Interscience Management Review

Volume 2 Issue 1 Article 5

January 2009

IMPLEMENTATION OF SAP AT INDIAN OIL

DEBASHREET DAS
VSSUT, BURLA, debashreetdas12@gmail.com

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Recommended Citation
DAS, DEBASHREET (2009) "IMPLEMENTATION OF SAP AT INDIAN OIL," Interscience Management
Review: Vol. 2 : Iss. 1 , Article 5.
DOI: 10.47893/IMR.2009.1020
Available at: https://www.interscience.in/imr/vol2/iss1/5

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 IMPLEMENTATION OF SAP AT INDIAN OIL
Debashreet Das
Department of Information Technology
Institute of Technical Education and Research
Bhubaneswar, Orissa
Email: debashreetdas12@gmail.com

Abstract : “MANTHAN” the Enterprise Resource Planning solution

executed through SAP (a software package) is adjudged as the best • Sub-optimal production planning and
package to deal with the huge network of business of a company scheduling
like Indian Oil Corporation which has achieved the status of
“MAHARATNA” – (the precious super jewel) awarded by the • Long manufacturing lead times
Government of India. There are three such mega companies enjoying • Inefficient inventory lead times
such status in the country.[1] It also got a rank of 125 in the Fortune
“Global 500” in 2010. This paper tries to scrutinize the loopholes • Low work center utilisation
that existed in the system and examines the modus operandi of SAP • Follow up of work orders
to address such problems. • Errors in engineering and manufacturing
records
1. INTRODUCTION • Quality problems
[2,3]
”MANTHAN” is the name assigned to the Enterprise • Duplication of efforts
Resource Planning of the Indian Oil Corporation(IOC). The
• Poor communication and inefficient result
IOC[1] is one of the “MAHARATNA” Company, a status
awarded by the Govt. of India. The status symbolizes the
volume of business, the magnitude of profit, the amount of Hence the ERP designed for encountering these
investment and the dimensions of transactions. The shortcomings – is a fully integrated business management
Corporation, a creation out of mergers of two big companies system covering Logistics(Materials, Production, Sales and
came into existence during 1964. The business interest of Distribution, Plant Maintenance, Quality Management,
the Corporation include the entire hydrocarbon value chain Project Management, Production Planning, etc.) ,
from refining, pipeline transportation marketing of petroleum Accounting(Finance and Controlling) and Human
products to exploration and production of crude oil and Resources, while at the same time, incorporating the
gas, marketing of natural gas and petro-chemicals. industry specific solution and the best business practice
[1]
The strength of the company can be judged from worldwide.
the fact that it has a workforce of 34,000 with a turnover of
Rs.271,074 Crore($ 600,851,158,15) and profits of Rs.10,221 Application of IT Reengineering: The Enterprise Resource
Crore($ 22,655,4361). The Corporation account for over 48% Planning revolves around Business Process Re-engineering
petroleum products market share, 34.8% national refining (BPR)[2]. The BPR represents radical transition that every
capacity and 71% downstream sector pipelines capacity in member of the company has to undergo. In the vast majority
India. It is proud of its retail dealers network numbering of cases, BPR is powered by information technology re-
18,463 across the country. With facilities at multiple engineering. In order to align the IT Re-engineering- exercise
locations(Sri Lanka to UAE) and ever expanding market with the business needs of Indian Oil, the Management
opportunities, the IOC faces a daunting task in managing. conducted series of discussion and workshops. The Vision,
During the survey of the company’s operations, some Business Strategies and Critical Success Factors were
lacunae were identified which created bottlenecks for arrived at after making SWOT Analysis of IOC from the
efficient management of resources. The roadblocks to the perspective of Global Competition.
[2]
sustainable growth of this global Indian Company required The “as-is” high level processes for these themes
be pinpointing and dealing with appropriately for a greater were studied and the business issues, relating to both IT
technical solution. and non-IT, were identified. Based on these, set of Target
Applications for Indian Oil were framed which reflected the
The Lacking Operational Legacy System: It was business activities, major interfaces and information flow.
ascertained that lack of proper coordination and integration Target Applications are conceptual framework or map of
between different functions resulted in[3,4] the various work processes that occur in Indian Oil. This

