Larsen and Toubro’s Electrical Business Group (L&TEBG) is in the business of designing, manufacturing and marketing low tension industrial switchgear, custom built switchboards and petrol dispensing pumps. The Rs 750 crore EBG division had earlier implemented SAP’s R/3 ERP solution. Today it has gone on to add an online store and a B2B procurement solution using mySAP.com. Akhtar Pasha finds out why L&TEBG implemented these solutions, the benefits from the process and whether the investment was justified

L&TEBG’s operations are managed through four manufacturing plants located in Powai and Madh in Mumbai, Ahmednagar and Faridabad. Distribution, sales and marketing are handled through 10 warehouses and 25 branch offices. It has a network of about 400 stockists and 100 suppliers. There are more than 100 distinct standard products and 1,500 product codes—most of which are in stock at any point of time.

Vivek Shiroor says L&T’s electrical group recovered the entire investment made on the initiative within two years

A 35 year legacy
L&TEBG wanted a process by which it could convert its legacy applications and data of the last 35 years to a New Economy business model. The management at EBG was unable to cope with fast changing business scenarios, new and complex user requirements, islands of information lying with suppliers and distributors and heterogeneous platforms, leading to data inconsistency and duplication. Those were the initial challenges EBG was facing.

Besides, there was neither real-time bi-directional integration between legacy systems on differing platforms across the intranet, nor was supplier information available regarding products, prices and availability. Also, there were no links between fulfilment and order tracking applications and the internal systems of logistics companies (FedEx, UPS).

Vivek Shiroor, at that time the associate vice president at EBG, says, “There were several challenges faced by L&T EBG in 1995 when we first initiated the thought-process regarding implementing a robust, future-proof and integrated solution at a senior management meeting. The following were the major worries in those days:

• Dynamically changing market and inability of legacy system to meet these changing needs.
• Difficulty in managing and enhancing IBM mainframe-based applications and dwindling support from central IT organisation, primarily due to lack of trained manpower.
• The online application was already five years old and some critical batch applications were more than a decade old.
• Lack of integration between manufacturing, marketing and accounts systems, resulting into delays in reconciliation efforts and lack of responsiveness.

There was possibly a need to have a relook at the business processes and change them for bringing in improvements, but since all business processes were well supported by IT, large IT investments would be involved if business processes were re-formatted.

EBG foresaw the need for strategic change, a need to remodel its existing infrastructure to keep up with the changing market environment. Restructuring was required to help the business group to focus on specific customer segments and address the needs of customers, suppliers and distributors.

A cross functional task force was set up in 1995 to look at the business requirements of EBG and locate resources for the future and evaluate various ERP solutions. There was an organisation-wide debate regarding policy decisions on ERP, revolving around the scope of implementation—whether the ERP solution would be implemented across the L&T group or in particular divisions. Later, it was decided that all business groups would go their own way for implementation but no corporate subsidy would be given for the ERP implementation by the L&T group.

Shiroor says, “The ERP evaluation was done in November 1996. SAP’s package was procured after evaluating other ERP packages such as Avalon, JD Edwards, MFG-Pro, Baan, Oracle Application and Ramco Marshall.” The final clearance was given in September 1997. From there it took three to four months for package negotiation and the selection of PricewaterhouseCoopers (PWC) as EBG’s implementation partner.

A 15-member team of PWC was responsible for the SAP R/3 ERP implementation, right from training, project management to documentation and implementation. The rest of the project work like hardware selection, system installations, programming, administration, end-user training, testing, networking and helpdesk was done by a 50-member L&T team.

The project was kicked-off in early February 1998 with EBG deciding to take a ‘big bank approach’ to implement all the ERP modules—finance and controlling, sales and distribution, product planning, material management, quality management and service management—at one go in all locations. The idea was to cut short implementation time, lower overall costs and make implementation a one-time pain alone.

The project was executed at a cost of Rs 10 crore. It took 14 months to implement and EBG went live in April 1999. Shiroor says, “There were many benefits of implementing an ERP solution. Direct benefits accrued in made to order products like electrical switchboards—four to five months of cycle time got reduced to about three months. Plus, flexibility of operation—online information across the organisation, paperless operations, transparency, unified enterprise, electronic approvals for purchase orders and visibility of stocks across the nationwide operation, reduction in our printing requirement due to paperless operations, shorter cycle times and elimination of duplication and redundant activities were the other advantages.”

B2B initiative
A year later in February 2000, L&TEBG decided to opt for SAP’s new Internet environment, mySAP.com. Implementation was completed in a record time of 29 days, primarily because all the critical elements were in place. There were other solutions available in the market but L&TEBG selected SAP, as the mySAP.com proposition met and exceeded all expectations. The company has invested Rs 50 lakh for implementing mySAP.com.

The objective of implementing mySAP.com was to increase revenues and to improve business efficiencies. EBG launched its B2B website (www.lntebg.com), which went live on March 20, 2000. The Web server is connected to a 512 Kbps Internet link and allows stockists to access the SAP system to view finished goods stocks and to place orders for standard products. SAP’s mySAP.com component—‘On-line Store’—has been used to provide this functionality. EBG’s customers can also book seats for training programmes conducted at any of the three training centres spread across the country through the website.

For the entire implementation—R/3 and mySAP.com, L&TEBG used Compaq’s Proliant servers (Intel Pentium Pro II/III) running Microsoft’s Windows NT. Informix was used as the SAP database and Checkpoint for firewall protection. One application server and database server were used for the quality server, while three application servers in a Microsoft cluster were used for the production server. “About 45 people from EBG and another 30 technical people were trained in different areas during the implementation,” adds Shiroor.

Payoffs
EBG’s 400 odd stockists can now view their account status and sales order delivery status online. By enabling stockists to directly access information from the SAP system, sales staff are able to use their time to undertake more productive selling.

Registered vendors are able to view their purchase orders, delivery schedules on the purchase orders, delivery status and payment outstandings. About 500 of EBG’s 700 vendors access the website, covering 90 percent of the value of their dealings with the company. Sales order processing, which took four days is now available online and in real-time. This facility for vendors has also enabled EBG to do away with printing and dispatching of purchase orders. It has reduced vendor visits, phone calls, and paper wastage at both ends.

Shiroor says, “The return on investment came in very thick and fast. It took us just two years to recover the entire investment made on R/3 and mySAP.com.”