks assign the order to ablock (unless inventory already exists that meets the order) and feedsback a promise date (at the end of the block to allow for the flexibility ofpossibly moving to an earlier date).

    The mill optimizer then typically would re-shuffle orders in between theblocks, and feed results back into the SCM application in order to optimizethe load balancing.

    Right before production starts, planned orders from the SCM applicationare converted into production orders and, via the ERP system, aretransferred into the MES layer. It is at that time when quantities are beingtranslated into pieces (slabs, coils etc.).

    Detailed scheduling then takes place, sequencing and combining piecesfrom various orders throughout the mill into lots for optimization.

    Production completion then posts an updated status of the orders into theERP system, including stock receipts of finished products, and so forth.

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    ERP IMPLEMENTATION AT TATA STEEL

    Figure 3 is also important because it lets you identify gaps among a companysdifferent IT systems. A typical gap occurs between the ERP and MES (processcontrol and machine control) systems, where the system is actuallycombination of custom-built applications and manual spreadsheets. Bridging

    this gap properly is essential forrealizing the business benefits of the ITinvestments.

    If the applications in Figure 3 are to provide true value, they need to be robust,integrated and cost efficient. A recent IBM survey indicates that steel clientsprocess control and MES systems are custom-built applications 66% of the time,and that these custom-built applications usually differ from mill to mill. Clearly,this risks creating sub-optimal processes and leaves the company open to all theproblems of maintaining custom-built, legacy applications.

    IMPLEMENTATION APPROACHES FOR ERP

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

    Rapid/realistic project timelines due to external pressures (acquisitionsynergies, legal reorganization)

    Command-and-control approaches from a central project managementoffice

    A global business process owner who has the authority and credibility toapprove process designs and business model/ organization changes

    However, theres 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.

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    ERP IMPLEMENTATION AT TATA STEEL

    IMPLEMENTATION PROCESS AT TATA STEEL

    The company knew well that they had a tough time especially to implement thesoftware in one stroke. They had to choose top ERP software in order to ensurethat it meets the demands of a big firm like TISCO. They went ahead with

    associating and implanting TISCO to all the stakeholders so that they becomecompatible. These ideas also contributed to the success. They were also shrewdenough in adopting the modern and most recent technology available in themarket. The period set for implementation seemed to be another majorchallenge. The time granted for the process was 8 months.

    The business process was divided into two main segments. The core functionswere denoted to be major ones. Similarly the supporting functions were namedminor ones. A plan of action on the proposed ERP's impact was drafted depictingtheir relation to one another and to the business process. All of them were madeto bear in mind the fact that ERP's implementation was imperative and that thedeadlines were not very comfortable. The company took all efforts to ensure that

    the change did not produce any sort of resentment in the organization. This wasdone by 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 ERPimplementation completed within eight months. TISCO is Asia's first and India'slargest integrated private sector steel company. It has a state-of-the-art 3.5million tonne steel plant and is capable of meeting the most rigorous demands ofits customers worldwide.

    The company adopted ERP technology to take a lead in the competitive steelindustry and through constant learning, innovation and refinement of itsbusiness operations, has transited seamlessly from a production-driven companyto a customer-driven one. The existing technology was a simple replication of themanual system. Not only did it operate as individual islands of information butthe technology had outlived its lifetime and was completely obsolete. Theemployees and management at TISCO faced a cumbersome task exchanging andretrieving information from the system.

    Further, the reliability of information obtained was questionable because ofinconsistency and duplication of data from different departments. Also there was

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

    An Early Response

    Responding to changing customer needs started as early as 1991, with a studyon cost competitiveness and a formal business plan, followed by ISO 9002certification and benchmarking initiatives. Realizing the need to further supportthe re-engineered core processes and quickly align the business processes toradical changes in the market place, Tata steel decided to go for a new robustsolution.

    Design

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    ERP IMPLEMENTATION AT TATA STEELIn 1998-99 a small cross-functional in-house team along with consultants fromArthur D. Little (Strategy Consultants) and IBM Global Services (BPR Consultants)redesigned the two core business processes: Order Generation & Fulfillment andthe Marketing Development processes. This was done to improve customerfocus, facilitating better credit control, and reduction of stocks. In keeping with

    this commitment it adopted the latest production and business practices to offerinnovative processes that meet the changing demands of its global and localcustomers.

    Choosing The Platform And Technology

    The management at Tata Steel wanted the software to seamlessly integrate withits existing information system and further provide compatibility with its futureimplementations. After an in-depth study of functionality, cost, time,compatibility, esteem, operability, support and future organizationalrequirements was done, SAP topped the list of contenders.

