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).

3

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

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.

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 in turn

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

manmade disasters.

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.

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 2000-2001.

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

totalling to 106 locations.

2004- By March 2004, the number of implemented locations was totalled 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, totalling 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 honoured with the “SAP First Ace

of locations. Indian Oil 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.

POST ERP IMPLEMENTATION SCENARIO IN INDIAN OIL CORPORATION:

The benefits of ERP are listed below.

Tangible 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

Intangible Benefits

Information Visibility

New/Improved Processes

Customer Responsiveness

Cost Reductions

Integration

Standardization

Flexibility

Globalization

Supply/Demand Chain

Business Performance

Dismantling Inefficient Legacy Systems

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 Indian Oil 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.

ASSIGNMENT:

ENTERPRISE RESOURCE PLANNING

Submitted by: Md. Danish

Roll no.- 13

Group: 2