Indian Oil Corporation This report describes the ERP implementation project in Indian Oil Corporation. The whole project was one of the biggest ERP project in South East Asia. The implementation process is tracked right from its inception and to wher e it stands today. An analysis of the problems faced during this whole process and the steps taken by Indian Oil Corporation to bring it parallel with its business strategies is also discussed. Many Firms today are investing into information technology wit h an objective to improve their business processes. The use of information technology is an indicator that information technology is being used to leverage the company¶s resources and thus create a competitive advantage advantage in the marketplace. marketplace. Information Information tech nology solutions to Enterprise Resource Planning (ERP) are a big help to many companies as they help them to improve and standardize their processes, cut down their operating cost and improve decision making capability.
COMPANY AND ITS PRODUCTS:
Indian Oil Corporation is a major diversified, transnational, integrated energy company in India, with national leadership and playing a national role in oil security& public distribution. Indian Oil Corporation Ltd. was formed in 1964 with the merger of Indian Refineries Limited and Indian Oil Company Limited. Indian Oil and its subsidiaries account for 47% petroleum products market share, 40.4% refining capacity and 67% downstream sector pipelines capacity in India. It is India's largest commercial enterprise, with a sales turnover of Rs. 2, 20,779 crore (US $51 billion) and profits of Rs. 7,499 crore (US $1.73 billion) for fiscal 2006. Indian Oil is also the highest ranked Indian company in the prestigious Fortune 'Global 500' listing. It is also the 20th largest petroleum company in the world. The total sales of Indian Oil group for the year 2006-07 is 57.97 million tonnes of petroleum products, which includes 1.63 million tonnes of natural gas and exports of 3.13 million tonnes. The Indian Oil Group of companies owns and operates 10 out of 19 refineries with a total
refining capacity of 60.2 million MMTPA (Million Metric Tonnes Per Annum), which includes two refineries of subsidiary Chennai Petroleum Corporation Limited and one of Bongaigaon Refinery and Petrochemicals Limited. To emerge as a transnational energy major, Indian Oil has set up subsidiaries in Sri Lanka, Mauritius and the United Arab Emirates (UAE) and is simultaneously looking for new opportunities in the energy markets of Asia and Africa. A wholly-owned subsidiary, Indian Oil Technologies Ltd., is engaged in commercializing the technologies and innovations developed by Indian Oil's R&D Centre, across the globe.
CHALLENGES AND OPPORTU NITIES:
The major challenge of Indian Oil Corporation was to emerge as the least cost supplier thus delivering products and services to the customer at the lowest cost. The other challenges include y
Optimization of the supply chain and logistics forging partnerships and strategic alliances across the entire oil and gas bu siness value chain.
y
Consolidation of retail and direct consumer business through appropriate product quality assurance.
y
Enhancing financial profitability, this is currently compromised by price control due to incomplete pass through in the market.
y
Eliminate costly performance bottlenecks and other problems caused by customer-developed programs.
y
Improve database consistency.
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Enable faster, more accurate reporting
SCENARIO BEFORE IMPLEMENTING ERP:
In 1983-84, the company migrated into RDBMS which was primarily targeted at the refineries, with each refinery getting one machine. And later in 1988, IOCL shifted to an online transaction processing system for which the software was developed in house. Around 1992-93, the company introduced SCADA (Supervisory Control Administration System), for their pipelines and also introduced the advanced
processing system in its refineries to monitor operations. Though introduction of these systems helped the company monitor, control and administer its activities, it faced a problem at the national level, with each branch having separate systems administrators, which resulted in a lot of time being wasted. This resulted in lacking of integration of business functions across the company on -line, which alternatively resulted in technological gap in various areas. There was a delay in capturing and processing business information, which, in turn, led to inaccurate and delayed decision making for IOCL. To a big enterprise like Indian Oil Corporation which is having various offices in different parts of India, information integration was of utmost important which enables transparency and quicker decision making. Indian Oil Corporation was looking for a system which would integrate its processes and systems to streamline oil exploratio n, production as well as the transportation of crude oil and natural gas and it wanted to get a quick overview of information pertaining to its operations. Due to large scale operations and nationwide offices, IOCL found that operations management had beco me inefficient. For Indian Oil Corporation, most of the processes were being done manually and were paper based with islands of computerization here and there. This complete disintegration of information resulted in time consuming decision -making process. There was no communication between different departments of the organization. There was a high need of IT re-engineering and to solve the issue IOCL hired the services of Price Waterhouse Associates (PWA) at a cost of Rs. 30.42 crores. The main objective was to develop and formulate a new IT strategy which would bring together all the different functions of the business throughout the different regions. The proposed plan consisted of four stages; Conceptualization and Design, Development
and
debugging,
Trial
Implementation
and
Stabilization
and
Standardization The consultants (PWA) suggested the implementation of SAP/R3 along with the different software associated with oil and gas industry (IS -OIL and CIN).The idea that a company could have one single, completely integrated super system to help it manage every aspect of the business namely Finance and Controlling, Human Resources, Production Planning, Sale Distribution, Material Management, Plant Maintenance, Project System and Quality Management. The package
was
supplemented with add-ons integrated into ERP, which addressed vital functions
such as distribution planning, demand forecasting, crude selection and refinery planning.
