ERP Implementation at Tata Steel

8/13/2019 ERP Implementation at Tata Steel

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ERP Implementation At Tata Steel


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Analyzing SAP ERP's success in TISCO

The critical success factors of ERP systems mainly include proper implementation and usage. Besidethis 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 othermeasures there are lots who have witnessed multiple profits. Studying them will help in understandingthe 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 giantsin 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 regularlyimplemented with the help of committees who report to the selected members from the seniormanagement. The company is dedicated to providing laudable services to the stakeholders improve onthe quality and as thrive for innovations and improvements constantly.

BACKGROUND

TATA steel is Indias largest integrated private sector steel company that started its corporate journey inthe year 1907. Backed by captive iron ore and coalmines, Tata Steel runs state-of-the-art Cold RollingMill 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 entitydoes not stop things from being subject to scrutiny and internal audit. They are regularly implementedwith the help of committees who report to the selected members from the senior management. Thecompany is dedicated to providing laudable services to the stakeholders improve on the quality and asthrive for innovations and improvements constantly.Tata Steel is a relentless pursuer of excellence. ASPIRE, Tata Steels 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 longproducts. Currently, to meet growing demands, the plant is being expanded to accommodate anothermillion. 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 itsfootprint 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 (theworld's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon(re-bars), Tata Pipes, Tata Bearings, Tata Agrico (hand tools and implements) and Tata Wiron(galvanized wire products). The Construction Solution Group explores new avenues for steel utilizationby techniques that are economical. Tata Steel has also developed 'galvannealed' cold rolled steel withtechnical assistance from Nippon steel for high-end auto applications.


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ERP IMPLEMENTATION

TISCO deserves lot of credit for implementing ERP because of the fact that many organizationsin 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 havecaused havoc to organizations more than bringing profits. This being the case it is natural to expect alarge company (in terms of Size and volume of operations) like TISCO to discourage the idea ofEnterprise resource planning. However TISCO proved to be different from the others by choosing ERPin the right time and implementing it in a proper manner. They have also reported a whooping profit andreduction of costs in the whole process. Another amazing fact is that they implemented it into the wholesystems in one single spree. The method of implementing it in one spree carries a lot of risks especiallyfor a bigger company. Infact the success rate of this method itself is low in general and very low as faras bigger companies are concerned. Incase of the rare success organizations will experience effectiveresults in their enterprise operations. TISCO has achieved that by way of meticulous handling andprofessionalism. 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 notcustomer friendly. The whole system was tuned to the process and very little attention was paid to thecustomer demands. Secondly the systems were outdates and the modalities of operation were toocomplex and not error free. In order to rectify these issues which would otherwise prove to be majorsetbacks to the company the organization resolved to take up ERP. This was instigated by theconcerned departments. Leading consultants were hired and the business structure was studied andsuitable plans were drafted accordingly.

What Should They Do?

Lets say youre the CEO of a large multi-national steel company, andyoure running a global operationwith plants on four continents. You need to make good business decisions, and you rely on your ITsystems 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 gapsbetween them, a legacy of the companys history of mergers, acquisitions, and improvement initiatives.You need a common information backbone. Youve heard that ERP systems can do that, but youve

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 forthe 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 thedata they need. We believe that ERP, especially in its mature implementations today, is the crucialcomponent for a companys IT data backbone. ERP can play an essential role in:

Driving accurate and fast decisions (product profitability, procurement spend) with consistentlydefined data


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Running broadly known and supported applicationsHarmonizing and optimizing back-office processes across the enterprise that comply withfinance requirements such as SOX and IFRSEnabling best-practice demand planning for supply-chain processesFuture-proofing global applications that support global enterprises

What is ERP?

ERP or Enterprise Resource Planning is IT software that integrates business activities across anenterprisefrom product planning, parts purchasing, inventory control, and product distribution, toorder tracking. ERP may also include application modules for the finance, accounting and humanresources aspects of a business. SAP and Oracle are the two ERP leading vendors.

