Supply Chain Management comparison between Aramco, SABIC, and Almarai

A supply chain is the network of companies, individuals, actions, data, and resources that are engaged in delivering merchandise or service to a client locally or internationally; the transition of resources such as raw materials and components into a finished product and delivery to the final consumers are all part of supply chain operations (Kozlenkova, Hult, Lund, & Mena, 2015). SCM manages and handles the full manufacturing cycle of a product or service, from bringing the raw materials from the supplier through delivering the finished product or service to customers (What is supply chain management?, n.d.).

???????????This paper will talk about SCM for the biggest three companies in Saudi Arabia, if not the world, Aramco, SABIC, and Almarai, by dividing it into three sections. First, we will give brief information about the companies. Second, we will identify the issues of the supplier, purchasing, logistics, information systems, quality, and customer service that each of these three companies has. Third, ways for improving supply chain management will be recommended to these three companies.

Who are Aramco, SABIC, and Almarai?

Aramco was founded in 1933?(Our history, n.d.). It is the Saudi largest corporation and a worldwide firm that the government of Saudi Arabia completely controls. Aramco has a large skilled workforce, with over 50,000 employees. It is the world's largest oil firm, and its daily sales exceed one billion US dollars. Aramco operates locally and internationally, and its main international activities are located in the USA, Europe, India, China, South Korea, and Japan. Aramco is considered the backbone of the Saudi economy (Qazi Abro, Khurshid, & Aamir, 2016). In 2019, the total revenue of Aramco was 329,809 million US dollars, and it has many subsidiaries like SABIC,?Petro Rabigh, SATORP, Aramco Trading, The International Maritime Industries, and many more (pwc, 2019).

SABIC is a multinational corporation that manufactures a variety of chemicals. It operates in over 50 nations, and its headquarter is in Riyadh, Saudi Arabia. The Saudi factories are located in the Jubail in the Eastern province and Yanbu in the Western Province. Petrochemicals, specialties, agricultural fertilizers, and minerals are SABIC’s four divisions (Al Mudhayan, Alajmi, Lemus-Betancur, & Al Shamlan, 2019). In 2020, the total sales on SABIC were 117 billion SAR, total asset 295 billion SAR, and it employed more than 32 thousand employees (SABIC 2020 Annual Report , 2020). In 2018,?It was the fourth-largest petrochemical company globally when it comes to sales volume (Tullo, 2019).

???????????Almarai food and beverage company was established in 1977. It is the world's biggest vertically integrated dairy enterprise and is one of the region's industry leaders. Almarai's headquarter is in Riyadh, Saudi Arabia. Moreover, it is the number one company in the MEAN region for the Fast Moving Consumer Goods brand (Almarai Annual Report, 2020). In 2020, Its net income was 1.9 billion SAR, and the number of employees was 42 thousand (Almarai Annual Report, 2020). Almarai has many brands like L’usine, 7days, Alyoum, and Nura. Each brand has a sub-brand as well?(profile, n.d.)

Supply Change Management Issues:

Aramco:

Supplier: Aramco suppliers are from all over the world. That is why it has a guideline document for current or future suppler. Also, it has a suppler portal called Supplier Network Collaboration (SNC). Suppler can see POs, inventory tracing, approval suppliers, analytics, agreements, and terms and conditions(Material Supplier Guide). That helps suppliers and Aramco show and manage the flow of products/services, information, and finance. However, many issues are facing the suppliers. For the international companies working in Saudi Arabia, they must implement iktva (In-Kingdom Total Value Add) (doing business with Saudi Aramco), a program to increase the local procurement from Saudi manufacturers and the Saudization in these companies. Companies cannot be suppler or contractors if they do not meet the Aramco procurement and localization quota (Olawuyi, 2018). Also, suppliers are facing payment issues from the Aramco side. They do not get money in time due to the currency differences between the quotation name of currency and the currency that Aramco is willing to pay: SAR, UDS, Euro, or Japanizes Yen (Material Supplier Guide).

Purchasing: Because of the implementation of iktva, international companies relying on Saudi manufacturers have tripled (Saudi Aramco Annual Report 2020). Aramco uses the purchasing cycle, but the process takes a long time because Aramco checks and puts every step under the microscope to ensure that iktva is being followed (Material Supplier Guide).

