2010 middle east state of supply chain management

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  • 1. State of the Supply Chain Management: Middle East Series 2010 B2G Consulting Supporting Growing Markets
  • 2. Foreword© 2010 B2G Copyright - Middle East Series 2
  • 3. Foreword M iddle East benefits from an smoothen and ease business exceptional position between transactions. However, the complex Asia andchain from performing to the Europe. This confers to its challenges in the region cannot be region aoptimum source of business large level the supply chain ignored, and should be addressed as an opportunities, performing to its optimum from which are still mostly opportunity to revolution the current untapped. In this race, many GCC situation. Supply chain management is countries have started to differentiate clearly lagging compared to more themselves by launching large scale mature markets such as Europe, but we initiatives. For example, the Kingdom of believe at “Art of International Trading Saudi Arabia, one of the leading and Import (Artiti)” that the region countries, has embarked on a massive should find innovative ways to transformation through Saudi Arabian distinguish itself by providing world- General Investment Authority (SAGIA). class services. We hope to see soon Important investments have been done more GCC organizations globally to support the development of logistics recognized for their high dedication to infrastructure in the Kingdom (road and customers, outstanding quality and rail networks, ports and airports facilities operational excellence, supported by a etc…). In addition, laws and regulations dynamic and highly trained professional are in the process of being adapted to workforce. sm Mohammed H. Al Qhahtani ARTITI level the supply chain from performing to its optimum© 2010 B2G Copyright - Middle East Series 3
  • 4. Table of contents Foreword 2 01 Introduction 6 02 Executive summary 8 03 Survey panel analysis 10 Where are your headquarters located? What is your company’s annual revenue? What is your number of employees? What is your main sector of activity? Industry insights: Conducting a cost reduction program in the transport sector 12 04 Supply Chain maturity How is the level of knowledge of your Supply Chain organization? 14 What are the Best practices currently used by your organization? 15 What are the activities outsourced? 16 What is your supply-demand model? 17 Which technology is being used to support your Supply Chain operations? 18 How is your Supply Chain considered by the top management? 19 What is the frequency of training for the Supply Chain staff? 20 Industry insights: Human Resources Management – Recruiting Supply Chain Experts 22© 2010 B2G Copyright - Middle East Series 4
  • 5. Table of contents 05 Supply Chain performance metrics Perfect order fulfillment 24 Delivery performance 25 Total supply chain management cost 26 Cash-to-cash cycle time 27 Inventory days of supply 28 Days of payable outstanding 29 Days of sales outstanding 30 Industry insights: 3PL outsourcing in the Petrochemical Industry 32 06 Supply Chain challenges What are the top Supply Chain concerns your organization is facing? 36 How difficult is the recruitment of Supply Chain professionals? 37 What are the next initiatives you are planning to implement? 38 07 Conclusion 40 08 Appendix 41© 2010 B2G Copyright - Middle East Series 5
  • 6. Introduction01O ptimism is back in the Middle they will struggle to counter demand further solidified in recent years as East, as the region shakes itself through scaling production, this coupled increasing volumes of finished goodsfree from the effects of effects recession, free from the global of global with unresponsive supply chains will and raw materials passed through itsand once again and once againto the recession, looks forward looks lose valuable time to market. How will borders. The collective aspiration andgood forward to the good times. times. Senior leadership of these companies face the upcoming commitment of the region, in becomingmultinational companies based within operational and supply chain a world class transit hub, is evidencedGCC is justifiably optimistic about and effects of global recession, the challenges, in an increasingly complex by unprecedented levels of investmentseconomic upswing, looks forward to the once again however upon closer global market, characterized by local in logistics infrastructure that will be able good times.inspection, one finds that only a few specificities? As a region, the GCC has to cope with expected increase in freighthave taken the opportunity during this undergone an extraordinary over the coming years, driven by double recessioptimum level the supplycrisis to strengthen their operational transformation in recent years and has digit growth in South and East Asia. chain from performing to itsreadiness. Companies that exclusively emerged as a global freight hub by However set against this present and optimumopted for short-termism through ruthless virtue of its strategic location between future context, the following reportcost cutting as a means of survival Asia, Africa and Europe. Spurred on by poses a serious question: Do currentduring the crisis, will find themselves World economic growth (before 2008), players within the region, whether atunable to respond to the upturn, since its position as a global transit hub company, country or regional level havethey will struggle to counter demand further solidified in recent years as the vision and oversight to make the© 2010 B2G Copyright - Middle East Seriesthrough scaling production, this coupled increasing volumes of finished goods necessary shift in paradigm, from a6with unresponsive supply chains will and raw materials passed through its mindset which is purely focused on
  • 7. Introductionthe vision and oversight to make the condition, and with due care and by reducing inventories, loweringnecessary shift in paradigm, from a attention to the environment, SCM deals operating costs, speeding productmindset which is purely focused on with all business activities associated availability, and increasing service level.logistics, to one which is holistic in its with satisfying a customer‟s demand. Structuring the supply chain requires antreatment of the complete supply chain. SCM is the oversight of materials, understanding of the demand patterns,Supply Chain Management (SCM) is the information, and finances as they move service level requirements, distancecorner stone of any successful strategy in a process from supplier to considerations, cost elements and otherand yet paradoxically it is also the least manufacturer to wholesaler to retailer to related factors. These factors are highlyunderstood of all disciplines, often under consumer. SCM involves coordinating variable in nature and this variabilityresourced and devoid of investment. and integrating these flows (Information, needs to be considered to improve anyMisconceptions about the term “supply physical, financial flows) both within and supply chain.chain” abound often leading to among business partners (suppliers, The ‘State of the Supply Chainconfusion between itself and logistics. service providers, customers). It is said Management Middle East’ aims toWhile logistics involves getting the right that the ultimate goal of any effective draw a concise portrayal of thegoods, to the right place, at the right supply chain is to increase the customer current situation as seen by supplytime, at the right cost, in the right satisfaction in the most profitable way chain practitioners in the Gulf region.condition, and with due care and by reducing inventories, lowering There are six key elements to a supply © 2010 B2G Copyright - Middle East Series operating costs, speeding productattention to the environment, Supply 7 chain:Chain Management (SCM) deals with all availability, and increasing service level.
  • 8. Executive summary02 his report is the culmination of chains as chiefly driven by customer leadership in the face of competition, T over six months of dedicatedresearch optimum level the supply chain by B2G Consulting, bringing demand, loosely linked together by collaborative end-to-end partners, increasing complexity and innovation, supply chains must continually invest intogether from performing to its optimum under one publication the 23.7% stated that their supply chains their human resource. Howevercollective level the supply chain from wisdom of over 225 were organized by function whilst only investment in training is particularly lowparticipating companies optimumwithin performing to its based 18.4% were structured in processes. in the region and the majority ofthe GCC region. Supply chain The quality of human resource is the respondents (68%) provide training lessmanagement (SCM) is the cornerstone critical success factor of any than 5 times a year to their supply chainof any successful organization and the organization and supply chains are no staff, this phenomenon becomesdiscipline increasingly finds itself exception, collaborative chains are especially acute when considering thatincluded in top management‟s strategic stretched across longer distances, 60% of their employees possess onlyagenda. This is further borne out by the across many borders, in their search for rudimentary knowledge of fundamentalfact that 28.9% of all respondents low cost resources and at the heart of concepts. Not surprisingly educationconsider their supply chains as strategic these networks are people managing reform is a top priority amongst GCCto their business goals. 39.5%, of all complexity, technology and cross counties and there is a real need torespondents‟ perceived their supply cultural relationships. To maintain develop best talent across the region.chains as chiefly driven by customer leadership in the face of competition, GCC firms face a unique challenge© 2010 B2G Copyright - Middle East Seriesdemand, loosely linked together by increasing complexity and innovation, where they are compelled to source8collaborative end-to-end partners, supply chains must continually, invest in from a small pool of qualified local
  • 9. Executive summaryGCC firms face a unique challenge challenge facing the industry is the lack all respondents had implemented Saleswhere they are compelled to source of visibility, both internally between & Operations Planning Process, andfrom a small pool of qualified local critical processes and between critical more companies (42.1%) intend to setprofessionals, who are hard to recruit partners, leading to soaring inventory, up such initiatives within the next 12and even harder to retain, 84% of long lead times, high operating costs months. Pressures on lead-times,respondents found recruitment of and low customer satisfaction. The inventory levels and costs have led thequalified supply chain professionals volatility in the economy has been large majority of respondents to definedifficult, especially at middle mirrored by fluctuating demand, which mid-term plans to reduce logistics costsmanagement level (59.5%). Although has made forecasting, fraught with (36.8%), reduce delivery lead-timesoutsourcing presents an immediate errors and much more difficult to (34.2%), optimize inventory levelsopportunity as a promising alternative, it manage. 73.7% of respondents stated (31.6%) and improve suppliers‟is still a nascent industry in the region. that improving their level of demand performance (21.1%). Lastly, the76.3% of respondents outsource at least forecasting was on top of their agenda importance of information is oftenone logistics function. However, for 2011, followed by 63.2% who wished overlooked as a critical competitiveregardless of whether the supply chain to pursue inventory optimization. To resource, but its role is crucial tois in-sourced or outsourced, the biggest improve demand forecasting, 20.7% of achieve higher productivity.challenge facing the industry is the lack all respondents had implemented Sales responsiveness, interconnectedness © 2010 B2G Copyright - Middle East Seriesof visibility, both internally between & Operations Planning Process) in a bid (internally and externally) 9 and lowercritical processes and between critical to achieve a level of best practice and costs.
