ERP IMPLEMENTATION AT TATA STEEL
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 that decide the regular functioning of ERP in organizations. While many organizations have not incurred the necessary benefit in terms of money and other measures there are lots who have witnessed multiple profits. Studying them will help in understanding the critical success factors for ERP implementation. 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 successfully running many subsidiary corporations. Being a large entity does not stop things from being subject to scrutiny and internal audit. They are regularly implemented with the help of committees who report to the selected members from the senior management. The company is dedicated to providing laudable services to the stakeholders improve on the quality and as thrive for innovations and improvements constantly. BACKGROUND TATA steel is India’s largest integrated private sector steel company that started its corporate journey in the year 1907. Backed by captive iron ore and coalmines, Tata Steel runs state-of-the-art Cold Rolling Mill complex at Jamshedpur, Eastern India. The enterprise has undergone a modernization programme costing $2.3 billion, resulting in production of steel at the lowest cost in the world. Being a large entity does not stop things from being subject to scrutiny and internal audit. They are regularly implemented with the help of committees who report to the selected members from the senior management. The company is dedicated to providing laudable services to the stakeholders improve on the quality and as thrive for innovations and improvements constantly. Tata Steel is a relentless pursuer of excellence. ASPIRE, Tata Steel’s quality 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, and produces 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 made investments in NatSteel Singapore, which will expand its footprint in six countries 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 and bearings. The company has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata
ERP IMPLEMENTATION AT TATA STEEL Pipes, Tata Bearings, Tata Agrico (hand tools and implements) and Tata Wiron (galvanized wire products). The Construction Solution Group explores new avenues for steel utilization by techniques that are economical. Tata Steel has also developed 'galvannealed' cold rolled steel with technical assistance from Nippon steel for high-end auto applications.
ERP IMPLEMENTATION
TISCO deserves lot of credit for implementing ERP because of the fact that many organizations in the global level have given up the very idea of ERP due to the fact that there are lots of failures associated with it even in the implementation stage. ERP implementation did in wrong manner 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 from the others by choosing ERP in the right time and implementing it in a proper manner. They have also reported a whooping profit and reduction of costs in the whole process. Another amazing fact is that they implemented 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 bigger company. Infact the success rate of this method itself is low in general and very low as far as bigger companies are concerned. Incase of the rare success organizations will experience effective results in their enterprise operations. TISCO has achieved that by way of meticulous handling and professionalism. The net 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 the process and very little attention was paid to the customer demands. 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 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 drafted accordingly. What Should They Do? Let’s say you’re the CEO of a large multi-national steel company, and you’re running a global operation with plants on four continents. You need to make good business decisions, and you rely on your IT systems to provide the data to make those good decisions. But your IT systems are not well integrated. There are too many different systems, and too many gaps between them, a legacy of the company’s history of mergers, acquisitions, and improvement initiatives. You need a common
ERP IMPLEMENTATION AT TATA STEEL information backbone. You’ve heard that ERP systems can do that, but you’ve also heard about ERP project failures from years ago. Can ERP handle the challenges of a steel company today? And will that lead 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 systems which quickly provide them the data they need. We believe that ERP, especially in its mature implementations today, is the crucial component for 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 the enterprise that 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 business activities across an enterprise—from product planning, parts purchasing, inventory control, and product distribution, to order tracking. ERP may also include application modules for the finance, accounting and human resources aspects of a business. SAP and Oracle are the two ERP leading 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-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 successful because the best practices have been identified and ERP professionals are more knowledgeable 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 standalone initiative with the requirement to pay back its implementation cost. The most immediate 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,
ERP IMPLEMENTATION AT TATA STEEL (3) Improved productivity through better sales procurement operations and more efficient planning.
order
handling,
better
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 and 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%, especially when different ERP implementations are being harmonized. These IT savings 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 ERP project complexities, the risks in an ERP implementation are usually outweighed by 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 for implementing ERP, as described below. A successful ERP project will start by analyzing these challenges in detail across all of the company’s integrated processes. This analysis will result in the basic decisions that will be the foundation of the ERP project. Challenge 1: More than one planning strategy
Steelmakers often use a combination of production planning strategies. Typically the flat or strip products are make-to-order, whereas the long products are make to- stock. Depending on the existence of a “de-couple point”, finish-to-order could be a relevant planning strategy as well. Such a combination of planning strategies affects the design of most ERP processes, including supply chain processes as well as the financial/cost control processes. Cost control in make-tostock tends to go for standard price approaches, but in a make-to-order environment costing happens on an individual order cost collection and forecast basis. ERP systems today can handle this kind of complexity. Challenge 2: Complex product variations
ERP IMPLEMENTATION AT TATA STEEL A steel product is made up of a large number of characteristics, making the product difficult to configure when entering it in the ERP system. Configuration in the make-to-order entries is typically done while entering the order, whereas for the 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 ERP implementation. Fundamental decisions need to be made very early in the project about how many (finished product) materials should be defined: one extreme is to define by material group which needs to be configured completely in the order, or the other end of the spectrum is to define all possible/feasible characteristic combinations which can possibly explode into an extremely large number of finished product definitions. A steel product tend to explode towards the end of production processing; in other words, the bill of material “stands on its head” or is “v-shaped,” as shown in Figure 1. This means that the later in the process you define a product, the higher the number of products to be defined becomes. ERP solutions today can readily handle the complexities this of the V-shaped bill of material. They allow “characteristics based product configuration” with automatic deduction of characteristics, characteristic value inheritance from sales order header to item level, entry of multiple order units such as pieces, tons, dimensions, and so on. Characteristics then drive production, shipping and purchasing processes across the supply chain
Challenge 3: Flexible planning
ERP IMPLEMENTATION AT TATA STEEL Planning for steelmaking often needs to happen on short notice, with unstable production processes and unplanned outputs. This requires continuous reassignment of products to processes and orders dependent on 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 and construction, tight integration with business partners on forecasts, electronic customer orders (EDI, internet etc.) are typically needed. ERP systems today support electronic integration with partners. Challenge 5: Complex production scheduling combining both continuous and batch production
Figure 2 below illustrates the flow in a typical steel mill. While the blast furnace and converter work in batches, the caster works continuously and the finishing lines work in batches again.
