Bringing IT to heavy-duty industries like engineering and construction is no easy task. It calls for huge investments and precise planning. Yet, L&Ts E&C has done it and done it to its advantage. Srikanth R P finds out how

K Venkataramanan sees IT as the force that will help enhance L&T’s image as a world-class global organisation

‘Big’... this is one word that immediately comes to mind when you walk into Larsen & Toubro’s gigantic, sprawling complex at Powai. This word is again reflected in the projects the company has been involved in till date. It executed the Mumbai-Pune expressway, India’s first six-lane concrete expressway built to international standards. It bagged the Rs 445 crore turnkey order from Chennai Petroleum Corporation. And has construction and engineering orders worth over Rs 900 crore from Tarapur Atomic Power Project.

If its building blocks are bricks and cement for any infrastructure project, then information technology is the glue which holds it all together. And this is one insight that the L&T management has leveraged to the optimum. In fact, the management’s early vision in realising the benefits of IT has made L&T’s Engineering and Construction division, a force to reckon with in the industry. This vision is best summed up by K Venkataramanan, member of the board & president (Operations), “Our vision is to move from the image of a premier India-centric organisation to a world class global organisation with the help of information technology.” Looking at the organisation’s road map for the next few months this vision seems to be paying huge dividends.

Leveraging the strengths of IT
L&T’s Engineering and Construction division (E&C) is the largest contributor to the group’s turnover and contributes over 55 percent of the total turnover. The division was one of the earliest adopters of information technology in the country and probably one of the first buyers of the IBM mainframe nearly 25 years ago. Thus proving that the need for streamlining operations with the help of information technology was evident from the beginning.

The E&C division is constantly under pressure to complete projects in the shortest duration at the lowest cost. And considering the scale of the operations involved, this is no easy task! Each and every project order involves designing and engineering thousands of items, followed by their procurement from hundreds of suppliers scattered globally. Further, each procured item has to be tracked and expedited for delivery at the construction site, which is in sync with extremely tight construction and commissioning schedules. As the size of the projects went on getting bigger—the complexity of the projects too increased. The top management clearly saw that the use of information technology in day-to-day operations would boost productivity and ramp up the speed of operations.

With the advent of the client/server architecture, the division saw a great opportunity to ramp up its IT infrastructure and enhance its productivity levels. Accordingly, the division installed a state-of-the-art design and engineering system— AutoCAD and PDS Intergraph, which were relatively unknown in the Indian industry. In hindsight, it was a timely move as these applications gave the division the much-needed competitive edge in a fiercely competitive industry.

Today, these have proved to be the bread-and-butter applications and have not only helped in increasing productivity, but also in coping with tedious changes in design on the fly, a phenomenon not uncommon in the construction industry.

Simultaneously, the company also developed separate in-house applications to track the variety of materials (PM2) and cost (JC2) of each project. But lack of a graphical user interface (GUI) limited the scope of these applications. In addition, all the different applications were generating information that were becoming isolated islands of data. The company had two options: add a GUI to the existing applications or go in for a new system, which could scale up with the company’s needs and help it go global. Though the cost involved in replacing the old system with a more scalable model was immense, the management nevertheless decided to implement an ERP system, which would help in streamlining and integrating its various operations.

After evaluating a slew of packages from different vendors like SAP, Baan, JD Edwards and MFG/PRO, the company honed in on SAP. But this too was a major challenge as there were no readymade modules that could suit the divisons’ requirements. Till then ERP packages were typically known to be implemented in traditional production related environments like manufacturing and were unheard of being used in areas like engineering and construction. But this did not deter L&T from going ahead with the ERP initiative. And both SAP and L&T took up the challenge and completely customised the product.

The implementation of SAP R/3 (version Rel 3.1 H) started in 1998 and subsequently all the SBU’s in Mumbai and Baroda were covered in a phased manner. After completion of the implementation in October 2000, the system was upgraded to 4.6 B. The modules implemented were finance, controlling, materials management, project systems, sales and distribution, quality management, asset management and imports.

Advantage SAP
As a result of the SAP implementation, today each and every process in the company is integrated. Engineering projects are known to be complex processes, but with the SAP system, each and every project can be tracked down to the last detail. Today, the implementation encompasses the entire business cycle — development, receipt of the project order, bills of material, procurement, project management, control of materials and drawings at the site, quality control at all stages of execution, financial accounting and cost monitoring. Also, construction site management was implemented for the first time, where the monitoring and control of site activities, materials and drawings were integrated using SAP. Prior to this, market information was scattered, leading to difficulties in retrieval of documents for customer queries, contracts and MoUs. But with the SAP integrated system in place, the division can track activities according to customer, business line, type of activity and period. Also, costs of projects can be viewed according to project components, materials, vendors and periods. The implementation also successfully tackled the complex issue of billing processes and enabled both resource-related and milestone billing functionality using SAP.

With the facility of online project monitoring and control features, the management has been able to take faster decisions. In addition to the customisation, the E&C division’s SAP team worked closely with SAP’s technical team to develop add-on functionality to enable processes like works contracts tax, excise duty and project imports. Besides integration of all functions into a seamless operation, the implementation has ensured improved quality of decision-making and enhanced productivity by eliminating duplication of work and sharing of knowledge across the organisation. In addition, the division has been able to forecast site resources and plan resource mobilisation to perfection. The result: Project schedules have shortened. For example, projects which used to take nearly 24 months to complete four years ago, can now be completed in 18 months. When projects are in the magnitude of Rs 100 crore or more, the time difference makes a huge impact. A six-month early commissioning of a Rs 100 crore project can mean that the customer can start production six months earlier.

