ERP Implementation Challenges at Indian Oil Corporation

A REPORT ON ERP IMPLEMENTATION INDIAN OIL CORPORATION LIMITED Presented by: SARITA SARDAR ROLL NO-16 PGDIM- IInd year BATCH: 2009-2011. XISS, PURULIA ROAD, RANCHI- 834101. Email: saritasrdr@gmail.com ACKNOWLEDGEMENT I express my deep sense of gratitude towards Prof. C. K. Mani(Faculty XLRI Jamsedhpur)(Supply Chain Management & Logistics) for giving his ascent to share his knowledge to our batch, without which we would not have materialized. I am also greatly indebted to him for his expert guidance and cordial support which have greatly influenced in flourishing my knowledge besides gaining the actual insights to the subject matter and come up with the assignment paper to accomplish. In 1996 the Indian Oil Corporation Limited felt a need for IT♣ re-engineering as it observed that over the years several need based modules were developed leading to creation of islands of information which lacked integration across the Company. The scope of the project broadly included developing a corporate IT strategy, formulation of design parameters for core integration of functional modules to be used at all the units of the Company from Board room to the refineries and upcountry sales offices, developing the required system architecture, determining the needs for upgradation and addition of hardware and software, integrating the existing modules as well as new modules and standardisation and implementation of the integrated system across the Company. The project was to be carried out in four stages, namely, Conceptualisation and Design, ,[object Object]

Trial Implementation and Stabilisation and

Standardisation. The project was to be completed in 29 months (i.e. September 1999). Under the project, the Company, on the advice of the Consultants, selected SAP♠/R3 along with the associated oil and gas specific software IS-OIL and CIN as the ERP♦ solution for customisation and implementation across the Company, integrating important functions such as ,[object Object]

Quality Management. This was to be supplemented with ‘add-ons’ i.e. additional software solutions, which could be seamlessly integrated into the ERP environment. The ‘add-ons’ addressed vital functions such as : ,[object Object]

