Rejuvenating An EPC Enterprise
Karthik B A
Karthik is a Business Solutions Manager with PVH Corp (Phillips Van Heusen) He has 8 years of diverse sector experience in management consulting and is a project management enthusiast.
ABC- a consulting organization’s enterprise solution helps ‘T India’ transform its finance and procurement functions.
‘T-India’ (referred to as ‘T’ going forward), a subsidiary of the Japanese organization ‘T Engineering’, is a leading EPC (Engineering, Procurement and Construction) player in India. Established in the mid 1970’s, T India has undertaken and successfully completed EPC, PMC and EPCM projects in various sectors like Oil and Gas Refineries, Petrochemicals, Fertilizers and Cryogenics.
The last decade has witnessed significant changes in the EPC market. Facing stiffer competition, a very volatile market and compressed schedules for project delivery, T embarked on a journey to transform its age-old business processes.
Enter ABC- the consulting organization
A simple investment in an IT system to automate its business processes would not have been the answer to overcome the challenges posed by the inherent nature of the business. It was important for T to gather an in-depth insight of every stakeholder working in its value chain and make minute changes to its business processes. T partnered with ABC to do just that and much more!
In addition to assisting T to incorporate some of the best business processes, ABC also helped T make use of solid Information Technology solutions for driving the change and hence run every aspect of the business. This went a long way in increasing T India’s competitiveness not only in India but across the world market.
What was ailing T- Key Business Challenges
T India’s workflow, data and processes had lacked integration, which had been leading to lower levels of productivity and efficiency thereby directly affecting its bottom line. The main challenges that T faced were:
1. Multiple commercial processes – The business process of each department at T India was different. This had led each department, procurement, construction, engineering, IT and Administration to use a different system to raise purchase orders and create invoices. Top management had no way to get one complete integrated view on the commercial standing of the organization at any point in time.
2. Lack of a Maker Checker Concept in Financial Processes – The financial processes did not have an electronic workflow process due to which the system lacked a maker-checker concept. This led to duplication of data, thereby leading to lengthy reconciliation processes during period closure. Also, there were no system controls on the processing of transactions and each of these transactions lacked an audit trail.
3. Usage of Outdated Technology Systems – The systems which T had been using were based on the platform D2K which was outdated. It had become extremely difficult for T to get skilled manpower for the maintenance of the systems, consequently over-burdening the existing employees of the IT department.
4. Inefficiency in Communication between T-India and T-Japan – T Japan’s Project Management Information System (PMIS) depended on the reports generated by three different systems at T India for its final public reporting. Each of these reports was compiled manually in India before being sent to Japan. This inefficiency in the process caused a reduction in accuracy of the final reports that were published.
So in essence, there were 3 clear objectives which ABC had to assist T with.
1. Identify ways to reduce the annual expenditure incurred by T India in its day-to-day operations
2. Improve the efficiency of the business processes followed by each of the 3 main business divisions- “Engineering”, “Procurement”, and “Construction”
3. Align the technology of T India with the technology strategy of the parent company, T-Japan.
The ABC Way
T India made the right decision to partner with ABC for the transformation journey. Not only did ABC have the right expertise for assessing and improving business processes, but also had the experience of implementing large scale transformations for EPC organizations across the globe. The consulting engagement involved multiple phases, each with clear objectives and deliverables.
Phase 1- Identification of Areas for Process Improvements
The key objectives of Phase 1 was to study the existing business processes at T, identify bottlenecks and recommend improvement areas. The ABC team conducted extensive discussions with different teams and different stakeholders to understand the current processes and came out with some important recommendations. A few challenges and ways of mitigation that were proposed are described below.
Phase 1 Recommendations
1. Build one standard process for the procurement of material throughout the organization with clear reporting relationships. Reduce the approval hierarchy from 5 layers to 2 layers, which would greatly enhance the working efficiency.
2. Overhaul the technology being used in the organization
a. Adopt a standard financial system, like an ERP system, which would give an end-end visibility of all transactions throughout the organization
b. Eliminate the need for a manual reconciliation of the Fixed Assets with the General Ledger
c. Automate the report generation process (being prepared manually at the time), which the parent company utilizes for group reporting in Japan
3. Ensure that there is no duplication of effort on any activity. For example, a large conveyor belt had to be installed at a fertilizer plant under construction. The following activities were undertaken by two separate teams- one at the head office and the other at the project site.