THE IMPLEMENTATION PROCESS:
Price Water Associates developed a Conceptual Technology Plan (CTP) for the IT re-engineering of the project. CTP, which was essentially a Project -oriented Plan, set forth strategies for various aspects of IT architecture that needed to be closely aligned with the requirements for implementation in the targ et areas. It helped to address the functional and operational requirements including performance, safety, reliability, compatibility, security and legislation of ERP Solution (SAP/R3).
3 LAYER MODEL OF SAP R/3
The Objective of IOCL was to implement ERP at its 590 sites at an initial cost of Rs.95.95 crores. However the figure has escalated and till date the company has spent above Rs.275 crores (Till date SAP is implemented in 674 locations of IOCL). The project was called ³Manthan´. A steering committee w as constituted for the evaluation of Manthan. In 2000 the committee was discontinued and another committee called Corporate Management Committee was made responsible to evaluate all aspects of Manthan. Manthan projected a benefit of Rs.358 crore per annum due to implementation of ERP and Rs.215 crore per annum due to implementation of add-ons. This benefit was supposed to flow after implementation of the project from (i) inventory optimization (Rs.147 crore), (ii) reduction in transportation expenses (Rs.70 crore), (iii) saving in banking cash (Rs.33 crore), (iv) reduction in demurrage costs (Rs.31 crore), (v) discount through accounts payable management (Rs. 30 crore), (vi) reduction in cheque holding time (Rs.15 crore), (vii) reduction in accounts receivab le (Rs.12 crore), (viii) reduction in time overrun in project implementation (Rs.11 crore) and (ix) reduction in communication expenses (Rs.9 crore). The benefits from µadd -ons¶ were expected to flow from crude mix optimization (Rs.115 crore) and yield improvement in refineries (Rs.100 crore). Today, the deployed architecture is maintaining data integrity and critical business management. ³The deployment complements business continuity (BC) at IOCL with minimal downtime.
BARRIERS FOR THE IMPLEMENTATION OF ERP: y
Company failed to evolve a long range strategy and plan, duly documented with performance indicators and targets.
y
For the on-going process of identifying future trends and regulatory conditions relating to IT development initially Company placed heav y reliance on the Consultants, without giving emphasis on the in -house staff which in turn increased the consultation fee.
y
Steering committee to oversee all aspects of Manthan, IT re -engineering project which would impact all aspects of the functioning of the Company, was absent for most part of the project. This led to delays in implementation and deficiencies in various processes remaining undetected, causing delay of two
and a half years and denial of expected benefits of Rs.358 crore per annum as described before. Management decided to reduce SAP implementation from duly identified 590
y
sites to 429 sites due to non-availability of Leased Line Links and other technical problems. After commencement of implementation of ERP there was no effective system
y
in position to regularly monitor, by benchmarking performance with predefined performance indicators. Data recovery was also a major problem, especially during natural and
y
manmade disasters.
STEPS TAKEN FOR MITIGATION OF PROJECT:
Long term strategy was formed under the Corporate Management Committee
y
which was constituted for the evaluation of the project. Specialist training was delivered to all the staffs so that acceptance becomes
y
high. Demonstration within the departments was also carried out. Traditional segregation of departments was broken down in order to integrate
y
the ERP system. Business process reengineering program was used to counter the cross
y
functional problems of SAP R/3. For effective Benchmarking of the performance: y
The entire processes were documented and optimized.
y
Duties, responsibilities and accountability practices were clearly assigned and judged.
y
Processes were monitored and corrections were made in the areas that they were weak
SAP also implemented a two-tier recovery architecture, which aids faster and consistent database recovery. It is also expected to support communication and SAP R/3 services during natural and man -made disasters.
TIMESCALES:
The implementation process started in the last half of 2000 and continues to be improved up till date. The basic steps taken from the initial till date is discussed below. 1997 - In April, Company appointed M/s Price Waterhouse Associates (PWA) to the
IT re-engineering project study. 1999 - In September, the project study was completed in
29 months and
recommended SAP R/3 with add on solutions to oil and gas. 2000 - In the first half a basic framework was set for the project to chalk out a plan
and cost of implementing the system and a management committee was formed; Initial implementation of the ERP solution happened at 2000 -2001. 2001 - The implementation went live on August 2001. 2002 - Disaster Recovery Plan was installed to safe arrange SAP R/3 in early 2002.
By September, the company has linked a total of 16 locations on the new system. 2003 - By August 2003, another 90 locations were added into the system, thus
totalling to 106 locations. 2004 - By March 2004, the number of implemented locations was totalled to 292.
By April 2004 in three out of four divisions (Refineries, Pipelines and Research and Development) ERP had been implemented. 2005 - In January 2005, SAP offered upgraded version of the existing system and
also gave online support services. Another 137 locations w ere added into the system. Thus, totalling to 429 sites. 2006 - The version of SAP R/3 was further upgraded to 4.6c. The committee decided
to extend the implementation to another 161 existing locations and 84 upcoming locations. As per the decisions the implementation processes was extended to its 674 locations connecting 5000 concurrent users to a common IT platform for online, concurrent business transactions.
