IT leads Usha International to an integrated work culture

Usha International’s is a simple success story of how a traditional marketing company has embraced information technology to achieve business objectives. Shipra Arora reports

15 months into the SAP ERP implementation, the company has started experiencing benefits, says Pradyumna Poddar

While transforming itself from the old to the New Economy Usha International (UIL), an associate company of the Siddharth Shriram Group, made IT an integral part of its business operations. However, in the process, the company never lost sight of its underlying focus of going for the ‘tried and tested’. Averse to any risks, IT implementation in the company was very much need-based. Pradyumna Poddar, general manager, Usha International says, “We are not wary of being the followers rather than leaders. But we’ve ensured that our IT vision is progressive and there is no holding back if the investment is justifiable.” This attitude drove the ERP project, which forms the core of UIL’s IT system. Along with a centralised network ERP has brought in standardisation and operational efficiency to a disintegrated organisation.

Poddar further adds, “What is required is to work smart and not get carried away when it comes to IT vision.” The vision for automation has run hand-in-hand with restraint and caution to create a workable IT set-up for the company. This strategy is critical for a company with limited resources in hand.

IT in legacy system
IT implementation at Usha International started in 1993-1994 with the setting up of an in-house IT team. With expanding operations and consequently the difficulty in managing them manually, the core need was to identify and remove the operational inefficiencies within the organisation. A 100 percent marketing company, UIL was dealing with six varied product groups from its sister companies, ranging from domestic fans to sewing machines to air conditioners, water coolers, home appliances, engines, motors, pump sets and auto products. Its marketing network comprised 16 Divisional Sales Offices (DSOs), 16 warehouses, 25,000 selling points and 55 company retail outlets. While manual systems worked well for 40 years, the nineties saw unprecedented global competition, shortened product life cycles and customer focus.

According to Poddar, the company realised that in order to remain a premium marketing organisation, there was a need to increase the top line with more products and models. This required enhancement in back-end efficiencies through automation. For instance, some of the issues being faced by the company that needed to be addressed were the inability to find out overdue credit with each dealer in each product line and whether a dealer was adequately promoting all product lines he was dealing in. A system was needed to provide information on dealers, performance of a particular model, market trends, etc.

This led to the company’s tryst with IT. Being a systems-driven organisation there are checks at the DSOs with each office being a profit centre and having its own P&L accounts. With the financial accounting system being very critical, the focus for early IT system was on the finance function. The legacy system consisted of Accounts/MIS, godown and payroll modules. Designed to work on a LAN it was capable of managing data from remote warehouses. Designed in a modular way, each module was capable of handling a specific work area. All three modules were loaded in all DSOs and warehouses as per requirements since some of the warehouses also did accounting operations. The in-house developed package was capable of sending and receiving data between the three modules.

Accounts/MIS modules looked after creation and management of customers, vendors, product codes and product groups, managing credit limits, defining and managing prices of products, clearing delivery orders, documenting payments received from dealers, general accounting, debit and credit note, sales tax register and other standard accounts reports. The MIS system took care of various sales reports, purchase registers, details of fast/slow moving items, outstanding reports and stock movement reports. The godown module took care of stock inward, material dispatch and defective material handling.

Bottlenecks
The physical transfer of information from one location to another was done through floppies as there was no Wide Area Network (WAN) in place. As a result there was an inordinate delay in the collation of information at the head office in Delhi, resulting in a time lag in decision-making. It took almost 40 days to collate information, because of which most decisions were reactive. Being a marketing company it was critical for the management to be able to take proactive decisions in response to fast changing market dynamics. In addition to this there was lack of standardisation as applications were so flexible that users at various locations could carry out any sort of customisation. Also there were issues concerning multiple entries of data. The inability of the legacy system to keep up with the growing data volume also started becoming apparent with disparities and mismatches between the accounts/financial data generated at different points. According to Poddar, UIL was facing a problem created due to disparate islands of information. With rising expectations, there was a need to integrate the organisation from a macro perspective and not just the accounting function.

Drive towards ERP
UIL decided to re-think its IT strategy and the management deliberated upon whether to fine tune the legacy system or go in for an ERP solution. The cost of implementing ERP being very high in 1997, UIL decided against ERP and continued with its legacy system. Around that time it also set up its Local Area Network (LAN). LANs were set up across all locations including the head office, DSOs and warehouses.

According to Poddar, UIL’s challenges called for relooking at the organisation’s business process management. “We realised the need to follow best practices, super efficient logistics control and better management of the entire supply chain along with the ability to access accurate information both from inside the organisation and from the entire supply chain,” he adds. This called for an integration of all functions of management and automation of all back-end operations with inherent systems and procedures and all best practices in-built in the same. The answer to all this was Enterprise Resource Planning (ERP). Hence, in 2000 when the discussion was reopened the company finally decided to go for ERP, irrespective of the cost factor.

The company evaluated various ERP packages on the basis of credibility of the software, in terms of marketshare and vertical focus and flexibility of the package. UIL opted for SAP as it enjoyed a high level of acceptance in the country and also had a vertical focus on the consumer durables industry. With IBM as the implementation partner, SAP 4.9C was implemented and rolled out in 32 (including the DSOs and warehouses) UIL locations within 18 months. This was possible because of the business focus with which the project was undertaken. Explains Poddar, who spearheaded the entire project, “ERP implementation involves the entire organisation as it essentially addresses business processes. It is essentially using technology to meet business requirements.” The project involved functional heads from various departments to constitute an ERP team of 11 people along with the implementation team of seven people from IBM. Starting in August 2000, the implementation was rolled out step-by-step with the first phase involving five locations—Madurai, Coimbatore, Chennai, Delhi DSO and Delhi head office up and running by August 2001. The remaining locations went live by January 2002. The ERP team was also involved in end-user training. The training imparted was on awareness and understanding relating to usage of the system.

