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(Solution) CIPS New Saudi Aramco Driving Value Through Procurement & Supply; Managing Expenditures with Suppliers

In this first project in Corporate Award Program, the focus has been on role of procurement supply and management (PS&M) responsibility in achieving value for money outcomes. This is through the focus on Saudi Aramco third party logistics spend category.

Also, a review on the current approaches to management of prices and costs for the third party logistics spend category has been identified.

This is by using different data and information from contracts management,  procurement, commercial-driven development, strategic sourcing and PS&M practices.

Also, different models have been used including Mendelow, Kraljic matrix, Porter’s 5 forces, STEEPLED and Suppliers Preferencing model.

The key findings obtained in this project include the view that Saudi Aramco engage multiple stakeholders for successful practice.

Also, the key findings evidence their market environment as competitive hence success in achieving value for money outcomes.

The organisation strategy of achieving value for money outcomes has similarly been identified. This is with its pros and cons enhancing or limiting a successful implementation established.

From the findings and conclusions, various recommendations have been generated which include;

  • An in-depth evaluation of positioning of all stakeholders for accommodating their interests in their operations
  • In third party logistics, they can involve multiple sourcing to be competitive hence value for money
  • To involve different specialists for gaining awareness on improving value for money
  • Review of budget in sourcing third party logistics with technology involved in sourcing process.

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Description

Solution

Table of Contents

1.0 Introduction. 3

1.1 Organisation Background. 3

1.2 Rationale of this Project 3

2.0 Introduction of Spend and Stakeholders Analysis. 4

2.1 Selected Service. 4

2.2 Importance. 5

2.3 Impact of Spend Area. 7

2.4 Stakeholders Analysis. 7

3.0 Market Analysis; Procurement Function Produce Value for Money. 10

3.1 Brief Market Analysis. 10

3.1.1 SWOT Analysis. 10

3.1.2 STEEPLED Analysis. 11

3.1.3 Summary of the Position and Placement in the Market. 12

4.0 Procurement Function in Saudi Aramco Producing Value for Money. 14

5.0 Current Approaches to Managing Prices and Costs. 16

6.0 Conclusion and Recommendations. 18

6.1 Conclusions. 18

6.2 Recommendations. 18

 

Figure 1:Mission, Vision and Focus Areas of Saudi Aramco. 4

Figure 2:Saudi Aramco Organisation Structure.. 5

Figure 3:Kraljic Matrix Analysis. 6

Figure 4:Different Stakeholders Analysis. 9

Figure 5:Mendelow Matrix Analysis. 10

Figure 6:Summary of 3PL Players in KSA.. 13

Figure 7:Porter’s 5 Forces Tool 14

Figure 8:Total Cost of Ownership Savings. 16

Figure 9:Application of 4Ps an achievement of 4C’s for value for money outcomes. 16

Figure 10:Summary of Input of Procurement Function for Value for Money Outcomes. 17

Table 1:3PL in Saudi Aramco Importance. 5

Table 2:Multiple suppliers in 3PL. 7

Table 3:Risk register. 8

Table 4:SWOT Analysis summary. 11

Table 5:STEEPLED Analysis for Saudi Aramco.. 12

Table 6:Value for Money by Procurement Function.. 15

1.0 Introduction

1.1 Organisation Background

In this report, the organisation of focus is  Saudi Aramco which is the world largest integrated energy and chemicals organisation involved in creation of value in the entire hydrocarbon chain (CIPS, 2024). The organisation vision is believing on the power of energy for transformation of lives, enhancing communities, advancing human progression and sustaining the planet. This is while at the same time optimising production and increasing long-term value (Aramco, 2019).

 

Figure 1:Mission, Vision and Focus Areas of Saudi Aramco

Source: Aramco (2019)

As illustrated in figure 1, the outcome of their performance has included operating for 91 years, more than 73,000 employees and 251.2 billion barrels of oil.

1.2 Rationale of this Project

The purpose of this report is to use a spend area in Saudi Aramco to evaluate importance and impact to their stakeholders. Also, with a brief market analysis, achievement of value-for-money outcomes has been established. To achieve this, Saudi Aramco operates a successful Procurement and Supply Management (PS&M) department (Aramco, 2024a). The position of PS&M is evident in the following organisation structure;

Figure 2:Saudi Aramco Organisation Structure

Source:  Aramco (2019)

This is mandated with ensuring sustainability of their operations and coordinating provision of critical materials and services. Having a budget of upward of 500million SAR in procurement,  PS&M work collaboratively with the rest of the organisation in ensuring they are sourcing essential products and services for guaranteeing their success in oil and gas industry. This impact on prices and costs management and securing cost savings for the organisation.