refinery planning. This was when for the first time implementation of ERP was thought of. IOCL’s SAP landscape comprised of 458 locations with about 4,000 concurrent users. Since its initial SAP implementation in the early 2000s, the system grew substantially. To obtain a solution to this the company turns to SAP® Active Global Support to Optimize System Performance. Later IOCL (2009)since delivers petroleum products to millions of consumers via 10 refineries, 34,000 sales points, and a country-wide network of 9,300 kilometers of pipeline identified that it required to integrate its business process. To integrate business processes and establish a standard communication platform, IOCL deployed SAP Net Weaver® Process Integration technology and the SAP Net Weaver technology platform. “With B2B process integration with other oil marketing companies, we have been able to save millions and have enhanced our supply chain efficiency and the product availability.” S. Ramasamy, Executive Director, Indian Oil Corporation Ltd. Latest is the E- collection process with the help of which IOCL saves close to Rs 45 crore by automating payment collection. Let us see from the beginning onwards what the organisation faced after implementation of ERP in IOCL and where it failed. Then what were the new techniques implemented and were are the further scopes of ERP implementation. According to the paper-“REVIEWS ON IT AUDIT” Re-engineering project (Manthan) report no. -6 in the year 2005 of Indian Oil Corporation Limited. The Company, which decided to implement ERP solution, a state of the art technology, towards its IT re-engineering efforts and spent vast sums of money had failed to get full benefits of the system. Following showed the areas where IOCL failed instead of implementing ERP in the year 2004. Highlights The Company failed to evolve a long range plan and strategy, duly documented with performance indicators and targets. (Para 5.1.4) The Company could not develop adequate in-house expertise even after implementation of 99 sites as per their plan. The rollout beyond 99 sites was assigned to five outside consultants entailing an additional and avoidable expenditure of Rs.9.56 crore. (Para 5.1.4) An exclusive Committee to monitor all aspects of ‘Manthan’, the IT re-engineering project, which impacts all aspects of the functioning of the Company, was absent for most part of the project. (Para 5.1.5) Heavy reliance was placed on the consultant firm, which was appointed after inviting limited tender. Extra payment of Rs.33.27 lakh was made to the Consultants for selection of Enterprise Resource Planning software and vendor, which was not in the work scope of the Consultants. (Para 5.1.6) Non-synchronisation of various phases of project resulted in a delay of over two years from September 2002 to November 2004 in completion of the project and the Company could not derive the projected benefits of Rs.358 crore per annum from on-line integrated business processes and optimisation in Supply Chain Management. (Para 5.1.6) Appointment of vendor for delivery of add-ons software packages was done without inviting global tender. The bid was finalised after a delay of 25 months in evaluation of techno commercial bid, waiving important tender conditions. (Para 5.1.8) The Company had not been able to identify any tangible benefits of the project till now. (Para 5.1.9) The Company failed to identify and allocate Rs.20.32 crore as the cost of manpower deployed from various divisions towards implementation of the IT re-engineering initiative. (Para 5.1.9) The Company had not effectively communicated the IT roadmap to all levels of the organisation. It had also not been able to provide adequate training to all users for operating in the new technological environment. (Paras 5.1.11 and 5.1.13) The Company had failed to appreciate the possible risks of not keeping the off-site data back up at site(s) other than their Primary Data Centre before ‘go-live’ of sites. Instances of breakdown of leased links interrupting the business transactions occurred at sites, which were not put on the three tiers Communication Network. (Para 5.1.14) Primary Disaster Recovery Centre within the same premises as of Primary Data Centre, exposed it to the same immediate risks of physical disaster. Site selection of Alternate Disaster Recovery Centre also did not take into account all the threats to the centre. (Para 5.1.14) Non-configuration of all ‘As Is’ and ‘To Be’ business processes into SAP. Although the processes continued to be in business operations, their non-incorporation in the ERP Software had resulted in gaps in the functionalities provided by SAP and the business processes. (Para 5.1.17) Adequate sign-off procedures were not followed by the Company at the time of ‘go-live’ of SAP which resulted in uploading the data without purification. This was confirmed when Audit noticed that data in respect of lube inventory was not correctly uploaded at depot at Ajmer in December 2003 which resulted in difference of Rs.2.63 crore (May 2004) in the physical inventory and stock as per SAP. (Paras 5.1.23 and 5.1.36) Data loaded on SAP was authorised only by the Middle Management and not by Head of Department of the site. (Para 5.1.36) The Management had not instituted any system of regular reviews for ensuring the fulfilment of the quality assurance commitments made contractually by the Consultants, vendors and suppliers of annual maintenance services. (Para 5.1.45) Neither the evaluation of compliance and performance of the Availability Plan had been conducted by the Internal Audit Department of the Company nor was any post implementation review of the Availability Plan conducted by outside agencies. (Para 5.1.45) None of the Critical Success Factors had been achieved despite implementation of SAP at 292 sites (March 2004). (Para 5.1.45) This was a result of deficiencies in planning, monitoring, training and communication of the Company’s vision to all levels of the organisation, which led to delays, reliance on outside experts and lacunae in integration and implementation of the project. The Company also failed to comprehensively assess the risks and frame an effective mitigation strategy for the same. The system is working because of the expertise and involvement of individuals but improvements were not ingrained into all the relevant processes of the organisation as a whole. In order to complete all aspects of the re-engineering effort and exploit the full potential of the technology, the Company needed to focus on areas such as training, monitoring the processes and taking and analysing user feedback to plan and improve processes. The Review was issued to the Ministry in January 2005; its reply was awaited (March 2005). The Management in their reply (January 2005) had no comments to offer in respect of observations in following paragraphs: 5.1.19 Porting of master data During the field audit of SAP implementation it was observed that Management had not communicated the Data Migration Strategy in the absence of which no sign-off of input data and migrated data could be done at the time of ‘go-live’. On the date of implementation, the existing application software was terminated and the running data at the close of the day was uploaded onto the application and the transactions were commenced with the uploaded Master Data, treating the same as opening balances of the current transactions. 5.1.23 No sign-off of the SAP implementation and standardisation IT installation and accreditation of ‘To Be’ business processes in SAP/R3 Software was certified and signed-off only by the Process Owners and Core-group responsible for software implementation. The Management stated (June 2004) that the signing off of the completion of ERP Implementation by the Consultants (PWA) and standardisation certification from them had not yet been obtained. 