Logistics: When it comes to suppliers, Aramco uses four logistics methods (please see Appendix A). The issue is that only a Saudi citizen representative of the supplier company can submit and follow up on any logistical issue, which adds more pressure to the international supplier to supply Aramco because it is hard to find a qualified Saudi citizen for the job (Material Supplier Guide). Aramco has more than 12000 miles of pipelines and 15 very large crude oil ships, which allow Aramco to transfer oil through the Arabian Gulf and the red sea (Saudi Arabia, 2021). However, due to the political issues with Iran that threaten to close the Hormoz strait (Weitz, 2020), the war in Yemen and the Somali pirates' Bab al-Mandab Strait might be close. So, the only way will be through the Suez Canal, which adds extra time and cost or might be close to a traffic issue.

Information systems: Because Aramco uses only Supplier Network Collaboration (SNC) to contact suppliers officially, both parties are vulnerable to human error or a cyber attack. We saw that when all Aramco’s systems shut down for more than a week because of the Shamoon virus making 30,000 thousand workstations doing nothing just waiting (Bronk & Tikk-Ringas, 2013).

Quality: Aramco has a super high-quality standard that limits the number of qualified suppliers even though the government has its standard quality organization (SASO). Also, complaints were filed by Aramco employees against the supplier because of a variance in quantity or quality as specified in the agreement (Material Supplier Guide).

Customer service: Aramco’s type of business involves politics a lot. If any issue that happens in the political world will reflect in Aramco’s business. For example, Aramco must follow if the Saudi government decides to make an oil embargo like in the 70s. So, Aramco’s customers must be in a good relationship with the government. From a business perspective, that might not be good because other big oil producers like Russa and Venezuela may be able to cove what Aramco cut. Also, that makes the Saudi government push its customers more toward other energy resources like green or nuclear energy and less reliance on oils.

SABIC:

Supplier: Same as Aramco, SABIC has suppliers from all over the world, and it uses the global supply chain, and it uses a supplier portal called supplier lifecycle management -SLM-. For a company to be a supplier and partner with SABIC, it must be registered at this portal because suppliers can see bids, forecast, manage inventory, purchasing policy, code of conduct, feedback, and important content ?(Supplier Due Diligence, n.d.). SABIC suppliers face an issue due diligence process because it takes a long time due to the steps involved (Supplier Due Diligence, n.d.).

Purchasing: Due to the nature of the SABIC business, which deals with highly dangerous chemicals and the operation location of SABIC, many countries restrict the amount of chemical to be purchased, and if it is purchased, it is highly observed by the authorities. That makes the price high due to the low economies of scale and hard to negotiate for a better price (Risk Factors, n.d.).

Logistics: Same as Aramco, SABIC's business is intrinsically vulnerable to the risk of hazardous substances so that leaks may exposed to the environment. As a result, SABIC has pledged to participate in the Safety and Quality Assessment for Sustainability(SQAS), Gulf SQAS, Chemical Road Transport Safety System(CRSAS), and Chemical Distribution Institute(CDI)schemes (Sustainable Supply Chains, n.d.). That adds cost because there are not many logistical partners who have the logistical capabilities to deliver SABIC products with the safety measure that it has.

Information systems: Like Aramco, SABIC's daily activities are supported by several IT platforms. So, SABIC is vulnerable to various hazards, including information loss or stealing, cyber-attacks, operational shutdowns, disruptions, and system crashes (Risk Factors, n.d.). If that happens, both suppliers and SABIC will face a serious issue.

Quality: SABIC and Aramco have a very high-quality standard that limits the quantity and the quality of suppliers who may supply them. Another issue is that SABIC admits that because of the high compacity of its products, there is a high chance that its product may get defected easily, which authorities may fine SABIC if any issue happened (Risk Factors, n.d.).

Customer service: Many issues may face SABIC’s customers, and most of these issues are lost shipment, defective product, wrong quality/quantity, or suppliers’ portal issues (SABIC Fanar+ Eshop). Unlike Aramco and Almarai -we will see in its section -, some of SABIC plants face bottleneck issues which lead to delay of production and affect the customer service and customer experience (SABIC 2020 Annual Report , 2020)

Almarai:

Supplier: one of the issues that Almarai is facing with its suppliers is using the “Almarai” name in their products to strengthen their position, which harms the company name (Almarai Company). Almarai has a supplier portal, but unlike Aramco or SABIC, no guideline document shows how to register, making it difficult to register.