  • 10. Survey panel analysis 03Study background The “State of Supply Chain Management – Middle East Series” represents B2G consulting‟s largest annual review of global supply chain performance focused on the GCC region. With participants from Saudi Arabia, Bahrain, UAE, Oman, Kuwait and Qatar, the survey provides deep insight into the most critical yet least understood lever, i.e the Supply Chain management, to improve significantly any company‟s operational profitability and margin‟s growth. Consisting of a comprehensive online questionnaire, participants were invited to respond to 21 key questions covering the different aspects of the supply chain management in terms of challenges, maturity and performance level. Headquarters location Number of employees 2.6% 6.0% 18.8% 18.4% 11.4% Saudi Arabia Bahrain <10 Dubai 2.9% 101 Abu Dhabi 48.6% 501 5.6% Oman 18.0% 100 Kuwait 18.8% 18.4% >50 Qatar 28.9% Other 20.0% Saudi Arabia <101 15.8% 2.9% 101-500 Bahrain 501-1000 Dubai Abu Dhabi 18.0% 1001-5000% >5000 Oman 28.9% Kuwait Qatar Other 15.8% © 2010 B2G Copyright - Middle East Series 10
  • 11. Survey panel analysis Survey participants Nearly 230 companies participated in this 2010 survey, with data collection completed in November of 2010. The survey population is composed of organizations from a diverse set of industries, including Retail, Oil&Gas, Consumer Goods, Mining and metals, transport, industrial manufacturing, services, telecommunications, construction, health care and agriculture. The survey reflects the response of the population which is composed of more than 60% senior executives in supply chain management, with 15% at the CXO-level. The region surveyed is only focused on the Middle East region particularly on the GCC countries: Saudi Arabia, Bahrain, UAE, Oman, Kuwait and Qatar. And more than half of survey participants are companies with annual revenues superior than $500 Million with a minimum of 500 employees. Company annual revenue ($US) Main sector of activity Industrial manufacturing 17,9% Services 14,3% 13.2% 21.1% Consumer goods 10,7% 1M-25M Retail 8,9% 7.9% 26M-50M Food and beverage 8,9% 51M-150M 151M-500M Oil & Gas 7,1% 10.0% 10.5% 501M-1B Transport 7,1% 1B-10B Mining and metals 5,4% >10B 11.1% Construction 5,4% 26.3% Other 3,6% 1M-25M Health care 3,6% 26M-50M 51M-150M Telecommunications 3,6% 151M-500M Agriculture 1,8%5% 501M-1B Real estate 1,8% 1B-10B >10B 0% 5% 10% 15% 20% © 2010 B2G Copyright - Middle East Series 11
  • 12. Industry insightsConducting a cost reduction program inthe transport sector01 Company background and 02 ResultsChallenges Which results have been obtained after theIn few words, please describe your company implementation? How long did it take to reach theactivity. expected outcomes? What are the next steps?“Mubarrad is a publicly listed Kuwait-based company, “It took six months after implementation to start seeingspecializing in land transport, logistics, heavy transport, truck improvements. The team built a 6-year strategic plan withmanufacturing and maintenance. Mubarrad is a GCC player clear objectives. At that time there was a significant drop inwith operations in Kuwait, Dubai, Oman and Egypt. With a sales, but we finally managed to increase the revenue bymarket value of 21.6 Million KD, its assets are worth 37 33%. Several strategic initiatives were launched such as:Million KD for a total of 200 employees (excluding drivers).”  Upgrading transport asset quality and improving utilization rateWhich pressures forced Mubarrad to embark on a  Securing long term contractscost reduction program?  Concentrating businesses in Oman and Dubai to“After several acquisitions and major internal increase profitabilitytransformations, a new management team has been  Building up a new executive committee with a crossappointed in mid 2010 to restructure completely the financial functional view to drive the change and bearand operational departments in order to drastically reduce decisions as a teamcosts. The situation when we arrived was a very high SG&A  Implementing a CRM system to optimize thecosts compared to the revenue, accentuated by a difficult decision making process with the market dynamicseconomical context.”  Increasing project planning and execution to increase the projects success rateWhat did Mubarrad decide to do to overcome this  Close monitoring of losseschallenge?  Focusing on employees efficiency while“The new management team decided to go for the best transforming the mindset from employees to leaderspractices in the industry, and conducted several analyses  Diversifying the logistics offering(SWOT, balanced SCORE Card, zero based costing, Porter  Expanding the regional coverageanalysis…) with the support of management consultants.”© 2010 B2G Copyright - Middle East Series 12
  • 13. Industry Insights Mohammad E. Al-Muaili Vice Chairman - CEO Mubarrad Transport Company03 Key lessons learned 04 Which lessons to retain in conducting such initiative?Did Mubarrad face any difficulties during theproject phase?“The major issue that we faced during the project “People are definitely the most important assets for aphase was the change resistance from the existing staff, company, especially when the company decides to embark onso we had to take tough decisions in order to a major transformation program that involves changing the wayinstitutionalize a full commitment from everyone and to it operates. We can witness it every day at Mubarrad, so webring the morale up within the company. As a new team, tried to really have the right personnel with the right mindsetwe were constantly walking on eggs, as we wanted to who considers himself as an owner of the company rather thanimprove the situation but without jeopardizing the day- just an employee. In the end, the success of the company liesto-day operations. It was helpful to set up employees in a team effort and not on one-man show.SCORECard, monitor the to monitor thenot only to not only individual individual “People are definitelyperformance of each employee but as well to assure each employee but The challenge in the GCC is mainly about having the right people, and the most importantthat everyone wouldeveryone wouldmeasure its ownas well to assure that be able to unfortunately, there is a workforcecontributionbe able to the global initiative.own measure itsOne of the very first things that we did was to bring all for a company” assets deficiency in this market, which iscontribution to the global initiative. even stronger in the area of supplyOne of the very first things that wetop was to bring all top managementin the same office management (including myself)did was to bring all top management (including myself) chain and logistics. At Mubarad, we .didclose tosame office close the the operations, usedthe decided to tackle the skills issue through two educationalin the the operations, as to executive office as to(including myself) in the same officebe remotely located. It wasbe remotely located. we,was through two educational segments: segments: one with small workshops to improve the technicalexecutive office operations,important for us that It theclose to the used to as themanagement, lead thatexample and demonstrate led our and soft skills of the employees and workshops to improve one with small harmonize the levels for us by the management, by byimportant office used towe, remotelyexecutive beown acts and high commitment that we were expecting between departments,the technical other soft skills of the and the and one with extraexample Itthe demonstrated by our own acts the highlocated. was important for us thatfrom our employees.”we were expecting from our professional activities organized by theharmonize to cement employees and company the levelscommitmentmanagement, lead bywe, the that the bonds and improvebetween departments, and one with the interpersonal relationships withinemployees.” demonstrate by our ownexample and the company.” extra professional activities organizedacts the high commitment that we S “ o far, the cost reductionwere expecting from our employees.” S by the company to cement the bonds program has brought in substantial cost savings and this has o far, the results were the reduction of the loss to 71 K KD and improve the interpersonal reflected positively in the overall result. The road is long and we haven‟t finished yet our from 2.2 Million KD at the same period in 2009. The road is relationships within the company.” mandate.” long and we haven‟t finished yet our mandate.” © 2010 B2G Copyright - Middle East Series 13
  • 14. Supply Chain maturity04#1: How is the level of knowledge of your Supply Chain organization?IntroductionMost companies enter supply chain to Knowledge of Supply Chain organizationimprove profitability, through processimprovement and technology for moreresponsiveness to consumer demands. 8,0% Mature – with knowledgeHowever maintaining a competitive about advanced modelsadvantage depends on the ability of such as SCOR and supply 32,0% chain best pratices (S&OP,each unit in the chain to apply VMI, etc…)knowledge innovatively. Knowledge is Average – with basicthe competitive advantage in a supply knowledge about supply chain (operationalchain – it not only enhances the fundamentals)efficiency of the operations but alsoenables to foresee and manage Low – with ad-hoccomplexity and change. The major knowledge on supply chainchallenge for companies is to acquire, 60,0%develop and retain skilled supply chainprofessionals to sustain efficiently theirsupply chain performance.Results Analysis nationals (Saudization, EmiratizationThe respondents were asked to indicate The supply chain is one of the most etc…). In the face of fierce globalthe level of knowledge of their supply rapidly evolving disciplines, and the competition to recruit the skilledchain organization. The results show variances in supply chain activities resources, GCC Companies shouldthat: require new set of skills and start looking at ways to develop and 32% of respondents have experiences for world class supply chain secure domestically the skilled advanced knowledge of supply professionals. The noticeable shortage manpower, required to support the chain concepts in the Middle East of supply chain expansion of their organizations. In 60% present basic knowledge professionals with the required skill-sets fact, some of the respondents have on supply chain is not something exclusive to this region already jumped on the bandwagon by 6% admit to have less but it is likely to be accentuated by establishing “learning centers” to knowledge some governmental initiatives that develop training and education encourage the employment of their programs to enhance local work force. nationals understanding of the true root causes© 2010 B2G Copyright - Middle East Series preventing the supply. 14
