Tile’ing Ahead

Managing director  Vijay Aggarwal  ensured that the best employees were available for the core team; that he was present at all key meetings; and that he kept a communications line open with Covansys, always

Their business–to improve the lifestyle of consumers.

Their products–wall and floor tiles as well as luxury fittings for bathrooms.

The company–a 44-year-old manufacturing firm with recent investments by

Johnson Ceramics International, UK, one of the top five ceramic tile companies

in the world and the Rajan Raheja Group. While H&R Johnson India’s

turnover was a modest Rs 400 crore in 2002, it has set for itself a target of Rs

1,000 crore by 2007. Its product range includes wall, floor, vitrified,

porcelain, glazed porcelain, joint free, industrial and pavement tiles. Its

portfolio of brands includes the names of Johnson, Marbonite, Porselano, Endura,

Exel and Spectrum. Its bathroom accessories are sold under the name of Milano. 

This

range of items has created more than 2,000 SKUs (stock keeping units), which are

manufactured across 10 plants in four locations. The company operates out of 23

branch offices and manages its sales using 750 dealers and 8,000 outlets. It has

recently completed the first phase of its SAP ERP rollout enabling 150 of its

employees across all branches to get real time, online information on stocks,

payments outstanding and order positions, amongst other information. In its

second phase it plans to get key partners online and build forecasting

capabilities.

For H&R Johnson, it was the sheer expansion of

business that made it necessary to consider an ERP solution. Says Managing

Director, Vijay Aggarwal, "After a point we would have crumbled under our

own weight. We would have either consciously chosen not to grow or if we had

grown we would have got into difficulties". The primary difficulty was lack

of a satisfactory information system. With business managers chasing each other

reconciling data symptomatic of the inadequacy. Prior to the ERP implementation,

the company’s legacy systems included two-tier client server applications

based on FoxPro database.

The applications Octopus and Fact provided information

systems for inventory, financial accounting, pricing and sales and distribution.

They were LAN based applications and their structures did not permit back-end

reconciliation. Something the company could not afford to live with much longer.

Moreover, branches didn’t have suitable network connectivity either.

The company put together a core team

consisting of eleven of their top people to re-look at its business processes

from ground up. The question posed to them was suppose they were to start from

scratch, how should the processes and workflow be organized? Two professors from

IIM Ahmedabad were roped in to help develop consensus during this vision

building exercise spread over nine months. Says Aggarwal, "If you put in

the best people you get the best results". During this time the core team

and consultants covered a lot of ground. They used a cascading model to start

from reengineering the organization for its future growth requirements, to

justify the need for an ERP in this transformed organization, to identify the

right technology solution and finally selecting the implementation and

consulting partners.

The selection of the ERP solution didn’t

really require a broad diligence exercise. Aggarwal used a more pragmatic and

practical approach since he didn’t think his modest company was really

qualified to pass judgement on billion dollar technology companies. His first

concern was to identify the reasons for the horror stories abounding on failed

or missed implementations. He found the lack of top management commitment, from

people like himself, to be the main cause. "You cant write a cheque and

think you can implement an ERP. Life is not like that", was the learning

point from his early exploration into the causes. Pure technology can hardly be

the primary reason for failures. "I don’t think any of the packages are

so poor that they need to be abandoned. This would have happened mainly due to

lack of training and initiative from the management", adds Gopinath

Krishnan, General Manager of IT. And that meant Aggarwal would have to steer the

implementation himself in order to build some guarantee of success for the

organization.

The main task for Gopinath Krishnan, general manager (IT), is to get maximum number of decision-makers onto the SAP ERP platform–even if it means more software licenses and upgrading the HP9000 server barely 12 months after rollout

He also wanted to select the solution

from an ERP vendor, which was financially and competitively stable, since

managing the ups and downs of technology life cycles was clearly beyond their

capability. Another factor they looked at was availability of trained human

resources. While a number of ERP packages were considered including JD Edwards,

Ramco, ESS, the final shortlist was down to Oracle and SAP, with SAP finally

making the grade. Mumbai based Covansys was chosen as both the implementation

and consulting partner. Since they had implemented SAP for themselves in 1998;

had been formed by ex-employees from consulting firms like AF Ferguson, KPMG and

Accenture; and had employees certified for SAP implementation. Once the

handshakes were over Aggarwal lost no time in spelling out the requirements to

Covansys’ Senior Project Manager, S Srikant, and Vice President PS Srinivasan.

The job



Rolling out SAP ERP would integrate the islands of information and provide real
time information. But there were other requirements to meet. The large number of

SKUs meant that the production mix had to be optimized on the basis of profit

and not on the basis of orders booked. Since low value orders would always

overflow in number, an optimized planning approach had to be adopted. Says

Covansys’s Srikant, "They had a complex business model, beyond the scope

of any human system of planning". And according to them this was a new

dimension in implementation not attempted before. While H&R Johnson selected

the full range of SAP modules a new addition was the CO (costing) model to help

achieve the optimization objective.

What Helped H&R Johnson Make it with SAP
	Initial time spent on reengineering processes
	Best managers in the core team
	Pragmatic approach of diligence for selecting an ERP solution
	Open communications line with implementation partner
	Driven by top management
	Switchover from legacy to ERP systems on Day One
	Planned for early-user errors

To achieve maximum benefits from ERP,

Covansys has also been rationalizing the 2,000 SKU codes for the tile

manufacturer. Another requirement was to get the dealer community online to

facilitate order management. This was recommended as the second phase of

implementation along with development of business intelligence and customer

management capabilities.

There were other considerations.

Workflow processes had to mapped into the SAP system. Till now there had been

informal centres of power and authorization to keep the legacy system moving.

