(Solution) Sourcing Essentials (PSE)
Solution
Executive Summary
This assessment focuses on evaluating the various sourcing approaches applicable in Procurement and Supply Management (PS&M) for modern organisations. The organisation of focus is Saudi Aramco in their Third Party Logistics (3PL) spend area. Evaluation of the various sourcing approaches has been informed by a review of the internal data/documentation available, models of CIPS and module contents. The key findings in this report is that the preference in Saudi Aramco in sourcing of the 3PL spend area is the multiple sourcing. The choice is identified in the key findings as being informed by immense competition in their market. Also, the sole and single sourcing approaches are also a preference in an event the supplier exist in solitary with their involvement informed by varying organisation demands. Additionally, the key findings evidence single sourcing as being preferred when despite of multiple suppliers in place, the preference is only for one. This is while the dual sourcing being adopted in an event the various methods/choices in sourcing are used and prioritised. Eventually, by embrace of supplier appraisal tool, the 3PL sourcing in Saudi Aramco has been generated. The overall outcome of the appraisal process by embrace of Carter’s 10C’s note successful organisation is guided by successful value for money outcomes and improving market growth in oil and gas sector.
Considering the key findings and conclusions made in this assessment, a set of limitations and gaps have been generated which could be managed through a set of recommendations including;
- Pursue detailed internal and external analysis process for identifying best sourcing approach
- Introduction of a more detailed sourcing appraisal process by PS&M
- Focusing on management of success in sourcing approach defining the policy and operations of Saudi Aramco in 3PL sourcing
- Inclusion of all stakeholders in their practice for successful sourcing process
- Implement capacity development strategy for PS&M detailed appreciation of importance of various sourcing approaches
Table of Contents
1.1 Saudi Aramco Organisation Background. 3
1.2 Saudi Aramco PS&M Department 3
2.0 Different Sourcing Approaches Analysis. 5
3.0 Sourcing Approaches Category Analysis. 11
3.1 Kraljic Matrix Analysis. 11
3.3 Mendelow Matrix Analysis. 13
3.4 Suppliers Preferencing Matrix. 14
4.0 Suppliers Appraisal Checklist. 15
5.0 Conclusions and Recommendations. 18
Figure 1:Mission, Vision and Focus Areas of Saudi Aramco. 4
Figure 2:Process of Suppliers List Framework Agreement. 5
Figure 3:Procurement Cycle Process. 6
Figure 4:DHL Choice in 3PL sourcing in Saudi Aramco. 10
Figure 6:Mendelow Matrix for Stakeholders Analysis. 14
Figure 7:Suppliers Preferencing Matrix. 15
Figure 8:Competencies factors considered. 17
Table 1:3PL Multiple Sourcing Sub-Categories. 7
Table 2:Saudi Aramco Multiple Suppliers Rationale. 7
Table 3:Sole Sourcing Strategy Importance. 11
Table 4:SWOT Analysis in Aramco Sourcing strategy. 13
1.0 Introduction
1.1 Saudi Aramco 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. For the purpose of achieving this scope of their operations, their Procurement and Supply Management (PS&M) invests approximately SAR370 Million in enhancing their operations. This is relevant for management of stakeholders relations, contract management process, manufacturing and engaging 3PL players. Saudi Aramco operating in both onshore and offshore, they are involved in sourcing different products and services in identified categories. As a result, the organisation embrace various sourcing approaches.
1.2 Saudi Aramco PS&M Department
As evidenced in Saudi Aramco organisation structure, they work through an independent PS&M teams tasked with the role of developing suppliers relations and agreements. The function of the PS&M is developing the agreements is as explained herein;
Figure 2:Process of Suppliers List Framework Agreement
Figure 2: Process of Suppliers List Framework Agreement
Source: CIPS Module Notes
The PS&M is actively engaged in coming up with a Pre-Qualification Questionnaire (PQQ) best applied to identify best supplier for various categories (Assets, 2024). This is by use of Procurement Supply Cycle (PSC) inclusive of different stages starting in specification, tender issuance and managing assets important for PS&M teams. The results obtained from the PS&M functions guide commercial teams to analyse and break costs to manage the tender, relationships of stakeholders enhanced. The various phases are as shown;
Figure 3:Procurement Cycle Process
Source: (CIPS, 2024a)
2.0 Different Sourcing Approaches Analysis
2.1 Multiple Sourcing
This is identified as a process where an organisation set their priority to source products and services from more than one vendors (many) (CIPS, 2023). This is with the multiple suppliers being involved in similar or different products/services. For the 3PL sourcing in Saudi Aramco, application of multiple sourcing is preference. For this category, the data from commercial team evidence approximately SAR238 Million being incurred every year. For this category, the rationale of the use of multiple sourcing is as shown herein;
Table 1:3PL Multiple Sourcing Sub-Categories
Source: Internal Saudi Aramco documentation
In summary, for the explanation in the table, multiple suppliers are involved in the different categories of 3PL sourcing. The rationale of engagement of multiple suppliers is to achieve value for money outcomes for standardised specification (Kim et al., 2022). Other than the identified ISO 90001 certified in the 3PL which is supposed to achieve the UAE transport and the oil and gas industry. This is essential for ensuring access to broad range of carriers with experience and options for provision of shipping demands. For 3PL multiple sourcing strategy, the rationale for use of multiple sourcing entail a set of aspects;
Table 2:Saudi Aramco Multiple Suppliers Rationale
Source: Saudi Aramco data
One of the recent project by Saudi Aramco is the phased development of $100 billion and Jafurah Project with many contracts lined up for enormous development (Upstream 2024, 2023). This project is implemented through an embrace of Supplier List Framework Agreements by Vendor Management Teams for Saudi Aramco noting in criteria, costs, benefit analysis, analysing risks and contract management (CIPS, 2023a). This process ensure that all the suppliers are noted and their identity. As part of this assessment recommendation, offering the PS&M with support for accessing capacity development to appreciate the rationale of embrace of multiple sourcing. Owing to failure of Saudi Aramco maintaining appropriate relations with all their suppliers, Arab News (2024) they were fined $11.4M for investors in inappropriate practices.
For multiple sourcing, their strengths entail having a wide range of choices to go for by an organisation for suppliers. For example, in 2023, Saudi Aramco was involved in expanding and upgrading hydrocarbon facilities 12 of them being offshore. Through multiple sourcing, the organisation was able to engage suppliers in Marjab field, dry handling at Shaybah and Sulphur recovery units successfully. The outcome of this entailed multiple suppliers enhanced hence an increase in quality level with final outcomes evidenced. This is while leveraging on competitive advantage and success in profitability.
The drawbacks of embrace of this method entail lack of effective documentation and data to guide the process. This is particularly the case since Saudi Aramco PS&M are primarily conventional hence affecting effectiveness in their operations. As part of this project recommendation, it is important to embrace modern technologies in their operations.
The rationale of use of multiple sourcing is guided by necessity of diversification of suppliers in local, regional and international fonts (Zhao et al., 2020). This is a phenomenon evident in Saudi Aramco as they operate in both onshore and offshore areas in Saudi Arabia. They can hence attract substantially suppliers with essential qualifications regionally and internationally.
2.2 Single Sourcing
This sourcing is identified as a process of particular supplier being narrowed down by the organisation even in an event there are more suppliers who can be engaged (CIPS, 2024b). For instance, in a most recent Saudi Aramco Shaybah NGL Project (Samsungena, 2024), their entire 3PL had been handled by DHL company despite of the other suppliers earlier identified equally being in place. DHL as an international 3PL choice was informed by below factors;
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