You are on page 1of 9

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 mon ey and other measures there are lots who have witnessed multiple profits. Studyi ng them will help in understanding the critical success factors for ERP implemen tation. They will help in deciding ERP success. TISCO PROFILE This company founded and established in the year 1907 is nown 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 scrutiny and internal audit. They are regularly implemente d 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 sta eholders improve on the quality and as thrive for innovations and improvements c onstantly. BACKGROUND TATA steel is Indias largest integrated private sector steel company that started its corporate journey in the year 1907. Bac ed by captive iron ore and coalmine s, Tata Steel runs state-of-the-art Cold Rolling Mill complex at Jamshedpur, Eas tern 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 pr oviding laudable services to the sta eholders improve on the quality and as thri ve for innovations and improvements constantly. Tata Steel is a relentless pursu er 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 long products. Currently, to meet growing demands, the plant is being expanded to accommodate another million. Tata Steel has set up an ambitio us 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 s heets, tubes, wire rods, construction re-bars, rings and bearings. The company h as introduced brands li e Tata Steelium (the world's first branded Cold Rolled S teel), Tata Sha tee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Pipes, Tata Bearings, Tata Agrico (hand tools and implements) and Tata Wiron (ga lvanized wire products). The Construction Solution Group explores new avenues fo r steel utilization by techniques that are economical. Tata Steel has also devel oped 'galvannealed' cold rolled steel with technical assistance from Nippon stee l 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 implementati on stage. ERP implementation did in wrong manner have caused havoc to organizati

ons more than bringing profits. This being the case it is natural to expect a la rge company (in terms of Size and volume of operations) li e 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 prope r manner. They have also reported a whooping profit and reduction of costs in th e 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 ris s 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 con cerned. Incase of the rare success organizations will experience effective resul ts in their enterprise operations. TISCO has achieved that by way of meticulous handling and professionalism. The net results of their ERP software have been de scribed to be pathbrea ing and a trendsetting one. WHY ERP IN TISCO TISCO faced two major problems from the systems that existed for a long time. Fi rstly 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 system s were outdates and the modalities of operation were too complex and not error f ree. In order to rectify these issues which would otherwise prove to be major se tbac s to the company the organization resolved to ta e up ERP. This was instiga ted by the concerned departments. Leading consultants were hired and the busines s structure was studied and suitable plans were drafted accordingly. What Should They Do? Lets say youre the CEO of a large multi-national steel company, and youre running a global operation with plants on four continents. You need to ma e good business decisions, and you rely on your IT systems to provide the data to ma e those go od decisions. But your IT systems are not well integrated. There are too many different system s, and too many gaps between them, a legacy of the companys history of mergers, a cquisitions, and improvement initiatives. You need a common information bac bone . 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 bu siness benefits for the company? answer are yes, and yes. Information Systems For A Quic ly Changing Steel Industry In a quic ly changing industry li e steel, one need information systems which qu ic ly provide them the data they need. We believe that ERP, especially in its ma ture implementations today, is the crucial component for a companys IT data bac b one. ERP can play an essential role in: Driving accurate and fast decisions (product profitability, procurement spend) w ith consistently defined data Running broadly nown and supported applications Harmonizing and optimizing bac -office processes across the enterprise that comp ly 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 acti vities across an enterprisefrom product planning, parts purchasing, inventory con

trol, and product distribution, to order trac ing. ERP may also include applicat ion modules for the finance, accounting and human resources aspects of a busines s. SAP and Oracle are the two ERP leading vendors. From a business perspective, ERP today has expanded from simply coordinating man ufacturing processes to being the integrator of enterprise-wide bac end processe s. ERP has also evolved technologically from a monolithic legacy implementation into flexible, tiered, client-server architecture. ERP Project Ris s In the late 1990s many ERP projects started, but more than a few failed. While E RP projects remain challenging even today, most can now be successful because th e best practices have been identified and ERP professionals are more nowledgeab le and more experienced with ma ing 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 bac its implementation cost. The most i mmediate ERP benefits include (1) Improved policies, (2) Decrease (3) Improved t operations visibility of procurement spend and savings from improved sourcing of wor -in progress and days-of-sale-outstanding, productivity through better sales order handling, better procuremen and more efficient planning.

However, the most important business benefits will often be delivered after the ERP bac bone is established, by other initiatives that use the ERP bac bone: Integrated supply chain: from networ planning through scheduling and Manufactur ing 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 bac bone systems There ferent are cost savings on the IT side, often around 10-15%, especially when dif 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 ris s in an ERP implementation are usually outweighed by the b enefits. 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 implementin g ERP, as described below. A successful ERP project will start by analyzing thes e challenges in detail across all of the companys integrated processes. This anal ysis will result in the basic decisions that will be the foundation of the ERP p