Purchasing: Almarai uses only SAR, US dollar, and Euro as the main currency for its purchasing (Almarai Company), same as Aramco but unlike SABIC who uses any currency. The reason for that is to avoid and currency rate fluctuation (Almarai Company). That limits the number of suppler because some countries require the use of local currency for any purchase to strengthen it.

Logistics: Almarai uses its 8441 vehicles to carry 2 billion kg of manufactured goods all over the GCC and some MEAN regions (Almarai Annual Report, 2020). Also, Almarai uses a third-party logistics service to cover the arias that cannot be there (Almarai Company). Due to the low shelf life of its products, there is a requirement to have chilled vehicles. Some of its third-party logistics services failed to deliver the product in the quality required, which added more cost and harmed the company name (Almarai Company).

Information systems: Almarai's capacity to manage its growth relies heavily on IT and the data generated to teach, inspire, and manage the personnel, run the business, and manage the supply chain. IT can fail for a variety of reasons, like cyber-attacks and human error. As a result, the SCM might be affected. If that happens, Almarai will be unable to recoup manufacturing and transportation expenditures because of lower sales that may accrue (Almarai Company).

Quality: Almarai works in the food industry, so processing, handling, and transportation must always be the best. As mentioned above, using a third-party distributor will affect the quality of the product, and in many cases, the product was delivered defective.

Customer service: Almarai has the policy to return expired or defective products from supermarkets and grocery stores because the company wants to deliver only fresh products to meet customer expectations. That adds an extra layer of cost for recycling the defective products and the transportation cost (Almarai Annual Report, 2020). Some Almarai employees or third-party delivery services either forget or neglect doing this part. Almarai has a customer service line and emails to process complaints, including expired products (Contact Us, n.d.). However, the process takes a long time. Also, proof must be sent to the company, which customers do not have because they threw the products and did not take photos.

Improving each company SCM:

Aramco, SABIC, and Almarai are the biggest in their industries. Each SCM they operate has its pros and cons. To improve the SMC for Aramco, it should be like SABIC and Almarai in many ways. Both companies did not have their program -Aramco has iktva-. They follow only what the government has. Also, it should diversify the use of currency like its subsidiary SABIC. For logistics, Aramco should be like SABIC and Almarai; any nationalities can represent the company to fix an issue, especially since no Saudi law prohibits that. Having your standard is good, but too much of it may affect the business when it comes to quality. Aramco should be easier on that and use SASO as guidance. For SABIC, because of its products' nature and not many third-parties suppliers who can be at SABIC standard for delivering finished goods, it should do it by itself. It has the money and capabilities to have its logistics or a distribution center like Aramco. Aramco and Almarai do not have bottleneck issues. Unlike SABIC, it needs to fix it by increasing the capacity and reviewing the working schedule.

To improve Almarai SCM, it should take legal action against any supplier that uses its name without permission. No one can use Aramco and SABIC names. Also, it should have portal user guidelines like Aramco and SABIC. Almarai is like Aramco when it comes to currencies, and it should be like SABIC; all currencies are welcomed if they do not add extra cost and follow the country of supplier low. In addition, Almarai should minimize third-party logistic service use and use their fleet to minimize the losses and improve customer service.

Conclusion:

This paper discussed SCM for the three largest enterprises in Saudi Arabia, if not the world, notably Aramco, SABIC, and Almarai. This paper was also broken into three portions. First, we provided some background information on each organization. Second, we highlighted these three organizations' challenges with their suppliers, procurement, logistics, information systems, quality, and customer service. Third, these three organizations were advised on how to improve supply chain management.

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Appendix A: Aramco uses four logistics methods that suppliers can use:

Saudi Aramco Carrier (SAC), which is taking nondangerous material by Aramco directly, Saudi Aramco Transportation (SAT) which is collecting high sensitive and dangerous material by Aramco directly, vendor to Customer (VTC), which is vendor transports to the customer (Aramco) directly, and Vendor Truck to SAC distribution center (VTD) and Aramco will take care of the rest.