Infrastructure
A top class network management centre (NMC) displays the entire network for projects as well as enterprise applications. Unicentre TNG software monitors in real-time the status of all components on the network and indicates the status as down, critical, sub-critical or normal. A Desktop Management Suite (DMS) helps in taking a countrywide inventory of all PCs, remote loading of software, remote LAN management, remote help to end-users by taking proxy control of the PC and solving problems online.

Most of L&T’s projects are in far-off places where there are no telephone connections. So how does the division keep in touch with various business partners? For this, the division has actively taken the help of VSATs which helps in establishing the connectivity with various partners. The VSATs are installed on a project basis and are taken off immediately after a project is over. Most of the remote sites are connected by PAMA/DAMA VSATs enabling voice and data communication. The division has also has a 1 Mbps leased line for data communication and a 64 kbps leased line for voice communication. In terms of hardware E&C has about 45 servers and around 900 PC’s. The E&C division also holds the credit for being the first organisation in the country to have implemented IT Security Management System (ISMS) and achieving the BS 7799 Standard certification 9, which is the highest standard for security management.

Adopting IT in the work place

Eprocurement

With the basic systems in place, the division took a strategic initiative to extend the SAP R/3 system to reach out to its suppliers through an eprocurement application. After evaluating a host of commercial vendors, the division took a decision to develop its own application in collaboration with L&T Infotech.

The eprocurement feature which was set up in July 2000 enables the SAP R/3 ERP backend transaction engine to connect to its group of qualified suppliers through the Internet from the site Lntenc.com. The entire procurement process which includes transporting a vast amount of drawings, specifications and standards has been made much quicker and cost effective. The eprocurement feature allows authorised suppliers to view the proposals along with attachments, submit their offers along with attachments, access purchase order and give order acceptance remotely using this website. All the transactions being ID based, can be viewed and accessed only by the users authorised for the same. This feature has given tremendous benefits to L&T and its suppliers as they no longer have to handle voluminous documents, make multiple photocopies and experience postal delays.

In conjunction with L&T Infotech, the division has built its own reverse auction engine. The reverse auction process, recently introduced has given a big boost to the company’s operations. For instance, a proposal to source different materials from different vendors used to take a minimum of 20 days to one month. But today, with the help of reverse auctions, the company can finalise on the vendors in a couple of hours. Most importantly, with the help of reverse auctions, the process is extremely transparent and the division is able to extract the best price for a given product.

CRM
In the changing business scenario, the division clearly saw that as more and more business operations was getting distributed, there was a crying need to increase competitiveness by improving customer satisfaction. The launch of a collaborative platform christened ‘eConnect’ is a step in that direction. It aims to be a interactive platform for business partners like customers, suppliers, consultants and project teams. In line with the same, a slew of initiatives have been taken. For instance, a customer/vendor query system allows a customer or a vendor to post a query on a specific project. The submission of query triggers an e-mail to the project manager and at the same time the query gets logged into the database. The project manager submits a reply to the query and if required supports it with attached files containing drawing, specifications etc. triggering an automatic mail back to the initiator. In addition, there is a facility of a discussion board which can be used as a virtual meeting forum for interactions among different business partners.

The discussions can be saved as text as well as printed for record of discussions. This simply means that an E&C consultant in Mumbai can collaborate with a customer in say, Oman and uplink complex engineering drawings over the web.

Interactive platform for business partners
The E&C Division has also created a new platform, LNTSTORE.com. This feature enables the disposal of project supplies of high quality engineering raw materials, components and machines both internally as well to the outside world. Periodically selected lots are auctioned off through a dynamic trading process known as forward auctions. A number of other IT enablers like Office needs for Office Supplies like Stationery Procurement, Exim for export import processes, document management for anytime anywhere access of project correspondence & designs, online recruitment support are also integrated into the portal, LnTEnC.com. Also significant is the Marketing Information & Data Access System (MIDAS). This system has a comprehensive database on upcoming projects, prospective customers, countries, and contacts and has an effective search engine and document management system.

Knowledge management initiatives
Having over 25 years of experience in projects, the E&C division had built up a vast repetoire of projects. It was essential for the organisation to tap this knowledge and leverage it for a competitive advantage. The Knowledge Management (KM) initiative aims to do just that and will document the key learnings from the large number of contracts successfully executed over the years in various industry sectors. To begin with a system has already been developed in-house with a view to capturing learnings from executed projects to be made available to future project teams. Over 1800 edited learnings have already been captured within the system including those from the projects recently executed by L&T. The process of utilising the available learnings for on-going and prospective jobs has been established. Further the whole process & software system is being upgraded to make it more attractive & rewarding to all users. K-Station & Domino.doc two top of the line products from IBM-Lotus are being used to create an integrated E&C web based knowledge portal, christened ‘KnowNet’. This is the first instance of a KM solution in the E&C industry worldwide.

Overall benefits
A long term IT vision has ensured that the division is well prepared to handle global projects of any magnitude. Further, reverse auctions have reduced the procurement time from a couple of months to a few hour and have thrown a 8-10 percent cost reduction as a added benefit.

The investments made in Information technology have also paid off in quick time — with the Return on Investment ratio being within a span of one to three years. The effects of timely adoption of Information Technology will be more pronounced in the future as the division actively looks at tapping global projects and growing 3-4 times its present size with the existing manpower.