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 needs to 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 with multiple and dynamic bottlenecks – that is, bottlenecks which can change based on incidents such as production problems in certain process steps. ERP systems today can handle all of these situations. Challenge 6: Detailed margin analysis
In today’s steel industry when prices are high and capacity short, margin analysis becomes the essential method to tell what money is being made on which customer/product segments. On top of segment analysis, it is also
ERP IMPLEMENTATION AT TATA STEEL essential to differentiate between “strategic materials” (cokes and ore, Ni and Cr for stainless) and the other cost elements that may be easier to control. ERP systems provide the tools to support these decisions. The ERP system will also need to work closely with the company’s Business Information Systems (BIS) to optimize the business benefits. Working together, the ERP and BIS systems can, for example, improve inventory allocation to late orders. INTEGRATED IT MODEL FOR STEEL
An integrated IT model as in Figure 3 is important because it lets you see the systems 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 similar products which are then handed over to production planning. When orders are being entered, availability checks assign the order to a block (unless inventory already exists that meets the order) and feeds back a promise date (at the end of the block to allow for the flexibility of possibly moving to an earlier date). The mill optimizer then typically would re-shuffle orders in between the blocks, and feed results back into the SCM application in order to optimize the load balancing. Right before production starts, planned orders from the SCM application are converted into production orders and, via the ERP system, are transferred into the MES layer. It is at that time when quantities are being translated into pieces (slabs, coils etc.). Detailed scheduling then takes place, sequencing and combining pieces from various orders throughout the mill into lots for optimization. Production completion then posts an updated status of the orders into the ERP system, including stock receipts of finished products, and so forth.
ERP IMPLEMENTATION AT TATA STEEL
Figure 3 is also important because it lets you identify gaps among a company’s different IT systems. A typical gap occurs between the ERP and MES (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 the business benefits of the IT investments. 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 clients process 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 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 ERP project. 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 project management 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 and experienced ERP professionals to successfully implement an ERP project.
ERP IMPLEMENTATION AT TATA STEEL IMPLEMENTATION PROCESS AT TATA STEEL The company knew well that they had a tough time especially to implement the software in one stroke. They had to choose top ERP software 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 the stakeholders so that they become compatible. These ideas also contributed to the success. They were also shrewd enough in adopting the modern and most recent technology available in the market. The period set for implementation seemed to be another major challenge. The time granted for the process was 8 months. The business process was divided into two main segments. The core functions were denoted to be major ones. Similarly the supporting functions were named minor ones. A plan of action on the proposed ERP's impact was drafted depicting their relation to one another and to the business process. All of them were made to bear in mind the fact that ERP's implementation was imperative and that the deadlines 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 was done by educating everyone on the need and desirability of change. In addition all apprehensions relating to change were discussed 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 is Asia's first and India's largest integrated private sector steel company. It has 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 refinement of its business operations, has transited seamlessly from a production-driven company to a customer-driven one. The existing technology was a simple replication of the manual system. Not only did it operate as individual islands of information but the technology had outlived its lifetime and was completely obsolete. The employees and management at TISCO faced a cumbersome task exchanging and retrieving information from the system. Further, the reliability of information obtained was questionable because of 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 a study on cost competitiveness and a formal business plan, followed by ISO 9002 certification and benchmarking initiatives. Realizing the need to further support the re-engineered core processes and quickly align the business processes to radical changes in the market place, Tata steel decided to go for a new robust solution. Design
ERP IMPLEMENTATION AT TATA STEEL In 1998-99 a small cross-functional in-house team along with consultants from Arthur D. Little (Strategy Consultants) and IBM Global Services (BPR Consultants) redesigned the two core business processes: Order Generation & Fulfillment and the Marketing Development processes. This was done to improve customer focus, facilitating better credit control, and reduction of stocks. In keeping with this commitment it adopted the latest production and business practices to offer innovative processes that meet the changing demands of its global and local customers. Choosing The Platform And Technology