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 IMPLEMENTATION OF SAP AT INDIAN OIL

coupled with Internationally Best Practices of ERP reflect Presentation Layer : Typically installed on a PC, provides
the “to-be” scenario. the SAP Graphical User Interface.
Application Layer : Executes the business logic, process
Solutions for the Target Applications: The important client transactions, print jobs, running reports, co-ordinate
considerations that have impacted the recommendation of access to the Database.
IT environment for the target applications are:[11] Database Layer : Stores both the business generated data
1) Communication connectivity across Indian Oil and SAP application programs, which are loaded into
2) Standard and accurate data application servers from the database at run-time.
[2]
3) High Degree of reliability & security and, SAP is implemented in the Company in a
4) Centralized control with decentralized customer centralised and three layer architecture namely Database,
response Application and Presentation layers. The SAP system is
It is evident from the list that the above issues are mainly having three servers i.e. Development Server, Quality
related to building of enterprise networking infrastructure Assurance Server and Production Server. The Company is
of Indian Oil. Elsewhere in the world, it has been proved using UNIX as its operating and application system, while
that Enterprise Networking Infrastructure or Integrated Oracle has been used as RDBMS (Relational Database
Communication Network is the building block for any big Management System) for managing its database. The
companies, having substantially widespread activities like Company has kept its Database and Application servers at
Indian Oil, to be successful in their business. the corporate data centre and they are accessible through
leased line and/or very small aperture terminal from all state
2. SAP and Its Application offices, refineries and pipeline units’ networks. Other units
[1,2,11]
As a software package of ERP , IOC preferred SAP such as terminals, depots and bottling plants etc., are
over others. The SAP package comprise of SAP R/3(4.0 B), connected to SAP through connectivity to the nearest State
IS-OIL(4.0) and CIN(2.2 B). SAP R/3 stands for Systems, Office/Refinery.
Applications and Products in Data Processing. The letter
‘R’ represents Real Time and the number ‘3’ indicates 3-tier
architecture. IS-OIL(4.0) is the oil industry specific solution
and CIN represents Country India Version of SAP R/3.[6,7]

SAP Implementation - Major Activities: The following

activities are inbuilt in the implementation of SAP. [8,9,10]

• Conceptual Design
• Detailed Design
• Construction
• Implementation
• Data Conversion

3-tier Architecture of SAP:[6,7,8,9,10]

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 IMPLEMENTATION OF SAP AT INDIAN OIL

3. SALES & DISTRIBUTION (SD)- Functionalities:[11] Returns and Repair Processing, Foreign Trade, Sales Info
System and

Sales and Distribution: The list of Organisation units

being used in IOCL is as follows:
- Sales Organisation
- Distribution Channel
- Division
- Sales Office
[5,3,11]
DEFINING THE ORGANIZATION IN SAP: Distribution Channel

The SAP structure comprises organisational units. These

units are mapped to the existing IndianOil organisational
entities in such a manner that the structure thus evolved
will drive processing in the system so as to reflect the
business environment of the Corporation. The
organisational units of SAP and their relationship with the
organisational entities in the existing enterprise structure Division: In the SAP R/3 System you can define a
of our Corporation are explained below: division-specific sales organization. Product groups, i.e.
divisions, can be defined for a wide-ranging spectrum of
The organisational entities in Indian Oil which have been products. For every division you can make customer-
defined as Company Codes in SAP are:[1] specific agreements on, for example, partial deliveries,
- Registered Office, Mumbai pricing and terms of payment. Within a division you can
- Marketing Division: Head Office, Regions & State carry out statistical analyses or set up separate marketing.
Offices Few examples of Division are:
- Refineries Division: Head Office and Refinery Units
- Pipelines Division: Head Office, Regional Offices, and
all Pipeline Units
- R&D Centre
- AOD: AOD Marketing and Digboi Refinery
- Indian Oil Blending Ltd.

The organizational elements of the Sales & Distribution

module are:

- Sales Organisation Sales Office: All marketing offices of IOCL like Area
- Distribution Channel Offices and Divisional Offices would be captured as Sales
- Division Offices in SAP. In addition, HO, RO, Refinery Units, Pipeline
- Sales Office Units and R&D would also be represented in SAP as Sales
- Sales Group Offices.
- Shipping Point Sales Group: Revenue districts in Bulk and LPG would
SD Application Module:[11] be represented as Sales Groups In Lubes geographical zones
would be defined as Sales Groups. These Sales Groups
Sales and Distribution (SD): Designed to support all of would be assigned to respective Sales Offices.
the tasks and activities needed to carry out customer sales, Shipping Point: Each location of IOCL defined as a Plant
order entry, delivery, and billing in SAP would also be represented as a Shipping Point in
Key Elements: Key elements of Sales and Distribution SAP and would carry the same code. Thus there would be
system are Pre-Sales Support, Sales, Shipping and one Shipping Point attached to each Plant.
Transportation, Billing, Credit and Risk Management, Credit Control Area: Credit Control area is the organizational
unit in an organization that specifies and checks credit limits