  • 15. Supply Chain maturity #2: What are the best practices currently used by your organization? Introduction Everybody talks about best Best practices in place practices. But what does it really mean in the Middle East context? It Sales and Operations Planning Process 20.7% does not mean always getting the Customer segmentation 15.3% End to end Supply chain visibility tool 11.1% latest technology or doing exactly Performance management 10.2% Integrated business planning what best-in-class companies did 8.0% Real time information 6.4% lastly. “Best-practices” are the Joint service agreement (JSA) 5.7% Supply chain costing (Activity Based Costing) 5.1% methods, processes or activities Collaborative forecasting 3.2% that are the most effective at Lean methodology 2.5% Customer collaboration 2.2% delivering the highest outcome in a Competitive Benchmarking 1.9% Vendor Managed Inventory 1.6% particular context. It is critical to Supplier collaboration 1.3% understand that the way of using Formalized supply chain risk management 1.0% JIT - Just in time 1.6% best practices are business-specific. Financial supply chain (cash flow management) 1.6% Consequently success depends on Other 0.6% choosing them with a thorough 0% 5% 10% 15% 20% 25% understanding of the operations involved while considering the specific business environment.Results AnalysisThe top 5 best practices used by the The lack of visibility: internally amongst critical customers. This would logicallyrespondents are: processes, and externally between business explain the top 3 best practices partners; have incurred high inventory levels, used by the respondents. The most #1 Sales & Operations Planning process significant operating costs, longer lead times advanced companies have #2 End-to-End supply chain visibility and lower customer satisfaction. To forecast the elevated the conventional S&OP #3 Performance measurement demand more accurately and plan the supply process to integrate R&D, Product #4 Customer segmentation accordingly, the respondents have implemented management, marketing and #5 Integrated business planning one of the most powerful best-practices in financial issues into the process toDue to the recent financial crisis, there is demand planning: the Sales & Operations merge the operational and financiala noticeable growing trend for financial Planning Process (S&OP). The S&OP process plans into a seamless businesssupply chain practices, which were not provides optimum results when complemented planning and tactical execution-very popular in the Middle East in the with end-to-end visibility systems and efficient directing process: The Integratedpast years. performance measurement tools for segmented Business Planning (IBP). customers. This would logically explain © 2010 B2G Copyright - Middle East Series the position of the top 3 best practices used by 15 the respondents. The most advanced
  • 16. Supply Chain maturity #3: What are the activities outsourced?IntroductionOutsourcing in the Middle East is a fairly Outsourced activitiesnew trend knowing that most companieshave been in-sourcing the majority of 10,5%their activities so far. In order to 28,9%optimize costs and deliver greater Logisticsefficiencies on all managed services, 23,7% WarehousingMiddle Eastern Corporate went through Manufacturingan intermediary phase of shared R&Dservices with a central department. As ITthe supply chain sector has 15,8% None - Inhouseprofessionalized along with the level of 10,5%maturity of the organizations, an Otherincreasing number of new ventureshave spun off, meanwhile developing 13,2% 18,4%the outsourcing service offerings.Results23.7% of respondents do not outsource Analysis of manpower. One of the biggestany of their activities. Amongst the Managing the supply chain has become challenges in outsourcing is to be ablerespondents, who outsource some of increasingly complex, especially to understand and master the activity ortheir functions, there are: coupled with the specific challenges in function that the company wants to 28.9% outsource Logistics the Middle East: narrow local supply outsource. Especially, before handing function base, regulated markets, level of over its operations with potential related 18.4% work with contract maturity of business partners, shortage unresolved issues. Else this will only manufacturers of qualifies manpower etc…which has limit this initiative to outsource the 15.8% outsource Warehousing services forced some companies to outsource current issues the company is facing. some of their non-core activities such as Innovative companies amongst theConsidering the enabling functions, IT logistics, warehousing or IT but as well respondents have embarked in aand R&D represent altogether slightly some of their very core activities journey, where they are accompanyingmore than 23%. including R&D, manufacturing, the service provider, as a partner, to procurement and including the provision grow at the same pace, hand in hand. of manpowerof . information and© 2010 B2G Copyright - Middle East Series financial flows along the Customers by 16 optimizing the physical, information and
  • 17. Supply Chain maturity #4: What is your supply-demand model? Analysis Supply-demand model Inventory carrying costs count for a large portion of total costs in many 13,2% 10,5% supply chains, so unsurprisingly effective inventory management is one Make/Deliver-to-stock of the most important issues that supply chain managers are facing. Managers 18,4% Make/Deliver-to-order have the difficult task to determine which products should be made to Mixed of Make to stock / Make to Order order, and which should be made to Make-to-Engineer stock in order to reduce the inventory level while increasing (or maintaining) the level of service. For made-to-stock 55,3% products, accurate demand forecasting and proper inventory management strategies must be determined to reduce the level of inventory hold. For made-to-Introduction Results order products, approaches for reducingCompetitive pressures on lead-times, The configuration of the supply chain customer lead time must be developed.inventory level and costs have led many generally depends on the industry sector; The decision to use either a MTS ororganizations to review their production- however the respondents‟ responses MTO strategy depends strongly on theinventory-delivery practices. In their give a good indication of the leading business specificities and has aquest for “zero-inventory” goal, World- supply chain model present at the significant impact on the supply chainclass companies have started to regional level, which helps to understand performance. Indeed, with 55.3% ofdetermine the optimal conditions when the related supply chain challenges. The respondents using a combinedto hold a finished good inventory and large majority of respondents (55.3%) MTS/MTO strategy, it appears to bewhen it is not. Based on that, the indicates that their supply chain model is much more effective than using eitherresulting configuration selected, i.e. a mix of Make-to-Stock and Make-to- strategy exclusively. For this reason,Make-To-Stock (MTS) / Make-To-Order Order. For the other supply chain most companies are employing a hybrid(MTS) / Make-to- Engineer (MTE), is configurations: MTO–MTS approach, holding inventorydeterminant of the performance of the 18.4% only have Make-to-Order in some cases, and producing to ordercompany‟s supply chain. 10.5% only have Make-to-Stock in other cases. 13.2% have Make-to-Engineer © 2010 B2G Copyright - Middle East Series 17
  • 18. Supply Chain maturity #5: Which technology is supporting your Supply Chain operations?IntroductionThe importance of information is often Technology supporting the Supply Chain operationsoverlooked as a critical competitiveresource. Indeed, its contribution to the Warehouse management system 34,2%management of the supply chain is not Forecasting tool 26,3%always very well understood. However, Performance measurement 23,7%the role of the information technology in S&OP tool 21,1%supply chain management is crucial to CRM application 18,4%achieve higher productivity, Transportation management system 18,4%responsiveness and lower costs. The SRM application 13,2%everlasting changing customers‟ e-invoicing 13,2%expectations have greatly increased Supplier management e-portal 13,2%along with the internet trend, and have Capacity planning tool 10,5%put on the spot the necessity of an Other 5,3%efficient information system to support 0% 5% 10% 15% 20% 25% 30% 35% 40%the end-to-end supply chain operations.Results Analysis that imposes a greater discipline inThe top 3 information systems used by Traditionally, warehouse management anticipating and fulfilling the marketthe respondents are: systems have been widely used to demand in a more cost-effective way. In monitor the warehouse operations and this regard, to measure and control the (34.2%) Warehouse management transactions. Indeed, WMS counts for effectiveness of their organization to system (WMS) 34.2% of respondents‟ answer. On the supply the demand, companies have (26.3%) Forecasting tool other hand, the lack of market visibility embarked on initiatives to improve both (23.7%) Performance measurement in the Middle East coupled with a the visibility of their internal performance tool versatile and hectic demand signal has and that of their business partners. The forced companies to improve their volume of information processedFurther to the growing interest in the demand planning with more accurate requires the use of BusinessS&OP process, there are 21.1% of forecasting tools. The market is Intelligence tools to segregate the mostrespondents who are using related currently shifting from a supplier-push relevant information to support keytools. model to a more customer- pull model business decisions. that© 2010 B2G Copyright - Middle East Series 18
