Money is just paper. Nowhere is that saying more true than in the newspaper business.
Of the 15 million readers who pick up one of the 2.25 million copies of Hindustan Times, few know that 80 percent of the cost of producing that paper is the paper itself.
But it’s a figure that weighs heavily on the minds of HT Media’s management. Mainly because they have millions of rupees worth of paper sitting around in their warehouses. Five years ago, HT Media’s inventory of paper was worth Rs 150 crore — and they were making about Rs 550 crore. With such a large chunk of their funds wasting away in warehouses gathering dust, no picture of ‘dead’ money could have been more accurate.
And five years ago, the Delhi-centric paper needed that money bad. The paper’s management wanted to push the Hindustan Times brand into the heavyweight league. They wanted more publications, more mediums, more languages, and more geographies. They wanted to go national but needed the financial resources to fuel their ambitions. Every time they crunched figures looking for something to squeeze, they bit down on their Rs 150-crore inventory like a rock.
It was a rock that defined their horizon and they were going to flatten it.
Squeezing Money from a Rock Is Not Easy
If they were going to fix the inventory problem, management needed accurate figures; they wanted to know how many tons of paper their presses ate up a day. Only then they could calculate how much they needed for a month’s inventory and how much they could divert for expansion. But, records of newsprint were kept on multiple Excel sheets — not conducive to quick math.
Worse, consignments of newsprint came in rolls — between 500 and 3,000 to a consignment. No one knew how much each roll weighed. This meant that no one could accurately tell how many tons of paper HT Media consumed in a day. And since paper is priced on a per ton basis, there was no way HT Media’s financial controller, Pradeep Goel, could know how many tons of paper — and its price — the media house needed for a 30-day inventory. Bottom line? He couldn’t tell how much could be freed up for expansion.
Inventory was a problem Harish Nagpal, AVP-Materials and Production, HT Media was conversant with. “Newsprint is received in reels whose weights were taken as averages (consignment weight divided by number of reels). This made it difficult for auditors to tally our figures with actual stocks. Inventory (reels) comes in weighing between 250 to 1,000 tons and we take an average, but how could the auditors certify an average as our physical stock?” he says.
And the math got fuzzier with multiple sources of paper changing their prices. “Average costing was done at the month end, all in moving averages. Every month, all purchases were added to opening stock and taking current rates, consumption was charged. We couldn’t do it on Excel,” he continues.
Evidently, the problem was not going to be bulldozed away.
Inaccurate inventory and consumption figures made for inaccurate procurement and production planning — Nagpal’s job. “We had inventory ranging between 30 and 180 days. Since most of our inventory is imported newsprint from North America and Europe, we need lead times of about 45 days to ensure shipping. The lack of planning hit us hard,” says Nagpal. The only available solution? Play it safe and overstock.
In the meanwhile, Nagpal spent a lot of his time justifying the messy situation at every year’s stock audit, at the end of March. Mostly in vain. Despite his best efforts audit reports carried the same comment: ‘could not verify the factual stocks because the company does not maintain records according to accounting standards.’
It was a report card that would haunt the company.
You Can’t Report the News in South India, if You are in North India
The cost of HT Media’s inventory explains why the Web, with its low overheads, is threatening newspapers in other parts of the world. Already magazines in the US (including sister publications of CIO) have gone completely online. While the industry in India is still doing well, many newspapers are readying for the change and are making investments online.
In 2000, few media organizations could afford to have a laissez-faire attitude with the Internet because the Web was taking away their primary source of income: ads. Between 2000 to 2003, ad spend in print dropped consistently as those funds were diverted to the Web.
And HT Media was also feeling the heat from new entrants. Local language papers were picking up steam, so were other mediums including radio and TV. These mediums were poaching their ads — from having 75 percent of the ad market in 1995, print went to owning only 41 percent in 2005. This spelt bad news for HT Media, which reportedly made 79 percent of its profits from ads in 2005.
The challenge before HT Media was to give its advertisers an audience that was spread out across multiple geographies and mediums. This is what probably drove Shobhana Bhartia, vice chairperson and editorial director, HT Media, to put the company through a major re-structuring in 2000-2001. The idea was to spread out into every direction, on every medium.
To do that, HT Media needed a lot of money. So it turned to the market. But to go public its financial figures needed to be readily available and audited on a quarterly basis — not something the organization could do with its current systems.
The expansion also brought scalability problems out of the woodwork. HT Media’s asset management and circulation systems were adhoc and had no proper accounting processes. HR processes, too, moved at a sloth’s pace: payroll took 12 days.
