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 where 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 with 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 in the marketplace. Information technology 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
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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 where 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 with 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 in the marketplace. Information technology
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 OPPORTUNITIES:
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
Optimization of the supply chain and logistics forging partnerships and
strategic alliances across the entire oil and gas business value chain.
Consolidation of retail and direct consumer business through appropriate
product quality assurance.
Enhancing financial profitability, this is currently compromised by price control
due to incomplete pass through in the market.
Eliminate costly performance bottlenecks and other problems caused by
customer-developed programs.
Improve database consistency.
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 exploration, 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 become 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 target areas. It helped to
address the functional and operational requirements including performance, safety,
reliability, compatibility, security and legislation of ERP Solution (SAP/R3).
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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 “Manthan”. A steering committee was 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