5.1.24 No parallel run of the existing system It was observed that no parallel run was conducted at any site after ERP implementation. In the absence of a parallel run, performance analysis and critical evaluation of the new system as against the existing system could not be done. 5.1.25 Record of baseline configuration was missing in SAP/R3 It is necessary to ensure that a record of baseline configuration items is kept as a checkpoint to return to, after changes. Although the baseline configuration had been preserved as ‘As Is’ process these were not mapped into SAP/R3. Thus, for changes after go-live, the user had to revert to Manuals of ‘As Is’ business processes which was time-consuming and also defeated the purpose of an Online Information System. 5.1.29 Management of performance and capacity The Audit objective was to see whether optimal use was made of the internal reporting processes. It was observed in Audit that though the Management had developed a system of users’ feedback to take corrective action, no record of rectifications made was kept for future reference. In the absence of the required documentation of action taken on the feedback, the system improvement objective was limited. 5.1.32 Ensuring system security The Audit objective was to see whether the organisation had a plan to safeguard information against unauthorised use, disclosure or modification, damage or loss. Audit observed that though the project had already gone live and become operational, the Company had not yet documented an IT Security Policy. Since, the Management was still in the process of preparing the IT Security Policy, the assessment of the impact of implementation and monitoring of IT plan on the business requirements of the Company could not be evaluated. 5.1.34 Problem tracking and Audit trail It was observed that there was no system of problem tracking and therefore no Audit Trail could be established in the absence of a Problem Management System whereby the record of all the operational events are kept. Consequently, all operational events such as incidents, problems and errors that were not part of the standard operation were not recorded and analysed in a timely manner. 5.1.36 Source document uploaded without proper checking and authorisation in SAP It was observed during Audit that the data loaded on SAP was authorised only by the Middle Management and not by Head of Department of the site. This poses the risk of inaccurate data being posted into the system. 5.1.37 No archiving policy The Management should implement policy and procedures for ensuring that archive meets legal and business requirements. Audit observed that though the Consultants (PWA) recommended that the data should be archived on a regular basis at milestone points, each time when there was a change to the system and when an upgrade for the software was released, the Company had not developed any policy regarding archiving of data. 5.1.38 The management of operations Audit of locations revealed that instructions of what to do, when to do and in what order, were neither documented nor communicated to users. Thus, IT support operations were informal and intuitive and there was high dependence on the skills and abilities of individuals. 5.1.41 Absence of reporting to Senior Management for decision making Audit found that Business Warehousing and portal for Management Reporting as recommended by the Consultants had not been installed (June 2004). In the absence of the same, Management reporting through SAP was virtually absent. Though basic measurements to be monitored had been identified and assessment methods and techniques had been defined, the processes had not been adopted across the entire organisation and decisions were made based on the expertise of a few individuals. 5.1.43 No document on Management reporting on Internal Control During the audit it was observed that there was no document on Management Reporting on Internal Control. There was no system of cross checking of the authenticity and accuracy of business transactions executed in the new IT environment. The performance monitoring scripts that contained the corrective action parameters were also not examined by the Technological heads. 5.1.44 No Independent Audit of operational security and internal control assurances It was observed during audit that the Operational Security and Internal Control Assurance were neither subjected to self-assessment nor to Independent Audit in order to examine whether or not the security and internal controls were effective and operating according to the stated or implied security and internal control requirements. Thus, there was a need for assessment of the adequacy of internal control mechanisms and institutionalisation of suitable systems and for the generation of Exception Reports for taking necessary corrective action. Till date according to the 51st ANNUAL REPORT and the Director’s report on the performance overview of the year 2009-2010 it is stated regarding “OPTIMISATION & INFORMATION SYSTEMS” that “Indian Oils SAP R/3 Enterprise Resource Planning Solution offers an integrated environment for transaction processing across all business functional areas. The decision support system comprising Demand Forecasting, Supply Chain Planning & Scheduling and Refinery Fence feedback systems facilitate integration and optimisation of complex business functions across the organisation. SAP Application has now been implemented in 768 locations across the Corporation (including subsidiaries) to a common IT platform for online and concurrent business transactions.” This shows that may be at the early stages of implementation showed difficult situations, but the graph or the rise of the implementation from 292 sites to 768 location confirms that IOCL have definitely undergone changes throughout the years and for the reason have almost achieved the taste of the success story. Then the company turns to SAP® Active Global Support to Optimize System Performance. IOCL’s SAP landscape comprised of 458 locations with about 4,000 concurrent users. Since its initial SAP implementation in the early 2000s, the system grew substantially, with the addition of 850 customer-developed modifications adding measurably to the overhead. “For example, more than 500 reports across all SAP modules were developed,” noted Ramasamy. “In addition, monthly growth of database was on the order of 70 gigabytes; the current size was one terabyte.” Eventually, performance began to suffer, and end users became dissatisfied.The performance problems started surfacing as the size of the database crossed around 500 GBs. The problem of some reports getting timed out was faced, and the runtime of many daily reports was stretching into hours. At this point, end users started complaining about the slowness of the systems, and they were working extended hours to complete the daily business. IOCL responded by taking some preliminary measures. As a quick fix, they moved the reporting load to night by having users submit reports at night time instead of running them during the day. Improved Performance and Throughput It was then, when IOCL turned to offerings from the SAP Solution Management Optimization portfolio of services, which are available through SAP Active Global Support, and began to process regular SAP Early Watch® Alert reports. These confirmed that IOCL developed programs were putting a heavy load on the systems and needed to be optimized. The company then asked SAP Active Global Support to provide it with the SAP Business Process Performance Optimization service. Both SAP Business Process Performance Optimization and SAP Early Watch Alert are services of the SAP Solution Management Optimization portfolio. SAP Business Process Performance Optimization improves the performance and throughput of SAP solutions. The service focused on eliminating performance problems caused by customer programs, expensive structured query language (SQL) statements, the ineffective use of SAP standard transactions, and unnecessary data processing. SAP Active Global Support consultants delivered a workshop to 10 of people firstly. They helped identify the programs that cause performance