Growth Drivers: Reviving Indian Manufacturing

The last few years have witnessed the manufacturing sector
turning around the corner; it is also widely acknowledged that IT implementation
has played its part in resuscitating this sector to health. After achieving an
impressive 22% growth in 2004-05, the scenario only got better in fiscal 2005-06
when IT purchase in the vertical grew by 28% to reach Rs 5,080 crore. Add to
this, the oil & gas sector that constituted the backbone of the process
manufacturing industry, growing by 17% to reach Rs 4,387 crore. The growth was
uniform across all facets of the sector; not just process and discrete
manufacturing industries recorded growth, automobiles and pharma too were among
the heavier IT spenders.

Process manufacturing contributed the lion's share of
55%, followed by discrete manufacturing at 26%, auto & auto ancillaries at
10%, and pharma at 9%. A distinct trend could be identified behind this IT
spending pattern. Typically, the discrete manufacturers were early IT adopters
and, therefore, had basic enterprise applications like ERP and SCM already in
place. Their IT investments during 2005-06 primarily focused on solutions and
services centering round CAD/CAM/CAE or PLM and PDM applications. On the other
hand, the process industry, barring a few major players, was still engaged in
basic computerization. Naturally, this involved increased purchase of hardware,
networking and basic enterprise applications that in turn translated into higher
spends on IT.

Discrete manufacturing included the engineering, steel and
the construction industries, while process manufacturing encompassed oil &
gas, chemicals, paint and textile. The automobile and pharma/biotech sectors too
upped their IT spending, and many analysts considered these as separate
verticals with their own trends and spending patterns distinct from
manufacturing.

Heavy Engineering Spends onÂ
IT


On the discrete manufacturing side, the heavy engineering segment contributed a
lion's share. Majority of players in the heavy engineering industry have well
defined markets and are technology driven, though turnkey engineering capacity
is limited to a few domestic entities like BHEL, ABB, L&T and Alsthom. This,
coupled with the fact that the initial investment required for heavy
engineering/capital goods manufacturing facilities is relatively high, creates a
relatively high entry barrier. The technology requirement, however, goes down as
one moves towards the light engineering industry.

One of the most important business parameters for heavy
engineering companies is competitive delivery time and this was where IT played
a crucial role. Most heavy engineering players went for ERP deployments and both
SAP and Oracle appeared to be the preferred options. Interestingly, L&T is
running multiple ERP systems while BHEL deployed SAP in four units, the other
units have ERP systems based on Oracle's RDBMS. During FY '06, companies in
this industry also looked at upgrading their ERP policies. In areas like design
and engineering, however, most of the programming and application development
work was done in-house. Interestingly, few chose to adopt a decentralized
approach towards application development and deployment. Therefore, individual
units had the independence to develop applications according to their practices.

Similarly, a decentralized approach was adopted for data
centers as a centralized one made little sense for dispersed manufacturing
units. BHEL, for example, went ahead with a decentralized DR policy-only the
Tiruchirapalli unit had a DR system in place in 2005-06 while other units
planned for future DR. Heavy engineering powerhouses also went in for
e-procurement. Some like L&T and BHEL made their procurement partially
online and partially offline. The heavy engineering players relied on project
engineering packages like Primavera for their project management with large
houses like BHEL and L&T showing the way. A close competition to the
Primavera came from Microsoft Support for project management, though that
solution was better suited for standalone projects.

Steeling For Integration


For the steel sector too, ERP was the most important component with SAP and
Oracle again dominating the show. Meanwhile, companies like Tata Steel used i2
solution for outbound supply chain in many of its steel plants and integrated
with its various modules as well as with SAP. In addition to best of breed,
custom built solutions were commonly used for scheduling on the shop floor as
well as for integrating the level-2 systems (process computers) with planning
and scheduling systems, often called as level-3 systems. Also on the horizon was
a solution called Broner that emerged as a viable option for shop floor
scheduling.

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Manufacturing		Oil & Gas

A phased deployment also made sense, as every module of the
enterprise wide solution needed to be fine-tuned and aligned with core
processes. The first process Tata Steel did was the order generation and
fulfillment part. Subsequently, it went ahead with the procurement process and
the associated accounting functionalities. The production planning systems for
the steel plant was custom built using the APO module of SAP. The biggest
challenge in the steel sector was aligning IT with core processes and numerous
sub-processer since any loose ends in terms of integration would lead to almost
insurmountable complexities.

Automating Auto


For the auto and auto ancillary industry, 2005-06 saw the next wave of IT
investments into areas like CRM, IT standardization across the partners and
third parties' systems along with integration. The initial wave involved
getting the end-to-end basic transaction systems in place, which was essentially
the ERP. Following this was opening up of the organization's boundaries to
include partners like dealers and suppliers. This year the agenda on hand was
integrating the dealer, supplier and enterprise systems into one seamless
system.

With the basic supply chain systems in place for most
companies, the next 'big' roll out area for the auto sector was Customer
Relationship Management. Companies realized the need to know immediately from
the field what was the customer feedback on quality, design, etc.
Differentiation from competition happened in terms of how they serviced the
customers. 

With the outsourcing trend gaining prominence, auto
ancillaries were becoming more prominent entries in the whole automobile value
chain. As part of assembling was moving out to the ancillaries they were no more
single part suppliers. This was driving a wave of IT adoption that went beyond
basic automation to the adoption of sophisticated design systems as well.

The Tech Behind Oil & Gas


The increasing IT adoption in the process industry was primarily due to the
activities of the oil & gas sector. Like most other manufacturing concerns,
the oil & gas companies had their processes all marked out and managed
smoothly with their ERP implementations. While ONGC specialized in exploration,
GAIL fell in the middle category of purifiers, while companies like Indian Oil,
followed by Hindustan Petroleum and Bharat Petroleum were the leading refining
and distribution companies. Most of these companies had SAP implementation
covering all business areas across their entire geography, accompanied by the
implementation of the Business Information Warehouse, CRM and Supplier
Relationship management systems.

Vendors like SAP, Oracle, HP and Microsoft provided
customized applications for managing organization-wide processes, while
providing vertical specific applications for oilfield connectivity, refinery
plant floor operations, project intelligence for large capital infrastructure
projects and plant floor security. The other important deployments included
oil/gas management systems and Geographic Information Systems.

Oil and gas companies acquired in 2005-06 the ability to
monitor rigs remotely, collaborate cross-company and around the world, and
diagnose potential refinery equipment problems even before they occurred.
Supervisory Control and Data Acquisition systems were being used, which were
specialized computer-based automated control systems that monitored and
controlled the transport of gas through pipelines, and provided the two basic
functions of real time monitoring. SCADA and Exploration and Planning systems
were unique to the vertical and not available indigenously. During the year,
they were being sourced from international companies like Paradigm, WesternGeco
and Foxboro.

Rajneesh De


rajneeshd@cybermedia.co.in