  • 19. Supply Chain maturity #6: How is your Supply Chain organization considered by top management? Analysis Supply Chain organization perception by top management With supply chains becoming more dynamic and complex, organizations Demand driven - Customer centric 39,5% have begun to understand the significance of having a high level Strategic function (part of top management board) 28,9% supply chain executive influence their Function oriented 23,7% (LOGISTICS/PRODUCTION/PURCHASING…) business strategy. Indeed, an efficient Considered as a Cost center 23,7% supply chain management, which is Collaborative with End-to-End partners (Suppliers / 21,1% aligned with business strategy, Customers) Process oriented becomes critical to remain competitive 18,4% (PLAN/SOURCE/MAKE/DELIVER/RETURN/ENABLE) and profitable. Competition is no longer Considered as a Profit center 10,5% companies against companies but Manufacturing driven - Internal focused 7,9% supply chains versus supply chains. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% This mindset shift has supported organizations to reshape their supply chain management in a more customer- centric supply chain. However majorIntroduction Results organizational changes, from aIn today‟s business world, operations The respondents‟ perception of the functional model to a more processand supply chain management are the supply chain is mainly demand driven- oriented model, are still slow to occur inbackbone of many companies. In this customer centric (39.5%), collaborative the Middle East. Besides this, there isregard, more CEOs are including supply with end-to-end partners (21.1%) and an increasing trend to expand thechain management in their strategic considered as a strategic department boundaries of the company‟s supplyagenda to differentiate themselves from (28.9%), but remains organized by chain to integrate more externaltheir competitors. This shift has helped functions (23.7%) rather than by partners. As a matter of fact, eachto see more supply chain executives at processes (18.4%). Although for a member of the supply chain has anthe board table and has been minority of companies (10.5%), the impact on the performance of theaccompanied by a transformation of the supply chain is considered as a profit others, the overall supply chain andway the supply chain management was generator, the majority still sees it as a ultimately the end customer.perceived within the organization. cost center (23.7%). © 2010 B2G Copyright - Middle East Series 19
  • 20. Supply Chain maturity Supply Chain maturity #7: What is the training frequency of the Supply Chain staff?IntroductionToday, the global supply chain has Training frequency of Supply Chain staffbecome more complex with moreintegrated perspectives, linking 4,0%suppliers and customers. And one of themost important drivers for success in 28,0%deploying and running an efficient Neversupply chain is People. The challenge Below 5 times a yearfor supply chain executives, in theMiddle East, is to understand which Between 5 to 10 times aknowledge and skills are required, and yearto define the appropriate training and Above 10 times a yeareducation for their existing staff. As thescarcity of skilled supply chain 68,0%resources is exacerbated in the region,training appears to be an adequatesolution more than anywhere else.Results Analysis while in the UAE and Qatar privateThe frequency of the staff training gives Education reform is on the top priority institutions are booming, in Saudi Arabiaa good indication of the importance of the focus is less on private universities, list of the GCC governments, as theeducation to the respondents‟ but rather on improving the quality of need to develop best talents across themanagement: public universities such as KAUST. region becomes urgent to tackling the 68% of respondents provide Bahrain is making a point to differentiate skills gaps, in a globalised economy. As training to their supply chain staff itself from Dubai and Qatar by offering a recent discipline, Supply chain below 5 times a year training in services to cater for various management is lacking of universities 4% of respondents provide training sectors, including banking and between 5 to 10 times a year and private training centers to prepare a hospitals. However, Supply Chain 28% of respondents never provide highly skilled workforce for the future in management has not found its place yet any training the Middle East. In this process, several in the academic programs and degrees major initiatives in Education have been of GCC universities and private launched to enter the era of Knowledge: institutions.© 2010 B2G Copyright - Middle East Series 20
  • 21. © 2010 B2G Copyright - Middle East Series 21
  • 22. Industry insightsHuman Resources Management:Recruiting Supply Chain Experts01 Company background makers are not able to improve the existing processes.In few words, please describe your company Moreover, logistics companies are not using latestactivity technologies and thus, need more manpower to compensate“We are a recruiting agency which represents IESF in this lack of technology.Dubai. IESF (International Executive Search Federation) is What attracts talents in the Middle East? Howthe largest retained executive search group in the world difficult is it to retain skilled resources?identifying talent and leadership in 160 offices and 40countries globally. We look for experts/specialists and talents “Some young talents look forward to getting moreusing direct search approach. We have successfully made exposure than they would have in a mature market and tosearches in all support functions (HR, Finance, Supply endorsing real responsibilities. Besides this, the packages “Good professionals lacking in some countries of theChain, Logistics, Procurement and Project ement offered can be higher and taxManagement) and in the following industries: What levels are the most free in the Middle East?optimize cycle times. Consequently, decision makers are not can handle the who “Senior Levels and MiddleMiddle East. On not strong improve processes to increase quality, decrease costs andIT/Telecom, Logistics, Engineering, the other Management areManufacturing, Construction, Large Retailers hand, retaining talent is full supply chain cycleefficiently implemented.”because of enough to ensure that the strategies and tactics decided byable to improve the existing processes.and FMCG for UAE, Qatar and Saudi Arabia.” extremely difficult the Board/Executives are Manpower landscape in theare very hard to find” high inflation rates which have02 What attracts talents Middle How do the nationalization be reflectedaffect salary to programs in local East? How difficult is it to retainin the Middle East companies? increases. In addition, recognition & development, career training is very important to skilled resources?How is the Middle East manpower“Slandscape? ome young talents look forward to getting “I growth, promotions, incentives employees so that management should be able to offer t should be a two-way street; instead of focusing on these on target reached…” training & development, career growth, promotions,“Good professionals who they would or part supply programs, companies should make a real selection of “Good professionals who can handle fullmore exposure than can handle full orhave in amature market and to endorsing real incentives on target reached…” candidates and hire only motivated ones. Newly most What levels are the hiredpart supply chainvery hard very hard to two main reasons.chain cycle are cycle are to find for find for employees should be provided with detailed Middle Middle lacking in the job descriptions Which levels are the most lacking in the East?responsibilities. First, universities the the packages Besides,two main reasons. the region are not focusing enough on inFirst, universities in “S and expected targets. It can take some time so it is better tooffered can focusing enough on tax free in some be higher and Logistics-region are not Chain despite the huge needs of skilled East? enior Levels and MiddleLogistics-Supply start early during training and internships. New employeescountries of the the huge needs of skilled the other Middle East. OnSupply Chain despitemanpower in this sector. Moreover, we can find a lot ofhand, retaining talent is we can find difficult extremely “S Management are not strong should gain more and Middle in themselves are not helped enior Levels confidence Management and be strongmanpower in this sector. Moreover, cannot think out of thegood operational people but they enough to ensure that the by a mentor.” enough to ensure that the strategies and tactics decided bybecause of high inflation rates which have toa lot improve processes to increase but theyto decreasebox, of good operational people quality, strategies and tactics decided the Board/Executives are efficiently implemented.”be reflected of the box, improve processes addition, in salary increases. Incannot think out cycle times. Consequently, decision by the Board/Executives arecosts and optimizerecognition quality, decrease costs employees soto increase is very important to and “It should be a two-way street; instead of focusing on efficiently implemented.”that management should talents in offer© 2010 B2G Copyright attracts Series What be able to theoptimize cycle times.- Consequently, decision Middle East these programs, companies should make a real selection of 22training Middle East? How difficult is it to & development, career growth,makers are not able to improve the existing How do the nationalization candidates and hire only motivated ones. Newly hired programs affect local
  • 23. Industry Insights Zoran Marinkovic Partner - HR Solutions BM Management Consultancies – I.E.S.F.How do nationalization programs affect local How is the educational system in supply chain?companies? “Instead of focusing on proposing Business Administration“It should be a two-way street; instead of focusing on these degrees, universities should offer Logistics and Supply chainprograms, companies should make a real selection of programs. Internships and trainings are not very developedcandidates and hire only motivated ones. Newly hired in the Middle East whereas they would give a professionalemployees should be provided with detailed job descriptions exposure and experience to students. Students would beand expected targets. It can take some time so it is better to able to work with specialists and experts in supply chain andstart early during training and internships. New employees logistics as well as discover the various functions of this industry.” industry.” “Instead of focusing foresee the future of supply chain onshould gain more confidence in them- selvesselves and be helped by a mentor.” How do you Business Administrationin the Middledo you foresee the manpower landscape How East?03 Recruiting Supply Chain degrees, universities regional competition andbebecause “With the increase of future of supply chain supply chain and logistics aremanpower landscape in critical in order to able tospecialistsAre Supply chain professionals should propose Logistics and quality of products on time and deliver the right quantity the Middle East? at the right cost, we need professionals who can challengemore demanded compared to otherareas? What is the trend? areas? What is the trend? and Supply existing chain and who are familiarand ofthe latest the procedures “With the increase competition with regional because“The world credit crunch hashas made programs” to spend time to draw-up an outstanding Supply logisticscycle world credit crunch made people realize that they technologies. Companies should understand that they need supply chain and Chain arepeople focus that they should focus andshould realizeon their core business on expertise. This is critical in order to be able to which can be implemented