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Business transformation leading to higher profitability

Business process optimization using SAP ERP has streamlined and improved Paradeep Phosphates’ sales, accounts, visibility into its stocks and plant maintenance operations, resulting in higher profitability, says Akhtar Pasha

Paradeep Phosphates Limited (PPL), which is in the business of manufacturing and selling phosphatic fertilizers, was a PSU posting revenue losses till January 2002. Post disinvestment in February 2002, a new management took over this unit with KK Birla Group holding the major share along with OCP Group of Morocco and the Government of India.

Since February 2002, PPL’s new management achieved a major turnaround in the first three years of its operations, mainly through financial and administrative reforms. This brought discipline into its operations. But it was not enough to meet its vision. So PPL took the route of business process optimization using an ERP package to achieve the next big league and business turnaround that integrates all its business processes across the enterprise that servers 12 states in India from five plants [three manufacturing plants, one PAP factory and Captive Power Plant].

Legacy applications did not support growth

The legacy applications that were being used primarily included—financial accounting system covering general & sales accounts, materials management system covering inventory & purchase operations and payroll system. These applications were not able to scale and required heavy maintenance. Additionally, these legacy applications were not integrated and were not able to provide the right data for business decisions. It also led to duplication of work and made the data consolidation work tougher.

In business operations, administrative and financial controls were in place through manually operated procedures, in most functional areas, especially in those connected to financial expenditures. A LOAM (Limit of Authority Management) system was manually in place and was in rigorous operation. Operating policies covering important business areas such as Finance & Accounts, Budgets, Costing, Marketing, Sales Accounting, Purchase, Human Resources, Performance Management, Travel, Payroll, Employee Benefits, etc., were fairly well-defined and were manually in operation.

Seetaramaiah Vissapragada, General Manager-IT, PPL, said, “We were using Regional Integrated Accounting Systems (RIAS) for accounting & sales, CMMS for material management—both developed in-house using Oracle D2K and a FoxPro-based application for payroll.” Needless to say, there was little or no integration. Most information was manually prepared and there were also occasions when different functions maintained different data related to a common business process theme.

Referring to RIAS, Seetaramaiah, said, “All our 80 sales officers operating in 15 states used sales related data in hard copies and were manually feeding the data into the system. The non-availability of real-time data led to irregular stock and material planning. Ditto was the case of supply and distribution. Employees used to record the supply and distribution on paper, based on certain phone calls leading to escalation of inventories and affected our production. We did not know the exact stock position on the 15th of each month, the status of raw materials and the correct count of produced goods.” Lack of automated business process integration and the natural limitations of manual human coordination between marketing, production and dispatch resulted in dispatch delays. Additionally, consolidation of business data between the head office and the plants was quite taxing and prone to errors.

P&L analysis was difficult

Cost accounting was a tedious job and never accurate. Seetaramaiah pointed out that in the absence of real-time data, getting a fix on profitability in each region they cater to, was never an easy job. Additionally, getting the data on which product was more profitable and in which region, was not possible in the legacy system.

Manual Plant maintenance operations

PPL has five plants and plant maintenance become a large issue because prompt on-time preventive maintenance could not be ensured on critical equipments, in the absence of an automated scheduling system. Seetaramaiah said “The prevailing preventive maintenance was manually scheduled & executed & thus had several limitations. In the absence of maintenance history maintained, even identifying the root cause of breakdowns, was taking longer times. We observed a huge scope for improvement through automating the maintenance process”.

Standardizing business processes using SAP ERP

PPL was looking for a comprehensive IT solution that would support its most crucial business functions such as financials and controlling, payroll, HR, production planning, materials management, procurement, plant maintenance, and sales and distribution.

After a thorough evaluation, PPL selected the SAP ERP ECC 6.0. Seetaramaiah notes that the software’s reliability, industry-specific features, and integration among business functions were key factors in the decision.

He added, “SAP brings load of vertical industry best practices and it’s so much easier to adopt the same rather then improvise ours. Also, SAP has a very sound financial background.”

PPL bought 185 user licences. “With SAP ERP, we have a flexible, scalable, and well-integrated business process framework that facilitates smooth business operations,” added Seetaramaiah.

Project EMPOWER

To prepare for a major transformation, PPL launched a project—EMPOWER (Enterprise Management and Process Optimization for Work Excellence and Rewards). The first efforts included selecting a core implementation team and re-engineering key business processes. Then, with the help of implementation partner, Siemens Information Systems Limited, the fertilizer manufacturer rolled out the SAP ERP application across all its offices and production facilities in just eight months, on time and within budget.

The concept, vision and objectives, approach as well as other detailed plans for execution, were reconfirmed and were approved by the Steering Committee during this preparatory phase. Also, a quantified ROI (Return on Investment) plan was prepared based on the targeted goals, resulting in an estimated payback period of less than three years.

