ERP Implementation in Dalmia Cements
ERP Implementation of a Company...
NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES, MUMBAI
ERP SYSTEMS AT DALMIA CEMENTS ________________________________________________
Group – 9 Venkatesh G – E011 Mithil Mehta – E038 Harish MK – E040 Shyam Ramkumar – E044 Prabhu S – E047 Gokulnath S – E048
1. Organization – An overview
2. Cement Business – The Overall Process
3. Need for an integrated Information System
4. Evolution of SAP in the overall business
5. Implementation of ERP in the Organization
a. Materials Management
b. Production Planning
c. Quality Control
d. Logistics & Warehouse Management
e. Sales and Distribution
f. Financial Accounting
6. ERP Implementation – Challenges & Obstacles
7. Benefits of Implementation
8. Future prospects
1.Organization – An Overview Dalmia Cement, the cement division of Dalmia Bharat Enterprises Limited(DBEL), headquartered in Delhi was formed in the year 1939 and enjoys a heritage of 70 years of expertise and experience. DBEL, apart from the cement business has its business operations in the area of sugar, travel agency, magnesite, refractory, electronic operations etc., The Dalmia Group had established four cement plants in pre-independence years, two of which were affected by the partition and Independence. The two remaining plants operate as Dalmia Cement and the firm have also made a recent strategic investment in Orissa Cements Limited(OCL).
Dalmia Cements has cement plants in southern states of Tamil Nadu (Dalmiapuram & Ariyalur) and Andhra Pradesh (Kadapa), with a cement production capacity of 9 million tonnes per annum. With the addition of OCL, its total cement production capacity clocked to 14.5 million tonnes per annum. Dalmia Cements is also a multi spectrum Cement player with a significant market share and a pioneer in super specialty cements used for Oil wells, Railway sleepers and Air strips. The cement plants are located close to the raw materials thereby keeping the freight and transportation costs low. The company also has captive thermal power plants and wind farms with a total supply of 116 MW to support its plants.
The Organization Chart is as described below. The organization has a functional structure with autonomy to individual divisions.
Head -‐ Training
Head -‐Mines & Materials
Head -‐ Finance & Accounts
Head -‐ Systems
Head -‐ Production & QA
Head-‐ Internal Audit
Head -‐ Marketing
Head -‐ Logistics
2. Cement Business – The Overall Process The cement industry is one of the main beneficiaries of the infrastructure boom. With robust demand and adequate supply, the industry has bright future. The Indian Cement Industry with total capacity of 165 million tones is the second largest after China. Cement industry is dominated by 20 companies who account for over 70% of the market. Individually no company accounts for over 12% of the market. While adding fresh capacities, the cement manufacturers are very conscious of the technology used. In cement production, raw materials preparation involves primary and secondary crushing of the quarried material, drying the material (for use in the dry process) or undertaking a further raw grinding through either wet or dry processes, and blending the materials. Clinker production is the most energyintensive step, accounting for about 80% of the energy used in cement Production. Produced by burning a mixture of materials, mainly limestone, silicon oxides, aluminum, and iron oxides, clinker is made by one of two production processes:
wet or dry; these terms refer to the grinding processes although other configurations and mixed forms (semi-wet, semi-dry) exist for both types. The major processes thus involved in the production of cement are as follows: – Raw material Preparation – Raw Grinding – Pyro processing – Finish grinding and Distribution Thus, the overall end to end flowchart for a typical cement manufacturing organization is as given below: Materials Management(Li mestone, Gypsum and Clay) Production -‐ Crushing,Grindi ng,Heating
Packing & Storage
Logistics & Warehouse
Sales and Distribution
Cement Business – Overall Flowchart
3.Need for an integrated Information System • Dalmia Cements had limited use of computers and other technological systems in its place for a long time. It was mainly used in the finance and accounting departments for the daily ledger activities. • The existing system went on well till the late 90’s when the firm was pushed to expansionary mode due to the heavy competition in the industry. The organization began its expansion in 1999 by expanding their cement production capacity from 1.5 MTPA to 4 MTPA. As of 2011, the organization had a production capacity of 14.5 MTPA. • This rapid expansion made the firm to adapt to the information systems for the smoothening of the whole process. • Dalmia Cement started its process of using Information Systems as early as in 2003 with the introduction of IBS – Integrated Business Solutions provided by Tata Consultancy Services. • IBS was a user-friendly system designed and developed specially for the Dalmia Cements. The finance and accounting system was wholly integrated first with IBS in late 2003. • Slowly, the IBS was moved to various other modules over the years. • Since, the software was tailor made to the firm, it could not handle the increasing needs of the firm in the forthcoming years. Another drawback of the IBS module was that it was not able to integrate the information systems in the various departments into a single entity thereby causing complexities in the whole process. • Hence, due to the inflexibility and lack of integration of IBS, Dalmia Cements started to prefer for a single integrated enterprise wise information resource system that can cater to the needs of all the departments in the organization and provide a real time monitoring and tracking system of the whole firm.