I. Analysis of the possible conveyor designs
ii. Possible vendors who may be able to provide installation services
iii. Cost Analysis of the conveyor belt
iv. Requesting quotations from different vendors
This kind of activity was essentially extra cost getting incurred and a delay in the decision making process
4. A few activities being performed by the HR team can be standardized and automated.
For example- every month, the number of hours worked extra by an employee (overtime) was extracted from the timesheet system into an excel file, multiplied by the OT rates applicable in excel and reloaded into the payroll system. This entire set of activities could be eliminated
a. putting in necessary OT rates in the payroll system
b. integrating the timesheet and payroll systems and an eventual integration with the ERP system
5. Ensure that a base is built both process-wise and technology-wise to adopt the Goods and Services Tax in India (which had not yet come into force at the time but was apparent)
6. Form a Shared Services Hub (SSH) that would assist all businesses, in the day-to-day transactions and support required from a technology perspective.
Phase 2- Selection of the right enterprise technology
T India agreed to implement most of ABC’s recommendations. In addition to implementing the process improvements, which had been recommended in phase 1, a key activity in phase 2 was to assess the different enterprise technology solutions available in the market and help T select the right solution. It was agreed that a comprehensive comparison would be done between SAP and Oracle ERP solutions. The following key aspects helped in selecting the Oracle solution over SAP’s solution.
• One of the main requirements of T was to improve financial reporting. Oracle ERP was more suitable to achieve this objective. The assessment also revealed that it would take 8 months to implement the required Oracle enterprise solution and it would take 12 months to implement a similar SAP enterprise solution.
• Oracle ERP offered a ready-to-use, standard module called Service Procurement which catered to the specific procurement needs of an EPC organization like T. Standard business in an EPC organization consists of vendor advances, advance recovery, invoice retainage and retention releases. SAP did not have a ready-to-use solution that catered to these specific requirements and a custom solution would have had to be built over the standard feature.
• Another factor for choosing Oracle was that the parent company already used the Oracle General Ledger for public reporting. So having an Oracle system in India would help in seamless alignment with the technology at global headquarters.
Phase 3 – Implementation of process improvements and the ERP solution
Since, ABC had first recommended process improvements and then helped select the technology for process enablement, it was natural for T to select ABC for implementing the technology solution as well. Using its pre-defined methodology and an onsite-offshore delivery model, ABC implemented the Oracle e-business suite solution for T India. The project delivery was structured into different phases so as to bring in changes step by step.
1. Detailed Requirements Gathering Workshop and finalization of the ‘As is’ and ‘To be’ processes specific for technology enablement.
2. Three Conference Room Pilots (CRPs) to refine each requirement and map it to the system and assess the IT infrastructure required
3. Development of Reports, Interfaces, Customizations and Extensions
4. System Integration Testing to assess the linkage between the legacy and the ERP applications.
5. Migration of 2 years of historical data for active EPC projects
6. Two rounds of User Acceptance Testing for checking every business process flow in the ERP system.
7. Launch of the ERP application and post launch assessment of results
Enterprise Solution Overview
The overall solution was structured based on different modules of Oracle e-business Suite, as described below. While each of these modules had a specific functionality it was ensured that there was seamless integration among them.
• Service Procurement: This replaced three legacy systems and became the single source for raising purchase orders across T India. It helped bring in the maker-checker concept into the organization through the system approval process for purchase orders.
• Financials: It included General Ledger, Payables, Receivables, Cash Management and Fixed Assets and was an effective substitute to the legacy Finance and Accounts system. One of the main benefits that T obtained through this was the elimination of manual reconciliation of assets with the general ledger. In addition, all business users throughout T India would use the Payables module for processing invoices.
• Projects: The project revenue recognition and customer invoicing computations was automated based on
• Percentage Completion or
• Time and Material (based on hourly or daily rates for employee time and actual rate for materials)
The integration with the Accounts Receivable module eased debtors reporting.