roject. Challenge 1: More than one planning strategy Steelma ers often use a combination of production planning strategies. Typically the flat or strip products are ma e-to-order, whereas the long products are ma e to- stoc . Depending on the existence of a de-couple point, finish-to-order coul d be a relevant planning strategy as well. Such a combination of planning strate gies affects the design of most ERP processes, including supply chain processes as well as the financial/cost control processes. Cost control in ma e-to-stoc t ends to go for standard price approaches, but in a ma e-to-order environment cos ting happens on an individual order cost collection and forecast basis. ERP syst ems today can handle this ind of complexity. Challenge 2: Complex product variations A steel product is made up of a large number of characteristics, ma ing the prod uct difficult to configure when entering it in the ERP system. Configuration in the ma e-to-order entries is typically done while entering the order, whereas fo r the ma e-to-stoc entries, configuration is done in the product definition, th at is, on the material master. This burdens the early discussions during the design phase of an ERP implementat ion. Fundamental decisions need to be made very early in the project about how m any (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 othe r end of the spectrum is to define all possible/feasible characteristic combinat ions which can possibly explode into an extremely large number of finished produ ct definitions. A steel product tend to explode towards the end of production processing; in oth er 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 th e number of products to be defined becomes. ERP solutions today can readily hand le the complexities this of the V-shaped bill of material. They allow characteris tics based product configuration with automatic deduction of characteristics, cha racteristic value inheritance from sales order header to item level, entry of mu ltiple 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 steelma ing often needs to happen on short notice, with unstable pr oduction 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 constructio n, tight integration with business partners on forecasts, electronic customer or ders (EDI, internet etc.) are typically needed. ERP systems today support electr onic integration with partners. Challenge 5: Complex production scheduling combining both continuous and batch p roduction Figure 2 below illustrates the flow in a typical steel mill. While the blast fur nace and converter wor in batches, the caster wor s continuously and the finish

The batches need to be selected based on characteristics during production, prep aration and shipment planning. This means that the planning process needs to be able to derive batches with characteristics inheritance and history tracing. Fin ally, the scheduling part of the planning system needs to be able to wor with m ultiple and dynamic bottlenec s that is, bottlenec s which can change based on i ncidents such as production problems in certain process steps. ERP systems today can handle all of these situations. Challenge 6: Detailed margin analysis In todays 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 different iate between strategic materials (co es 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 wor closely with the companys Business Informat ion Systems (BIS) to optimize the business benefits. Wor ing together, the ERP a nd 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 s ystems 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 bloc s of similar products which are then handed over to production planning.

When orders are being entered, availability chec s assign the order to a bloc ( unless inventory already exists that meets the order) and feeds bac a promise d ate (at the end of the bloc to allow for the flexibility of possibly moving to an earlier date). The mill optimizer then typically would re-shuffle orders in between the bloc s, and feed results bac into the SCM application in order to optimize the load ba lancing. Right before production starts, planned orders from the SCM application are conv erted into production orders and, via the ERP system, are transferred into the M ES layer. It is at that time when quantities are being translated into pieces (s labs, coils etc.). Detailed scheduling then ta es place, sequencing and combining pieces from vario us orders throughout the mill into lots for optimization. Production completion then posts an updated status of the orders into the ERP sy stem, including stoc receipts of finished products, and so forth.

Figure 3 is also important because it lets you identify gaps among a companys dif

ing lines wor

in batches again.

ferent IT systems. A typical gap occurs between the ERP and MES (process control and machine control) systems, where the system is actually combination of custombuilt applications and manual spreadsheets. Bridging this gap properly is essentia l forrealizing the business benefits of the IT investments. If the applications in Figure 3 are to provide true value, they need to be robus t, integrated and cost efficient. A recent IBM survey indicates that steel clien ts 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. Cle arly, this ris s creating sub-optimal processes and leaves the company open to a ll the problems of maintaining custom-built, legacy applications. Implementation Approaches for ERP The ey element for ERP success is to now how to implement an ERP project. Past experiences recommends best practices such as: Rapid/realistic project timelines due to external pressures (acquisition synergi es, 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, theres much more to it than these few general principles. Implementing E RP is complex and ta es a team of nowledgeable and experienced ERP professional s to successfully implement an ERP project. Implementation Process At Tata Steel The company new well that they had a tough time especially to implement the sof tware in one stro e. They had to choose top ERP software in order to ensure that it meets the demands of a big firm li e TISCO. They went ahead with associating and implanting TISCO to all the sta eholders so that they become compatible. Th ese ideas also contributed to the success. They were also shrewd enough in adopt ing the modern and most recent technology available in the mar et. The period se t 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 o nes. A plan of action on the proposed ERP's impact was drafted depicting their r elation to one another and to the business process. All of them were made to bea r in mind the fact that ERP's implementation was imperative and that the deadlin es were not very comfortable. The company too all efforts to ensure that the ch ange did not produce any sort of resentment in the organization. This was done b y educating everyone on the need and desirability of change. In addition all app rehensions 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 ER P 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 o f its customers worldwide. The company adopted ERP technology to ta e a lead in the competitive steel indus try and through constant learning, innovation and refinement of its business ope rations, has transited seamlessly from a production-driven company to a customer -driven one. The existing technology was a simple replication of the manual syst em. Not only did it operate as individual islands of information but the technol ogy had outlived its lifetime and was completely obsolete. The employees and man agement at TISCO faced a cumbersome tas exchanging and retrieving information f rom the system.