“In terms of asset management we were very poor. Year-on-year, we would spend more than Rs 100 crore for capital expenditure, and this was increasing with our growth. The controls were mainly manual, or local accounting packages used in different locations. We had no formal system of indenting, purchase order (PO), or GRN (goods removal note), which could give us a complete trail, the location, or the capitalization of fixed assets and transactions with the market,” says Goel.
There was a solution to all these problems: upgrading their ERP system. Going from SAP R/3 4.6C to SAP ECC6.0 would create accurate data, bring the organization on the same page and give it the sleek streamline of a professional enterprise.
But Sharad Saxena, executive director, operations & HR, HT Media, knew it was going to be a big move. It would require throwing 100 legacy systems overboard. And no one else in the media space in India had done an implementation on this scale. But he knew it was the road to expansion so he picked up the phone and called Mohit Agarwal, CIO, HT Media.
Sure, But Can WeShut the Paper for Three Days?
The plan was to upgrade to SAP ECC6.0 and extend the ERP’s coverage from a few finance apps and media planning to the entire business.
There was one hitch.
The upgrade required three days of downtime. In the world of newspapers three days is three lifetimes — the death of Mother Teresa barely made two days. And every day down meant losses in revenue. “This [downtime] was unheard of and unacceptable from a business perspective,” recalls Agarwal.
But after six weeks of evaluating options to work around the 72-hour blackout, it became clear that there was no other feasible option.
It did not help that the IT team had little credibility with management. “HT Media had a legacy of making significant investments in IT without reaping business benefits.” says Agarwal. “Among top management there was a lot of cynicism towards IT projects and their ability to succeed. This made them more reluctant to invest further in IT projects.”
Cost was certainly a factor. The Rs 10-crore price tag brought to the fore one of the hardest balancing acts in IT. “Accuracy can be increased. But an increase in accuracy means a greater cost. To lower cost, one must sacrifice accuracy,” says Pankaj Chauhan, project manager, Siemens Information Systems (SISL), the project’s technology partner.
A centralized system, Chauhan says, can balance these two conflicting objectives. “It can help increase accuracy, and minimize the cost of control and reporting,” he says. So the upgrade, nicknamed Project Light, was kicked off in June 2006, with a team of 22 people from all the paper’s departments and 23 members of SISL.
As with all ERP projects, it became apparent that dissimilar processes across locations was going to be an issue. To convince disparate units to accept a common process, they had to first understand the system, and then agree to become a part of it.
It was a problem that everyone foresaw. “Invariably when you roll down these modules, people take priority. The real character of the organization comes across when your modules can support your people,” says Saxena.
Support it did. A large amount of training was needed for people working across smaller towns, especially those in operations at 17 procurement and inventory locations,says Agarwal.
In Nagpal’s team, members of the materials and production department had to put in two- or three-tier training programs to ensure everyone was familiar with the new processes and their function in the larger whole. “We trained over 400 people for almost a year. It was expensive,” says Agarwal.
Some departments, however, looked forward to the change. The finance department, which would be one of the major beneficiaries of the new systems, “were actually excited, since [the new system] would give them respite,” says Goel.
A Big Jump Requires a Long Run Up
The architecture too would prove to be new ground for the organization. “We have deployed a unique Fujitsu Netapps Flexframe architecture. It’s basically a virtualization technology used for SAP. Project Light makes us the first media house in India to be on SAP ECC 6.0 deployed on SAP certified Flexframe 4.0. It’s also the first major deployment of Flexframe 4.0 in the world,” says Agarwal.
To get the benefits HT Media wanted, it would have to do some serious jumping. “We were on Oracle 8i, we were moving to Oracle 11 and were, effectively jumping three versions of SAP,” says Agarwal.
The jump would require a long run up. “We had to go through sessions of testing and simulations and had a test cycle of six to seven months,” he continues. “When we implemented it, it had to work.”
“In an implementation of this type, the focus had to be on groundwork planning,” says Saxena. “For all who joined the team from operational end, they had a very clear-cut objective: roll this down and develop more people to take this on.”
Simultaneously, work on planning the three-day ERP blackout started. The only approach that would work was to involve each function that would be affected — no matter how unwieldy the collaboration got. The challenge of downtime took up a huge amount of energy to resolve,” says Agarwal.
Most important on the implementation team’s agenda was to identify alternate — even manual — processes for the 72 hours. At the same time, Agarwal and his team carried out dry runs of the changeover so that when the moment of actual change took place, it would take off uneventfully.