Since it was not a traditional manufacturing organisation, UIL did not require all modules of SAP and chose to implement only three modules that touched upon its business processes. These were sales and distribution (S&D), materials management (MM) and finance and control system (F&CO). All these modules are tightly integrated. The S&D module looks after all marketing activities. Its key features include order processing, billing and sales management. Every new dealer is given a number. Thereafter the system tracks and upgrades orders, bills, etc. The MM module takes care of the entire inventory of the company. Its functionality includes purchases, upgrading of inventory status, tracking movement of stocks, stock valuation and re-conciliation. On the other hand the F&CO module takes care of accounts payable, accounts receivables, profits, etc. For instance, when a bill is generated in the name of a dealer, the receivables statement is generated and the information for the dispatch of stock is automatically updated in the MM module. Simultaneously, the information is also updated in the financial module while the inventory status of specific products and models gets reduced in the MM module. Debit notes are also automatically generated by the ERP system because of which the management gets an exact number of debit notes. UIL can also find out information relating to non-performing assets in each warehouse.

Benefits — standardisation and integration
During the initial 4-5 months there were some hitches faced in ERP adoption— employees hesitated in working with the new system. Even the core team, which implemented ERP, was new to it. However, as Poddar points out, “These initial hiccups were overcome as we were able to prove at the end of the day that rather than being an additional burden the new system would help employees work more efficiently.” The system has today evolved to become the guiding force for management to take right decisions based on information provided, leading to profitability. According to Poddar, 15 months into implementation the company has started experiencing benefits through an impact on bottom line and profitability though it is difficult to quantify them. The system has also benefited by way of time saving by providing timely access to accurate and up-to-date information. It has permitted sharing of online information on a real-time basis, eliminating redundant processes like stock reconciliation and multiple data entry. It has relieved operating managers of routine decisions, leaving them with time to think, plan and execute long-term decisions. On the whole the effective use of SAP has enhanced productivity levels by 20-25 percent.

Changing and basing the entire business process of UIL on SAP has resulted in better:

• Distribution Management: Analysis of historical sales data permits assessment of dealers/products/towns/territories on the basis of liftings.
• Inventory Management: Slow moving, obsolete, defective and unmatched stock can be addressed.
• Management of pricing, promotions: Accurate
  pricing
• Decision Support System: Crucial drill-down information and history of select customers and vendors is possible.
• Effective Review Meetings: As access to timely and accurate information is possible.
• Current Asset Monitoring: Online transaction processing permits daily current asset monitoring.
• Consolidation of financial statements

According to Poddar, this was possible due to standardisation brought across the organisation, ensuring a high level of integration without losing any flexibility. From the benefits of SAP implementation UIL has decided to have an ongoing review of each and every business process so as to ensure gains in operational efficiency.

Along with SAP ERP, UIL is also running an in-house package for its company-owned showrooms. The shop package has already been implemented in 32 out of 56 showrooms with the rest to be covered in next 3-4 months. It takes care of functions like stock-reconciliation, payments received, cash-in-hand and billing. The information from these showrooms gets uploaded to the ERP system once in every ten days.

Network infrastructure
Along with the ERP rollout, UIL also introduced centralised architecture and started rolling out a WAN. The main server is an iSeries IBM server. Today it has four iSeries IBM servers—production server, development server, Lotus Domino server and a SameTime chat server, situated in the Delhi office.

UIL’s WAN largely comprises leased line and ISDN lines from BSNL. In some small warehouses the company has a PSTN dial-up connection. While at the DSOs there is a bandwidth capacity of 64 Kbps, at the head office the network provides 512 Kbps. Leased lines were chosen over VSATs as during that time (year 2000) Ku-band was not yet introduced and VSAT proved to be a costly proposition for the company.

Virtual Private Network (VPN) being a sunrise technology at the time, UIL decided to go the VPN way. The company chose Satyam since it had the maximum number of POPs and covered all the places where UIL locations were situated. The applications running on VPN are SAP, Lotus Mail, Voice Chat and SameTime Chat. According to Poddar, with the introduction of VPN the concept of locational barrier is out and there is 100 percent online information. Presently the entire communication process is over VPN, resulting in cost savings by bringing down STD bills. In fact UIL has drastically cut down the number of STD lines within the organisation.

UIL invested around Rs 7 crore towards ERP implementation, connectivity, new hardware and software purchases and hardware and software upgradation.

Future strategies
The process of realigning business processes has not ended with the SAP implementation. Now that the entire operation is on SAP, UIL is planning to connect its top 20-25 vendors and largest selling dealers on an extranet. This will help in improving overall efficiency of the system. It will however not be providing for direct access to the production server owing to the security reasons. It will have another server, which will talk to the production server.

The company has on its future roadmap initiatives like SCM and CRM. In the near future it is setting up a disaster management system with an investment of around Rs 60 lakh. Since Delhi comes in a high sesmic zone and is also prone to war threats, UIL is setting up a disaster recovery server (IBM iSeries) in Bangalore. It will be up and running by April this year. “As a marketing company we cannot afford the business coming to a standstill and therefore we are preparing ourselves to face any kind of eventuality without affecting our business operations,” explains Poddar. Real-time replication of data being an expensive proposition, the company is going for back-up of production server data at the end of each day. In this case data loss will be at the maximum to the extent of a day. Once the server is operational UIL might look at updates at regular intervals through VPN. In addition to this it is also looking at initiating video conferencing in next 3-4 months.

The skills and capabilities
to accommodate technologies acquired during the SAP implementation will add considerable value to facilitate the new initiatives, which in turn would help the organisation to achieve a competitive edge in the market place, sums up Poddar.