From a business perspective, ERP today has expanded from simply coordinating manufacturingprocesses to being the integrator of enterprise-wide backend processes. ERP has also evolvedtechnologically 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 remainchallenging even today, most can now be successful because the best practices have been identifiedand ERP professionals are more knowledgeable and more experienced with making the projectssuccessful.

ERP Business BenefitsERP is an enabler of business benefits, and should not be viewed as a standalone initiative with therequirement 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,(3) Improved productivity through better sales order handling, better procurement operations and moreefficient planning.

However, the most important business benefits will often be delivered after the ERP backbone isestablished, by other initiatives that use the ERP backbone:

Integrated supply chain: from network planning through scheduling and ManufacturingExecution Systems (MES)Easier integration of business processes with business partnersShared services and outsourcing of support functionsIncreased information transparency to enable better decisions Agility in acquisitions and carve-outs or divestments Increased regulatory compliance

Robust and future-proofed backbone systems


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There are cost savings on the IT side, often around 10-15%, especially when different ERPimplementations are being harmonized. These IT savings include:

Reduced ERP implementation costs due to a common templateReduced application maintenance costsLower integration cost due to standard interfacesLower infrastructure costs

With an awareness of the best practices and a good understanding of ERP project complexities, therisks in an ERP implementation are usually outweighed by the benefits. The ERP discussion oninvestment 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 describedbelow. A successful ERP project will start by analyzing these challenges in detail across all of thecompanys integrated processes. 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. Typically the flat or stripproducts are make-to-order, whereas the long products are make to- stock. Depending on the existenceof a de-couple point, finish-to-order could be a relevant planning strategy as well. Such a combinationof planning strategies affects the design of most ERP processes, including supply chain processes aswell as the financial/cost control processes. Cost control in make-to-stock tends to go for standard priceapproaches, but in a make-to-order environment costing happens on an individual order cost collectionand forecast basis. ERP systems today can handle this kind of complexity.

Challenge 2: Complex product variations

A steel product is made up of a large number of characteristics, making the product difficult to configurewhen entering it in the ERP system. Configuration in the make-to-order entries is typically done whileentering 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. Fundamentaldecisions need to be made very early in the project about how many (finished product) materials shouldbe defined: one extreme is to define by material group which needs to be configured completely in theorder, or the other end of the spectrum is to define all possible/feasible characteristic combinationswhich 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 ofmaterial stands on its head or is v-shaped, as shown in Figure 1. This means that the later in theprocess you define a product, the higher the number of products to be defined becomes. ERP solutionstoday can readily handle the complexities this of the V-shaped bill of material. They allowcharacteristics based product configuration with automatic deduction of characteristics, characteristicvalue 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


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Challenge 3: Flexible planning

Planning for steelmaking often needs to happen on short notice, with unstable production processesand unplanned outputs. This requires continuous re-assignment of products to processes and ordersdependent on the Characteristics 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 and construction, tightintegration with business partners on forecasts, electronic customer orders (EDI, internet etc.) aretypically needed. ERP systems today support 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 furnace and converter work inbatches, the caster works continuously and the finishing lines work in batches again.


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The batches need to be selected based on characteristics during production, preparation and shipmentplanning. This means that the planning process needs to be able to derive batches with characteristicsinheritance and history tracing. Finally, the scheduling part of the planning system needs to be able towork with multiple and dynamic bottlenecks that is, bottlenecks which can change based on incidentssuch as production problems in certain process steps. ERP systems today can handle all of thesesituations.

Challenge 6: Detailed margin analysis

In todays steel industry when prices are high and capacity short, margin analysis becomes theessential method to tell what money is being made on which customer/product segments. On top of

segment analysis, it is also essential to differentiate between strategic materials (cokes and ore, Ni


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and Cr for stainless) and the other cost elements that may be easier to control. ERP systems providethe 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 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 inplanning and production. A typical flow would be:

The Supply Chain Management (SCM) application provides the rough-cut planning in DemandPlanning. The result is planning blocks of similar products which are then handed over toproduction planning.