D-Day came on 23 June 2007. And, it went by smoothly. “We took a business downtime during the lean days of Saturday and Sunday. We asked the ad department to prepone their ads. A manual process was set up in parallel so that we didn’t lose last-minute ads. There was a lot of co-operation from the advertising side, which was our biggest consumer,” he says. “It was important that we did not lose even one day of revenue.”
All the planning paid off. Today, SAP 6.0 binds 17 locations and 30 sales offices. The upgrade covers finance, material management, production, circulation and customer relationship management (CRM), HR, enhancements on the advertising side — basically every module that was planned.
Of course, there were surprises. In an industry where raw materials go from the warehouse to the consumer in a single day, the supply-chain is vulnerable. “Once printing is complete, you’ve got different routes which the paper will be distributed. The issues around route-planning were probably not foreseen at the planning stage and we met some setbacks,” says Venky Venkatesh, head of circulation, HT Media.
However, given the scope of the project, it was a setback business agreed to live with. “This is the biggest implementation in India, if not on a few continents. Media operations, especially newspapers, are more complex in India than anywhere else,” says Saxena. “I think the team did a very good job because of the planning that went into it.”
There Were Challenges All Around and Then There Were None
Like the proverbial tailor that killed seven flies with one stoke of rolled up newspaper, Project Light took out multiple business problems.
Inventory and procurement were among the biggest beneficiaries of the new, streamlined system. “From a financial objective, newsprint is a big area. If you look at our inventory management in terms of (controlling) the cost of newsprint, I’d say our inventory management is the best in the country,” says Saxena.
“Tracing inventory is much easier. Now at the flick of a switch, our head of purchase and supply chain can view the whole chain across India and decide the movement of goods according to production needs,” adds Agarwal. “We have complete inventory control now.”
But have they cut their Rs 150-crore inventory? Not really. In fact, it’s gone up. But that’s because the media house has expanded. “Because total production has gone up, our consumption of newsprint has increased almost three-fold over the last three years. Costs have gone up correspondingly but that’s not due to inefficient processes. The new system has added hugely to process efficiency, thus driving intangible benefits in terms of reduction in wastage,” says Goel.
Importantly, the media house has reduced its paper inventory to 30 days.
It has also injected more grease into its presses. Because of its short deadlines, business operations need to be planned. “If you need to plan your print order for the day, it has to come at a specific time in the evening,” says Agarwal. “Earlier this was done primitively: on spreadsheets and via email. Today, from PO planning to printing, one single platform has been created and this has eliminated irrelevant interfaces.” It has also made daily billing more transparent.
In addition to solving the problems of inventory, Project Light also fixed duplicate financial databases. It made the department less cluttered and its staff more productive. It’s also become easier to control the assets of the Rs 800 crore enterprise. And the IPO raised Rs 400 crore for the organization. HR too has reduced the number of days it takes to create payroll.
The upgrade has ensured a decrease in administration and operating costs of 100 legacy systems — some on technologies as obsolete as FoxPro. This was a big drain on resources because as Venkatesh points out: “Data was maintained on spreadsheets. There was no platform where you could put all your data. Now you can.”
Surprise! We Brought Some Money
Project Light didn’t just remove inefficiencies — it also created new opportunities. Most directly in the advertising department. “Earlier when we got ads from a client who had offices in different cities, we had no way of knowing whether the same ad was being put out in another city. Now, we do know and offer them corporate deals,” says Goel.
Agarwal says the upgrade has given the company an edge over competition. “There is more real-time exchange of information across the units,” he says.
The organization’s CRM initiative too has taken off after the project. “We have a large reader base, and this system helps us capture all queries and complaints in a standard format. Now stakeholders are expected to provide solutions. Post-SAP, our complaint level has come down by 60 percent. This is a key benefit,” points out Venkatesh.
It’s a benefit Agarwal is bringing home. He says that they have set up a call center to deal with SAP-related problems. “It has started handling all our complaints for Delhi and Mumbai. In the next six months, it will be rolled out for 15 or 16 more locations,” says Agarwal.
We Know Where to Go From Here
With core business processes up and running on SAP 6.0, Agarwal is shifting his attention to extending the benefits of the upgrade to HT Media’s huge network of distributors.
The need to maximize on Project Light’s momentum is a sentiment that is shared by the business. “I’d like to develop this more. We also need to prepare our business intelligence warehouse for when it will be needed,” Saxena says.
Key to that strategy is to keep talent inhouse. And Saxena has a plan. “Our go-forward for them for the next 12 to 18 months is to keep them focused on the BIW. There will be a lot of processes and new applications that will be developed and added to it. This is a continuous process. We need to keep raising the bar,” he says.
