Project Log

HCC gets clarity across sites

With projects across difficult and inaccessible terrain in the pipeline HCC needed to upgrade its project control systems. Satish Pendse, Chief Information Officer, HCC and Mangesh Wadaje, Project Manager-SAP, HCC talk to Akhtar Pasha about the deployment of SAP ECC for Engineering Construction and Operations.

Businesses want to streamline their processes more so from the perspective of managing growth, ensuring the availability of information in real-time just-in-time manufacturing. For Hindustan Construction Company (HCC) a leading construction and infrastructure development company there were both business pressures and operational drivers that prompted it to invest in a solution that helps manage growth and infrastructure projects better and helped it eliminate inefficiencies and business shortfalls arising from lack of integration in its business processes. For the record, HCC has built 70 percent of India’s nuclear power plants and its average deal size is in the range of Rs 500 to 600 crores. Having streamlined its transactional processes with SAP ECC 5.0 for Engineering Construction and Operations (ECO), HCC expects to gain complete visibility into its business and cost implications across infrastructure project sites.

Large projects across sectors, and an order book position that is several times last year’s revenue–no business could ask for a better position to be in. Operating in the infrastructure industry, however, and carrying out diverse projects in far flung locations, the eighty year old Hindustan Construction Company realised that it needed ongoing visibility into its projects and adopt world class practices if it was to scale rapidly in response to market opportunities.

Managing growth

The Indian construction industry has been growing stupendously in recent years due to the ongoing real estate boom. With the boom in the infrastructure industry, Satish Pendse, Chief Information Officer, HCC says, “We have an order book value in excess of Rs 10,000 crores of projects, which are in various stages of planning and execution—it means that we have four years of orders in hand currently. However, projects in the pipeline are across some of the most difficult and inaccessible terrains in the world; the number of ongoing projects is on the rise; we wanted scalable solution that can control business and capture events that were happening in multiple remote locations through an integrated single database.”

“The business dynamics were changing fast as several new domestic and foreign players with higher levels of efficiency were entering the market and we felt the heat and needed to increase our process efficiencies radically.” HCC’s revenues have grown to Rs 2,395.50 crores in 2006-07 up from Rs 2,028.15 crores in 2005-06.

Eroding margins

HCC also found its margins melting away due to the increasing price of raw materials and price cutting on part of the competition. Its existing systems were silos and making decisions was difficult. Mangesh Wadaje, project manager-SAP, HCC says, “Bid management was one area, where HCC needed insightful analysis. We had two teams—one for executing projects and the other for bidding. We used to spend a lot of time in working out costing. There used to be a mismatch of item quotes with that of actual ones and our bidding process was based on lot of guesswork. We missed a quite of bit of projects bids owing to this problem.”

HCC faced rapid growth and with it the challenge of managing growth. Information management was unorganised which made information access and intelligent decision making an enormous challenge. Hurdles in information access made project tracking difficult and HCC needed support here to sharpen project control and execution. Wadaje says, “We were using FoxPro-based legacy applications developed by us for accounting, HR, equipment, procurement, planning and the like. Two different packages were used in our head office and project locations which made consolidation of data complex and the process error-prone. Reporting was mainly from Excel.” HCC has a huge manufacturing facility with aggregate production and patching plants at project sites. The aggregate production used to raise bill of materials locally required for manufacturing and at times did not tally with that at the head office. Concrete mixture when prepared becomes a perishable material and is required to be consumed quickly. Sometimes it was not used where it was originally assigned to and sometimes there was only 75 percent total requirement of ready concrete mixture available leading to a shortage and people used to blame one another without taking responsibility.

Poor equipment utilisation

In the construction industry one of the biggest areas of expenditure is construction equipment. Wadaje says that HCC has Rs 1,000 crores of construction equipments owned by it and that the utilisation of this equipment was below par. It was difficult to track the fuel consumption pattern during the project, or the consumables, spares and accessories used which affected the start of the project/execution resulting in projects getting delayed and missing their completion dates, which was not good as there were other players with high efficiency levels in their process.