• E-Business Tax: The module was necessary not only to meet all of T India’s tax requirements at the time, but was also necessary to incorporate flexibility into the taxation system, keeping in mind the changes that were expected to arise due to the adoption of Goods and Services Tax (GST) in India.
Phase 4 – Formation of the Shared Services Hub
Another important recommendation at the end of phase 1 was for T to establish a Shared Services Hub (SSH). A shared services hub would be a natural supplement to the successful adoption of enterprise technology and would help T manage the new technology well. ABC assisted in the organization restructuring that was required for the establishment of SSH.
• The Shared Services Hub would consist of certain employees of T, who would be the sole custodians of the new financial system. They would be responsible for raising purchase orders, creating receipts, raising invoices and processing payments across different departments, different projects and different businesses.
• It would consist of at least 1 member from all major departments of T, thereby ensuring that any department-specific information would be understood in its entirety.
• This SSH greatly enhanced the speed of the period closing activity and ensured a greater statutory compliance.
• It was also ensured that the SSH would only consist of existing employees of T and would not need new hires or outsourcing of any kind. This structure of the SSH alleviated any fears of job losses that certain employees may have had when the structure was proposed.
The business transformation, brought in changes- long overdue- at T India. It increased the visibility of day to day operations, enabled quicker completion of period-end activities, and paved the way for establishing a Shared Service Hub for its commercial activities.
“Using different systems for processing Work Orders and Purchase Orders had led to too much of interaction between the construction department and the finance department for reconciliation. The ERP system has brought in a single source of truth for all orders of the Construction department and drastically reduced the need for this interaction, leaving us more time for our core business activities.”
Principal Engineer, Construction Department, T India
The main benefits which T India realized are as follows
• Enhanced accuracy in financial reporting – The Chart of Accounts was designed such that all accounting was based on entity (company), cost center and project. It ensured that all key segmental reporting attributes are captured for each transaction. This has vastly improved the financial reporting accuracy.
• Reduction in TAT for PO processing – The average processing time of a purchase order- including the time taken to prepare, approve and send the PO to a vendor reduced from 10 days to 6 days.
• Faster completion of monthly financial closing – The average time taken for the monthly financial closing activity reduced from 7 working days to 3 working days.
• Reduced efforts for budget preparation – In the legacy process, the project site prepared a few reports manually and the head office prepared a few other reports. The budget was prepared by taking into account both sets of reports. However, the Oracle ERP system generates a cumulative report which can be directly used in budgeting. This has significantly reduced the effort required for preparing a project budget.
• Multiple currency enabled system – Transactions like invoice booking and cost accruals can now be done in any currency, which is then automatically converted to Indian Rupee for ledger reporting.
• Ease of corporate asset maintenance – The Oracle ERP has enabled a robust mechanism for managing the fixed assets of T India. Transfer, retirement and impairment of assets can all be done in a seamless manner. Earlier, there were 2 people dedicated to reconcile the fixed assets and the ledger. Since fixed assets was completely integrated with GL, these 2 people were now free to take up more strategic activities.
• Establishment of workflow-based business process – The processing of business transactions has been enabled with the maker-checker-approver workflow. This has streamlined the business operations, reduced the necessity of rework and thereby improved the efficiency of the overall business process. The approval hierarchy was reduced from 5 layers to 2 layers thereby greatly enhancing the working efficiency.
• Integration of timesheet and payroll – Before business transformation, there were 3 dedicated personnel within human resources, who used excel to calculate the over-time payout for each employee. This excel was then fed into the payroll system and the whole process took at least 3 days. Business transformation, coupled with the adoption of Oracle has automated this function.
• Built process capability to allow for organization’s growth – The new processes were built such that they can completely incorporate the growth of T India.
A large scale business transformation always comes with a fair set of challenges. It is important for any organization to select a right partner like ABC Consulting for such a transformation. The successful transformation of T India’s business processes and enabling it through a comprehensive ERP system has prompted the parent organization, T Japan, to consider a global transformation process coupled with a global ERP rollout.
“We set out to assist an EPC organization to transform itself and enable it to compete better in the challenging market conditions of not only India but the world itself. We not only managed to do this but also set an example of modern business processes. It is now up to the competitors of T India to play catchup in implementing global best-practices.”
Director, ABC India