Hy-Grade Pellets gets an immediate RoI

Hy-Grade Pellets (HGPL) has automated and streamlined processes at its iron ore pelletisation plant in Visakhapatnam using an ERP system says Abhinav Singh

The key issue of our evaluation was to see how successful other users had been in customising a standardised system to their requirements, says N Seshagiri Rao

Hy-Grade Pellets (HGPL) is a joint venture between Essar Steel and Stemcor, a UK-based steel trading firm. HGPL has an iron ore pelletisation plant in Visakhapatnam in Andhra Pradesh. With annual sales of over Rs 500 crore, HGPL has a strong position in the domestic market. It has an annual pellet-making capacity of 3.5 million tonnes which is being hiked to eight million tonnes. The company went in for SAP R/3 4.7 earlier this year. The implementation cost Rs 75 lakh and it has helped the company streamline its processes to a great extent.

Integration problems with legacy ERP

Prior to the SAP R/3 implementation, HGPL was using a legacy ERP system called Mega from Computer Terminus. The package was used for four years but it did not deliver the desired results. The legacy system was integrated with only the finance and material management modules and it generated inaccurate reports leading to miscalculations and discrepancies in the whole system that were affecting the supply chain. Since only two processes were integrated (finance and material management), the remaining processes at the plant including sales and distribution, production planning and plant maintenance had to be done manually.

N Seshagiri Rao, deputy general manager, (Projects & IT) Hy-Grade Pellets, says, "Finance control and the material management reports did not tally with actuals. The legacy system had no provision for security and it required regular repairs and patches. Users had no confidence in the legacy system. This compelled us to look for a global ERP package that would meet our demands."

Looking for an ERP

In December 2003, the HGPL management decided to go in for a standardised global ERP system after analysing the various problems being faced by the users of its legacy system. The IT team at HGPL had to pick a solution that it could bank upon. Rao says, "We wanted to limit the number of customisation problems that we encountered with our previous implementation." Secondly, HGPL wanted to control its production costs. It was also hoped that the sophisticated accounting system of a standardised package would bring about better cost control and maintenance. HGPL also wanted to set up a full-fledged finance system with material accounting and production costs to be made available online in order to change business strategies depending upon market conditions and competition.

HGPL ran a thorough evaluation process before zeroing in on SAP's R/3 4.7 package. It evaluated other standardised packages such as Oracle Financials and JD Edwards during this exercise that took three months. Rao says, "During the evaluation process I met users of companies that had implemented standardised ERP packages. The key issue of my evaluation was to see how successful they had been in customising the standardised system to their requirements."

A tough migration

When the changeover took place and the legacy system had to be phased out and replaced by a new system, there were challenges. The foremost of these was integrating machine numbers (serial numbers given to the different pieces of machinery in the plant) with the SAP system. This information was gradually entered into the new system after a tedious exercise. Secondly, legacy servers attached to the old system had to be replaced while implementing the new system. The IT infrastructure set up to support the legacy system at HGPL was structured in such a way that each application ran on a different server. For instance, there were separate servers for finance and materials management modules, Internet and e-mail, and file and application needs. HGPL replaced the old servers with an IBM pSeries 225 running SAP R/3. This is a Power 4 dual processor system with 2 GB of RAM. The implementation took three months as the system had to stabilise in sync with processes. The SAP R/3 system went live in May 2004.

Big savings

After adopting the new system users are confident about the accuracy of reports and find that transactions are being executed in a speedy manner. Rao says, "Entries with regard to bill passing and purchase orders used to take 10 minutes with the legacy system. Post-implementation the same process is executed within 1-2 minutes."

The new system has helped HGPL save on manpower. In order to streamline its Management Information System (MIS), HGPL was planning to recruit more people. But with SAP, the MIS has been integrated with the new system and the whole process is automated. This has helped do away with manual process-related errors, enabled the generation of accurate predictions, and helped HGPL plan its production better. Financial control has also improved at HGPL. Rao remarks, "We have been able to save Rs 30,000 to Rs 40,000 per day because of the accurate analysis of our production schedules. It has also eliminated costly wastage."

HR on the horizon

HGPL wants to bring information pertaining to production into the SAP system. "The aim is to achieve total integration in order to gain production efficiencies. We are also planning to include the HR and payroll module in the SAP system in order to streamline all our processes at the plant," says Rao. The company also intends to connect the ERP system running at the Visakhapatnam plant with its corporate office at Mumbai. The number of user licenses, which are currently 27, is likely to go up by 5-10 licenses as HGPL is expecting an increase in the plant's production capacity. The capacity is likely to double from 3.5 million tonnes this year to about 8 million tonnes by 2005.

abhinav@expresscomputeronline.com