When orders are being entered, availability checks assign the order to a block (unlessinventory already exists that meets the order) and feeds back a promise date (at the end of theblock 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 resultsback into the SCM application in order to optimize the load balancing.

Right before production starts, planned orders from the SCM application are converted intoproduction orders and, via the ERP system, are transferred into the MES layer. It is at that timewhen quantities are being translated into pieces (slabs, coils etc.).

Detailed scheduling then takes place, sequencing and combining pieces from various ordersthroughout 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.


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Figure 3 is also important because it lets you identifygaps among a companys different IT systems. Atypical gap occurs between the ERP and MES (process control and machine control) systems, wherethe system is actually combination of custom-built applications and manual spreadsheets. Bridgingthis gap pr operly 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 costefficient. 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 ofmaintaining custom-built, legacy applications.

Implementation Approaches for ERP

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

Rapid/realistic project timelines due to external pressures (acquisition synergies, legalreorganization)Command-and-control approaches from a central project management office A global business process owner who has the authority and credibility to approve processdesigns and business model/ organization changes

However, theres much more to it than these few general principles. Implementing ERP is complex andtakes a team of knowledgeable and experienced ERP professionals to successfully implement an ERPproject.

Implementation Process At Tata Steel


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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 likeTISCO. They went ahead with associating and implanting TISCO to all the stakeholders so that theybecome compatible. These ideas also contributed to the success. They were also shrewd enough inadopting 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 bemajor ones. Similarly the supporting functions were named minor ones. A plan of action on theproposed 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 thedeadlines were not very comfortable. The company took all efforts to ensure that the change did notproduce any sort of resentment in the organization. This was done by educating everyone on the needand desirability of change. In addition all 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 implementationcompleted within eight months. TISCO is Asia's first and India's largest integrated private sector steelcompany. It has a state-of-the-art 3.5 million tonne steel plant and is capable of meeting the mostrigorous demands of its customers worldwide.

The company adopted ERP technology to take a lead in the competitive steel industry and throughconstant learning, innovation and refinement of its business operations, has transited seamlessly from aproduction-driven company to a customer-driven one. The existing technology was a simple replicationof the manual system. Not only did it operate as individual islands of information but the technology hadoutlived its lifetime and was completely obsolete. The employees and management at TISCO faced acumbersome task exchanging and retrieving information from the system.

Further, the reliability of information obtained was questionable because of inconsistency andduplication of data from different departments. Also there was no built-in integrity check for various datasources. 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 costcompetitiveness 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 thebusiness processes to radical changes in the market place, Tata steel decided to go for a new robustsolution.

Design

In 1998-99 a small cross-functional in-house team along with consultants from Arthur D. Little (StrategyConsultants) and IBM Global Services (BPR Consultants) redesigned the two core business processes:Order Generation & Fulfillment and the Marketing Development processes. This was done to improvecustomer 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 thatmeet the changing demands of its global and local customers.


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Choosing The Platform And Technology

The management at Tata Steel wanted the software to seamlessly integrate with its existing informationsystem and further provide compatibility with its future implementations. After an in-depth study offunctionality, 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 goals in mind. With thisimplementation, TISCO wanted to bring forth a culture of continuous learning and change. This wouldenable TISCO to achieve a world-class status for its products and services and strengthen itsleadership position in the industry. Besides this, TISCO also wanted the software to result in quickdecision-making, transparency and credibility of data and improve responsiveness to customers acrossall areas.

The Real Challenge

B Muthuraman, MD (Designate), said, "Implementing any ERP system is a challenge for anorganization because of the declining success rate of ERP implementations world-wide. The challengeis compounded if the ERP provider 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 our 46-odd geographic locationsacross the country under a big bang approach in just eight months. The real challenge lay ahead inbuilding a conducive environment where SAP will be embedded in the hearts and minds of the peopleand 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 SAPsuccessfully lived up to our axiom and truly demonstrated leadership skills by going live across 46locations 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 oftransactions and complexity, were identified as a HUB while the smaller branches along with theconsignment agents were defined as SPOKES which were attached to these branches. In January 99the team from TISCO was decided and christened 'TEAM ASSET' an acronym for Achieve Successthrough SAP Enabled Transformation. The TEAM ASSET had two simple axioms:

Go-Live date - 1st November 1999

There are only 24 hours a dayPreparatory task forces activities were conducted and core business processes were mapped to SAPmodules. 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 theproject to apprise them of the developments taking place. "We wanted that Tata Steel be the numberone in the steel industrywe wanted to be the first to have the latest systems" said Mr. SandipanChakravortty, GM (Sales), TISCO.

