The document summarizes SABIC's procurement strategy for valves. It finds that SABIC currently has high complexity and costs due to too many unique valve specifications and suppliers. The proposed strategy is to standardize specifications, reduce the number of suppliers through bundling volumes, establish long-term agreements, and pilot vendor managed inventory to lower costs while improving service levels. The strategy aims to reduce valve costs by double digits within 12 months through these recommendations.
1. Assessor’s feedback/comment
Assignment Question
Classification: Internal Use
Excusive Summary:
The assessment has been related to the development of the
sourcing plan in SABIC. The procurement department has been
dedicated to procure the right materials, cost, and time to all
SABIC affiliates. Valves have been selected as an example of
material category procured by spot buying department.
It has been found that the procurement function has to
implement various aspects of modern day technology and
automation to be able to supply the needs of the industry. The
industry has become competitive and thus it is important for the
company to produce at cheaper costs. Cost savings can be done
in the stage of procurement. Collaboration with suppliers will
be the key in understanding the market’s modern day trends as
well as innovation techniques that can improve the overall
procurement process. Suppliers can also know about the needs
and demands of the company with the help of this collaboration.
These suppliers are to be contracted and chosen based on the
quality of the products. They are to be connected on a real time
2. platform whereby they can measure the needs and demands of
the company. This will enable suppliers to adjust their
production quickly accordingly. Cost savings can also be done
with the help of proper techniques by the procurement
department. The procurement department can also take the help
of data analysis, which can provide them with proper
information relating to the demand, types of customers,
conditions in the market etc.
All these aspects can be summed up in the development of a
proper procurement strategy that in turn can contribute to the
development of the procurement department in the days to
come.
Introduction
The basis of the success of the companies in the modern days
has been the development of a proper supply chain management
(SCM) which in turn has helped the companies to procure the
right kind of materials, developing the same and delivering the
finished products in a timely manner to the eventual customers.
The globalization of the business environment has made it
apparent that customers today have various choices at hands in
most of the industries and thus the companies have to perform
to the best of their abilities in order to succeed. The SCM helps
the organizations in this regard and provides them the ability to
deliver high quality products and services to the eventual
customers (Christopher, 2016).
The researches in the field have analysed that the needs and the
preferences of the customers in the market play an integral role
in the development of procurement functions in the SCM
process. Technological aspects have been at the fore in the
development of the procurement process in SCM today (De
Barros et al, 2015).
SABIC procurement process is developed to make the
procurement department in sync with the business environment
in Saudi Arabia. The procurement function related to valves
will be considered in the context of SABIC. Thus, it will be
important to understand the process of procurement in the
3. department so that it can provide a detailed understanding of the
similar companies all over the world.
This category plan provides an in-depth analysis of the key
aspects surrounding the valves category as of August 2018,
presenting a schema for a category strategy based on current
SABIC requirements and supply market dynamics. The category
team is to monitor the evolution of internal requirements and
external supply market dynamics, and adjust the proposed
recommendations in this document as required. The scope of the
category buyer coversall manual and control valves, including
spare parts and services.
Internal category profile
· In 2017, spend for valves, spares and services was USD 41.1
MM
· SABIC’s KSA affiliates account for 77% of valves and spares
spend
· Number of unique specs is too high (125,000)
· Over the last three years, SABIC has purchased valves from
more than 683 suppliers
· 524 active plank agreements, only 12% of spend procured
through these, 64% of these contracts now expired
· Several data quality issues: availability of capital projects
data, spend categorization discipline and accuracy, and vendor
name standardization
External category profile
· Global market size for industrial valves in 2017 was
approximately USD 20.5 billion
· Over the next 4 years, GCC (Gulf Cooperation Council)
market activity expected to grow at 11% CAGR (Compounded
Annual Growth Rate)
· Despite recent consolidation, valves supply market is very
fragmented (top 10 suppliers account for 25% of the world’s
production facilities)
Total cost of ownership
· Acquisition cost represents less than 50% of the total lifecycle
cost
4. · Current selection of suppliers based on acquisition price is
suboptimal
Category strategy
· Three main category objectives: complexity reduction (of
specifications and suppliers), cost reduction (leveraging total
cost of ownership models), and localization of valves and spares
· Improve master data quality and conduct a spec
standardization
· Reduce number of suppliers, bundling volumes across
geographies and over time, also across categories (mega
supplier agreements) and across companies (buying consortia)
· Establish long term performance based agreements with a
reduced number of suppliers to be used both in new projects and
replacements/repairs – three criteria: technical qualification,
total cost of ownership, and local content development
· Price revision mechanism (e.g. index, frequency, etc.) to be
part of the contract
· Pilot VMI (Vendor Managed Inventory) with a selected
number of SKUs (Stock Keeping Unit) and back-to-back SLAs
(Service Level Agreement) with customers and suppliers
Category strategy implementation
· Implementation plan sees all strategies above yielding benefits
within 12 months
· Four enablers: people (capacity, training, cross-functional
teaming), information (access within and outside SABIC), tools
(as needed), and organizational alignment (management
sponsorship)
We believe that, by following the recommendations laid out in
this plan, SABIC can see a double-digit reduction of its valves
cost while improving service levels offered to its internal
customers.
1. Category Definition
1.1. Category Description
Valves are mechanical devices widely used across many
industries (e.g., petroleum, petrochemical, chemical, power,
pharmaceutical, water, etc.) to regulate, direct or control the
5. flow of a fluid (gases, liquids, fluidized solids) by opening,
closing, or partially obstructing various passageways.
There are two common ways to classify valves. The first one, by
how they are actuated. Based on this, valves can be hydraulic,
pneumatic, electrical and manual. The second and most common
classification is based on their design. As we describe below,
different designs are suitable for different process requirements.
Gate valves
A gate valve opens by lifting a round or rectangular gate/wedge
out of the path of the fluid. The distinct feature of a gate valve
is that the sealing surfaces between the gate and seat are planar.
Gate valves are often used when there is a straight-line flow of
fluid and minimum restriction is desired.
Selected features:
· Frequently used
· Economic
· Not suitable for throttling (create vibration)
· Minimum pressure drop
· Typically rising stem - when the valve is opened or closed, the
hand wheel remains in the same position and it is the stem that
rises or falls
Plug valves
This is one the simplest and earliest valve designs. It consists of
a plug, which is generally tapered toward the bottom. This plug
fits in a seat in the body of the valve, and contains a port to
allow the fluid flow. The rotation of the plug is used to control
the opening - rotating the plug by 90 degrees completely
opens/closes the valve.
Plug valves provide reliable leak tight service, can be quickly
opened and closed, and offer low resistance to flow. These
valves are seldom used for regulating flow.
Globe valves
Globe valves are most commonly used for pipeline flow
regulation. They consist of a movable disc-type element and a
stationary ring seat in a generally spherical body.
The plug in a globe valve (sometimes referred to as disc) is
6. connected to a stem, which is operated by screw action, using a
hand wheel in manual valves or an actuator in automated ones.
Ball valves
A ball valve is a one-way valve with a spherical disc that
controls the flow through it. The sphere has a hole, or port,
through the middle to allow the flow when the port is in line
with both ends of the valve. The ball valve, along with the
butterfly valve and plug valve, is part of the quarter turn valves
family.
Ball valves are very commonly used for flow regulation and can
be found in all sizes and materials. They are generally operated
with a wrench/lever instead of a wheel. Depending on the body,
we find different types: single body, three-piece body, split
body, top entry, and welded. Ball valves can be also classified
based on their port/bore style as:
· Full port - over-sized ball so that the hole in it is the same size
as the pipeline, which reduces friction loss
· Reduced port - hole in the ball is of a smaller size than the
pipeline (flow area is smaller than the pipe)
· V port - either a 'V' shaped ball or a 'V' shaped seat
Check valves
Check valves, also known as a no-return valves, allow fluids to
flow through them in only one direction. These valves close by
the pressure exercised by the fluid, not needing to be controlled
by any external element. Accordingly, most do not have any
valve handle or stem.