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 IMPLEMENTATION OF SAP AT INDIAN OIL

for customers. A credit control area can include one or more Bill-to-party (billing schedules) can be assigned to
company codes. the same Sold-to Party.
In IOCL, there will be eight credit control areas defined for :-
• Lubes
• LPG To sum up, SAP facilitates setting up of a multi-
• MS & HSD
• SKO
location customer centrally, with one customer code,
• Aviation multiple partner functions, and features specific to the
• Speciality products product or geographic location applicable for different
• Combined products
• Miscellaneous
transactions in the appropriate sales area.
This would enable credit monitoring and control for
Customer as Vendor: A company may be both a
customers in each product category, as is the requirement customer and a vendor, as in the case of LPG
in Indian Oil. distributors being transport contractors as well. In
The relationship of the SAP organisational elements with such cases, the integration between modules in the
each other and with the corresponding entities in IndianOil
is illustrated in Figures 1.
SAP system enables entry of the supplier/vendor
number of the party in its Customer Master record
and alternatively the customer number in its Vendor
Master record. This helps in credit/debit adjustments
of the party’s transactions with our Corporation, if
desired.
Other Master Data of relevance to the SD module
that will be maintained centrally in the system is:
- Customer Credit Master for each customer.
Customers can be assigned a maximum total
credit limit or multiple individual credit limits, as
may be required for those uplifting multiple
A customer may have different production facilities,
all drawing supplies from different plants of our products, each with a different credit limit.
company but requiring a single invoice to be sent to a - Sales Tax and Local Levies Master will be
central authority for payment. In such instances where maintained centrally.
different offices or individuals of a customer perform - Additional Master Data like discounts/
different functions, the following partner functions surcharge for customers; material or customer/
have been defined. However, the data relevant for material combination is maintained in the system
each of these functions will be different. centrally.
a) Sold-to Party
SD Sub-Modules: The SD module comprises five sub-
b) Payer
modules: Sales, Shipping, Transportation, Billing and Sales
c) Ship-to Party Information System. Elaborate authorisations and controls
d) Bill-to Party are being incorporated in the system to permit access to
authorised users only in the respective sub-modules.
While the customer is set up at the level of Sold-to
Party and assigned a single customer code across
the Corporation, multiple partner functions like Ship-
to-Party (Shipping data); Payer (banking details);

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 IMPLEMENTATION OF SAP AT INDIAN OIL

Figure 2: A bird’s eye view of the SD transactions

The above cycle illustrates the integrated solution provided
by SAP to the S&D processing functions.
The sales application component enables you to
implement various different business transactions for the
sales documents that have been saved in the system.

There are four distinct groups of sales documents:

• Customer inquiries and quotations
• Sales orders
• Outline agreements, such as contracts and
scheduling agreements
• Complaints, encompassing free of charge
deliveries, credit /debit memo requests and
returns

Basic Functions During Sales Order Processing

Each sales transaction does the following: During sales order processing, the system can carry out,
for example, the following basic functions:
- It passes requirements to MRP (material · Monitoring the sales transactions
requirement planning) during sales and delivery · Checking for availability
processing · Transferring requirements to materials planning (MRP)
· Scheduling the delivery
· Calculating pricing and taxes
- It updates inventory levels when goods are issued · Checking credit limits
- It automatically determines what G/L accounts · Creating printed or electronically transmitted documents
to operate during finance-related transactions, (confirmations,and so on)
Depending on how the system is configured, these
goods issue, invoicing, etc. functions may be completely automated or may also require
- It passes information to other modules for some manual processing. The data that results from these
basic functions (for example: shipping dates, confirmed
profitability analysis, cash forecasting and
quantities, prices and discounts) is stored in the sales
managerial accounting. document where it can be displayed and, in some cases,
- In a make-to-order environment, there is a direct changed manually during subsequent processing.
link between SD and Production Planning.

Figure-3: A typical sales cycle, with implications in

other modules

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 IMPLEMENTATION OF SAP AT INDIAN OIL

• Issue credit and debit memos

• Issue proforma invoices
• Cancel billing transactions
• Issue rebates
• Transfer billing data to Financial Accounting (FI)

The delivery is the central object of the shipping process.

When the delivery is created, the shipping activities, such
as picking or delivery scheduling, are initiated and
monitored, and data that is generated during shipping
processing is included in the delivery.
You can - depending on your requirements - create
deliveries automatically using worklists or manually. You
can make agreements with your customers regrding full or
partial deliveries or you can combine different orders
together.
Overviews enable you to monitor the created deliveries
and also the shipping activities that need to be undertaken.

