IBS

ERP Implementation At Tata

Steel

Ashish Daga
IBS

Submitted by

ASHISH DAGA
07BS0835
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 study 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 impressive services to the stakeholders improve on
the quality and as succeed 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 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 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,
(3) Improved productivity through better sales order handling, better
procurement operations and more efficient planning.

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-to-stock 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

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

Planning for steelmaking often needs to happen on short notice, with
unstable production processes and unplanned outputs. This requires
continuous re-assignment 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.
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 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.
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.

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
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 world-class 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

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

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

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 in 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 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.