Check valves are generally small, simple, and inexpensive in
comparison to most other valves. The most common types of
check valves are:
· Lift - closing member, the movable part to block the flow, is a
ball or a disc
· Diaphragm - use a flexing rubber diaphragm positioned to
create a normally-closed valve
· Swing or tilting disc - have a swinging gate hinged at the top
and open as fluid flows through
Butterfly valves
7. Butterfly valves can be used for isolating and regulating flow.
The closing mechanism takes the form of a disc. Their operation
is similar to that of a ball valve, which allows for quick shut
off. Butterfly valves are generally favored for low
temperature/pressure applications due to their low cost. They
are also lighter and require less maintenance. Nevertheless,
because the closing mechanism is always present within the
flow, butterfly valves produce higher pressure drops and
turbulence than other types of valve.
The most commonly used butterfly valve types are:
· Wafer-style – designed to maintain a seal against bidirectional
pressure differential and prevent backflow in systems designed
for unidirectional flow. It accomplishes this with a tightly fitted
seal (e.g., gasket), and a flat valve face on the upstream and
downstream sides of the valve.
· Lug-style – with threaded inserts at both sides of the body,
this valve is installed between two flanges using a separate set
of bolts for each flange. This permits either side of the piping
system to be disconnected without disturbing the other one.
Solenoid valves
These electromechanically operated valves are controlled by an
electric current through a solenoid. In the case of a two-port
valve, the flow can be switched on and off. In the case of a
three-port valve, the outflow is switched between the two outlet
ports.
Diaphragm valves
Diaphragm valves get their name from a flexible disc that comes
into contact with a seat at the top of the valve body to form a
seal. This diaphragm is a flexible, pressure responsive element
that transmits force to open and close the valve. Diaphragm
valves are extremely clean, leak proof and easy to maintain
(most repairs can be made without interrupting the pipeline).
These are linear motion valves used to start/stop and control
fluid flow, mostly in moderate pressure and temperature
systems. The two most common types of diaphragm valves are:
· Weir diaphragm valves are the most popular type of the two
8. and are typically used for small flows, and for corrosive and
abrasive environments
· Straight-way diaphragm valves’ bodies have a flat bottom that
is parallel to the flow stream. These valves are typically used in
situations where the flow direction changes within the system
Needle valves
These valves have a small port and a threaded, needle-shaped
plunger. They allow precise regulation of flow, but they are
generally only capable of handling relatively low flow rates.
Needle valves are similar to globe valves in their functioning,
having a needle-like point at the end of the valve stem, instead
of a disc. They are mostly used to start, stop, and regulate the
flow rate within a pipeline. Indeed, needle valves are usually
used in flow-metering applications, especially when a constant,
calibrated, low flow rate must be maintained for some time.
Relief valves
Relief valves (also called safety relief valves or pressure relief
valves) are passive devices designed to open when pressure
exceeds a certain threshold (set value) to relieve it from the
vessel or line to which the valve is connected.
These are critical safety devices that prevent pressure within the
system from exceeding design tolerances. Hence their proper
functioning is an important element of the plant’s overall safety
system.
Control valves
Control valves are automated valves that can make precise
adjustments to regulate the flow of a fluid, based on signals
received from instruments situated throughout the system.
The opening or closing of automatic control valves is usually
done by electrical, hydraulic or pneumatic actuators.
Control valves can be of many of the different types of valves
described in this section (globe, butterfly, ball, diaphragm,
etc.).
Other valve types
Other less common valve types include:
· Angle valves: These valves are used for controlling the flow
9. of a fluid, which leaves the valve at a right angle (90 degrees)
to the direction in which it enters it
· Pilot valves: Small valves that control a limited-flow control
feed to a separate piloted valve. Typically, this valve controls a
high pressure or high flow feed. Pilot valves allow a small and
easily operated feed to control a much higher pressure or higher
flow feed, which would otherwise require a much larger force
for operation
· Shuttle valves: Valves that allow fluid to flow through it from
one of two sources. Generally, a shuttle valve is used in
pneumatic systems, although sometimes it can be found in
hydraulic systems too
· Poppet valves: Valves typically used to control the timing and
quantity of gas or vapor flow into an engine
Valve specifications
Valves can be made of multiple materials including forged or
casted steel (carbon and stainless), iron, plastic (e.g., PVC),
bronze, and exotic alloys. Different operational requirements
dictate different design requirements (material, size,
temperature rating, pressure rating, etc.). Most valves are
manufactured according to international standards. The most
common ones are: API (600, 602, 603, 608, 609, 598, 6D),
ASME (B16.34, B16.10) and DIN (3202-4, 3202-5, 3339, 3351-
1, 3352-2, 3352-3, 3352-4).
Valves have five main components: body, bonnet, seat, disc and
stem.
The body of the valve is the main pressure containing structure
and comprises all internal parts.
The bonnet provides a leak-proof closure to the valve body,
ensuring containment of the fluid. Bonnets can be bolted,
welded, threaded or screwed depending on pressure rating
requirements.
The valve seat is the interior surface of the body which contacts
the disc to form a leak-tight seal. The seat ring provides a
stable, uniform and replaceable shut off surface. Seats can be
soft (e.g., Teflon or Viton, which offer better shutoff but are
10. limited from a pressure / temperature rating perspective) or hard
(mostly metallic and used for high pressure / temperature and
aggressive environments).
The valve disc is a movable obstruction inside the body that
restricts flow through the valve.
The valve stem transmits motion from the handle or controlling
device to the disc. In some cases, the stem and the disc, or the
stem and the handle, can be combined in one piece. Stems can
be rising (no contact with the fluid) and non-rising (only usable
in non-corrosive applications).
Valves end connections can be threaded (male / female), flanged
(RF - raised face / FF - flat face FF / RTJ - ring type joint), or
welded (butt / socket).
1.2. Category Tree
The category tree depicted below is structured based on the
most common classification of valves, mirroring both the way
the supply market is organized and SABIC’s internal category
taxonomy.
Even for a company the size of SABIC, the number of unique
specs observed is high. This is investigated further throughout
different sections of this document.
2. Internal Category Profile
2.1. Spend Analysis
Valves are reparable static equipment, which means that,
beyond the acquisition of new valves, spares and related
services need to be also procured. As such, the analyses
performed in this section encompass all valve types, spares and
related services procured outside LSTK agreements for large
capital projects. The latter have not been included in this
section due to lack of data availability.
Spend evolution over time
The overall spend related to valves increased by 3% between
2015 and 2017. This growth was uneven – while valves spend
increased by 14%, the spend for valve spares and related
services decreased by 4% and 24% respectively.
This change might indicate a shift in the maintenance strategy,
11. as it could be driven by an increasing proportion of valve
replacements vs. repairs. This hypothesis will be validated
during the implementation phase.
Spend breakdown by region
Despite the global footprint of the company, SABIC’s KSA
operations continue to dominate the external spend. More
specifically, 77% of valve materials spend (valves and spares)
correspond to affiliates located in the Kingdom.
As a matter of fact, almost two thirds of valve materials spend
correspond to the following nine affiliates: PETROKEMYA
(2000), SAUDI KAYAN (1900), SADAF (1100), SAFCO
JUBAIL (4000), IBN ZAHR (3300), YANPET (1300), SHARQ
(1200), HADEED (2100) and YANSAB (1800).
Not only the total valve materials spend is different by region,
but also its relative distribution. In the graph below, we observe
that the relative value of spares to valves is significantly larger
in the KSA.
Something similar happens when we analyse the relative size of
the spares and services spend across regions.
These differences should be further explored, but are likely
driven by a combination of four factors:
· Tendency to repair vs. replace (e.g., in the KSA more valves
are repaired and that is why the relative spend in spares is
higher)
· Extent to which repair services are outsourced vs. performed
in-house (e.g., in KSA, more valves are repaired in-house and
hence the spend for services is relatively small)
· Nature of the repair contracts (e.g., valve repairs outside the
KSA can be under lump sum service contracts with the supplier
also providing spares bundled under the same one)
· Extent to which smaller repair services are scheduled within
larger turnarounds, having a similar effect to the one described
above
Spend breakdown by valve type
Over the last three years, the top five valve types (control, gate,
ball, relief, and solenoid) accounted for more than 60% of the
12. valve spend (excluding spares and services).
It is also observed that there is a significant amount of valve
spend uncategorized in the system (USD 12.7 MM). This issue
is explored in more detailed at the end of this section.