issues, the reasons behind the problems, and the remedies. This helped them to identify the top 100 programs that had to be improved, and out of those we selected 25 programs for the workshop. SAP experts taught how to analyse the coding and also suggested ways to improve performance. Having learned what they needed to know the IOCL team members went back and recoded the other 75 offending programs. The results were remarkable. Better B2B Integration with Oil Companies Indian Oil Corporation Ltd. (IOCL) operates the largest and the widest network of petrol and diesel stations in India – over 17,600. It delivers Indane cooking gas to over 50 million households and nearly 2,700 markets through a network of 5,000 distributors. In addition, IOCL carries out transactions with other oil marketing companies, such as Bharat Petroleum Corporation Ltd. (BPCL) – a major public sector company – and Oil and Natural Gas Corporation Ltd. (ONGC), for the sale and purchase of petroleum products. These transactions are known as “exchanges.” Exchanges optimize the supply of petroleum products to regions where an organization does not have its own source of supply. Exchanges happen through joint certificates (JCs) between the companies involved in the transaction. The financial settlement involves collecting JCs across the country and tallying them with the data of the participating organizations. When necessary, the involved parties resolve any dispute related to reconciliation of JCs. Resolution involves a manual process for tracing all related documents in support of the party bringing the claim. At times, it takes well over a couple of months to arrive at an amicable conclusion. During the period when the dispute remains unresolved, a large portion of the capital is with held from the creditor, and this has the potential to cause the creditor’s organization financial difficulties. To avoid potential issues, IOCL decided to implement an automated system for exchanging data. Being one of the biggest customers of SAP® software across the world, IOCL established a foundation for conducting business-to-business (B2B) process integration with BPCL – also an SAP customer – by deploying SAP Net Weaver® Process Integration technology and the SAP Net Weaver technology platform. An in-house project team named “Manthan” carried out this implementation using Linux as the operating system for this mission-critical operation. The team completed the rollout in 15 months, on time and within budget. Achieving Operational Excellence The Manthan team standardized operations on Linux as the open source software and deployed a hardware platform built to x86-64 specifications. Because SAP supports this technology, the company could maintain a low TCO. IOCL integrated its business processes by using electronic documents interchange with other oil marketing companies to achieve quicker and more transparent intercompany settlement, better planning of exchanges, better control of operating costs, and elimination of manual, paper-based, and error- prone data flow. As a result, the time during which financial capital related to disputed transactions is left unrealized by IOCL has been reduced from one month to a single day. Company staff can now reconcile and settle financial disputes with just a few keystrokes. Consequently, the company has reduced With its project for integrating B2B exchange processes with other oil marketing companies, IOCL envisages creating a common framework and laying the foundation for public sector oil companies to trigger more such e-commerce initiatives. IOCL also plans to integrate its business processes with ONGC – India’s largest upstream oil company. IOCL saves close to Rs 45 crore by automating payment collection With the implementation, manual activities such as downloading and uploading collection advices have been completely eliminated. The E-collection process at Indian Oil Corporation Limited (IOCL) traditionally involved downloading payment advices from a bank’s website and uploading them into transaction processing systems such as ERP backend systems. Another variant employed sFTP (secure File Transfer Protocol) to upload and download payment advices. Earlier, once the customer made a payment to IOCL’s account, this would get credited to IOCL’s bank account. The bank would then upload the payment advice to its website. An IOCL executive would log on to the bank’s website and download the payment advices to his workstation. He would then log on to the SAP ERP system and upload the payment advice using the custom program. The customer’s credit balance would then get updated. IOCL decided to automate this process with an aim to replace manual intervention at any stage of the E-collection process. The company decided to leverage on its existing B2B Exchange platform, which it had deployed for carrying out oil exchanges, and developed the E-collection process in-house. With the new system, payment advices from participating banks are transferred to IOCL’s SAP ERP system as XML messages through the Internet on a near real-time basis and customer’s balances are updated immediately. The company used SAP’s Process Integration solution as the middleware, which maps and transforms XML messages coming from banks into IDoc (SAP’s standard message format). The IDoc is then posted into the SAP ERP backend system and the customer’s credit balances are updated immediately. IOCL currently has SBI, HDFC Bank, BNP Paribas participating in the system. Benefits of E-collection With the implementation, only one cash receipt is posted against one advice. Manual activities such as downloading and uploading collection advices have been completely eliminated, thereby removing any scope of malpractice Post implementation, five employees who were earlier responsible for downloading and uploading payment advices from the banks, have been reassigned to handle E-collection enquiries and reconciliation. The deployment has also allowed the bank to reduce the time taken to update a customer’s credit records, from the time he or she deposits a cheque. The time taken to update a customer’s balance has been reduced from a couple of days to few hours. There are also less errors in updating a customer’s credit records. IOCL designed and developed the E-collection business process in-house employing open standards/protocols such as HTTPS (SSL over HTTP) and XML thus ensuring greater interoperability of the solution. Running the solution on open source x86_64 hardware and a Linux environment has helped the company save on capital costs. Having built the solution on an existing SAP platform, the company did not require to make any further capital investments. There are currently almost 29,505 customers using the system. Savings of Rs 45 crore have been realized on an E-collection volume of Rs 1, 20,500 crore between March 2009 and April 2010. Of the total payment collections of Rs 21,968 crore in June 2010, 74 percent were from the E-collection process. On an average, the process has contributed payment collections worth Rs 16,000 crore per month. Highlights Savings of Rs 45 crore realized on a total E-collection volume of Rs 1,20,500 crore for the period between March 2009 and April 2010 Of the total payment collections of Rs 21,968 crore in June 2010, 74 percent have come from the E-collection process. Till now we have seen that how initially ERP was started and then implemented. During the early stages IOCL had to face many challenges but slowly they tried to overcome infact they flourished well. But later still there were several needs arising due to the large business profile and as they were already having SAP/R3 working as their software they did not hesitate to implement other ERP packages and their successful stories as we have already seen. Moving further let us see what are the future scope and where could ERP be further implemented to enhance the complete business process as well as improve further information flow. SCOPE OF ERP IMPLEMENTATION ,[object Object]

