ERP Implementation At
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.
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 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 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.
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
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
• 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
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
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
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
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
• 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
• 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
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
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
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
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
• 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
• 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
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.
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.
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.