4.Evolution of SAP in the Overall Business • After consultation with various industry experts in late 2007, it was decided by the management of Dalmia Cements to bring in the SAP- ERP owing to the following advantages: Integrated application for the entire firm Better monitoring and tracking mechanism Low cost over the other competitors Standardization of resources Lesser inventory and reduced stock obsolescence
Ability to reach more vendors/ increased competition in bids
MM-Materials Management PP-Production Planning SD –Sales & Distribution PS –Project System HR- Human Resource FSCM- Financial Supply Chain Management CO-Controlling FI- Financial Accounting QM – Quality Management PM-Project Management LE-Logistics Execution
• The implementation process was started in the mid 2008 by first introducing the FICO module. • It took totally 16 months for the organization to implement the system to almost every department in the plant and integrate it. The technological assistance was provided by LeadSoft Solutions (P) Ltd., for the integration.
5.Implementation of ERP in the System As explained, the ERP is integrated into the whole system and is used as a better monitoring and tracking tool. The overall implementation of SAP in Dalmia Cements is as explained below.
Production and Planning
Quality Management Logistics and Warehouse Management Sales and Distribution Management Financial Accounting
• This involves the purchase and movement of raw materials and the subsequent change in the godown stocks.
• Production Planning consists of all master data, system conWiguration, and transactions to complete the Plan to Produce process.
• Quality Management (QM) assures that products meet stringent regulatory standards, are safe and uniform, and meet company product speciWications.
• This involves the movement of the Winished goods from the plant to the warehouse and the storage needs at the warehouse.
• The Sales and Distribution consists of all master data, system conWiguration, and transactions to complete the Order to Cash process
• The Financial Accounting module is designed to capture organizations business transactions in a manner that will satisfy external reporting requirements.
5.1 Materials Management The Materials Management module consists of all master data, system configuration, and transactions to complete the Procure to Pay process. This process map spans from MRP generated procurement proposals through final invoice receipt and verification.
Materials Management – Flowchart
In Dalmia Cements, the SAP Module takes care of the following in the MM module. i. Purchase requests ii. Goods Received iii. Invoice Generation iv. Material Movements v. Cheque Payments vi. Specific Reports 5.1.1 Purchase Request Order • A request sent internally within the company to obtain purchased goods and services, including stock. • The request is a document which tells the purchasing department or manager exactly what items and services are requested, the quantity, source and associated costs.
Purchase Request Order
5.1.2 Purchase Order • It is the commercial document issued indicating the types, quantities and prices for the products the seller will provide to the buyer.
5.1.3 Goods Receipt Document • It is the document used to record the inward entry of any goods received at the premises of the organization. • The practice of preparing GRNs is important as it promotes proper inventory control and restricts the unwanted, unauthorized entry of goods in the organization. • The GRN preparation is a part of effective Inventory Control Management.