Tata Steel planned a big-bang approach of going live with all the modules at the same time, in just aspan 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


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Steel pulled off a big 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, it means it would allowanyone to access our SAP R/3 over the Internet. But beneath it, the implications are tremendous, as itwould result in sharing of information with enterprise accounts and key customers. The success inMarketing and Sales has prompted a re-visit of the existing system in the works and a detailed rollout isexpected as below.

Phase I - To Extend SAP in Works with FI, CO, MM, PP & QMPhase II - To implement SAP modules such as Asset Management & Budget managementsub-modules of FICO, Plant maintenance, Human Resources, Production Optimizer (such asSAP APO)

Phase III - SEM (Strategic Enterprise Management)The company also plans to adopt the my SAP Customer Relationship Management solution to enhanceits customer relationships in the near term and eventually realize its dream of a becoming the mostefficient and competitive company in the world in its vertical.

ARCHITECTURE AT TATA STEEL


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Major IT initiatives and implementations at Tata Steel SAP R/3 in Sales, Procurement, Finance and Accounting, Production Planning Systems for Steelplants using the APO module of SAP

Baan at Tisco growth shop and in spares manufacturing unitWorkflow, Document Management, Collaboration using Lotus Notes Data Warehousing and Data Mining for manufacturing processesE-procurement, e-auction, and other e-enablement initiatives Knowledge Management and Intranet Videoconferencing , live video streaming for improved communication across geographiesVoIP, Wi-Fi, integration with cell phones and PDAs to support mobile computing

In a NutshellThe Company TISCO is Asia's first and India's largest integrated private sector steelcompany. It is present in 46 nationwide locations.The Need The company wanted to keep its lead in the competitive steelindustry through constant learning, innovation, and refinement of itsbusiness operations. It had to transit from a production-drivencompany to a customer-driven one. The legacy systems had outlivedits life and was quite obsolete.The Solution An ERP SAP R/3 was deployed in a 'big bang' approach across all itslocations nationwide.The Benefits The company now has efficient business processes, enhancedcustomer service, reduced costs, improved productivity, acceleratedtransaction time, workflow management and reduction in the numberof credit management errors. There have also been significantsavings in manpower, inventory levels, and resources


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THE OUTCOMESAP 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 .Similarlythere was a drastic fall in the amount owned to creditors. The systems were made more user friendlywithout any complexities and procedural lacunas. This improved the quality of work and lessened thetime taken for work and thereby increased 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 40crore 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 yearsago, to about $140 per ton in 2000. The overdue outstanding has been brought down from Rs 5,170million 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 throughmanagement of resources with the implementation of SAP. With SAP's solution Tata Steel can nowupdate their customers on a daily basis and provide seamless services across the country improvingcustomer management. The availability of online information has facilitated quicker and reliable trendanalysis for efficient decision-making. Besides the streamlined business process reduces the levels oflegacy system and also provides consistent business practices across locations and excellent audit trailof 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 improveand increase the scopes of enterprise resource planning software in the organization so that it benefitsthe stakeholders in all possible manners. Organizations can take this as a model guide and combine itwith the critical success factors for ERP systems and critical success factors for ERP implementation inorder 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 anERP implementation are usually outweighed by the benefits. The ERP discussion is often one ofmindset more than one of standalone business cases. While implementing ERP can be challenging anddemands sustained commitment from top executive levels, it is fundamental to enhancing thecompetitive position of a company in the dynamic environment of the steel industry today.

ERP Implementation at Tata Steel

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