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Adhunik eliminates wrong dispatches and boosts profit margins

Implementing an ERP solution resulted in stock management improving and the elimination of incorrect dispatches. Better product costing has resulted in fatter profit margins says Akhtar Pasha.

“Some years back, we found that things had become unmanageable. There were eight projects running simultaneously that were putting pressure on our existing IT systems that comprised of some FoxPro-based applications and Tally. After deploying SAP ERP, stocks management at stores has improved and things are under control. The most important benefit is that we succeeded in eliminating wrong dispatches,” said Rajat Subhra Datta, General Manager IT, Adhunik Group of Industries.

The Adhunik Group of Industries manufactures iron and steel products that are used in automobiles, construction and engineering. It manufacturers products such as Sponge Iron, Pig Iron, Billets/Blooms, Rolled Products, TMT Bars, Wire Rods etc.

Zero visibility into stocks

Adhunik had developed its own applications for stores and spares in FoxPro. Tally was used for accounting. Other than these applications, paper-based transactions existed with some Excel sheets used in between for capacity planning—material planning, inventory, production and dispatch. The material planning, production and execution (dispatches) were not as per actuals.

In April, 2006, Adhunik was listed on both the NSE and the BSE and it became mandatory to get a complete audit done every quarter. “During the audit, we were never able to pinpoint our stocks and inventory consumed, in-stock or its whereabouts across Jamshedpur, Mumbai, Faridabad, Rajkot, Chennai, Hyderabad, Mandi, Ludhiana and Indore.” Adhunik maintains an inventory of 40,000 items; these are stores and spares excluding raw material which would be in hundreds and 1.5 lakh finished products. “It was difficult to get the exact count of how much inventory we had to hold for the eight projects that were running simultaneously and the quantity of spares that needed to be stocked,” added Datta.

Margins under pressure

Most of Adhunik’s products (say Billets or Pig iron) are manufactured in batches. Each batch has unique hit numbers that are, in turn, identified by grades (depending upon the product strength). Adhunik has 300 types of grades. At times the company’s used to load the wrong hit numbers onto trucks and used to dispatch the same to the customer. There was no mechanism to physically verify that the correct materials had been dispatched. “We have automobile customers that use our products in critical areas of manufacturing. If the customers received the wrong hit number, it had to be shipped back to our factory and later the correct hit number was sent to the customer from our office. This was affecting our profit margins,” added Datta. Additionally, supposing that a customer had requested for X grade of product and got Z grade, it could seriously hamper the company’s image. Datta added, “We have 1.5 lakh items (finished goods) and each grade has a different pricing structure. It was difficult to get a fix on product costing.

In 2005, the top management at the Adhunik Group felt the need for an ERP solution to help optimize production costs and squeeze out more revenue, improve quality and enhance customer satisfaction, while increasing competitiveness as well as meeting market demand and sustaining organic growth. To fulfill this ambition, the Adhunik Group realized the need to deploy better business processes to support its finance, store, costing, procurement, production and project management. Further, the group recognized that in order to improve these processes, it was imperative to resolve issues related to fragmented IT systems spread across multiple locations. Datta said, “It was a cumbersome process for the top management to access data as and when necessary. It was difficult to get the exact picture of our plants located at Rourkela, Jamshedpur and Durgapur. We needed to drastically reduce the complexity of processes and the operating costs of multiple systems accumulated over the years.”

The finance department was also burdened by the huge investment in terms of manpower during the auditing period. Adhunik decided to reengineer its entire IT landscape by implementing SAP ERP software with the purpose of increasing efficiency, reducing costs, and coping with rapid growth.

Adhunik deployed SAP ERP ECC 5.0 to automate and streamline key business processes such as sales and customer service, logistics, finance, stores, procurement and reporting. The group evaluated the ERP solutions from SAP and BAAN, before zeroing in on SAP, which was found more suitable in terms of integrity, support, user feedback and market share. “We wanted a strong solution with flexibility and the capacity to coordinate with other applications. As SAP has a large customer base and experience in manufacturing, we decided to deploy its ERP solution,” said Datta. The SAP project was started in May 2006. The group chose PwC as its implementation partner. The solution went live on 16th February 2007.

The modules which have gone fully live at Adhunik Metaliks Ltd., Rourkela are MM (Materials Management), PP (Production & Planning), QM (Quality Management), FI CO (Finance and Control), and SD (Sales and distribution). The business processes at a steel plant are quite complex and implementing SAP in such a short time frame was a challenge for the group.

“Integrating the different companies, plants and production areas has been a complex process. Further, the stores are huge and there are so many products and byproducts that maintaining the chain is not a simple matter. We also wanted to integrate the sales force of the 12 branch offices,” added Datta.

There were around 50 members from Adhunik and around 15 to 20 members from PwC involved in the implementation. Today, all the users have accepted the implementation in a positive manner.

While enhancing overall efficiency across the organization, the centralized system ensures that information across the business is available to management, not just as raw data, but also detailed reports that give the management a clear view of revenues and business performance.

Earlier, the group was facing problems in terms of stocks management at stores. There were instances when the top management was unable to access information vis-a-vis procurement stocks, used and unused materials, product mix and pricing, which translated into unnecessary expenses and reduced profit margins. The deployment of SAP ERP has immensely helped the top management to directly oversee the operations of stocks and procurement as and when necessary. Adhunik expects better inventory management in the coming months. If a hit number is not registered in the SAP system, the associated dispatch cannot be processed. In this manner, there are no changes that a wrong hit number could be delivered to the customer. “Now, everything is visible. We have ready availability of data such as production figures, the total value of the materials, the vendors and the like. We are getting a clear picture now,” said Datta.

Today, Adhunik is in a better position to synchronize manufacturing and logistics to deliver on time and complete orders. “With improved stocks management at stores, things are under total control. In SAP, whenever goods are being loaded, the dispatcher knows the exact situation leading to better monitoring and tighter control. Managing around 1.5 lakh items of finished goods is difficult without a proper ERP system,” says Datta.

Product cost analysis has been streamlined. Before the SAP deployment, there was no system to analyze product cost and it became difficult to measure costs as all estimates were based on inaccurate calculations. Now, the company is in a position to arrive at a more realistic product cost in a methodical and simpler manner. It has also helped the finance department drastically reduce time spent on auditing and maintaining financial records. With its powerful, comprehensive functionality, SAP ERP has helped Adhunik expand its offerings.

The solution has integrated the Group’s key business processes across the head office, production facilities and branch offices located throughout India. It is also likely to contribute significantly towards the optimization of Adhunik’s supply chain. Today the employees can quickly and accurately respond to customer inquires regarding product status and delivery date, which enhances business relationships. “Our relations with our customers have improved as our sales force can get information online and give the necessary feedback for their queries as and when required. For instance, if a customer makes a complaint, the sales staff has access to relevant real-time data regarding production and quality parameters, whether the complaint is truly genuine etc. We are in a position to give the correct feedback to our customers and keep them happy,” says Datta. The sales team can react faster to market changes and plan more effectively. Adhunik can now leverage its inherent resources, strengths and capabilities, while effectively using technology to add business value. With SAP, Adhunik has plans to go in for HR, Transport and the Project Modules in the near future.

akhtar.pasha@expressindia.com