Goods Receipt Material Document
5.1.4 Goods Issue Reservation • It is the request to the warehouse to keep materials ready for withdrawal at a later date and for a certain purpose. This simplifies and accelerates the goods receipt process. • The purpose of a reservation is to ensure that a material will be available when it is needed.
Goods Issue Reservation
5.1.5 Entering Invoice Order • It is the document from an invoicing party which contains the payments to be made based on business transactions performed in Purchasing and Inventory Management. • An incoming invoice can be an invoice or a credit memo.
Entering Invoice Order
5.1.6 Weighment Report: • This report checks for the discrepancies between the actual and reported weights of the materials delivered.
5.1.7 Material Movement Report • This document checks for the current stock availability of a particular material • The movement of material for a particular period can also be checked in this report.
Material Movement Report
5.1.8.Check Register: • This Data Source provides sub-ledger accounting payments based on checks and the corresponding vendor line items.
5.2. Production Planning Production Planning consists of all master data, system configuration, and transactions to complete the Plan to Produce process. An MRP system is intended to simultaneously meet three objectives:
• Ensure materials are available for production and products are available for delivery to customers. • Maintain the lowest possible material and product levels in store • Plan manufacturing activities, delivery schedules and purchasing activities.
Production Planning - Flowchart
In Dalmia Cements, the production planning and control module is subdivided in the following major processes
Process-‐01 -‐ Production of fine coal o Production of fine coal follows the repetitive manufacturing with back flush (confirmation, issue and receipts) .Operations are coal grinding with work centers like coal mills.
Process-‐02 -‐ Production of clinker o Production of clinker follows repetitive manufacturing with back flush (confirmation, issue and receipts).Operations are lime stone crushing, raw meal grinding and clinkrization with work centers like Crusher, VRM and Kiln.
o Production of cement follows the repetitive manufacturing with back flush (confirmation, issue and receipts).Operations are cement grinding with work centers like CVRM and Ball mill.
Process-‐03 -‐ Production of cement
Process-‐04 – Loose Cement delivery o The cement loose cement delivery follows the discrete manufacturing with service sheet entry for loading operation.
Process-‐05 – Bag Cement packing and delivery o The cement packing follows the discrete manufacturing with operation level confirmation for packing. Operation Carried on work centers like Rotos and Heaven Bocker. The loading operation is carried out with service sheet entry.
5.3 Quality Management Quality Management (QM) assures that products meet stringent regulatory standards, are safe and uniform, and meet company product specifications. SAP QM processes are thoroughly integrated into the manufacturing process.
Quality Management - Flowchart
A few Quality Control Procedures that are implemented in Dalmia Cements are as follows: 5.3.1 Inspection Lot – Moisture Value Report • The inspection lot status is maintained by the system and is changed whenever the processing status of the inspection lot changes • In the organization, only the dry cement is taken. Hence, the weight of the physical stock gets reduced. • The Quality Control department takes care of this system and the report helps in monitoring the differences.
Inspection Lot – Moisture Value Report
5.3.2 Master Inspection Characteristic • An inspection characteristic describes what needs to be inspected. It defines the inspection requirements for materials, parts and products. • To facilitate and standardize inspection planning, one can create master records for inspection characteristics in the Quality Management (QM) system. These characteristics are called master inspection characteristics.
Master Inspection Characteristic – Creating Inspection Plan
Master inspection characteristics can be used in •
Task lists When creating a task list, one can either create characteristics specific to the task list or use a master inspection characteristic. A master inspection characteristic can either be referenced by an task list characteristic or copied into it.
Material specifications A master inspection characteristic can be used with or without a reference to a general characteristic from a batch class in material specifications.
Master Inspection Characteristic – Changing Inspection Plan
5.4 Logistics & Warehouse Management • It is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, put away and picking. • The systems also direct and optimize stock put away based on realtime information about the status of bin utilization.