in a mid-term view.”their core business and professionals were less demandedthe case in Dubai where expertise. This deliver the right quantity andis the case Chain than in where professionals the bankingin Supply in Dubai wherethe real estate or in were less the case in Dubai professionals quality of products on time quality of products on time and at the right cost, we needdemanded demandedwere lessHowever, theintrend willChain a huge demand inindustry. in Supply Chain than in the real estate or in the Supply see and at the right cost, we need professionals who can challenge the existing procedures andthan in the real estate ports coming up will see a ZayedSupply Chain with newor in the banking like renewed hugebanking industry. However, the trend who are familiar with the latest technologies. who professionals can Companiesdemand However, in Abu will see aindustry.Khalifa PortChain with new ports coming nearlikePort & in Supply the trend Dhabi, Kuwaiti port up the challenge the existing should understand that they need to spend time to draw-uphuge demand Iraq, Saudi‟s Red Sea Abu Dhabi, Terminalborder with in Port & Khalifa with new Gateway Kuwaitirenewed Zayed Supply Chain Port in an outstanding Supply procedures Chain cycle which who are and can beportsnear the Port likeSalalah, Saudi‟s Red Sea Gatewayport coming up of renewed Zayedextension,the border with Iraq,extensions of several ports in implemented in a mid-term view.” familiar with the latestDubai…” extension,TerminalPort & Khalifa Portthe Port ofDhabi, in Abu Salalah, extensions of technologies. Companiesseveral port in Dubai…”Kuwaiti ports near the border with Iraq, should understand that they Which positions in supply chainSaudi‟s Red Sea Gateway Terminal need to spend time to draw-up WhichPort Middle East Series sought? © 2010 are positionsmost the in supply chain 23extension, B2G Copyright - of Salalah, the an outstanding Supply Chain are the most sought? (Procurement, sourcing, planning,extensions of several ports in Dubai…” cycle which can be
  • 24. Supply Chain performance metrics05#1: Perfect Order fulfillmentIntroductionThe Perfect Order Fulfillment represents Perfect order fulfillment (%)the percentage of orders that are ontime, in full, with complete and accurate 9,7% 3,2%documentation and no shipping 12,9%damage. This customer-facing metric iscrucial as it measures the performance 50-60%of the organization, as perceived by the 60-80%Customer. Needless to say that this 80-90% 90-95%metric directly impacts the company‟s 35,5% 22,6% 95-100%top line and affects the relationship with Not measuredits Customer. Although the precisequantification of its contribution to therevenue growth is relatively challenging, 16,1%the benefits are confirmedly substantial.Results Analysis relationship that enhances collaborationThe respondents were asked to indicate Achieving high „perfect order fulfillment‟ and speeds up transaction betweenthe level of their perfect order fulfillment: levels demands more than just supply chain partners. Companies that 35.5% of respondents indicate that computing data from software. boast some of the highest Perfect Order their perfect order fulfillment Companies must configure their supply rates carry less inventory, experience reaches 95% and above. chain processes from end-to-end to shorter cash-to-cash cycle time, and 16.1% of respondents have a deliver the highest possible have significantly less stock-outs when perfect fulfillment comprised performance. It involves much more compared to their competitors. AMR between 90-95% than the logistics aspect of delivering a Research says the pay-off for 22.6% of respondents say that their customer. It includes putting in place companies with high rates of "perfect perfect order fulfillment ranges accurate forecasting process and tools, orders" can be substantial. A 3 percent between 80-90% building information systems that improvement in perfect order fulfillment 9.7% of respondents do not connect suppliers, customers and translates to a 1 percent increase in measure this metric. internal departments, or developing profits, AMR says. strong© 2010 B2G Copyright - Middle East Series 24
  • 25. Supply Chain performance #2: Delivery performance (line item delivery to first commit) Analysis Delivery performance (%) The first step in improving on-time delivery is defining what it is. This is generally a major challenge. Each 6,5% customer may have his own definition of 9,7% „on time‟. Companies will need to 32,3% develop an operational definition for on- 50-60% time delivery that is aligned with their 60-80% business partners. Once done, it is 80-90% important to understand that improving 90-95% on-time delivery is mainly a matter of 29,0% 95-100% issues concerning time and expectations. Indeed, the expectations must be well understood by both parties 22,6% in order to avoid unnecessary pressures. On the process side, Forecasting, demand planning and theIntroduction Results supply chain configuration play a majorThe „Delivery performance‟ or „On-time The survey results indicate that: role in the performance of the on-timedelivery‟ is one of the key components delivery. So to address the issue, supplyof the perfect order fulfillment. On-time 32.3% of respondents outperform chain managers must examine carefullydelivery is measured as percent above 95% of On-time delivery their demand processes to identify andachievement within a window of time 22.6% of respondents deliver with a measure those that are contributing inthat brackets the customer-requested performance between 90-95%date/time and/or the business 29% of respondents reach an the desired on-time outcome. From thiscommitted date/time. While price has average on-time delivery between analysis, managers will be able to tacklealways been a key element in the 80-90% counter performance related to processpurchasing decision, a constant and 16.2% of respondents are lagging lead times, capacity bottlenecks,timely delivery is becoming increasingly with a delivery performance below process quality and etc… in the quest ofimportant due to the market‟s pressure 80% the 100% on-time delivery.for speed and product instant availability © 2010 B2G Copyright - Middle East Series 25
  • 26. Supply Chain performance metrics #5: Total Supply Chain management costIntroductionThe Total Supply Chain ManagementCost measures the fixed and Total Supply Chain management cost (% revenue)operational costs associated with thePlan, Source, Make, Deliver and Return >25% 6.4%supply chain processes. Concretely, the 18%-25% 10.6%supply chain costs take into account 16%-17% 8.5%order management (Deliver), material 14%-15% 12.8%acquisition (Source), inventory carrying(Indirect Plan), planning/finance (Plan), 12%-13% 14.9%returns management (Return) and 10%-11% 19.1%information technology costs (Indirect 8%-9% 12.8%Enable). In a context of severe cost 5%-7% 10.6%competition, it is important to know thetotal supply chain cost to be able to <5% 4.3%reduce the total cost of acquisition on 0% 5% 10% 15% 20%any item.Results AnalysisThe respondents indicate that their total The total supply chain management cost provides a standard definition that helpssupply chain management cost counts can vary significantly between industry to align the way this metric is calculated.between: sectors however the differences between "It is estimated that reducing the supply best-in-class companies smooth over chain cost by 1 percent can be the 15 to 25% of their operational regardless the industry sector. Median equivalent of increasing revenues from revenue for 19.1% of respondents companies have a supply management 4 to 12 percent" says Scott Stevens, 10 to 15% of their revenue for cost which generally spans from 10%- CTO for the council. To reduce the 46.8% of respondents 15%, and best-in-class companies supply chain costs, managers should 5 to 10% for 23.4% of respondents achieve cost performance under 6%. focus on non-value added time and Under 5% of their revenue for 4.3% This metric is still very difficult to track as costs in the supply chain including of the respondents it involves many processes, however the excess inventory, communication Supply Chain Council‟s SCOR model inefficiencies, long cycle times and (Supply-Chain Operations Reference) discoordination of efforts.© 2010 B2G Copyright - Middle East Series model) the Customers by optimizing the 26 physical, Customers by optimizing the
  • 27. Supply Chain performance #6: Cash-to-cash cycle time Analysis Cash-to-cash cycle time (days) The Financial supply chain is taking more importance in CFO and Supply0 chain top executives‟ agenda, as it 35%0 offers significant potential to generate 30% bottom line improvement and create0 competitive advantage. The Financial0 Supply Chain refers to the end-to-end 20%0 trade processes and information that 15% drive a company‟s cash, accounts, and0 working capital. An optimized0 management of the Financial Supply0 Chain allows reducing the amount of cash corporations need to hold. And the0 <30 Days 30-60 Days 60-90 Days >90 Days cash-to-cash cycle time represents one of its key performance indicators. The shorter the cash-to-cash cycle, the lessIntroduction Results the company needs working capital,Often called cash conversion cycle, this The respondents were asked to indicate however depending on the industrymetric represents the time it takes for a their performance related to the cash-to- sector some significant differencesdollar to flow back into a company after cash cycle time (C2C). Companies which exist: sectors like Retail, Hospitality andit has been spent on raw materials. It is are notable for their superior performance Telecommunication show negative cycleone of the major metrics to determine in managing their working capital, have a times whereas sectors such ashow well a company is managing the cash-to-cash cycle time that is 2 times Agriculture, Mining & Metals, Industrialworking capital flow from suppliers shorter than the median and 3.5 times products or Chemicals have a cash-to-(accounts payable) to customers shorter than the laggard. cash cycle time that is superior to 130(accounts receivable) through the 30% of respondents have a C2C days. It is important for a company tocapital tied up in the company below 30 days shorten its C2C cycle time as much as(inventories). It consists of days of sales 35% of respondents have a C2C possible, but also to balance its Days ofoutstanding, days of payables between 30 and 90 days Sales Outstanding (DSO) and its Daysoutstanding and inventory days of 35% of respondents have a C2C of Payables Outstanding (DPO) tosupply. above 90 days optimize its operational performance. © 2010 B2G Copyright - Middle East Series 27