While most players in the construction industry go in for an in-house ERP system, HCC chose SAP for many reasons. After spending a lot of time evaluating ERP solutions from Baan, PeopleSoft, Oracle, SIT ad COINS during 2005 it took almost a year reach a consensus to implement SAP. “We wanted long term support (25 years) on technology with industry best trade practices for ECO that can handle the rigors of our remote operations. In addition to the functionality advantage which SAP brings, it is a leader in the ERP space with big market share and a clear product roadmap and financially sound as well,” adds Wadaje. SAP for ECO has a set of effective estimation tool that help in intelligent bid management, which HCC liked it. Additionally SAP has powerful tools for efficient scheduling, costing and execution of projects. The payroll system of SAP matched with HCC’s requirement.

The scope of implementation covered a range of business functions—time and cost planning, materials procurement and inventory, equipment mobilisation, maintenance and operations, quality control, payroll, recruitment and appraisal, general ledger, accounts receivables, accounts payable & asset accounting, cash flows & fund balances, cost management and client billing and other revenues.

Given the comprehensive footprint and complexities of the implementation, HCC opted for an experienced implementation partner. The company chose IBM owing to their track record in handling complex implementations spanning multiple locations.

The implementation of SAP ECC deployment began on 1st January 2006 and it took eight months to complete the implementation. The company went live on 7th August 2006. Wadaje says, “Instead of going for a big-bang approach for implementation or a module-based approach we took a cautious decision of implementing SAP ECC in a hybrid approach wherein we took all the modules of SAP ECC (Sales & Distribution, Production Planning, Plant Maintenance, Equipment Tool Management (ETM), Project Systems, HR, Payroll, Materials Management, FICO and Quality Management, BW) for implementation in four locations—Head Office in Mumbai, Central Engineering Work (Tara) and two road projects in Lucknow. Later the rollout happened in 22 projects across India. HCC bought 650 user licences and the entire cost of the project works out to Rs 25 crores including the user licences, implementation, hardware and software.

Benefits continue to surprise

The SAP implementation has made HCC ready for the future. On the one hand, business processes in finance and HR have been streamlined. On the other hand, project management on site has gone up several notches. Today HCC has better control on equipment and tools at project sites increasing capacity utilisation and optimising costs. The Rajasthan road work project report on stocks and procurement work shows that this has come down by 30 percent. Each month end the account manager has to manually book provisional liabilities of materials received with the invoice. The entire process is eliminated as material details are automatically credited in stores. Account booking is now done in SAP. Earlier the Purchase Order from the head office was sent to the project site through courier and there were cases when documents did not reach on time or were lost in transit affecting the entire supply chain cycle. All these inefficiencies are eliminated in SAP. The ETM helps to monitor, control and execute procurement, maintenance, repairs, spare parts management of all equipments helping HCC determine the cost incurred in running these individual equipments as against its benchmarks. The company expects a positive impact of the SAP deployment on its bottom line.

With this control, project execution at HCC has scaled new heights. SAP ERP has helped HCC get clear visibility into cost implications across sites. This has greatly improved control over projects as every piece of the execution is clear and information is seamlessly available for decision making across the organisation.

HCC today has improved transparency of available stock and has been able to match supply with demand. In turn, demand could be better forecast by analysing usage trends with the SAP solution. Reliable inventory management, transparency of goods receipt and issue, and identification of sizes and life span have all resulted in better inventory management and significant reduction of inventory stock replenishment lead time. Concludes Pendse, “With SAP ERP, we now have one integrated solution, from quote to cash. With it, we have a better understanding of what quote we should bid because our system is based on actual market prices and historical data. Our automated equipment management system helps monitor, control and execute procurement, maintenance, repairs, spare parts management, stringent inspection and major rehauling.”