ABAP: The ABAP (Advanced Business Application Programming) development team provides support to functional module team pertaining to any new developments, enhancements, feasibility, data migration etc. in the standard SAP R/3 system so as to configure as per IOCL's business process pertaining to MIS reports, strategic decision making reports.

Joint Venture Accounting (JVA): This module is to cover the Joint Venture activities, starting from Joint operating agreements, Work Programs, Equity equations, Expenditure, Cash Calls, Recovery, Billing and Accounting (as operator and non-operator). [A part of which is achieved through the B2B integration by deploying SAP Net Weaver® Process Integration technology and the SAP Net Weaver technology platform.]

Plant Maintenance (PM): As we know the PM module provides a system for the management and maintenance of technical systems including the cost incurred in the planned and if focus is laid on breakdown maintenance by implementing ERP then many cost incurred could be cut down.

Change management: If ERP can be implemented in the Change Management System the problems which arised during the initial step of implementation of planning, monitoring, training and communication of the Company’s vision to all levels of the organisation will certainly perish.

Knowledge management: If knowledge management is taken care of and moreover if ERP is implemented to the system then many of the important knowledge will never go away with any person, as it is a very important asset knowledge management is very important and further its dissemination to every individual in the organisation. CONCLUSION ERP has undoubtedly become an important business application to all industries. It has almost become a must for all organizations irrespective of the type of business manufacturing or service .If companies feel that coordination and enterprise communication are their only problems they don't have any other alternative but to go for ERP, provided they want to make profits and remove the existing setbacks.Needles to say ERP has helped companies in monetary and nonmonetary aspects if they are keen in utilizing it to the core and take the necessary steps to overcome the setbacks. However ERP needs lot of improvement. ERP is an effective application. It will be great if one can bring an ERP system that it devoid of the drawbacks from the existing ones. ERP applications should be designed to make the maximum use of internet so that the user can access data from any part of the world just by a click of the mouse. This has further deepened the future of ERP. ERP's future is yet to reach saturation. REFRENCES ,[object Object]

ERP Implementation Challenges at Indian Oil Corporation

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