Logistics & Warehouse Management - Flowchart
In Dalmia Cements, the Depot Rollout System has been implemented using SAP and is integrated with the other modules. The following storage locations are defined in SAP for respective category of stocks: Storage Location
Fresh Cut & Torn Clotted Loss-in- Transit Shortage
Fresh Cement Bags Cut & Torn Bags and Loose Cement Clotted Cement Loss-in-Transit Losses at the depot during repacking, storage and handling
The objective is to have category-wise visibility of stocks at Depot without any difference in physical and book stock. The below figures shows the daily logistics report card showing the goods available in a particular warehouse, the orders placed, the goods in transit, the service delays etc.,
Service Delays in the Transportation
Warehouse – Daily Report Card
Real time position of Stocks
5.5 Sales and Distribution • The Sales and Distribution consists of all master data, system configuration, and transactions to complete the Order to Cash process. • It has the mechanisms to execute the business processes used in selling, shipping and billing of products and services. • It also has the mechanisms to tightly couple the data with the other modules and integrating.
Sales and Distribution Management - Flowchart
In Dalmia Cements, the SAP for the Sales & Distribution module takes care of the following: i. Order Creation ii. Delivery Creation iii. Shipment Creation iv. Packing Screen Operation v. Invoice Creation
5.5.1 Order Creation • Order Creation refers to the process of making the sales order which can either be a stock-to-transfer order creation or a sales order creation.
Sales Order Creation
5.5.2 Delivery Creation • After the sales order, it is necessary to create the outbound delivery to create the shipment.
Order Delivery Creation
5.5.3 Shipment Creation • The delivery order needs to be shipped accordingly.
5.5.4. Package Creation • Packaging Department takes care of the logistics part. The information regarding the shipment goods and its corresponding truck that transports are fed by the packaging department.
5.5.5. Invoice Creation • Finally, the invoice is created for the goods that is to be shipped accordingly.
5.6. Financial Accounting: • The Financial Accounting module in SAP is designed to capture organizations business transactions in a manner that will satisfy external reporting requirements. • Local legal considerations are pre-delivered with the system and the ability to manage and report on multiple companies in multiple countries with multiple currencies is part of standard functionality. • Integration with Sales and Distribution, Purchasing and Materials Management allows for the ability to select any financial transaction and "Drill Down" to the originating transaction whether it is a purchase Order, Sales Order or material movement.
Financial Accounting - Flowchart
5.6.1 Master General Ledger Accounts: • The master ledger account is used to locate all the ledger accounts centrally. All the credit and debit balances are classified under the appropriate codes. • GL masters are maintained at Company code level. Apart from generally used codes for company as a whole individual business areas can opt to open specific GL accounts applicable.
Master G/L Account
5.6.2 Handling Vendors: • Vendors are also handled at the company level. • New vendors can be created after checking for non-duplicity.
5.6.3. Cost Centers: • Cost centers are 8 digit codes and available at Business Area level. Cost centers are created for capturing transactions of a particular machinery/process/nature. The cost centers of various business areas for Dalmia Cements and their respective codes are as below: o 1XXXXXXX – Dalmiapuram cost centers. o 2XXXXXXX – Kadapa cost centers o 3XXXXXXX – Ariyalur Cost Centers
5.6.4. Internal Orders • Internal orders are created for capturing transactions of a particular GL/process/production orders etc. • The report generated using Internal Orders will give the Internal order wise/ cost center wise expenses booked in various GL accounts during a given period.
5.6.5 Asset Explorer: • Creation of new assets and handling of the current assets can be monitored using the Asset Explorer option.
• The key functions that are handled using the Asset Explorer are Asset Codes Asset Under Construction Asset Transactions Asset Balances
5.6.6 Financial Statements: • All the financial statements over the years can be accessed using this module.
5.6.7 Cash Journals: • This module provides the Cash Book – Viewing and entering both the receipts and payments. • The GL and the cash book are monitored and verified on a weekly/fortnightly basis.