  • 28. Supply Chain performance metrics #7: Inventory days of supply (DIO)IntroductionInventory is the backbone of the war in Inventory days of supply (DIO)supply chain management. Raw 0materials, goods in process and finished 35% 0goods all represent various forms of 30%inventory. Each type represents money 0tied up until the inventory leaves the 25% 0company as purchased products. This 0inventory represents a large portion ofthe business investment and needs to 0be well managed to maximize profits. 10% 0One of the most important challenges of 0inventory control is to have the items instock at the moment they are needed 0while optimizing the cost of carrying this <30 Days 30-60 Days 60-120 Days >120 Daysinventory.Results AnalysisDays inventory outstanding (DIO), is Successful inventory management especially when the company is ablealso defined as days sales of inventory. involves balancing the costs of to meet its customer expectations.The respondents were asked to indicate inventory with the benefits it provides. With improved visibility into supplyhow many days on average their A poor management of inventory can and demand, supply chain managerscompany turns its inventory into sales: result in a significant expense that can can make critical decisions about affect profitability. Many executives how and where to reduce inventory 10% of respondents have a DIO fail to appreciate fully the true costs of and still maintain the highest level of below 30 days carrying inventory, which include not customer service. Regardless the 60% of respondents have a DIO only direct costs of storage, insurance nature of the business, the main between 30 and 120 days and taxes, but also the cost of money challenge lies in the capability of any 30% of respondents have a DIO tied up in inventory. Value of DIO organization to forecast accurately above 120 days varies from industry and company. the demand and plan accordingly the But in general, a lower DIO is better; supply including inventories.© 2010 B2G Copyright - Middle East Series 28
  • 29. Supply Chain performance #8: Days of payable outstanding (DPO) Analysis Days of payable outstanding (DPO) The downturn in the economy and the global financial credit crisis have1 55% produced tremendous pressures on cash reserves. Although the Middle East1 region has been less impacted, overseas suppliers have strengthened0 the management of their credit affecting0 the cash flow of companies, which used 25% to stretch payables period. Recently,0 this metric has been less in control of 15% the company but rather defined by the0 suppliers‟ payment terms. However, the 5% DPO has still its importance in the0 management of the supply chain as it =<30 Days 30-60 Days 60-90 Days >90 Days directly affects the financial capability of the company‟s supplier which can limit its growth and operational capability. As Introduction Results the supplier plays a major role in the The Accounts payable (A/P) are The respondents were asked to indicate company‟s flexibility, responsiveness becoming a key component in the how many days on average their and costs, the company may bear the optimization of the working capital, but a company pays their suppliers‟ invoices: substantial consequences of a lack of maturity (technological, process, mismanagement of the A/P (operational organization) in this discipline is slowing 55% of respondents have a DPO at and financial). A win-win situation can down its evolution. One of the key A/P 30 days or below be established between the company indicators is the days of payables 40% of respondents have a DPO and its supplier, for example shorter outstanding (DPO) which are a measure between 30 and 90 days payment terms can be negotiated of the company‟s average payable 5% of respondents have a DPO against better service level or higher period. Despite the general belief, a above 90 days discounts on material purchase. longer DPO can negatively affect the suppliers and indirectly impact the company on the long term. © 2010 B2G Copyright - Middle East Series 29
  • 30. Supply Chain performance metrics Supply Chain performance #9: Days of sales outstanding (DSO)IntroductionThe Accounts Receivable (A/R) is one Days of sales outstanding (DSO)of the most critical factors in the 0optimization of working capital. Due to 35% 0the high importance of cash involved in 30% 30%running a business, it is in a companys 0best interest to collect outstanding 0receivables as quickly as possible. To 0measure the average number of daysthat a company takes to collect revenue 0after a sale has been made, the 0following indicator is commonly used: 5%Days of Sales Outstanding (DSO). By 0quickly turning sales into cash, the 0company is more likely to reinvest faster =<30 Days 30-60 Days 60-90 Days >90 Daysand to support its growth.Results Analysis median companies, and forecast withThe respondents indicate how many Amongst the different opportunities, 40% greater accuracy than mediandays on average their company is able Accounts receivable is preferably used companies. To improve the DSO,to collect the cash from their customers: by most companies to improve companies should streamline and positively the cash flow. The sooner the automate the cash collection processes. 30% of respondents have a DSO at company can collect cash from its An automated process will fasten the 30 days or below customers, the better it can re-invest cash collection (ex: access to SWIFT) 65% of respondents have a DSO the money where it is needed. In and improve the invoicing accuracy. It is between 30 and 90 days addition, it is important to note that the highly recommended to manage the 5% of respondents have a DSO timely collection of receivables helps to DSO in a more integrated way through a above 90 days predict more accurately the cash formal Order-to-Cash (OTC) process, requirements and limits the financial where the entire process from the risk. Best-in-class companies are able customer order to the cash collection is to collect receivables twice as faster as completely managed and controlled.© 2010 B2G Copyright - Middle East Series 30
  • 31. © 2010 B2G Copyright - Middle East Series 31
  • 32. Industry insights 3PL outsourcing in the Petrochemical Industry The company was therefore seeking to develop a high- quality strategic partnership with a Logistics Services01 Company background Provider that could: “Petro Rabigh was originally a refinery with a capacity of  Provide a global logistics services offer (Freight400,000 bbls/day which belonged to Saudi Aramco. When forwarding, warehousing, distribution, reverse logistics)Saudi Aramco decided to enter the Petrochemical market, itwas decided to create a new venture with Sumitomo which  Demonstrate the required experience and capabilitywas called Petro Rabigh. The company is located in Rabigh, to manage Petro Rabigh‟s logistics operations165 kilometers north of Jeddah on the Red Sea coast. It is  Support Petro Rabigh to moving forward, during thenow producing a wide range of polymers, monomers and transition phase, from Project to operations mode”refined products.” Was this decision a premier in KSA? In theWhich challenges forced PetroRabigh to come toWhich challenges forced PetroRabigh to Petrochemical industry? And in whichthe decision ofof outsourcing decision outsourcing the the logistics perspectives? Perspectives? “We were seekingcome to the decision ofdepartment?the logisticslogistics department?outsourcingdepartment? “This decision was premier in “This decision was a premier in the Petrochemical sector and to be world-class initiative covers the logisticsaoutsourcing“P etroRabigh was seeking to be world-class etroRabigh was seeking to be in the region. The the Petrochemical sector and in the by a 3PL of PetroRabigh‟s MRO business including, Door tobe world-classmottomotto wasItsorganized. Its organized. become globallyworld-class organized. Its was to to“P organized” door Freight forwarding, Warehousing management, region. The initiative covers themotto was to recognized and locally be world-class etroRabigh was seeking torecognized become globallybecome globally and locally committed. In this logistics outsourcing by a 3PL of Delivery to Internal end users including collection of end-organized. this decidedwas build build a world-classregards, we motto decided become globallycommitted. In Its regards, we locally to torecognized this regard, we todecided a world-class and PetroRabigh‟s MRO business user‟s returned materials and internal stock transfer,recognized In thislogistics function To do that, wethiscommitted. and the organization.logistics a world-class within committed. In Toto build function within locally the organization. hadlogistics function regards, we Including Door to door including,forwarding, door Freight Freight Door to Warehousing Reverse Logistics (End-users returns & Return to Vendor).regards,organization. To dothethe we that world-classdecidedthewe had a world-class a logistics thedo that, to build about to buildto face decidedwithin the wereality to face that, reality about was fact management, Delivery forwarding, end users including to Internal Warehousing We were conscious that being the first company to do thatlogistics logisticsabout the fact thefact face function wascountry that function within thecompared laggingTo within organization. inhad tothat the reality in the considerably to the West.considerably lagging collection of end-user‟s returned materials and internal stock management, Delivery to Internal could have posed some risks, but we felt that logistics, whichdo that, we Petrocomparedinwe to the West.organization.had to face decidedlogisticscountry To Rabigh thethetheConsequently, do that, realityoutsourcethe was considerably lagging to about its transfer, Reverse Logistics (End-users returns collection to end users including & Return of is an emerging industry in the region, needed to befact thatcompared logistics considerably laggingandConsequently, reality Rabigh its MRO incountry logistics wasthe abouthad to face the Petro activity for decided tocomplete inbound to West. end-user‟s returned materials and Vendor). We were conscious that being the first company to supported by a leading organization. As a major company,the fact that compared was country Rabigh decided tooutsource itsConsequently, Petro completechemicals supply. to the West. logistics inbound logistics do that could have posed some risks,transfer, Reverse internal stock but we felt that our role is to develop the local industry and especially toConsequently, lagging in the decided tooutsource for complete inbound Rabigh Petro logisticsconsiderably MRO and chemicals supply.activity its its logistics, which is an emerging industry in the region, needed Logistics (End-users returns &The company was therefore seeking to develop a high- support the logistics sector which is strategic in KSA. Weoutsource compared towith the Logisticslogisticscountry its itspartnership chemicalsquality for complete inboundactivity strategic MRO and a Services to be supported by a leading organization. As a major were Return to Vendor). WeThe company was therefore seeking to took the risk albeit in a calculated way and it pays off.”activity for its MRO and chemicals supply.West. Consequently, PetroProvider that could:supply. conscious that being the firstdevelop a high-quality strategic partnership  operations UAE, Qatar and Saudi Arabia.”Rabigh decided to aoutsource services offer  Provide global logistics company to do that could haveThecompany was therefore seeking warehousing,could:with Logistics was therefore thatThe acompany Services Provider seeking to (Freight forwarding, to  Support Petro Rabigh to moving forward,its complete inbound logistics© 2010 B2G a high-quality strategicdevelop Copyright - Middle reverse logistics)develop a high-quality East Series distribution, strategic partnership 02 Manpower landscape in the phase,but we felt that during the transition Middlefrom Project to posed some risks, East 32  a Logistics Servicesactivity for Provide a global logistics its MRO andpartnership with Demonstrate the required experience and operations mode” logistics, manpower an emerging which is landscape? with a Logistics Services Provider that could: How is the Middle East services offer (FreightProvider that could:
  • 33. Industry insights “We were conscious that being the first company to do that could have posed some risks […] We took the risk albeit in a calculated way and it pays off”company, our role is to develop the local industry and meet our requirements. After the bid award of the LSPs, weespecially to support the logistics sector which is strategic in entered in a second phase of the project, where the selectedKSA. We took the risk albeit in a calculated way and it pays logistics provider was being integrated into Petro Rabigh‟soff.” structure. Then, the third phase aimed at supporting the newly implemented logistics operations during the critical02 Approach ramp up period.”What were the project objectives and expected How long did the project last?outcomes?“The main objective was to reduce the total cost of “The selection of the Logistics Service Provider lasted 3 months whereas the implementation phase took more than 6ownership, but besides financial considerations, we needed months. The ramp up phase lasted 6 months.”to have the right expertise to conduct this critical work.Indeed, the plant has to function 24h a day, 7 days a weekand the cost of an equipment breakdown can be substantial. 03 ResultsSo the timely supply of the right parts becomes a critical keyto guarantee a seamless operation of the plant. Finally, our “After the integration of the 3PL in our organization, weobjective was to expand the level of know how in logistics managed to put in place efficient processes that enable theboth, for us internally by bringing a logistics expert within our logistics operations to be more responsive to urgency,organization, and as well, by helping a 3PL to gain maturity especially when a part is needed on a short notice period.in outsourcing and to acquire specific knowledge in the On the other hand, the tangible result was a significantMRO-Petrochemical business.” improvement of the on-time delivery from both side, on the suppliers side and to the customers side too. However, weWhich strategy was selected? are still facing some issues of low performance from some“The project started with the selection of the Logistics suppliers which affect our own 3PL performance, so for the next steps, we intend to implement a supplier performanceService Providers (LSPs). We conducted both a technical program to support our suppliers to improve their deliveryand a commercial evaluation to assess the capabilities of the and reliability performance. Through more awareness andLSPs to stronger incentives with a rewarding system, we expect to © 2010 B2G Copyright - Middle East Series 33 see a significant improvement in our suppliers‟ performance“PetroRabigh was seeking to be world-class levels.”
  • 34. Industry insights Abdullah Al Saif Materials Supply Manager Petrorabighstronger incentives with a rewarding system, we expect to “We have experienced the outsourcing concept at Petrosee significant improvements in our suppliers‟ performance Rabigh, and the results are more than convincing. I can onlylevels. recommend to other companies to focus on their core business and to outsource their non-core activities as long04 Key lessons learned as they find the right partner. For us, the critical path, besides the change management, had been the quality ofHow challenging was the integration of a 3PL the information: we faced quality issues from our differentwithin Petro Rabigh’s organization? Is a bold systems which had impacted the performance of the 3PL.leadership enough to conduct such major change The integration of our suppliers, 3PL and our company wasin an organization? very challenging with a lack of data integrity. We could not “A“At the beginning, we had to face strong resistance to compare apples with oranges. The quality of data is really t the beginning, we had to face critical amongst the supply chain the supply to secure the critical amongst partners chain partners ““It is high time to the end-to-end information flow.”of the end-to-endchange, to delegate key activities to an external company,strong resistance to change, to delegate integrity ofand with time, we have built trust and we can now work in to secure the integrity Conclusionkey activities to an external company, capitalize on “It is high time to capitalize onflow. experience amongst the ourtotal transparency with our 3PL partner. The other mainand with time, we have built trust andchallenge was to develop a cost-consciousness mindset, as information our supply chain1% of cost reduction equals to 5% of sales increase. So we To conclude, Petrochemical sector, and experience amongstprofessionals, experience high time tothe supplywe can now work in total transparency in the it is capitalizewith our 3PL partner. The other main to start sharing theon our outcomes of such initiatives. The model amongst the supply chain tried successfully as a pilot at the Petrochemicalhad to educate our people to be more cost-focused in theirchallenge was to develop a cost- has been chain professionals in Petro Rabigh andmanagement of the operations.”consciousness mindset, as 1% of cost can be easily duplicated.and toneed sharing the outcomes sector, We start to work as a groupWhat would you to 5% of sales professionals” the goal of such initiatives. The to overcomebeenreduction equals recommend to companies which towards helping each other model has ourincrease. So to had to educate logistics services?are looking we outsource their our challenges. The kingdomsuccessfully as a pilot at at the tried of Saudi Arabia is located Petropeople to be of the operations.”management more cost pitfalls to avoid?Key success factors,focused in the management of their Rabigh and canandgroup towards theWe itsof helping each strategic place be easily duplicated.play need toof logistics will have to fully goal role work as aoperations.” group towards the other of the West, and other of us have to hub between the East and helping each each to overcome goal to overcome our challenges. TheWhat would you recommend to concept at Petro“We have experienced the outsourcing ourthe level of expertise and ofof Saudi to makelocated atat a lift challenges. The kingdom Saudi Arabia is isitlocated the kingdom know how Arabia happen.”What wouldwhich are more than convincing. I can onlycompaniesthe results are looking toRabigh, and you recommend to companies which strategic place andstrategic place and willits roleto fully play will have to fully play have of logisticsoutsource to other companies tologistics services?are willing to outsource logisticsrecommend their their focus on their core improve their the East role of logisticsso each of us has to lift delivery and the West, performance. the East hub between its and reliability hub between ThroughKey success factors, their factors,services? Key success non-core activities as long asbusiness and outsource pitfalls to avoid? more awareness and stronger incentives withus have and the West, and each it a rewarding the level of expertise and know how to make of happen.” to liftpitfalls tothe right partner. For us the criticalthey find avoid? system, we expectthe see a of expertise and know howour to level significant improvement in toWhat would you recommend to companies whichpath, besides the change management, had improve their delivery and reliability performance. Through suppliers‟ performance levels.” make it happen.”© 2010 B2GexperiencedMiddle East Series“We have Copyright - the outsourcingare looking to outsource their logistics services? 34been the quality of the information: we faced more awareness and stronger incentives with a rewarding improve their delivery and reliabilityKey success factors, and the to avoid?concept at Petro Rabigh, pitfalls results especially to support the logistics sector which is strategic inquality issues from our different systems system, we expect to see a significant improvement in our
  • 35. © 2010 B2G Copyright - Middle East Series 35
  • 36. Supply Chain challenges06 #1: Top Supply Chain concerns your organization is currently facing?IntroductionThe supply chain has become Top Supply Chain concernsincreasingly complex and the volatile Improve demand forecasting 73.7%economy has significantly contributed to Reduce and optimize inventory levels 63.2%bringing in the supply chain landscape Reduce delivery leadtimes 57.9%more challenges. Economists and Improve supplier performance 42.1% Reduce logistics costs 41.0%experts are in agreement that a Develop collaboration within the supply chain partners 39.5%recovery is under way and will persist Improve distribution network 34.2%above 2011; however Supply chain Increase inventory turnover 26.3% Increase warehousing capacity 23.7%managers will still have to face greater Fasten operations with supporting technology 22.5%difficulties in managing their supply Increase delivery reliability 21.1%chain during the upturn, especially those Reduce time to introduce new product 19.4%who drastically downsized their supply Reduce manufacturing costs 15.8% Improve asset utilization rate 13.2%chain capabilities without preparing the Other 10.5%return of the growth. 0% 10% 20% 30% 40% 50% 60% 70% 80%Results AnalysisThe top five challenges enumerated by With a volatile economy, the demand Due to limited resources, the deliverythe respondents are: has been fluctuating much more than leadtimes have been abnormally usual which has made the forecast of stretched and have become less and Improving demand forecasting less reliable, both on the customers and the demand more challenging and (73.7%) suppliers‟ sides. The recurrent issue is less accurate. Unsurprisingly, Reducing and optimizing inventory not new in the Middle East, on the improving the demand forecasting levels (63.2%) suppliers‟ side but the phenomenon has appears on top of the other supply Reducing delivery leadtimes been dramatically emphasized during chain challenges, followed by the (57.9%) the downturn, with a greater lack of inventory optimization. As demand is Improving suppliers performance visibility on the demand and supply sides less predictable, the planning of the (42.1%) for the suppliers. This has resulted into resources and in particular inventory Reducing logistics costs (41%) degraded service levels and higher becomes more difficult. This generally leads to inadequate inventory levels. logistics costs.© 2010 B2G Copyright - Middle East Series 36