The aim of the new transportation feature in the Sales and

Distribution application component is to provide basic
functions for:
• Planning and processing transportation
• Calculating freight
• Settling freight transactions
• Calculating customer freight
• Invoicing customer freight Availability check and requirements in SD processing
• Selecting service agents enables end user to know online about the product
These new transportation functions handle planning and availability , production schedules etc. SAP
processing for both inbound and outbound shipments. You implementation team is considering of building an
can control and monitor the entire transportation process interface between TAS (Terminal Automation System)
from the planning stage, to goods issue at your shipping and SAP to get online information about product
point (for outbound shipments) or vendor location (for availability , so that full potential of this feature can be
inbound shipments), through to goods receipt at the availed by IndianOil systems.
customer location or your plant.
Plant - A plant has an address, a language and belongs to
Four basic modes of transport are considered a country. A plant also has its own material master data.
z Transport by Road In IOCL, there are two categories of plants: [1]
z Transport by Rail
• Physical plants - Refinery units ; Pipeline units ;
z Transport by Sea (Ship / Barges)
Lube blending plants ; Small can filling plants ;
z Transport by Pipelines
Central inventory points ; CFA agents ; Bottling
Billing is the last process in Sales and Distribution.
plants ; Aviation Fuel Stations ; Terminals; Depots;
Using SAP R/3 4.0 B you can:[11,6]
R&D Center ; IOBL ;AOD Refinery ;AOD Marketing
• Issue invoices on the basis of goods and services

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 IMPLEMENTATION OF SAP AT INDIAN OIL

• Logical plants, wherein the physical location is not make its communication infrastructure strong. It is truer for
of IOCL but the consignment ownership is that of
organization like Indian Oil who has already implemented
IOCL.Examples :
Refinery Division - High Sea (for Crude);Discharge port across the board the solutions of Enterprise Resource
(for Crude) ; Planning. The theme of ERP is integration and
Marketing Division - High Sea (for Products) ;
standardization of business processes, which in turn, results
Discharge Ports (for Products);
In SAP, plants are assigned to company codes. A plant in more benefits for the organization. The act of integration
can belong to only one company code. along with the sharing of information demands for an

Purchasing Organisation: enterprise networking solution.[5,6,7]

(1) Hydrocarbon Purchasing Organization
(2) Non - Hydrocarbon Purchasing Organization
( 3) Services Purchasing Organization
References
Each of the above purchasing organizations will be ‘floating’
1. www.iocl.com
in nature.At the time of transactions, company codes will
2. Dey,P.K.(1999) – “Process re-engineering for effective
be determined through plants. implementation of projects” – International Journal of
Project Management – Vol. 17, No.3
3. IOC(2009) –”IT Audit of MM Module of SAP-ERP system
in Indian Oil Corporation” – Report No. CA 23 –
www.icisa.cag.gov.in
4. IOC(2009) – “Reviews of IT Audit(Chapter 5) of Indian
Oil Corporation” – Report No. 6 – www.icisa.cag.gov.in
5. www.venturesoftglobal.com
6. www. sap-img.com
7. www.sap.com
8. Kale, Vivek – “Implementing SAP R/3 : The Guide for
Purchasing Group: Business and Technology Managers”.
9. Jacobs, F.Robert and Whybark, D.Clay(McGraw –Hill/
A purchasing organization is subdivided into purchasing
Irwin) – “ Why ERP ? A Primer on SAP Implementation”.
groups, which are responsible for certain day-to-day 10. Welti, Norbert(Addison- Wesley) – “Successful SAP R/3
purchasing activities. Implementation: Practical Management of ERP Projects”.
11. Das, Debashreet-”Implementation of SAP in Indian Oil”
– M.Tech Dissertation submitted to IIIT, Bhubaneswar in
partial fulfilment of M.Tech degree.
[1,11]
This article deals with the functionalities offered by
SAP’s Sales and Distribution Module. Therefore, it is a
recommended reading for employees of different
organizations who operate in Sales and Operations and
those who will be the end-users of this functionality module
of SAP. The integration of all modules in SAP R/3 – and SD,
MM and Finance(FI) modules in particular – provides
online, real-time information regarding the status of sales
order, customer payments(credit/debit) and product
despatches, to name a few, to the marketing team. At the
same time, the system facilitates service departments to
achieve greater productivity through online transactions,
documentation and data archiving.

5. Conclusion
[11]
Communication is the buzzword of today’s world. For
any enterprise to get success in its’ own arena, it has to

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