An Enterprise resource planning (ERP) system integrates information and processes of all functional divisions of an organisation. It uses one application to run the entire business effectively. This increases efficiency and decreases overall costs, thus improving profitability. In India, three software firms dominate the ERP market – SAP India Private Limited, the Indian unit of the world’s largest business software firm SAP AG, Oracle India Private Limited, and Microsoft India Private Limited.
An ERP system integrates all the processes of an organisation with a central database and a fused computing platform. These processes include:
- Manufacturing: Engineering, resource planning, capacity planning, material planning, workflow management, quality control, material bills, the actual manufacturing process, etc.
- Finance: Accounts payable, accounts receivable, fixed assets, general ledger, cash management, billing, etc.
- Human capital: Recruitment, benefits, compensations, training, payroll, time and attendance, labour laws, people management, etc.
- Supply chain management: Inventory management, supply chain planning, supplier scheduling, sales order administration, procurement planning, transportation and distribution, etc.
- Project management: Task management, schedules, costs, etc.
- Customer relationship management: Sales, marketing, commissions, customer contacts, after-sales service, etc.
Phases of ERP system implementation
The phases involved in the implementation of the ERP system are as follows:
- Pre-evaluation screening: This phase involves screening out those business processes in the firm that are not aligned with the business objectives.
- Package evaluation: At this stage, the ERP package best suited for the organisation’s requirements is selected.
- Project planning: Implementation strategies are decided, including time schedules and deadlines.
- Gap analysis: Through this process, firms create a model illustrating their current and desired positions.
- Re-engineering: Human factors such as changing job responsibilities of the employees are taken into consideration in this phase.
- Customisation: In this phase, the ERP package is tailored to suit the organisation’s business processes.
- Training the implementation team: The company trains its employees in system implementation and operations.
- Testing: During this phase, tests are conducted to detect any problems, errors, etc.
- Operation: This is the final stage where the ERP system is made available to the entire organisation.
- End-user training: In this phase, training is provided to end-users.
- Post-implementation: This is the maintenance phase where the trained employees tackle post-implementation challenges.
ERP in oil and gas
The oil and gas industry is currently facing several challenges due to fluctuating prices and volatile demand. Many large-and mid-sized companies have implemented ERP solutions. However, many of their smaller subsidiaries are still using other systems due to a lack of financial resources. In addition to ERP systems, most of the oil and gas companies deploy a large number of information technology (IT) solutions to meet their overall requirements, often from different vendors. Such a fragmented IT landscape can undermine company performance as it has a direct impact on the synchronisation of business information. Post-liberalisation, the adoption of ERP solutions has been a strategic way forward for many Indian companies to leverage information and achieve a competitive advantage in a deregulated and aggressive market scenario. Oil and gas giants like Indian Oil Corporation Limited, ONGC, GAIL (India) Limited and Oil India Limited have selected SAP as their ERP solution.
Moving towards the cloud
Cloud applications are ideal for addressing the requirements of oil and gas companies, whether these are associated with rising costs, escalating volumes of data, or running operations in real time across a difficult and remote asset base. The ongoing consolidation and collaboration in the oil and gas sector implies that many companies are now looking for integration and standardisation, which the cloud can offer.
As compared to other sectors, the oil and gas industry is still at an early stage in its adoption of cloud applications. These companies have remained wary of cloud applications mainly owing to data privacy and security concerns across their global portfolios, and the need to recoup the huge investments that have been made in on-premises solutions. These concerns are now diminishing as these companies revisit and re-evaluate their operational models to see where they can increase value and efficiency.
Two-tier ERP strategies
A number of large enterprises are gaining cost and time advantages by using cloud-based ERP systems as a part of their two-tier ERP system strategies. Two-tier ERP strategies allow companies to retain their existing core ERP systems while simultaneously running regional cloud-based ERP solutions at the local or subsidiary levels.
The oil and gas industry is witnessing a period of unprecedented uncertainty due to fluctuating prices of crude oil and the impact of increasing use of renewable energy in the oil and gas value chain. A two-tier ERP strategy is particularly attractive to companies because it can help them manage short-term industry volatility and dealing with the transition in the energy environment. Meanwhile, oil and gas companies are required to meet more stringent legal requirements and expected to provide better governance, transparency and customer services across the organisation. Thus, they need to extend their one-tier ERP solutions to all subsidiaries. As costly and complicated as the two-tier strategy may be, in the absence of alternatives, it has become imperative. Adopting a two-tier ERP solution can often get around this requirement and avoid the associated cost and time of rolling out the core ERP system.
ERP in CGD companies
A city gas distribution (CGD) company’s operations become complex as a result of several internal and external environmental factors. The key among these are limited period of market exclusivity, regulated margins (due to regulated gas prices), capex-intensive nature of the business, and high uptime of the pipeline infrastructure required for uninterrupted gas supply. To deal with these issues, CGD companies need to implement ERP solutions to achieve overall operational efficiency.
With the adoption of ERP systems, CGD companies can automate and integrates key business processes ranging from sales and customer services to logistics, financing and reporting. The solution delivers fast and measurable results such as improved inventory management, lower transportation expenses, increased sales and reduced outstanding day sales. ERP also streamlines the information flow for faster decision-making.
An ERP system offers myriad benefits. It provides a real-time view of the organisation’s different functions. It improves plant throughput significantly and enables better tracking of customer and employee data. It can also help reduce inventory costs considerably. The integration of different functions in an organisation leads to synchronous decision-making facilitated by data.