Spend breakdown by specification
Given the extensive network of SABIC locations and the
category complexity, a large number of unique specifications is
to be expected. The spend by specification varies significantly
though. As shown in the chart below, 21% of the total account
for 80% of the spend.
This is interesting from a couple of different perspectives. First,
it identifies those specifications where special attention needs
to be placed within the context of securing advantageous
agreements. Second, it detects the need to manage the
complexity derived by the excessive number of existing variants
(e.g., impact on inventory carrying costs and plant
maintainability). Both insights and required actions are
addressed in more detail in the category strategy section.
Spend breakdown by supplier
Another area where excessive complexity is found is within the
number of suppliers currently used. Over the last three years,
SABIC has purchased valves from 683 suppliers – a mix of
manufacturers, agents, traders, stockers and service providers.
This represents a unique opportunity to better manage cost and
complexity by reducing the number and rethinking the type of
suppliers that we do business with. As a matter of fact, volume
consolidation would likely enable direct negotiations with
manufacturers, avoiding the need to deal through non-value
adding intermediaries.
2.2. Spend Trend
While developing a detailed understanding of the historical
spend is critical, it is equally so to develop a clear view of
SABIC upcoming requirements (ongoing operational
expenditures, upcoming capital projects, JVs, mergers and
acquisitions). This will be an instrumental piece of information
to develop the scope of work and increase the attractiveness of
13. SABIC’s business for suppliers.
While no major changes are expected to SABIC’s operational
requirements, upcoming projects should be considered when
going to market.
2.3. Agreements in place
Despite having 524 active plank agreements, only 18% of the
spend in the last three years was procured through these. In
addition, 66% of those contracts are now expired.
2.4. Limitations to the analysis
Spend transparency is the backbone of a robust category
strategy. While analysis performed offers a good basis for the
development of the same one, several data quality issues were
encountered and should be addressed for future efforts (within
and outside the valves category).
Capital projects data
Despite being an important spend driver, data for valves
purchased within EPC contracts for large capital projects is not
available.
Spend categorization
Over the last three years, at least 12,161 valves have not been
properly categorized, hindering company’s ability to achieve
the level of spend transparency required for maximum
procurement effectiveness. This seems to be related to
suboptimal discipline at the time of data entry. For example, the
valve shown in the figure below was generically categorized
under material class “valve” despite a more detailed material
class (“valve, butterfly”) being available.
In addition, another issue related to spend categorization has
been identified. As the figure below shows, there are instances
where there is more than one material class (e.g., “Valve, Ball”,
and “Ball Valve”) for the same UNSPC, again hindering
SABIC’s ability to sort spend data easily and accurately.
Finally, it has also been observed an excessive usage of certain
“generic” material classes that further limit spend transparency.
In the example below, the same material class is used for
recording multiple transactions of very different nature, as the
14. variance analysis suggests.
Spec standardization
Specification standardization is a critical enabler of cost
savings driven by procurement, inventory management, and
maintenance. Analyzing the attributes entered in the system to
describe valves, we observe an excessive amount of possible
entries for each attribute. This is likely driven by an absence of
a pre-established taxonomy at the attribute level, and prevents
the company from understanding the real amount of truly unique
specifications. For example, typically, port types for ball valves
can be narrowed down to four, “Full”, “Standard”, “Reduced”,
and “V”. Currently, there are 183 different port types in the
system (note: port type is the attribute where the least variance
is observed).
Vendor name standardization
Similarly to what happens with specifications, the lack of
consistent supplier master data results in multiple vendor codes
being associated with one same vendor, making it time
consuming and potentially inaccurate to run basic analysis like
spend by vendor.
3. External category profile
3.1. Global supply market dynamics
The global market size for industrial valves in 2017 was
approximately USD 20.5 billion. This was the lowest point in a
downward trend following the oil price collapse of 2014. This
high correlation demonstrates the importance of the oil & gas
industry for the industrial valves market, it being its single
largest consumer.
Over the next 4 years, the valves market is expected to grow at
8% CAGR (Compound Annual Growth Rate) as oil prices
recover.
Since 2015, we have seen multiple mergers and acquisitions
within the valves industry (the table below lists the key ones).
Despite recent consolidation, the valves supply market
continues to be very fragmented, with the top 10 suppliers
accounting for 25% of the world’s production facilities. These
15. top suppliers are: Emerson (including Pentair, Fisher and Tyco),
Samson, Schlumberger (including Cameron), CIRCOR Energy,
Flowserve, GE Oil & Gas, IMI, Metso, and Curtis Wright.
An additional layer of complexity comes from the extensive use
of distributors and agents (especially in markets like Saudi
Arabia), which increases the degree of fragmentation further.
It is also important to notice that the same level of
fragmentation is not observed across all types of valves. For
control and high spec valves, both of which have a higher
degree of complexity (size, pressure rating, special operating
conditions, etc.), there are fewer credible suppliers, which
affects that balance of power between demand and supply as we
will see in section 5.
3.2. Regional supply market dynamics
Within the Gulf Cooperation Council (GCC), we observe that
the valve industry slowed down in 2017 and 2018 driven by a
delayed response to the drop in oil prices in the form of project
cancelation/postponements.
Over the next 4 years, the GCC valves market is expected to
grow at 11% CAGR as oil prices recover, and with a prominent
role of the KSA energy sector.
Oil & gas has been the main engine behind industrial valves
demand in the GCC. It is expected that the relative importance
of this sector will decrease as the petrochemicals sector expands
over the coming 3 years.
Currently, there are several Saudi companies (see table below)
supplying valves locally, but true manufacturing (beyond
assembly) is limited due to the lack of basic enablers within the
valves manufacturing value chain (e.g., the existence of casting
and forging capacity in Saudi Arabia).
3.3. Cost structure
The biggest cost component of a valve is its raw material, which
accounts for 45% to 55% of the cost of the valve depending on
the specification. Hence, it is important to understand in depth
the raw material market (often carbon steel) and test the
correlation between theoretical (should cost analysis) vs. actual
16. cost/price increases.
Generally speaking, margins for standard valves are lower due
to stronger competition in this segment, with players facing
pressure from emerging manufacturers from low cost countries
such as China. High spec valves’ market is less fragmented and
more competitive, and consequently enjoy higher margins.
4. Total cost of ownership (TCO)
Total cost of ownership (TCO) is a financial estimate of the
direct and indirect costs incurred when acquiring a product or a
service. It is calculated by accounting for all the costs that will
be incurred through the lifecycle of the product or service.
This analysis is critical from a procurement standpoint since it
informs the cost elements that need to be evaluated to select the
most appropriate supplier (the lowest acquisition price is not
always the lowest total lifecycle cost). For valves, there are six
relevant cost elements that need to be considered.
Acquisition cost
Acquisition cost is composed of the actual price paid to the
supplier for the valve (after any discounts applied) and the
internal cost to process the PO. SABIC PO processing costs are
tabulated below.
Transportation cost
Transportation cost is mostly dependent on the Incoterm the
contract is negotiated under. Unless it is a DDP contract (which
is commonly used), there will be a transportation cost incurred
that will depend on a variety of factors, including the delivery
weight, size, and shipment mode.
The tables below summarize the different Incoterms and the
associated costs for SABIC.
Installation cost
Initial installation costs are covered under the EPC contract. For
replacements, these are covered under the maintenance and
repair cost element.
Inventory carrying cost
Inventory carrying cost includes taxes, employee costs,
depreciation, insurance, cost to keep items in storage,
17. opportunity cost, cost of insuring and replacing items, and the
overall cost of capital for the company. To simplify its
calculation, it is typically expressed as a percentage of the
inventory value. For SABIC, it is assumed to be 18%.
Maintenance and repair cost
Maintenance and repair cost is comprised of:
· The price of the spare part, plus the processing cost for the PO
(as per the table under acquisition cost section), plus a
warehouse transaction cost of SAR 77
· The labor cost associated to the activity (repair and overhaul,
test and paint, installation cost)
Disposal and salvage cost
Typically estimated within the range of 4 to 6% of the PO
value.
Applying the logic described above, we calculate the total cost
of ownership for valves of different characteristics, since the
weighting of the different cost elements vary by type of valve.
The analysis above shows that, in both cases, the acquisition
cost represents less than 50% of the total lifecycle cost of the
valve, spare parts acquisition costs accounting for 30 to 40%.
