ERP Implementation at BPCL

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The BPCL-ERP Story Contd...

In 1998-99, the government decided to further disinvest 26% of its stake in BPCL, which was one of the 'Navratnas'.4 This move gave BPCL greater freedom to develop employee policies. It also enabled the company to take decisions regarding capital project expenditures without government interference. In 1999, BPCL acquired 32% stake in Indo British Petroleum (IBP). BPCL's Mumbai refinery consistently operated at over 120% of its 6.9 million metric tonnes per annum (mtpa) installed capacity. It had the ability to process a wide variety of crude, and its proximity to the Bombay High oil field enabled it to meet most of its crude demand domestically (only 15% was imported). To make up for its limited refining capacity, BPCL formed a strategic alliance with Chennai Petroleum Corp (which was later taken over by IOC) to sell the products produced in the latter's 6.5 m mtpa Manali refinery. The government also transferred its entire shareholding in Kochi Refineries (KRL) (capacity 7.5 mtpa) to BPCL. BPCL also acquired IBP's 19% stake in Numaligarh Refineries (NRL) (capacity 3 mtpa) in West Bengal.

These acquisitions, and the 9 mtpa refinery being set up at Bina in Madhya Pradesh, were expected to address the limited refining capacity problem in the future.

By mid-2001, BPCL's nationwide retail network comprised 4,500 outlets, 60% of which were company-owned or leased – the highest percentage among oil PSUs. Retail sales accounted for around 60% of the company's sales volume, with average sales per outlet being 223 kl per month. In 1999-00, BPCL's marketshare was 32% in petrol and 27% in diesel. The company was particularly strong in the west and south. However, its share in lubricants, the most profitable product, was relatively low, partly because of its dependence on other oil companies for the base oil needed to make lubricants.

BPCL planned to increased its emphasis on retail business and increase its non-fuel revenues, by leveraging on the strength of its retail network by providing value-added services like convenience stores, automated teller machines (ATMs) and internet kiosks. The company realized the importance of IT initiatives to retain its market position in the post-APM era.⁵ BPCL began to implement its IT initiatives in 1996.

As part of the organizational restructuring exercise, the company was revamped into six Strategic Business Units (SBUs) – Retail, Aviation, Lubricants, Liquefied Petroleum Gas (LPG), Industrial & Commercial (I&C), and Refinery. These SBUs were integrated with support entities like Information Systems, Finance, Human Resources, Strategy and Brand Management. This restructuring was designed to help the organization focus on specific customer segments and address their individual needs. The company also realized that it needed to streamline its processes and integrate the organization as a whole. It is when the company decided to implement ERP.

ERP
ERP is software driven business management system that helps to integrate all functions of a business including planning, manufacturing, sales, and marketing. The history of ERP has its roots in the inventory control systems developed in the 1960s to manage inventory according to traditional inventory concepts. Over the next few decades, as businesses became increasingly complex and global, companies came under pressure to improve their competitiveness by lowering operating costs and improving logistics. ERP aimed at helping the management for setting better business practices and equipping them with correct information for taking timely decisions.

In the 1970s, the concept of Material Requirement Planning (MRP) emerged, which focused mainly on raw material requirement planning. In the 1980s, the concept of MRP-II (Manufacturing Resource Planning) evolved. MRP-II involved optimizing the production process of the entire plant. Though MRP-II evolved as an extension of MRP for shop floor and distribution management activities, it was gradually extended to areas like Finance, HR, Engineering and Project Management etc. This eventually gave way to ERP that covered cross-functional coordination and integration to support the production process.

ERP initially targeted the manufacturing industry and dealt with functions such as planning and managing businesses like sales management, production management, accounting and finance. Later, these packages diversified into many different types of industries. The main modules in a typical ERP application were finance and accounting, customer order management, MRP, materials management and decision support/data warehousing.

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4] Public sector companies that were deemed to have competitive advantage and the potential to become global giants. These included BPCL, MTNL, IPCL, IOC, BHEL, SAIL, VSNL, GAIL, and MMTC.
5] Administered Pricing Mechanism was introduced in 1976 for petro-products and supplanted the role of the market through command and control. APM compensated producers, refiners and marketers for operating costs and gave them an assured return on their assets. With the abolition of APM, private players were allowed to enter the oil sector.