  • 37. Supply Chain challenges #2: How difficult is the recruitment of Supply Chain professionals? 13,5% Senior positions (VP Supply chain, 27,0% CSCO,Supply chain Analysis Difficulty to recruit Most searched positions director…) People are generally wrongly placed at 4,0% the last position after technology and 13,5% 13,5% Middle management positions (VP Senior positions (VP 12,0% Senior 13,5% 13,5% Senior positions (VP positions (Logistics processes. Basically, Operations are Supply chain,Senior positions (VP Supply chain, 27,0% 27,0% CSCO,Supply Supply chain, chain by people and the productivity is Supply chain, manager, supply chain run 27,0% CSCO,Supply chain CSCO,Supply chain 27,0% director…) manager, Warehouse director…) CSCO,Supplydirector…) chain directly linked to the performance of the Middle managementmanager, etc…) director…) positions (Logistics manager, supply chain operators. Even best practices cannot relatively difficult Middle management experts manager, Warehouse manager, etc…) Technical Middle management (forecasting, supply chain positions (Logistics management (Logistics if the staff is not able to run normal Technical experts Middle positions effective be analyst etc…) manager, supply chain (Logistics positions (forecasting, supply chain analyst etc…) manager, supply chain In addition to that, as them properly. relatively easy manager, Warehouse supply chain manager, manager, Warehouse 59,5% 59,5% manager, etc…) manager, Warehouse etc…) chain has become more supply manager, manager, etc…) complex, it has emerged a new breed of Technical experts Technical experts (forecasting, Technical experts supplysupply chain supply chain (forecasting, chain professionals with a new analyst etc…)(forecasting, analyst etc…) supply chain set of required skills. To be able to 84,0% analyst etc…) 59,5% manage a global and complex supply relatively difficult 59,5% 59,5% chain in a highly dynamic environment, normal professionals need to have both “hard” relatively easy analytical skills and “soft” leadership skills. In Today‟s context, the supplyIntroduction Results chain professional must be able toToday‟s supply chains face a severe The respondents were asked to cite the integrate the big picture in his supplyglobal shortage of talent and skills profiles the most searched and to chain strategy which includes finance,whereas the demand in the profession indicate the level of difficulty in recruiting sales and marketing. He also needs tohas never been greater. Even though supply chain professionals: extend his perimeter across the supplythis shortage is more accentuated in the 84% of respondents find the recruitment chain partners, from the suppliers to theMiddle East, the trend is really global of supply chain professionals relatively end customers. The strategic position ofand affects every market, regardless its difficult, especially at the middle this discipline, has forced managers andlevel of maturity or geographical management level (59.5%) like directors to develop an effective verticallocalization. The recruitment and Materials Management Manager, but communication towards the topretention of the skilled people who have also for more technical positions such management which considers more andto manage companies‟ supply chains is as forecaster. 13.5% of respondents are more the supply chain as a keybecoming the next biggest challenge of facing difficulties to recruit top managers competitive differentiator.the century. at the position of supply chain directors. © 2010 B2G Copyright - Middle East Series 37
  • 38. Supply Chain challenges Supply Chain challenges #3: What are the next initiatives you are planning to implement? Analysis Next initiatives planned to be implemented within the next Respondents have clearly identified the 12 months weakest point yet most critical in their Improve demand forecasting 42.1% supply chain: their ability to forecast Reduce logistics costs 36.8% accurately the demand. Buying too Reduce delivery leadtimes 34.2% much inventory can be costly in terms of Reduce and optimize inventory levels 31.6% space and trapped capital and exposes Improve supplier performance 21.1% Develop collaboration within the supply chain partners 21.1% the company to high level of Increase warehousing capacity 18.4% obsolescence. Underestimating demand Improve distribution network 18.0% usually leads to backorders, stock outs Fasten operations with supporting technology 17.6% and poor service levels. Anticipating Increase delivery reliability 15.8% demand accurately and efficiently is Increase inventory turnover 15.1% Reduce time to introduce new product 13.2% crucial to balance a minimized inventory Improve asset utilization rate 13.0% investment and optimized revenue Reduce manufacturing costs 5.3% opportunities. A more accurate Other 2.6% forecasting provides the company with a 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% better ability to plan the supply accordingly, in a more cost-effectiveIntroduction Results way. As a matter of fact, once theAgainst conventional wisdom, it is even The top 5 initiatives that the forecast accuracy has been improved,more critical for companies to invest respondents are planning to implement, there is a subsequent impact on thetime, effort and money in improvement within the next 12 months, correspond inventory levels and the associatedprojects during downturn period. to the major challenges cited previously: costs. Part of the logistics costs isInvesting money on projects is often automatically reduced and the delivery Improving demand forecastingdisputable and difficult to defend without lead-times can be improved too. Once (42.1%)a solid business case, however the pay the company has a better visibility of the Reducing logistics costs (36.8%)offs have proved to be substantial. It is demand, the relationship with its Reducing delivery lead-timesoften the only way to get ahead of the suppliers can switch from an ad-hoc (34.2%)competition. To address their mode to a more anticipative Reducing and optimizing inventorychallenges, the interviewed companies collaboration where the supplier is able levels (31.6%)have presented the course of mid-term to plan ahead of time and fulfill its Improving suppliers performanceactions that they are planning to take. delivery commitment. (21.1%)© 2010 B2G Copyright - Middle East Series 38
  • 39. © 2010 B2G Copyright - Middle East Series 39
  • 40. Conclusion Conclusion07A Supply chain under pulls itself free from recession, in a supply chain, competing with other construction… would be an competition for scarce resources will supply chains, all focused in deliveringapt title for the “2010 State of the Supply summa recessioptimum level intensify, there will be a greater value to the end customer. IntegratedChain Report”. There waschain the supply an increased from movement of goods across borders, and supply chains underpinned by commonawareness of the strategic importance of performing to its optimum there will be a downward pressure on technology, systems and processes, willsupply chain management in the Middle prices driven by the end customer, lead to agility and flexibility in the formEast over the course of 2010 and an whilst scarcity will ensure rising factor of shorter lead times, and reduced costseven sharper focus was brought to bear input costs. Companies merely as a result of lean inventory and lowerupon driving bottom line profits. competing on cost will find their profit cost of ownership through sharedStrategic Supply Chain Management margins under serious threat and only investments. In an adversarial customerhas far reaching consequences, beyond companies that decide to innovate supplier relationship, there will alwaysthe scope of just logistics and if through differentiation will succeed in be a trust deficit, however, once trust isdeployed correctly can form an defending their margins. In a post replaced by collaboration, the entireunassailable defense against recession world companies will end-to-end supply chain can be equallycompetitors, resulting in a true increasingly find themselves part of an profitable for every player: from thecompetitive advantage. As the world integrated network of companies, locked suppliers to the end customers.pulls itself free from recession in a supply chain, competing with other© 2010 B2G Copyright - Middle East Series pply chain has a greater interest to 40 supply chains, all focused in deliveringAs the world pulls itself free from maximize the profitability of its business value to the end customer.recession, competition for scarce
  • 41. Appendix08 AppendixAbout B2G Consulting:Based in the Middle East, B2G consulting is a newly created firmfocusing on supporting growing markets, from A to Z, we help ourclients to build profitable businesses in new and challengingmarkets, transforming their critical challenges into high valueopportunities, and our capabilities to support organizationsencompass every operational aspect:  Definition of operational strategy  Hands-on support for implementation  Execution and interim managementB2G Consulting currently operates in Eastern Europe, MiddleEast & Africa, Asia Pacific and China, the organization isembarking on an ambitious expansion plan with the goal ofreaching 25 emerging markets by 2020… Authors: Frederic Gomer Simon Chauvin Partner Senior consultant B2G Consulting B2G Consulting frederic.gomer@b2g-consulting.com Simon.chauvin@b2g-consulting.com Mobile: +65 972 604 97 Mobile: +973 39 31 98 83© 2010 B2G Consulting .This document is the result of primary research performed by B2G Consulting. B2G Consulting methodologies provide forindependent and objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entirecontents of this publication are copyrighted by B2G Consulting and may not be reproduced, distributed, archived, or transmitted in any form or by anymeans without prior written consent by B2G Consulting. © 2010 B2G Copyright - Middle East Series 41
  • 42. Appendix© 2010 B2G Copyright - Middle East Series 42