According to this, selecting suppliers based on acquisition price
is a flawed approach as, unless spare parts are included in the
contract and factored into the bid evaluation process, the lowest
price supplier might not necessarily be the lowest total lifecycle
cost one.
5. Category strategy
5.1. SABIC category objectives
The business environment has become more competitive and
thus the customers have to be satisfied according to their
changing nature of needs and demands. Companies are able to
survive in the market if they can meet the needs and demands of
their stakeholders. Profit making happens when the needs and
demands of all the stakeholders are fulfilled.
Given the competition in the market, it has become very
important for the companies to control costs in the procurement
process that in turn can create a competitive price for the
18. finished products supplied to their customers.
SABIC GPS (Global Procurements Services)’s mission is “to
ensure efficient, reliable Procurement with proactive value
maximization, supporting SABIC’s global growth objectives
while complying with ethical standards”. In line with this and
supported by findings from analysis conducted, three main
category objectives emerge:
1. Reduce complexity. There is an excessive proliferation of
specifications and suppliers. The former is partly driven by
master data quality (same spec with different material numbers)
and lack of standardization (different specs for the same
functional requirement), which needs to be enhanced. The latter
requires a more disciplined approach (at portfolio level) to
supplier selection.
2. Reduce total cost. Higher costs are a typical side effect of the
excessive complexity described above. Moreover, total cost of
ownership analysis in section 4 demonstrates that price-based
supplier selection can be suboptimal. Leveraging more advanced
strategies (as described in section 5.3) and enabling technology
(e.g., e-catalogs), as well as improved contract compliance, will
also contribute to total cost reduction.
3. Localize standard valves. In line with Vision 2030 and the
National Transformation Program, there is a renewed push
towards local content development in SABIC. This has been
formalized under the NUSANED program, which has a specific
workstream on Procurement. Given the relatively low
complexity of standard valves, this should be a target for
further localization.
5.2. Supply – demand power assessment
Collaboration with stakeholders
The suppliers have been the main stakeholder of the
procurement process. Collaborating with the suppliers may
provide subsequent information to the company in relation to
the market trends and demands. Collaboration with suppliers in
different geographical areas has been able to provide new
technologies and innovation (Espín et al, 2016). Procurement
19. department can communicate with the suppliers and can know
about the new techniques and ways in the production process.
The suppliers can provide important inputs in this regard and
this can be applied in the value chain of the company.
Collaborating with stakeholders has also been seen to be
important in the case of sustainable operations. The suppliers
can be included in the development of a circular economy
(Witjes, S., & Lozano, 2016). Long-term contracts can eradicate
the problems of the high costs of materials that SABIC has been
incurring presently.
Different balances of power between a company and its
suppliers result in different types of relationships. In the same
way, different balances of power dictate different purchasing
strategies to extract as much value as possible from a
company’s supply base.
Potential basic strategies and detailed approaches based on
supply – demand power balance
Four basic strategies exist based on the balance of power
between supply and demand. Within each of these four basic
strategies, 16 levers can be used to create value for the
organization. We offer below and explanation of the four basic
strategies:
Manage spend
In the case of low supply and demand power, the first basic
strategy involves professional steering of demand. Managing
spend first of all requires detailed knowledge of who is buying
what from which supplier. Based on this, one can then consider
the possibility of offsetting low demand power by bundling
demand, either within the company or across company
boundaries. But first, an uncompromising analysis of whether
the demand in question is actually justified is necessary.
Leverage competition among suppliers
Where high demand power exists, the second basic strategy is to
leverage competition among suppliers to the advantage of the
company. Variations of this basic strategy consist of further
fueling competition through appropriate measures on the
20. supplier market, or influencing supplier pricing through
analytical tools.
Seek joint advantage with supplier
Where there is both high supply power and high demand power,
the third basic strategy aims at searching jointly with the
supplier for advantages. The different variants of this basic
strategy depend on the scope
and intensity of the partnership. The scope can range from
coordinated demand and capacity planning to complete
intermeshing of the value chain. Meanwhile, the intensity can
range anywhere from a project-based sharing of costs to the
sharing of financial success and risk.
Change the nature of demand
In cases where supply power is high, the fourth basic strategy is
to change the nature of demand. High supply power exists
whenever a supplier succeeds in establishing a monopolistic or
oligopolistic position due to a unique technical advantage or
exclusive market access. This position is far from being
inevitable, and in fact is often brought about by the buying
company itself - with or without its knowledge. Changing the
nature of demand requires sounding out the limits - that is,
determining to what extent the company can modify technical
specifications to regain freedom of choice. Experience shows
that it is possible to circumvent nearly all monopolies and
manage the remaining risk using appropriate measures.
These four basic strategies encompass 16 different levers each
that allow companies to maximize value extracted from their
supply base. To select the most appropriate ones, balance of
supply and demand power needs to be assessed. To be effective,
assessment of supply and demand power should be conducted at
a level of granularity such that it enables the differentiation
between supply market dynamics of similar, but uniquely
distinct categories or subcategories. For valves, the proposed
segmentation is:
· Manual valves (standard spec) – Valves of multiple types
(gate, ball, solenoid, butterfly, check, globe, plug, diaphragm,
21. needle) with one thing in common: specification (material, size,
rating) is such that it can be supplied by multitude of providers
· Manual valves (high spec) – Valves of multiple types (gate,
ball, solenoid, butterfly, check, globe, plug, diaphragm, needle)
with one thing in common: specification (material, size, rating)
is such that it can be supplied by a significantly smaller number
of providers (e.g., chlorine process)
· Control valves
· Relief valves
· Spare parts
· Services
Manual valves (standard spec)
Supply power is low. Despite recent M&A activity, there are
many credible suppliers. This supply market fragmentation,
together with low switching costs, force suppliers to compete
aggressively within this valves segment.
Demand power is medium. Although SABIC is one of the main
industrial players in the KSA, and an important reference for
suppliers in the region, its annual spend represents less than 5%
of the GCC valves market for this segment.
Manual valves (high spec)
Supply power is medium. The supply market for high spec
valves is less fragmented than for standard ones (all high spec
valves manufacturers produce standard valves, but not the other
way around). In addition, switching costs are also higher within
this valves segment.
Demand power is low. Although SABIC is one of the main
industrial players in the KSA, and an important reference for
suppliers in the region, its annual spend represents less than
0.5% of the GCC valves market for this segment.
Control valves
Supply power is medium. The supply market for control valves
is also less fragmented than for standard ones and switching
costs are also higher within this valves segment.
Demand power is low. Although SABIC is one of the main
industrial players in the KSA, and an important reference for
22. suppliers in the region, its annual spend represents less than 1%
of the GCC valves market for this segment.
Relief valves
Supply power is low. Despite recent M&A activity, there are
many credible suppliers. This supply market fragmentation,
together with low switching costs, force suppliers to compete
aggressively within this valves segment.
Demand power is medium. Although SABIC is one of the main
industrial players in the KSA, and an important reference for
suppliers in the region, its annual spend represents a small
portion of the GCC valves market for this segment.
Spare parts
Supply power is medium. Although the supply market for spare
parts is highly fragmented, SABIC end user preference to buy
from the same manufacturer increases significantly switching
costs. Differences are observed between spare parts (e.g., for
seats, discs, etc., the OEM is essentially dictated, while for
more generic parts like gaskets, non-branded alternatives are
acceptable).
Demand power is medium. Although SABIC is one of the main
industrial players in the KSA, and an important reference for
suppliers in the region, its annual spend represents a small
portion of the GCC market for this segment.
Services
Supply power is medium-low. Although less fragmented than
the market of standard valves, there are enough suppliers (with
little differentiability) in the market to secure a healthy level of
competition.
Demand power is high. SABIC is one of the main industrial
players in the KSA, and an important reference for suppliers in
the region. This, together with the typically small size of
service providers give SABIC a strong bargaining position.
Based on the assessment above, the relative positioning of the
different valves sub-categories within the supply-demand power
matrix is as follows:
5.3. Category management strategies
23. Strategies presented in this section are based on the current
balance of power between supply and demand for the different
valves sub-categories, but also on the potential levers that can
be applied to shift the demand power upwards (to the right of
the matrix) and the supply power downwards (to the bottom of
the matrix).