Thus the implementation and integration of the SAP – ERP System in the organization is as shown. It is also to be noted that for every change in any functional module, the corresponding change in the FICO is reflected thus providing integration among the divisions within the organization.
6.ERP Implementation – Obstacles & Challenges Though the SAP ERP had a lot of advantages when compared to the previous IBS Systems, there were a lot of challenges in the firm while implementing it which is explained below. • The employees were not aware of the usage of ERP and since there was not any proper training system in place, the users of the system felt the whole process a complicated and tiresome. • Data migration was the biggest issue that the organization faced. Migrating the legacy data i.e., the process of importing the recorded data and information into the new system took more time and labor than expected. The data entry process became too large at a point of time. • Lack of synchronization at the initial stages was also a big challenge that the organization faced. E.g., The inventory figures in the module did not match with the physical inventory. The sales figures and its corresponding entry item at accounting did not match. • The manpower challenge was also another hindrance that the organization faced. Many employees initially feared in working with the new system. These challenges increased the total integration time from the expected 12 months period to the actual 16 months and most of the employees felt that the SAP –ERP project was a failure for the organization. A variety of new methods and strategies were adopted by the organization to tackle the various issues that arouse during the implementing the project. • The technological assistance from LeadSoft was called off in mid 2009 and Wipro Infotech was pulled on to the smoothening of the entire process.Wipro Infotech made the technological process more user friendly and helped in the proper synchronization of data. • Training programmes were frequently conducted to the users of the module and hands-on experience were provided to them. • SAP ERP was put on hold in the main cement plant at Trichy, Tamil Nadu and was introduced in the newly built plants at Ariyalur, Tamil Nadu and Kadapa, Andhra Pradesh. Based on the experiences gained from the implementation in the new plants, the same was adapted to the main plant later in Trichy at a later period.
7.Benefits of Implementation Some of the significant changes that ERP brought to the organization are as follows • Significant reduction in manual work and further significant reduction in paper works. • Better inventory control and hence better management of resources. • Faster creation of reports and hence informed decision making. • Complete visibility among the important processes and resources thereby increasing the transparency and accountability. • Single database is implemented on the back-end to store all the information required and that enables centralized storage of all the enterprise data.
8. Future Prospects Though the ERP System has been in place for more than 2 years and has provided fruitful results off late, there is still a long way to go for the organization to attain the complete benefits of the SAP – ERP. Some of the future prospects that the organization is currently looking at are as mentioned below:
Business Intelligence Warehouse Implementation: – As a core component of SAP NetWeaver, the SAP Business Information Warehouse (SAP BW) provides data warehousing functionality, a business intelligence platform, and a suite of business intelligence tools that enable businesses to attain these goals. Relevant business information from productive SAP applications and all external data sources can be integrated, transformed, and consolidated in SAP BW with the toolset provided. SAP BW provides flexible reporting and analysis tools to support you in evaluating and interpreting data, as well as facilitating its distribution. Businesses are able to make well-founded decisions and determine target-orientated activities on the basis of this analysis. Moving to a real-time MIS: Currently, the SAP is mainly used as a data entry tool for better monitoring services. Implementation of 31
further technology will help in moving the system to a real time MIS System. Seamless integration of Reports: A report that is currently generated is converted to other formats(like MS Excel) and is sent to the management for better decision-making. A new process is set up in place to integrate this process seamlessly for better efficiency. Implementation of CRM Project Module: The current SAP module does not provide significant customer activity functions. Hence, the organization has started a CRM project, which is currently working on the better client dealer relationship services.
9.References Inputs from Dalmia Cements: 1. K.V. Gopal – Manager, Accounts & Finance 2.V.R.Pechiappan – Senior Executive, Finance Web References: htttp://help.sap.com www.erptips.com www.dalmiabharat.com