    The implementation of SAP software was associated with certain strategic goalsin mind. With this implementation, TISCO wanted to bring forth a culture ofcontinuous learning and change. This would enable TISCO to achieve a world-class status for its products and services and strengthen its leadership position inthe industry. Besides this, TISCO also wanted the software to result in quickdecision-making, transparency and credibility of data and improveresponsiveness 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 ERP provideris a world leader - SAP. At Tata Steel however the real challenge for us did not liein successfully implementing SAP or in rolling it out to our 46-odd geographiclocations across the country under a big bang approach in just eight months. Thereal challenge lay ahead in building a conducive environment where SAP will beembedded in the hearts and minds of the people and the customers of Tatasteel. They all looked forward to knowledge-based, successful organization. It isinspiring to know that our TEAM ASSET with support from PricewaterhouseCoopers and SAP successfully lived up to our axiom and truly demonstratedleadership skills by going live across 46 locations within a record time frame of

    eight months.

    Mapping Technology To Business Processes

    The path was set to achieve success through SAP. All the branches, which hadhuge numbers of transactions and complexity, were identified as a HUB while thesmaller branches along with the consignment agents were defined as SPOKESwhich were attached to these branches. In January 99 the team from TISCO wasdecided and christened 'TEAM ASSET' an acronym for Achieve Success throughSAP Enabled Transformation. The TEAM ASSET had two simple axioms:

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

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    ERP IMPLEMENTATION AT TATA STEELPreparatory task forces activities were conducted and core business processeswere mapped to SAP modules. Also another parallel activity called 'ChangeManagement' was initiated within the company. The prime objective of 'ChangeManagement' was to reach out to people involved non-directly in the project toapprise them of the developments taking place. "We wanted that Tata Steel be

    the number one in the steel industrywe wanted to be the first to have thelatest systems" said Mr. Sandipan Chakravortty, GM (Sales), TISCO.

    Tata Steel planned a big-bang approach of going live with all the modules at thesame time, in just a span of eight months. Driven against the speed of time, thepace of implementation was fast with all activities backed by a lot of thoughtprocess and meticulous planning. On 1st November 1999 Tata Steel pulled off abig bang implementation of all SAP modules at one go across 46 countrywidelocations, 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, itmeans it would allow anyone to access our SAP R/3 over the Internet. Butbeneath it, the implications are tremendous, as it would result in sharing ofinformation with enterprise accounts and key customers. The success inMarketing and Sales has prompted a re-visit of the existing system in the worksand 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 near term andeventually realize its dream of a becoming the most efficient and competitivecompany in the world in its vertical.

    ARCHITECTURE AT TATA STEEL

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    ERP IMPLEMENTATION AT TATA STEEL

    Major IT initiatives and implementations at Tata Steel

    SAP R/3 in Sales, Procurement, Finance and Accounting, ProductionPlanning Systems for Steel plants using the APO module of SAP

    Baan at Tisco growth shop and in spares manufacturing unit

    Workflow, Document Management, Collaboration using Lotus Notes

    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 communicationacross geographies

    VoIP, Wi-Fi, integration with cell phones and PDAs to support mobilecomputing

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    ERP IMPLEMENTATION AT TATA STEEL

    THE OUTCOME

    SAP ERP solutions produced a remarkable result to the company in terms offinancial technical and managerial parameters. The effective handling and speeddelivery resulted in greater sales .Similarly there was a drastic fall in the amountowned to creditors. The systems were made more user friendly without anycomplexities and procedural lacunas. This improved the quality of work andlessened the time taken for work and thereby increased the productivity. This

    was followed by a massive change in terms of accountability administration andcontrol.

    "Post the introduction of the ERP solution, the results have been terrific. Tiscohas spent close to Rs 40 crore on its implementation and has saved Rs 33 crorewithin a few months," said Ramesh C. Nadrajog, Vice President, Finance. "Themanpower cost has reduced from over $200 per ton two years ago, to about$140 per ton in 2000. The overdue outstanding has been brought down from Rs5,170 million in 1999 to Rs 4,033 million by June 2000. The inventory carryingcost has drastically deflated from Rs 190 per ton to Rs 155 per ton. To add tothis, there have been significant costs savings through management of resourceswith the implementation 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 online information

    In a Nutshell

    The CompanyTISCO is Asia's first and India's largest integrated privatesector steel company. It is present in 46 nationwidelocations.

    The NeedThe company wanted to keep its lead in the competitivesteel industry through constant learning, innovation, andrefinement of its business operations. It had to transit froma production-driven company to a customer-driven one. Thelegacy systems had outlived its life and was quite obsolete.

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

    The BenefitsThe company now has efficient business processes,enhanced customer service, reduced costs, improvedproductivity, accelerated transaction time, workflowmanagement and reduction in the number of creditmanagement errors. There have also been significantsavings in manpower, inventory levels, and resources

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    ERP IMPLEMENTATION AT TATA STEELhas facilitated quicker and reliable trend analysis for efficient decision-making.Besides the streamlined business process reduces the levels of legacy systemand also provides consistent business practices across locations and excellentaudit 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 changing industry likesteel. Given an awareness of the best practices and a good understanding of theproject complexities, the risks in an ERP implementation are usually outweighedby the benefits. The ERP discussion is often one of mindset more than one ofstandalone business cases. While implementing ERP can be challenging anddemands sustained commitment from top executive levels, it is fundamental toenhancing the competitive position of a company in the dynamic environment ofthe steel industry today.