Strategies for manual valves (standard spec) and relief valves
(same balance of power as manual valves)
The balance of power for these standard valves is favorable to
SABIC given the relatively high spend and the large number of
suppliers that can supply this type of valves.
· Supplier consolidation: To shift demand power from medium
to high for these standard valves for which many manufactures
exist, SABIC should leverage more effectively its scale and
reduce the excessive number of companies it purchases from.
The mix of suppliers is equally important – SABIC should try to
minimize (specially for repairable valves) the usage of agents
and distributors, finding the right balance with manufacturers to
optimize the cost-to-service level ratio (e.g., leveraging
distributors / agents for only low volume specs not covered by
existing contracts). This needs to be looked at region by region
since the maturity of the supply market will vary, and with it
the capabilities (including service level) and competitiveness
(total cost of ownership) of both distributors and manufacturers.
· Master data management: Detailed spend analysis has
highlighted several data quality issues (see section 2.4). These
should be addressed (e.g., data cleansing, data entry discipline)
as master data quality is a key enabler of many of the most
impactful sourcing levers (e.g., standardization).
· Standardization: Detailed spend analysis has also highlighted
an excessive amount of specifications. An important root cause
of this is master data quality (same spec with different material
numbers). This should be addressed first (e.g., data cleansing,
data entry discipline). Beyond this, a spec commonality1
exercise in conjunction with engineering, and involving selected
manufacturers, can significantly reduce the number of
24. specifications further (avoiding duplication of specs for the
same functional requirement – process/application). In addition
to the intrinsic benefits, reduction of reduction of the number of
specifications will be a key enabler for the further localization
of the supply base.
· Competitive bidding: To establish long term performance
based agreements with a reduced number of suppliers to be used
in both new projects (through a preferred list of suppliers for
EPCs to use), as well as for replacements/repairs. To
accomplish this, a request for proposal (RFP) should be issued
to develop a detailed understanding of supply base product
offerings, performance and pricing points, putting technically
qualified suppliers in competition on a total cost of ownership
basis. In addition, to prevent unexpected price revision
requests, a properly documented mechanism (e.g. index,
frequency, etc.) should be part of the contract.
· Vendor managed inventory: For better management of working
capital and further reduction of intrinsic complexity, VMI (e.g.,
VSP, CSP) should be piloted for a selected number of SKUs,
making sure these are available in KSA and that back-to-back
SLAs are in place with customers and suppliers.
· LCC (Low Cost Country) sourcing: For low complexity
valves, there are many low-cost country suppliers offering very
competitive prices. These suppliers should be invited to
participate in the RFP described above, even in the KSA, at
least for benchmarking purposes (since this valve segment is
also a target for local manufacturing).
· Total cost of ownership: As discussed in section 4, acquisition
price is only a portion of the total cost incurred over the life
cycle of a valve. As such, it is important to select suppliers of
repairable valves (as defined by the Reliability department)
based, not only on the valve price, but also on the prices of the
main spare parts (BOM to be defined in conjunction with the
Reliability department). For this, the latter should be included
in the scope of the RFP and awarded as part of the contract.
1Excellence in Capital Projects study shows that specification
25. standardization reduces project cost by 5% on average, reduces
maintenance cost by 9% on average, and also improves project
schedule performance by 4% on average
Strategies for manual valves (high spec)
The balance of power for these more special valves is favorable
to suppliers given the smaller number of manufacturers.
· Mega supplier agreement: To shift demand power from low to
medium for these more special valves for which less
manufactures exist, SABIC should leverage more effectively its
scale by bundling volumes across categories within those
suppliers that provide multiple products to the organization
(e.g., Flowserve provides both valves and pumps).
· Buying consortia: The same effect as explained above can be
achieved by consolidating volumes across companies with
similar requirements (SABIC is already exploring this
opportunity to some extent through the expansion of the scope
of its Shared Services organization).
· Competitive bidding: To establish long term performance
based agreements with a reduced number of suppliers to be used
in both new projects (through a preferred list of suppliers for
EPCs to use), as well as for replacements/repairs. To
accomplish this, a request for proposal (RFP) should be issued
to develop a detailed understanding of supply base product
offerings, performance and pricing points, putting technically
qualified suppliers in competition on a total cost of ownership
basis.
· Total cost of ownership: As discussed in section 4, acquisition
price is only a portion of the total cost incurred over the life
cycle of a valve. As such, it is important to select suppliers of
repairable valves (as defined by the Reliability department)
based, not only on the valve price, but also on the prices of the
main spare parts (BOM to be defined in conjunction with the
Reliability department). For this, the latter should be included
in the scope of the RFP and awarded as part of the contract.
Strategies for control valves
26. The balance of power for this type of valves is favorable to
suppliers given the smaller number of manufacturers and a
relatively lower annual spend by SABIC.
· Supplier consolidation: SABIC should try to minimize
(specially for repairable valves) the usage of agents and
distributors, finding the right balance with manufacturers to
optimize the cost-to-service level ratio (e.g., leveraging
distributors / agents for only low volume specs not covered by
existing contracts). This needs to be looked at region by region
since the maturity of the supply market will vary, and with it
the capabilities (including service level) and competitiveness
(total cost of ownership) of both distributors and manufacturers.
· Standardization: Detailed spend analysis has also highlighted
an excessive amount of specifications. An important root cause
of this is master data quality (same spec with different material
numbers). This should be addressed first (e.g., data cleansing,
data entry discipline). Beyond this, a spec commonality2
exercise in conjunction with engineering, and involving selected
manufacturers, can significantly reduce the number of
specifications further (avoiding duplication of specs for the
same functional requirement – process/application). In addition
to the intrinsic benefits, reduction of the number of
specifications will be a key enabler for the further localization
of the supply base.
· Competitive bidding: To establish long term performance
based agreements with a reduced number of suppliers to be used
both in new projects (through a preferred list of suppliers for
EPCs to use), as well as for replacements/repairs. To
accomplish this, a request for proposal (RFP) should be issued
to develop a detailed understanding of supply base product
offerings, performance and pricing points, putting technically
qualified suppliers in competition on a total cost of ownership
basis. In addition, to prevent unexpected price revision
requests, a properly documented mechanism (e.g. index,
frequency, etc.) should be part of the contract.
· Total cost of ownership: As discussed in section 4, acquisition
27. price is only a portion of the total cost incurred over the life
cycle of a valve. As such, it is important to select suppliers of
repairable valves (as defined by the Reliability department)
based, not only on the valve price, but also on the prices of the
main spare parts (BOM to be defined in conjunction with the
Reliability department). For this, the latter should be included
in the scope of the RFP and awarded as part of the contract.
Strategies for spare parts
The balance of power for spare parts is favorable to SABIC
given the relatively high spend and the fragmentation of the
supply market.
· Standardization: To further increase demand power, the
biggest driver is the reduction of number of valve manufacturers
and specifications used. In addition, we can reduce supply
power by reducing switching costs through “detachment” of
valves OEM from spare part suppliers (the latter are often
suppliers to the OEMs themselves). This requires a detailed
mapping of the specifications of both valves and main spare
parts.
· Competitive bidding: Incorporate spare parts within the scope
of the RFPs for the different valve segments to ensure prices are
locked before the acquisition of the valve as part of a long-term
agreement.
· Vendor managed inventory: For better management of working
capital and further reduction of intrinsic complexity, VMI (e.g.,
VSP, CSP) should be piloted for a selected number of SKUs,
making sure these are available in KSA and that back-to-back
SLAs are in place with customers and suppliers.
Strategies for services
The balance of power for services is favorable to SABIC given
the high spend, and the fragmentation of a supply market with
smaller companies.
· Unbundled prices: Develop service masters for the most
commonly required services, breaking down the main activities
and material requirements to ensure comparability of supplier
offers and prevent price inflation. This will also enable the
28. establishment of more effective flat rate performance based
service contracts.
· Competitive bidding: To establish long term agreement, issue
a request for proposal (RFP) to develop a detailed
understanding of supply base offerings, performance and pricing
points, putting technically qualified suppliers in competition on
a total cost of ownership basis. RFP should explore the
possibility of service providers supplying the spare parts with
the right price control mechanisms.