2.0 Introduction of Spend and Stakeholders Analysis

2.1 Selected Service

A service which is Third-Party Logistics (3PL) has been selected in this report. This is defined by CIPS (2024) as outsourcing of e-commerce logistics processes to third party business inclusive of inventories management, warehousing and fulfilment. In Saudi Arabia, 3PL is an enormous market with a forecast of increasing to US$13.11bn by 2024 (Statista , 2024). For Saudi Aramco alone, approximately $5bn is used in 3PL. A summary of Saudi Aramco application of 3PL is as illustrated in the following;

Table 1:3PL in Saudi Aramco Importance

Source: Saudi Aramco Internal Documents

Benefits of 3PL Example in Saudi Aramco
Expertise Engage experts in business strategy, manufacturing, inventories management and transport
Robust shipping network Local and international transport services
Leverage on advanced technology Well-designed logistics, trusted and ready for using systems and processes
Large network of facilities Business collaborations and storage facilities in various regions
Costs savings Lower operational and transport costs
Triple bottom-line Better rates, services, expertise and vast network of industry partnerships

2.2 Importance

In order to understand the importance of 3PL in Saudi Aramco, Kraljic Matrix can be used. This is strategic tool applied by procurement and supply chain professionals for identifying and minimising supply chain risks (CIPS, 2024a). The services are grouped on basis of importance, strategy development and reduced supply chain disruption. The

Figure 3:Kraljic Matrix Analysis

Source: Summarised from CIPS (2024a)

Leverage items- For this category, it is inclusive of multiple buyers with a competitive bidding hence reduced risks. 3PL is categorised in leverage category as the different areas has multiple alternative suppliers and substitutions as illustrated in the following;

Table 2:Multiple suppliers in 3PL

Source: Saudi Aramco internal documents

Major Categories of Saudi Aramco 3PL Sub-categories Providers involved
Sourcing Data collection, negotiation and contracting IPSOS, Allianz Trade
Shipping Transport services Gulf marine company, BAFCO International, PSL Arabia
Warehousing Storage of oil and gas products, distribution United warehouse, Tamer logistics, LSC Warehouse
Routing Network, systems SAP, Oracle

Hence, in 3PL, Saudi Aramco leverage on full exploitation of their power to purchase by tendering strategies, target pricing and substituting their various spend areas.

Strategic items- These have high-risk owing to depending on less suppliers with high-profit implication. In Saudi Aramco, 3PL are not part of this category owing to their technical nature and importance to the organisation operations. In systems used in Aramco organisation, they balance purchase and supplier oriented performance-based partnerships.

Bottleneck items- For this category, it is made of limited-in-value products characterised with risks of prompt prices hikes from less alternatives available. In Saudi Aramco, this include small supplies used in the organisation active operations of employees both onshore and offshore.

Routine items–  These are not critical and hence apply e-procurement solutions and systems contracting. In Saudi Aramco, this include staff uniforms and office stationary which are not part of 3PL. They are noted as low-risk category owing to enormous varieties and alternative suppliers in place (Aramco,2020).

2.3 Impact of Spend Area

For 3PL spend, with an average of $13.11bn in 2024, this has a direct implication in success in organisation operations. In particular, through the process, it is possible to evaluate possibility and implication of noted risks facilitating 3PLs in prioritising and allocating entire resources in an effective manner. The risks analysis is as illustrated in the following;

Table 3:Risk register

Source: Saudi Aramco organisation internal documents

Risk ID Date Risk description Likelihood to occur Impact of risk Severity Owner Mitigation actions
1 15th Feb Internal transportation affected High High High Logistics and supply teams Logistics in sourcing process
2 30th April Incomplete deliverables in logistics Medium High Low PS&M Clear deliverables set
3 10th June Timelines in sourcing not described Low Low Medium Sourcing department Clearly outsourcing process with timely operations
4 15th July Service quality in warehousing affected High Medium High Storage and logistics department Strict adherence to terms and conditions in contract

In summary of table 2 different risks faced in Saudi Aramco operations in their onshore and offshore operations, embrace of 3PL would resolve majority of these issues. According to Mvubu and Naude (2020), the process guides in detailed risk assessment and analysis. The rationale of this is prioritising and allocating resources holistically.

2.4 Stakeholders Analysis

This can be defined as an individual, group or organisation possessing vested interests/stake in making core decision and organisation activities, organisation/project (CIPS, 2024b). In Saudi Aramco, this would be grouped into internal, external and connected stakeholders (see figure 4);

Figure 4:Different Stakeholders Analysis

Source: Summarised from (CIPS, 2024b)

In line with the different stakeholders categories, they can be further analysed by embrace of Mendelow Matrix Analysis (Yildirim, 2023). This is to identify power held and interest in sourcing of the 3PL in the organisation.  This is illustrated in the following;

Figure 5:Mendelow Matrix Analysis

Source: Summarised in CIPS Module Notes

Keep satisfied- Regulators in oil and gas industry, KSA government and other institutions must be satisfied with 3PL sourcing. This is with regulations and policies enhanced for the process success. The relations can be improved by clear identification of these stakeholders.

Key players- Partnering organisations for Saudi Aramco contribute to awareness on 3PL success. They inform on the 3PL categories procurement and suppliers engaged.

Keep informed- Management and administration, KSA teams are involved in improving 3PL sourcing process. This is with a need for reviewing budget amongst the stakeholders to ensure 3PL. This is with collaborating with all the other stakeholders.

Minimal Efforts– In sourcing 3PL, this category of stakeholders are engaged in ensuring Aramco is successful and ensuring leveraging on competitive advantage and dominating KSA oil and gas sector. They enhance successful benchmark of their practices.

3.0 Market Analysis; Procurement Function Produce Value for Money

3.1 Brief Market Analysis

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