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Abstract:

This report describes the ERP implementation project in IndianOil Corporation. The whole project was one of the biggest ERP project in South East Asia. I joined the firm in 2004 when it was half way through the implementation program. The report is based on my observations and the IT audit carried out by IndianOil Corporation. 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 IndianOil Corporation to bring it parallel with its business strategies is also discussed.

2. Table of Contents: 1. Abstract 2 2. Table of Contents 3 3. Introduction 4 4. Benefits of ERP 5 5. Company and Its Products 5 5.1. Strategy 6 5.2. Future Plans 6 5.3. Challenges and Opportunities 6 5.4. Scenario before Implementing ERP 6 5.5. The Implementation Process 7 5.6. Barriers for the Implementation of ERP 8 5.7. Steps Taken for Mitigation of Project 9 5.8. Business Process Re-engineering (BPR) program 9

5.9. Timescales 10 6. Conclusion 11 7. References 12

3. Introduction: 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 companys 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. Wallace and Kremzar (2001) described ERP as an enterprise wide set of management tools that balances demand and supply, containing the ability to link customers and suppliers into a complete supply chain, employing proven business process for decision making, and providing high degree of cross functional integration among sales, marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and human resources, thereby enabling people to run their business with high levels of customer service and productivity, and simultaneously lower costs and inventories; and providing the foundation for effective e-commerce. Firms all over the world have been implementing ERP packages since the 1990s to have a homogeneous information system in the organization (Rajagopal, 2002). Sometimes ERP implementation fails to reap the desired benefits as the firm may not be ready for integration and the several departments in the firm may have their own agenda and aims that conflict with each other (Langenwalter, 2000).

Figure 1: The structure of ERP (Source: http://erp.manufacturersupplier.com/)

4. Benefits of ERP:

The benefits of ERP are listed below. Tangible Benefits Intangible Benefits Inventory Reduction Personnel Reduction Productivity Improvement Order Management Improvement Financial Cycle Improvement Information Technology Cost Reduction Procurement Cost Reduction Cash Management Improvement Revenue/Profit Increase Transportation/Logistics Cost Reduction Maintenance reductions On-Time Delivery Improvements Information Visibility New/Improved Processes Customer Responsiveness Cost Reductions Integration Standardization Flexibility Globalization Supply/Demand Chain Business Performance Dismantling Inefficient Legacy Systems

5. Company and Its Products: IndianOil 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. IndianOil 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. IndianOil 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 IndianOil 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 IndianOil 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, IndianOil 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, IndianOil Technologies Ltd., is engaged in commercializing the technologies and innovations developed by IndianOil's R&D Centre, across the globe. 5.1. Strategy: To achieve excellence in all aspects of energy and diversified business, to increase the value and stakeholder satisfaction, to be a least cost supplier thus delivering products and services to suppliers at least cost by adopting state of the art technology which alternatively leads to competitive advantage. 5.2. Projects and Future Plans: IndianOil Corporation commissioned projects valued at over Rs. 10,000 crore (US $ 2.3 billion) in 2006-07.It has plans to invest Rs 43, 250 crore (US $10.65 billion) more during the XI Plan period (2007-12) for refining and pipeline capacities, expansion of marketing infrastructure and product quality upgradation as well as in integration and diversification projects. In petrochemicals, IndianOil is currently implementing a master plan envisaging Rs. 30,000 crore (US$ 6.8 billion) investment by the year 2011-12. 5.3. Challenges and Opportunities: The major challenge of IndianOil 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. 5.4. 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 IndianOil Corporation which is having various offices in different parts of India, information integration was of utmost important which enables transparency and quicker decision making. IndianOil 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 IndianOil 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. 5.5. 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 Projectoriented 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). 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 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 receivable (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 ?add-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. The deployment complements business continuity (BC) at IOCL with minimal downtime. Data losses are eliminated or minimized at the very least, says Ramaswamy General Manager, Information Systems, IOCL 5.6. Barriers for the Implementation of ERP: Company failed to evolve a long range strategy and plan, duly documented with performance indicators and targets. For the on-going process of identifying future trends and regulatory conditions relating to IT development initially Company placed heavy reliance on the Consultants, without giving emphasis on the in-house staff which inturn increased the consultation fee. 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 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 in position to regularly monitor, by benchmarking performance with predefined performance indicators. Data recovery was also a major problem, especially during natural and man made disasters. 5.7. Steps Taken for Mitigation of Project:

Long term strategy was formed under the Corporate Management Committee which was constituted for the evaluation of the project. Specialist training was delivered to all the staffs so that acceptance becomes high. Demonstration within the departments was also carried out. Traditional segregation of departments was broken down in order to integrate the ERP system. Business process reengineering program was used to counter the cross functional problems of SAP R/3. For effective Benchmarking of the performance: The entire processes were documented and optimized. Duties, responsibilities and accountability practices were clearly assigned and judged. 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. 5.8. Business Process Re-engineering (BPR) program: Reengineering can be called as an essential precursor to ERP implementation. Since, ERP gets the best out of the available resources, it is very important to reengineer the business processes before going for an ERP implementation. If the business processes are not streamlined, the resource allocation will always be sub-optimal. Reengineering also makes it smooth to drive the ERP implementation program, because the former builds the spirit of competitiveness and adaptation of best practices. For the effective implementation of SAP R/3 more effective, a business process re-engineering (BPR) program was used by IOCL. According to Hammer and Champy (1993), ?Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed. They also suggests that businesses need to go back to the roots and re examine the basics and aim for a total re invention. They stress on the word processes that BPR is more about focusing on processes and not on tasks, jobs or people.

The process of reengineering of IOCL is divided into Four Steps as given

below.

Figure 2: The Business Reengineering process in IOCL

1) The entire processes of the organization were drawn and mapped. 2) Identifying the existing problems and issues in the mapped processes. 3) Applying the issues to the new system of SAP/R3. 4) Re mapping and re-modification of processes in line with SAP/R3.

5.9. 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 20002001. 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 totaling to 106 locations.

2004- By March 2004, the number of implemented locations was totaled 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 were added into the system. Thus totaling 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. 2007- In August 2007, the Corporation has been honored with the SAP First Ace Award'' for Customer Excellence for the fastest implementation at the largest number of locations. IndianOil has also achieved the distinction of being the first public sector company to achieve the ISO/IEC 20000 certification in Information Technology. The Business Continuity Centre set up for SAP Disaster Management has achieved the distinct status of service level at par with international standards.

6. Conclusion: The report highlights the importance of Enterprise Resource Planning (ERP) system and how it helps the firm to improve their Operational efficiency. A successful ERP system helps a firm to achieve cost efficiency and thus leading to competitive advantage. The report analyses how IndianOil Corporation's strategy to be a low cost supplier and how the implementation helped them to be in that position. It also gives a brief about the problems company faced while implementing the process and steps they adopted to overcome that. Timescales are also provided to understand the year by year updates of the implementation process. 7. References: 1. Wallace, T.F., Kremzar M.H. (2001), Making it happen (John Wiley & Sons, Inc.).

2. Rajagopal, P. (2002). An innovation-diffusion view of implementation of enterprise resource planning (ERP) systems and development of a research model. Information & Management 40, 87114. 3. Langenwalter, G.A., (2000). Enterprise Resource Planning and BeyondIntegrating Your Entire Organization, St. Lucie Press, Boca Raton, FL. 4. Hammer, M., Champy J. (1993), Reengineering the Corporation: A Manifesto for Business Revolution