Project scope

SAP implementation was carried out covering all modules such as Finance & Accounts, Costing & Controlling, Supply & Distribution, Sales, Production, Materials Management, Plant Maintenance, Quality Management, Human Resources & Payroll, EP & ESS, BIW modules. In addition, the project also included customization and implementation of a product named, INotify, along with an interface to SAP, to capture and post all supply and distribution and sales related transactions into SAP. INotify provides a PDA-based front-end to field sales officers operating from various parts of India and also an online interface to the regional offices in India.

Project execution

The SAP implementation went live on February 6, 2008. There has been substantial improvement in PPL’s core transactions, inventories, stocks and increased productivity and other business insights. It needed about six months of post-go-live duration to stabilize the SAP application, assuring reasonably adequate knowledge/awareness levels to users, reasonably low backlogs and error correction capabilities. During this period, users needed sizable attention and support from core and IT teams.

Regional field inventories reduced to zero

Considering the remote areas of PPL’s sales footprint in India, field sales integration was more of a technology challenge, than any other function. As, even a reliable Internet connection was not assured in these areas, they based their solution on a software product, known as INotify, supplied by Mobien Technologies, that works based on simple GSM SMS technology, which had a near 100% reach all over India.

INotify was customized to PPL’s needs to capture all field-originating supply & distribution as well as sales transactions on hand-held PDAs from sales officers and to convey them to the INotify server at the corporate office in the form of structured SMS messages, where they are identified and stored as transactions. Further, a nightly interface transfers all transactions from INotify to SAP—which helped PPL to reduce its regional field inventories to zero from substantial costs.

Initially the system suffered due to several hardware issues, SMS losses and other factors. However, sincere focused efforts filled in all the gaps to make it a robust operation. The INotify system brought with it several benefits. It saved huge one-time and recurring costs of software for the sales personnel. Further, it helped in simplifying the data capture procedures and time in field, which simulated multiple lengthy and time-consuming transactions in SAP through the SAP interface, for the sales personnel.

Automatic plant maintenance

There was a significant improvement in the preventive maintenance of all plants following its automation in SAP, resulting in reduction of overall maintenance shutdown times & creating opportunity for additional production, but this was ironed out post implementation. Seetaramaiah said, “We have entered all the critical equipment in the master data of SAP. We have classified and prioritized all spare parts and components that need to be maintained quarterly-annually. The SAP Plant Maintenance module alerts and schedules equipments for maintenance and helped us in identifying the root cause of malfunctioning and gave updates on what spares have reached the end-of-life and needed replacement. Now we can do preventive maintenance of all our equipments. Additionally, the procurement cycle of spare parts is reduced to 40 days from 57 days.”

Quality standards— a business driver

PPL used to carry out many lab tests on raw materials and finished goods. It used to pick up samples from plants randomly and measured the parameters manually. All reports were in paper format. Seetaramaiah said, “If any sample found to be inaccurate, the corrective steps used to take a lot of time. Further, we were pursuing ISO 1400 certified for our plants and to meet FCO compliance for classified essential commodity [Phosphatic fertilizer] to standardize our quality processes.” Seetaramaiah explained that the implication of not following these standards was severe.

With the Quality Management module, they have been able to do away with paper-based reports. Today all test results of raw materials and finished goods data are directly entered into the SAP system. Any change in the test parameter is immediately brought to the notice of concerned managers and subsequently floor managers also get updated information on production. After all, raw material is 95% of the product cost. Moreover, closer monitoring of maintenance schedules is reducing unscheduled and costly equipment shutdowns.

Speedy settlement of accounts

All bill payments are through SAP. Earlier bills were settled manually and resulted in business issues. For example, PPL found the differences in the freight rates when compared to negotiated rates from vendors as the process was manually driven.

Post implementation of SAP ERP, the system automatically generates bills and freight payments against the quality. It has resulted in speedy processing of bills and payments. Today, all PPL facilities operate with a single set of business processes, an integrated information base, and a common business vision. As a result, the organization is seeing benefits company-wide—from its corporate offices to its many field locations. The fertilizer manufacturer has also accelerated procurement cycle times, resulting in faster lead times—a critical capability in the fertilizer industry where companies must react quickly to global changes in the volatile commodities market.

Next investment

More changes are on the way. “Our new technology-based process infrastructure will act as a robust foundation for future improvements,” said Seetaramaiah.

PPL intends to fine-tune its business processes with management dashboards and additional capabilities for information management. The company also plans to increase its SAP software base by introducing the SAP Advanced Planning & Optimization component and the SAP Customer Relationship Management application.

akhtar.pasha@expressindia.com