2Excellence in Capital Projects study shows that specification
standardization reduces project cost by 5% on average, reduces
maintenance cost by 9% on average, and also improves project
schedule performance by 4% on average
5.4. Localization potential
In line with Vision 2030 and the National Transformation
Program, there is a renewed push towards local content
development in SABIC. This has been formalized under the
NUSANED program, which has a specific workstream on
Procurement. Ultimately, the objective of this workstream is to
increase the share of value that is retained in the KSA by
promoting the localization of manufacturing and other
operations within the value chain. In addition, localization
enables the establishment of more effective ways to serve our
customers, such as vendor stocking, e-cataloging, and
consignment stocking programs.
This section provides a high level qualitative assessment of the
current localization level for key steps throughout the
category’s value chain, as well as the potential for further
localization of each step.
This assessment can be used to provide direction on areas for
more detailed analysis, with data to be collected from suppliers
during Request-for-Information and Request-for-Proposal
stages, and in coordination with efforts undertaken by other
organizations within SABIC, for example, the Local Content
Unit. The overall summary of current and potential localization
29. is shown below, with a brief commentary on each step.
In summary, although several companies manufacture/assemble
valves in the Kingdom, true manufacturing is limited by the
lack of some basic enablers within the valves manufacturing
value chain, such as the existence of casting and forging
capabilities in Saudi Arabia.
It is expected that localization programs launched in the back of
the National Transformation Program will address this and
increase the locally manufactured capacity within the next 5 to
10 years. For example, as part of recent outreach efforts by
Saudi Aramco’s IKTVA program, different MOUs are being
signed and acted on. In 2016 GE Oil & Gas started the
construction of a multi-model manufacturing and service
facility at MODON’s site in the second Industrial City,
Dammam. GE is also collaborating with Saudi Aramco and
Cividale SpA to build a USD400 million forging and casting
facility, planned to start operations in 2020.
It is important to notice that, since Vision 2030 and the
National Transformation Program have propelled local content
to the agendas of all major industrial players in the KSA, the
picture summarized above is very dynamic. SABIC should also
remain connected and collaborate with governmental (e.g.,
Namaa) and corporate programs (e.g., IKTVA) to ensure a cost
effective and impactful contribution to the creation of local
content in the KSA.
5.5. Guidelines
Proper guidelines have been important to ensure sustainability
of the procurement activities as well as efficiency in the value
chain (Yan, Chien & Yang, 2016). This can be instrumental in
the case of the procurement department of SABIC, as quality of
the procured materials will play an important role in the
development of the finished products. The sustainable
operations will also be important for SABIC as per the
guidelines of the Saudi Arabian Government. The environment
has to be protected and the society overall should be developed
(Environmental protection in KSA, 2019). This can only be
30. done with the help of proper guidelines to the suppliers of the
company. Proper guidelines can also enable the procurement
department to sign contracts with trusted suppliers, which in the
long run can reduce the costs of procured materials. This can
make SABIC products competitive to a certain extent in the near
future.
6. Category strategy implementation
6.1. Implementation plan
Implementation of the described category strategies requires a
structured approach. Below a description is offered of the
different steps that need to be followed (referencing the
strategies described in the previous section), the estimated
timeline associated to each of them and the roles and
responsibilities of the different members of the cross-functional
team.
Implementation plan
1. Align with identified stakeholder groups and establish cross-
functional team including Category Management, GPS functions
(Management, Standardization, etc.), End Users, Engineering,
Reliability, Local Content Unit and IT.
2. Complete an item level volume forecast and collection of
specification datasheets for all types of valves, spare parts and
services for the next 3 years covering both new projects and
maintenance activities, and develop Total Cost of Ownership
models (in coordination and with the support of the SABIC’s
Reliability teams).
3. Develop long list of value adding suppliers (limited to
manufacturers, agencies and distributors) from different
geographies (including low cost countries), and validate vendor
list with cross-functional team (LCC sourcing)
4. Define, as a cross-functional team, supplier evaluation
criteria (sample provided below), and apply supplier selection
process (being currently developed by GPS and LCU) - two
main options:
i. Pass/Fail approach for both technical capabilities and local
content development, and lowest TCO as a deciding criterion
31. ii. Pass/Fail approach for technical capabilities, and ROI
(Return on Investment) measurement of local content
development to TCO)
Within the technical capabilities assessment, attention should be
also paid to other advantages derived from contracting with
manufacturers directly (e.g., price fixing throughout duration of
the contract, access to technical support, SKU proliferation
control, inventory complexity reduction, etc.). (total cost of
ownership)
5. Develop and issue request for proposal package based on
defined supplier evaluation criteria. Given degree of overlap of
the supply base among the different valves subcategories,
consider making it a single event (starting with standard
specifications) for maximum impact (competitive bidding), and
including a preliminary study of (vendor managed inventory).
6. Evaluate supplier capabilities, putting technically qualified
suppliers in competition throughout negotiations, evaluating
opportunities to consolidate volumes across different types of
suppliers, and covering spare parts and value-added services
required during the lifetime of the valve, as well as volume
rebates for other categories provided by the same suppliers
(e.g., pumps). (supplier consolidation, mega supplier
agreement)
7. Select suppliers and sign performance-based agreements. It is
important to have alternative suppliers to maintain competition
and minimize risk. To prevent unexpected price revision
requests, agreements should also include a properly documented
mechanism (e.g. index, frequency, etc.) to govern these
requests. To the extent possible, agreed upon pricing should be
loaded into internal or supplier hosted e-catalogs as a way of
reducing ordering complexity and managing spec proliferation.
8. Develop a roadmap to improve identified master data quality
flaws through a combination of data cleansing (to improve
existing master data) and data entry procedures (to drive
accurate data entry for new requirements), launching parallel
initiative to existing go-to-market. (master data management)
32. 9. Develop a set of standard engineering designs and
specifications to cover common applications (standardization).
This entails three main activities:
1) shelf population – work with engineering and manufacturers
to select the standard valves specifications and parts to be
included based functional requirements assessment;
2) shelf management – define addition and deletion
methodology to prevent proliferation of specifications over
time;
3) selection from the shelf – develop and implement compliance
processes to ensure that shelf items are used by projects
(including EPC contractors) whenever appropriate, as well as
handling any requirements for deviations
10. If finally implemented, explore leveraging existing Shares
Services initiative to consolidate valves’ volumes across
companies. (buying consortia)
11. To support KSA localization efforts, ensure closer
collaboration internally (Local Content Unit, Procurement) and
externally (SABIC, Namaa, other industrial players like Saudi
Aramco, etc.) to maximize the impact and return on investment
of activities that are better performed in a coordinated manner
(e.g., outreach for investor attraction).
Roles and responsibilities – RACI matrix
6.2. Implementation enablers
A number of enablers are a prerequisite for a successful
implementation of the defined category strategies.
People
Within this area, three elements are critical. First, ensure
enough capacity from Category Management resources is made
available to drive the implementation. Second, ensure Category
Management resources assigned to the implementation receive
adequate training on valves and strategic purchasing to establish
a common language and understanding of the process. Third,
build a solid cross-functional team involving all relevant
functions as per the RACI matrix in the previous section.
33. Information
Many of the strategies proposed rely heavily on the power that
information brings in your interactions with suppliers. Access to
information within and outside SABIC is critical. It is important
to monitor that demand forecasts and schedules, specifications
and market trends information is made available to Category
Management. This information, together with the category
strategy, will feed different documents throughout the process
(e.g., RFP package, negotiation templates).
Tools
The implementation of some of these strategies might require
the usage of certain tools (e.g., sourcing technology) that should
be made available to Category Management.
Organizational alignment
It is critical to guarantee strong support from appropriate
management level to connect the different departments, enable a
successful cross-functional teaming, and communicate with a
single voice to the supply market. In addition, given that
Category Management is relatively new to certain parts of the
organization, its typical activities might be currently performed
by other teams, making it necessary to define clear roles and
responsibilities that need to be supported by management.
Mandate and empowerment
The implementation of this category plan might require
deviating from certain existing procedures. The category team
should be given the mandate to look for value beyond the
current practices, and the authority to make award decisions
within reason and after approval of the approach to be followed
(i.e., business award based on Total Cost of Ownership, local
content criteria, and technical capabilities).
