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 inhouse. 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 paperbased 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