Further, the reliability of information obtained was questionable because of inc onsistency and duplication of data from different departments. Also there was no built-in integrity chec for various data sources. Besides, several times the i nformation 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 certificat ion and benchmar ing initiatives. Realizing the need to further support the re-e ngineered core processes and quic ly align the business processes to radical cha nges in the mar et 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 Ar thur D. Little (Strategy Consultants) and IBM Global Services (BPR Consultants) redesigned the two core business processes: Order Generation & Fulfillment and t he Mar eting Development processes. This was done to improve customer focus, fac ilitating better credit control, and reduction of stoc s. In eeping with this c ommitment it adopted the latest production and business practices to offer innov ative 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 it s existing information system and further provide compatibility with its future implementations. After an in-depth study of functionality, cost, time, compatibi lity, esteem, operability, support and future organizational requirements was do ne, SAP topped the list of contenders. The implementation of SAP software was associated with certain strategic goals i n mind. With this implementation, TISCO wanted to bring forth a culture of conti nuous learning and change. This would enable TISCO to achieve a world-class stat us for its products and services and strengthen its leadership position in the i ndustry. Besides this, TISCO also wanted the software to result in quic decisio n-ma ing, transparency and credibility of data and improve responsiveness to cus tomers 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 loo ed forward to nowledge-based, successful organization. It is inspiring to now tha t our TEAM ASSET with support from Pricewaterhouse Coopers and SAP successfully lived up to our axiom and truly demonstrated leadership s ills by going live acr oss 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 hug e numbers of transactions and complexity, were identified as a HUB while the sma ller branches along with the consignment agents were defined as SPOKES which wer e 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 Trans formation. The TEAM ASSET had two simple axioms: Go-Live date - 1st November 1999 There are only 24 hours a day Preparatory tas forces activities were conducted and core business processes we re mapped to SAP modules. Also another parallel activity called 'Change Manageme nt' 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 ta ing place. "We wanted that Tata Steel be the number one in the steel industrywe wanted to be the first to have the latest systems" said Mr

. Sandipan Cha ravortty, 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, th e pace of implementation was fast with all activities bac ed by a lot of thought process and meticulous planning. On 1st November 1999 Tata Steel pulled off a b ig bang implementation of all SAP modules at one go across 46 countrywide locati ons, 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 mean s 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 w ith enterprise accounts and ey customers. The success in Mar eting and Sales ha s prompted a re-visit of the existing system in the wor s and a detailed rollout is expected as below. Phase I - To Extend SAP in Wor s 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 solu tion to enhance its customer relationships in the near term and eventually reali ze its dream of a becoming the most efficient and competitive company in the wor ld 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 Syste ms for Steel plants using the APO module of SAP Baan at Tisco growth shop and in spares manufacturing unit Wor flow, 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 geogra phies 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 compan y. It is present in 46 nationwide locations. The Need The company wanted to eep its lead in the competitive steel industry through co nstant learning, innovation, and refinement of its business operations. It had t o 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 na tionwide. The Benefits The company now has efficient business processes, enhanced customer service, red uced costs, improved productivity, accelerated transaction time, wor flow manage ment and reduction in the number of credit management errors. There have also be en significant savings in manpower, inventory levels, and resources

THE OUTCOME SAP ERP solutions produced a remar able result to the company in terms of financ ial technical and managerial parameters. The effective handling and speed delive ry resulted in greater sales .Similarly there was a drastic fall in the amount o wned to creditors. The systems were made more user friendly without any complexi ties and procedural lacunas. This improved the quality of wor and lessened the time ta en for wor 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. Tisc o 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 ma npower 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 drast ically deflated from Rs 190 per ton to Rs 155 per ton. To add to this, there hav e been significant costs savings through management of resources with the implem entation of SAP. With SAP's solution Tata Steel can now update their customers o n a daily basis and provide seamless services across the country improving custo mer management. The availability of online information has facilitated quic er a nd reliable trend analysis for efficient decision-ma ing. Besides the streamline d business process reduces the levels of legacy system and also provides consist ent business practices across locations and excellent audit trail of all transac tions. Future Moves This exercise underta en by TISCO has been a motivating factor for both companie s and ERP vendors. TISCO is not determined to stop ERP or attain a saturation po int now. They are wor ing on to improve and increase the scopes of enterprise re source planning software in the organization so that it benefits the sta eholder s in all possible manners. Organizations can ta e this as a model guide and comb ine it with the critical success factors for ERP systems and critical success fa ctors for ERP implementation in order to enjoy ERP success. Conclusion ERP is a ey bac bone application for companies in a fast changing industry li e steel. Given an awareness of the best practices and a good understanding of the project complexities, the ris s in an ERP implementation are usually outweighed by the benefits. The ERP discussion is often one of mindset more than one of st andalone business cases. While implementing ERP can be challenging and demands s ustained commitment from top executive levels, it is fundamental to enhancing th e competitive position of a company in the dynamic environment of the steel indu stry today.