Conclusion
The assessment underlines the fact that procurement has been an
important aspect in SABIC. The valves industry has grown by
leaps and bounds in Saudi Arabia and this has resulted in the
growth of various companies. The competitive nature of the
industry has led to price wars and this in turn has made it
34. eminent that companies have to cut costs in the SCM process to
be able to operate in the industry.
However, the procurement activities have to be developed to a
certain extent according to the aspects that have been stated
above in order to gain the most benefits in the process not only
cost saving as the industry in Saudi Arabia has become
competitive.
The procurement activities have been the major source of cost
cutting and this can be done with the help of proper planning
and deployment, collaboration with the stakeholders, cost
savings, proper guidelines. The suppliers also have to be
included in the procurement model which in turn can provide
certain advantages relating to cost structures as well as
understanding the nuances of the market.
References
Internal:
SABIC Master Data Record Management (MDRM) system:
· Category Tree; number of specs
· Unique ball valve attribute types
SABIC SAP HANA:
· Spend evolution over time for valves spares and related
services
· Spend breakdown by region
· Spend breakdown by affiliate
· Valves materials spend breakdown across regions
· Valves materilas to services spend across regions
· Spend by valve type
· Cumulative spend by specification
· Spend by supplier
· Valve materials spend under contract
· Variance of transactions under same material class
· Multiple vendor codes for the same vendor
SABIC Procurement Global Supplier Relationship Management:
· Multiple vendor codes for the same vendor
· Sample Supplier evaluation criteria
SABIC Planning and Control Department: SABIC PO
35. processing costs
SABIC Procurement Logistics Department : SABIC incoterms
and associated costs
SABIC Local Content Department: Saudi companies supplying
valves locally
External:
Advanced Category Management, CIPS South Africa
Conference 2011,
https://www.cips.org/Documents/Wed%20track%203%20John%
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BASF's MVV Phase 3 Takes Valve Procurement to the Next
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Bundling and Sourcing Create Real Value,
https://www.industrialspec.com/about-us/blog/detail/bundling-
sourcing-strategic-procurement-supply-management-ism-
difference
Category Planning Process, SA CIPSA Event – David Andrews,
https://www.cips.org/PageFiles/63064/Category%20Planning%2
0Process%20SA%20CIPSA%20Presentation%20Nov%2013%20
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Analysis Report By End Use (Oil & Gas, Chemical, Energy &
Power, Pulp & Paper), By Product, By System, By Region, And
Segment Forecasts, 2018 - 2025 :
https://www.grandviewresearch.com/industry-
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Reduce Costs in the Pipes, Valves, and Fittings Category with
Source One's Strategic Sourcing experts:
https://www.sourceoneinc.com/sample-spend-
categories/indirects/sourcing-mro/pipes-valves-and-fittings-pvf/
Three "chess" moves to restructure supply markets
https://de.kearney.com/operations-performance-
transformation/article?/a/three-chess-moves-to-restructure-
supply-markets
37. Value creation and purchasing strategy, international Trade
Forum: http://www.tradeforum.org/article/Value-creation-and-
purchasing-strategy/
Valves Category Description, Al Daleel Oil & Gas Supply
Chain Portal, https://www.scmdaleel.com/category/valves/135
Wang, G., Gunasekaran, A., Ngai, E. W., & Papadopoulos, T.
(2016). Big data analytics in logistics and supply chain
management: Certain investigations for research and
applications. International Journal of Production
Economics,176, 98-110.
Witjes, S., & Lozano, R. (2016). Towards a more Circular
Economy: Proposing a framework linking sustainable public
procurement and sustainable business models. Resources,
Conservation and Recycling, 112, 37-44.
Yan, M. R., Chien, K. M., & Yang, T. N. (2016). Green
component procurement collaboration for improving supply
chain management in the high technology industries: A case
study from the systems perspective. Sustainability, 8(2), 105.
17
Corporate Award Programme
Candidate Assignment Guidance
Version 7.0 July 2016
42. requirements.
2. Submission requirements – important
2.1 Include the assignment front sheet
2.2 The maximum number of documents you can submit for an
assessment is one
2.3 All of your work must be contained in one document
2.4 You must not submit appendices as separate documents
2.5 You must word process your assignment using MS word, or
equivalent, and convert it in to a pdf file
format
a. The file name should only consist of your full 9-digit
membership number and the assignment
number, e.g. “005429889 AS1.pdf”. Please note that this should
reflect the assignment
number, not the module number.
b. You may wish to make use of Adobe Acrobat’s Reduce File
Size… function
2.6 Every page should be numbered and contain your candidate
number at the top of the document in
the header.
The average number of pages for a 3,000 word assignment is 27
(including appendices). The maximum
number of pages allowed for a 3,000 word assignment is 50
pages in total. You should not exceed this
allowance. In the case of the integrative assignment, the
average number of pages for a 5,000 word
assignment is 45. The maximum number of pages allowed for a
5,000 word integrative assignment is 100
pages in total.
44. assignment. It is your responsibility to ensure you comply with
your own company expectations if the
information is considered confidential or sensitive.
CIPS is looking for evidence that a student understands a
concept and can apply it appropriately within a given
contexts defined by the assignment brief. In order to address the
assignment tasks, it is not necessary to
identify any real suppliers or products. Therefore, it is
acceptable to refer to a supplier as ‘Supplier A’ for
example, rather than identify real suppliers. Products can be
referred to as product ‘X’ or ‘Y’ for example,
rather than identify any sensitive procurements. It is best
practice to explain, within your introduction, the
naming conventions you will adopt e.g. “for the purposes of
confidentiality, suppliers or products will be
referred to as…”.
Research forms part of the assessment criteria, hence it is an
essential element of your assignment
preparation. Do not fail to realise the importance of collecting
information to support and underpin your
assignment work. It is vital that you demonstrate your ability to
establish information needs, obtain relevant
information and use it sensibly, in order to arrive at appropriate
conclusions, recommendations and/or
decisions. You should establish the nature of the information
required, follow up possible sources and ensure
you allow time to obtain the information. You may be
dependent on other colleagues or suppliers to obtain
relevant information – do not underestimate the time it may take
you to gather it. In order to conduct your
research effectively, you will need to conduct wider reading
associated with the topics covered in the module
content.
46. will, in all likelihood, be interested in seeing a copy of your
assignment. Spending some extra time making it as
professional as possible will pay dividends here.
Approach: The assignment title may include a number of
requirements. Read it carefully and identify what
these are. Plan your assignment and research to ensure that you
address all the requirements. As a guide,
you should aim to place approximately equal emphasis on each
requirement within the layout of your
assignment submission. This means you will usually produce
approximately the same volume of content for
each requirement within your assignment submission. Plan your
research and the structure of your
assignment submission accordingly. However, during your
planning or research, you may identify that it is not
appropriate to place equal emphasis on each requirement within
the assignment title.
For example, factors beyond your control, such as the nature of
your organisation or the external business
environment in which it operates, may mean that it is not
appropriate to place equal emphasis on each
requirement of the assignment title. In such circumstances,
acknowledge this within your assignment
submission to demonstrate to the assessor that you have
considered all the requirements of the assignment
title. Explain to the assessor why you have adopted a particular
approach to demonstrate your ability to
make judgements. Think carefully about the structure, style and
content of your assignment; the key is to
ensure you justify any deviation from the assignment
requirements in order to explain to the assessor why
you have adopted an unusual approach. Failure to do so could
mean you fail to gain marks in the knowledge
47. and approach section of the assessment criteria.
Remember also that the marking team will not be familiar with
your company, company-specific terminology
or acronyms. Take care to ensure you explain necessary
background information, or the meaning of company-
specific terminology, in order to provide the marking team with
an understanding of the nature of your
organisation and the business environment in which it operates.
5. Assignment front sheet
Please complete and attach the assignment front sheet to your
submission. Your name should not appear
anywhere within your assignment.
6. Contents page
The contents page helps the reader to navigate around the
document and highlights important sections and
sub-sections; this also helps you to ensure your work is
structured and flows in a logical order.
7. Executive summary
The aim of an executive summary is to prepare the reader, in
advance of reading a lengthy document, for
what to expect. It should briefly summarise the content and
conclusions/recommendations. This is good
academic and business practice and is recommended for all
assessments (assignments and project work). We
recommend you keep this to one page if possible.