This had to change. On the other hand neither company wanted to build

bureaucracy at the cost of young entrepreneurship. So a delicate balance had to

be struck. Then there was the challenge of switching over from the legacy

systems. The easy way out according to Srikant is to build SAP as a layer on top

of legacy systems. That way integration takes place, no switch over is required,

but processes do not get optimized. Nor is the full benefit of SAP realized. So

a switch over would have to be made.

Now there are two ways in which an

organization can do this: the parallel way or the cut-off manner. In the first

option the ERP system comes alive in a phased manner while the legacy systems

are still running. Employees get used to the new system while still using the

legacy system and then switch over at a suitable time. But Covansys was

reluctant to go down this route–in their experience this was a no-win

situation. The load on operations staff doubles and while it is supposed to be

an equitable time and effort distribution, the older and more convenient way of

working wins out. So migration had to be by the cut-off manner and Aggarwal gave

Srinivasan the green signal for this. To ensure less glitch’s Covansys used

the accelerated SAP implementation process.

The first phase of the implementation

was started in February 2001 and included the following modules: sales and

distribution, finance and control, materials management, production planning,

quality management, project systems, plant maintenance, human resources and

payroll. This phase has gone live since January 2002. The second phase, which

ends in June 2003 covers implementation of the modules: advanced planning

optimization, customer relationship management and business intelligence. The

ERP application runs on an HP 9000L server using HP-UX11i operating system. The

SAP R3 ver4.6b application and the Oracle 8.0.6 database have been installed on

two servers in a redundant backup mode. Branch offices have been connected using

TDMA VSATs, and manufacturing plants by PAMA VSATs. In total 29 VSATs have been

installed by networking service provider Comsat Max. The total planned

expenditure for both the phases is Rs 10 Crore.

Ensuring success



Covansys gives Aggarwal full marks for helping them make the rollout a

success. And he scored high in many areas. He was the prime mover of the whole

change management project internally. He gave adequate time and resources to do

the initial reengineering study. And ensured that the best people could serve as

part of the core steering team. He was present in all key review meetings. And

because of this, "the collaborative working was unique", between the

two organizations, says Srinivasan.

In fact so confident was Covansys with

Aggarwal’s role in the implementation process that they bid for the project on

a fixed price basis. Srinivasan took an educated risk with Aggarwal on board the

project would meet its predetermined milestones and timelines. With the

possibility always looming that a few successive overruns could turn the project

into a loss making one for Covansys. A reason for Srinivasan’s confidence in

Aggarwal was the transparency they kept with each other on all issues.

As an example Covansys shared the full

workings of their estimation process and in return Aggarwal assured them of

compensation in the event of overruns. Srinivasan got the project and Aggarwal

got a cost effective implementation process.

When the time came to make the choice

between cutting-off and running the legacy system in parallel, Aggarwal chose

the former. Even after being warned that information systems would deteriorate

in the short run while employees picked up steam with the new system. "That

requires real guts to start a new system from day one. But such efforts are

going to succeed if you attend to them full time", explains Srinivasan on

how Aggarwal finally pulled it off. Since enterprise solutions involve a lot of

policy decisions, a CEO’s presence is the single largest success factor.

Cracks start appearing early, when

employees are hung between using a new system that isn’t quite delivering and

increasing pressure to get on with the job. The pressure to return to the legacy

system is tremendous and an indecisive CEO can break at this time. But Aggarwal

sailed through...

Now halfway into the second phase of

their ERP implementation the company has many learning points to share. An

important concern area that came up during the usage of the application was the

importance of educating employees on the criticality of entering the right data.

Since every single field on a user screen has a bearing on the workflow process

and therefore a real time financial implication, improving estimation and

forecasting skills of all users is important. "This was an eye opener for

them", says Srikant. "If you feed in incorrect data there is no

benefit", adds Aggarwal.

Investing time and money on training

employees is therefore necessary, according to Krishnan and spending too much

may still be insufficient in this area. As a trend most companies invest less

than optimum in rebuilding skills of employees while rolling out a new

technology.

Another reality check is about the

capability of partners to make optimum use of web based interfaces to place and

verify the status of their orders. While training of employees can be managed in

an organized fashion, the same degree of success is not being achieved with

distribution partners who usually have allegiance to more than one manufacturer

and have lower comfort levels with technology. "The sophistication of the

tool needs to be matched to the skill level of partners. Otherwise they may not

be ready to be party to it", says Krishnan. The challenge is to find the

simplest tool that meets business requirements. Any other approach is less

likely to work.

Value for money



How did H&R Johnson justify the expense of the project? The tile
manufacturing industry like any other manufacturing one is a capital-intensive

one. The company operates on an asset-to-turnover ratio of 1:1. By 2002-03, the

company would have crossed Rs 400 crore in turnover, drawing on a capital base

of at least Rs 400 crore. Aggarwal’s reasoning was if the project can give a

return of 1% on the capital being used, then it would have given a 25% return on

the project investment of Rs 10 crore. And 1% of productivity gain was possible

if the objectives of timely, accurate and integrated information systems;

optimized product mix; and faster turnaround of orders, were met.

Actually the benefits have been higher.

But there is a caveat! The company believes half the benefits have come from the

attempted process reengineering. ERP is expected to have contributed to the

remaining half. Explains Aggarwal, "It is difficult to say how much is

because of SAP and how much is because of business strategies, but we have

improved". Krishnan adds another angle to the return on investment

question. "I would find it difficult to believe that somebody has been able

to measure it accurately. You can give estimates but the extent would be

debatable". In reality since technology improves processes the real

investment is embedded in improved efficiency of the process. "And its

measurement is difficult since you can’t isolate all other factors", says

Krishnan.

Arun

Shankar is a contributor to DQ