The management at Tata Steel wanted the software to seamlessly integrate with its existing information system and further provide compatibility with its future implementations. After an in-depth study of functionality, cost, time, compatibility, esteem, operability, support and future organizational requirements was done, SAP topped the list of contenders. The implementation of SAP software was associated with certain strategic goals in mind. With this implementation, TISCO wanted to bring forth a culture of continuous learning and change. This would enable TISCO to achieve a worldclass status for its products and services and strengthen its leadership position in the industry. Besides this, TISCO also wanted the software 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 a challenge for an organization because of the declining success rate of ERP implementations world-wide.” The challenge is compounded if the ERP provider is a world leader - SAP. At Tata Steel however the real challenge for us did not lie in successfully implementing SAP or in rolling it out to our 46-odd geographic locations across the country under a big bang approach in just eight months. The real challenge lay ahead in building a conducive environment where SAP will be embedded in the hearts and minds of the people and the customers of Tata steel. They all looked forward to knowledge-based, successful organization. It is inspiring to know that our TEAM ASSET with support from Pricewaterhouse Coopers and SAP successfully lived up to our axiom and truly demonstrated leadership 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 had huge numbers of transactions and complexity, were identified as a HUB while the smaller branches along with the consignment agents were defined as SPOKES which were attached to these branches. In January 99 the team from TISCO was decided and christened 'TEAM ASSET' an acronym 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
ERP IMPLEMENTATION AT TATA STEEL Preparatory task forces activities were conducted and core business processes were mapped to SAP modules. Also another parallel activity called 'Change Management' was initiated within the company. The prime objective of 'Change Management' was to reach out to people involved non-directly in the project to apprise them of the developments taking place. "We wanted that Tata Steel be the number one in the steel industry…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 modules at the same time, in just a span of eight months. Driven against the speed of time, the pace of implementation was fast with all activities backed by a lot of thought process and meticulous planning. On 1st November 1999 Tata Steel pulled off a big bang implementation of all SAP modules at one go 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 in sharing of information with enterprise accounts and key customers. The success in Marketing and Sales has prompted a re-visit of the existing system 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 Relationship Management solution to enhance its customer relationships in the near term and eventually realize its dream of a becoming the most efficient and competitive company in the world in its vertical.
ARCHITECTURE AT TATA STEEL
ERP IMPLEMENTATION AT TATA STEEL
Major IT initiatives and implementations at Tata Steel SAP R/3 in Sales, Procurement, Finance and Accounting, Production Planning 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 communication across geographies VoIP, Wi-Fi, integration with cell phones and PDAs to support mobile computing
ERP IMPLEMENTATION AT TATA STEEL
In a Nutshell The Company TISCO is Asia's first and India's largest integrated private sector steel company. It is present in 46 nationwide locations. The Need The company wanted to keep its lead in the competitive steel industry through constant learning, innovation, and refinement of its business operations. It had to transit from a production-driven company to a customer-driven one. The legacy systems had outlived its life and was quite obsolete. The Solution An ERP SAP R/3 was deployed in a 'big bang' approach across all its locations nationwide. •
•
•
•
The Benefits The company now has efficient business processes, enhanced customer service, reduced costs, improved productivity, accelerated transaction time, workflow management and reduction in the number of credit management errors. There have also been significant savings in manpower, inventory levels, and resources
THE OUTCOME
SAP ERP solutions produced a remarkable result to the company in terms of financial technical and managerial parameters. The effective handling and speed delivery resulted in greater sales .Similarly there was a drastic fall i n the amount owned to creditors. The systems were made more user friendly without any complexities and procedural lacunas. This improved the quality of work and lessened the time taken for work and thereby increased the productivity. This was followed by a massive change in terms 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 saved Rs 33 crore within a few months," said Ramesh C. Nadrajog, Vice President, Finance. "The manpower 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 Rs 5,170 million in 1999 to Rs 4,033 million by June 2000. The inventory carrying cost has drastically deflated from Rs 190 per ton to Rs 155 per ton. To add to this, there have been significant costs savings through management of resources with the implementation of SAP. With SAP's solution Tata Steel can now update their customers on a daily basis and provide seamless services across the country improving customer management. The availability of online information
ERP IMPLEMENTATION AT TATA STEEL has facilitated quicker and reliable trend analysis for efficient decision-making. Besides the streamlined business process reduces the levels of legacy system and also provides consistent business practices across 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 changing industry like steel. Given an awareness of the best practices and a good understanding of the project complexities, the risks in an ERP implementation are usually outweighed by the benefits. The ERP discussion is often one of mindset more than one of standalone business cases. While implementing ERP can be challenging and demands sustained commitment from top executive levels, it is fundamental to enhancing the competitive position of a company in the dynamic environment of the steel industry today.