Leading global excellence in procurement and supply
CAP_Candidate_Assignment Guidance_V7 July2016 6/16
49. When including information about the theories, tools and
models etc. within your assignment, narrative
should be integrated in to the content of your assignment.
Assignment submissions which simply skip from
one model or tool, for example, to the next, without linking
them in some way or consolidating them in
conclusions, will be unlikely to demonstrate the extent of your
comprehension of the module content and
your ability to apply it to practical business situations.
Providing a sound argument for selection and application of a
particular theory, model, tool or technique –
highlighting why it is appropriate, its strengths and
weaknesses/limitations (as well as your findings) – is likely
to be awarded higher marks.
The positioning of models/tools and techniques will depend on a
number of factors, but ideally you should
aim for a good balance of discussion and visual impact. It is a
matter of personal judgement and preference,
but, essentially they should be relevant and visually enhance the
work, enabling the reader to grasp the flow
of your discussion. You should also consider:
• The strength and possible limitations of the model for the task
• The quality and depth of information contained within your
assignment
• Appropriateness for the subject matter
• Whether large pieces of supporting evidence for an argument
may be better placed in the Appendices
The application and insight section of the assessment criteria is
the most heavily weighted. It is important to
demonstrate your ability to apply relevant tools, theories,
models etc., according to the modules content and
51. 10. Referencing
In order to avoid plagiarism, whenever you use someone’s
words directly, or make reference to the ideas or
work of others, you must reference this appropriately using a
recognised referencing system, such as the
Harvard system of referencing or as outlined in the CIPS
Reference Guidance document. The following points
will help you cite sources of information appropriately within
the body of your assignment.
• When a reference is made in your assignment to a particular
document, the author (or editor, compiler or
translator) individual or organisation and year of publication are
inserted in brackets:
o e.g. Agriculture still employs half a million people in rural
Britain (Shucksmith, 2000).
• If the author’s name occurs naturally in the sentence, only the
year of publication is given:
o e.g. … concept is discussed by Jones (1998)…
• When referring to more than one document by an author
published in the same year, these are
distinguished by adding lower case letters (a, b, c) after the
year:
o e.g. (Watson, 1999a)
• If there are two authors, the names of both should be given:
o e.g. (Lines and Walker, 1997)
• Where there are more than two authors, cite the first author,
followed by ‘et al.’:
o e.g. (Morgan et al., 1998)
53. really add value to your assignment, or whether there is a better
way of representing the information you
wish to present to the reader of your assignment.
Referencing electronic resources can be confusing, it is difficult
to know which information to include or
where to find it. As a rule, provide as much information as
possible concerning authorship, location and
availability. Electronic citations require much of the same
information as print sources (author, year of
publication, title, publisher). However, some extra details are
required:
• identify that you accessed the source in an electronic format
• provide an accurate access date for online sources (that is,
identify when a source was viewed or
downloaded)
• provide the location of an online source (for example, a
database or web address)
Unlike printed material, internet sources can easily be changed,
or disappear altogether, so full and accurate
citation information is essential.
Example – referencing web documents
British Lawnmower Museum (no date) Lawnmowers of the Rich
and Famous [online] Southport, British
Lawnmower Museum. Available:
http://www.lawnmowerworld.co.uk/Rich.htm [Accessed10
March 2004]
Example – referencing electronic journals
Hart, K. (1998) The place of the 1898 Cambridge
Anthropological Expedition to the Torres Straits (CAETS) in
the history of British social anthropology. Science as a culture.
[Online] 11 (1). Available: http://human-
nature.com/science-as-culture/hart.html [Accessed 9 November
54. 2003]
Example – referencing journal articles from a web-based full-
text database
Mahoney, R. (2000) Leadership and learning organisations, The
Learning Organization. [Online] 7 (5), 241-244.
Available: http://www.emerald-library.com/brev/11907ec1.htm
[Accessed 23 October 2000]
The source materials you use should be included in a reference
list at the end of your assignment. See the
following sections relating to your reference list and
bibliography.
11. Reference list
A reference list is essential to ensure the works of others is
acknowledged and to avoid the risk of plagiarism
issues. You must use a recognised referencing system, such as
the Harvard system or as outlined in the CIPS
Reference Guidance document, as assessors will need to
identify sources you have accessed during your
research and used within your assignment. See the section
relating to referencing for information on how to
cite sources of information within the body of your assignment.
References are arranged alphabetically by author’s name (or
title, if no author) which has been used in the
body of the text and should be presented in the following way:
• Book references - include where possible, the following
information in the order listed here:
o Author(s)/Editor(s) - Surname first, followed by first name(s)
or initials (be consistent). Include
all names if there are two or three authors; if more than three,
use the first name and then et
56. 12. Bibliography
When researching subject areas, you may read widely, but not
all will be relevant to the assignment you are
working on. However, this work should not go unrecognised and
more importantly, a bibliography records
earlier reading that may be useful later when researching for
future assessments or projects. If you have
documented your reading, this can be located again with ease.
13. Appendices
Core material – which is defined as text that the assessor would
need to read in order to understand and
appreciate your work fully – should NOT be placed in
appendices. An appendix is not a “catch-all”, or a
substitute for effective writing and editing of your assignment
to meet the word count. You do not have to
use appendices – indeed; it is considered best practice that
assignments only include appendices in
exceptional circumstances. For example, information that is not
essential to your assignment, but validates
the content of it, provides confirmatory evidence or provides
information or material that the assessor would
not otherwise be able to access, should be placed in an
appendix. Documents that are available in the public
domain should be referenced, in accordance with a recognised
referencing system, rather than including
them as appendices.
Examples of things which could be useful as appendices to an
assignment include:
• Supporting evidence – feedback, testimonials, stakeholder
interview outcomes etc.
• Technical information presented in tables and graphs –
59. Plagiarism is submitting someone else’s work as your own when
you are not the author. The attempt to pass-
off the ideas, research, theories, or words of others as one's own
is considered to be a serious academic
offence. Most students know when they are intentionally
plagiarising, for example, copying an entire essay
out of a book or buying a paper off the Internet. However, many
students are tripped up by unintentional
plagiarism – not giving proper credit for others' quotes, facts,
ideas, or data. A good rule-of-thumb for
students is to always give credit for any ideas that are not their
own by citing their sources.
The most common forms of plagiarism are:
• Copying and pasting material from a website
• Copying the work of another student (past or present)
• Copying course material or lecture notes
• Copying material out of a textbook, journal or other
publication
You must take care when writing your assignment that the work
you submit is your own. You are permitted
to reproduce short extracts, diagrams, tables and illustrations
from other publications. But, these must be
clearly referenced and the source acknowledged. CIPS treats
plagiarism very seriously and if your work is
found to contain unacknowledged third party content you may
fail your assignment.
In order to avoid plagiarism, whenever you use someone’s
words directly, or make reference to the ideas or
work of others, you must reference this appropriately using a
recognised referencing system, such as the
Harvard system of referencing or CIPS Referencing Guidance.
Failure to reference the work of others, whether
60. intentional or accidental is considered plagiarism, which
constitutes a form of cheating (malpractice or
maladministration) and is not tolerated by CIPS. The
Malpractice and Maladministration Policy includes details
of the consequences for students if they are found to have
plagiarised.
b. Reasonable adjustment and special consideration
CIPS has a responsibility to ensure that all candidates have
equal opportunities to reach their full potential. In
some instances, candidates may require adjustments to the
assessment process to give them an equal
opportunity, and CIPS has a responsibility to ensure that
appropriate adjustments are made for each
candidate.
Applications for a Reasonable Adjustment should be made in
advance of the assessment. Candidates may
apply for Special Consideration in exceptional circumstances
that could not possibly be predicted. This also
applies to candidates wishing to report any incident which may
affect their assessment performance.
If you require a Reasonable Adjustment or Special
Consideration, you should contact your CIPS programme
lead who will be able to assist you. Further information about
Reasonable Adjustments and Special
Consideration can be obtained through the reasonable
adjustment and special consideration policy which is
available on the Learning Management System (LMS) under the
FAQ section.
http://www.cips.org/Documents/Policies%20and%20Procedures/
A8.1_Malpractice_and_Maladministration_Policy_and_Procedur
e_Nov14.pdf
http://www.cips.org/Documents/Qualifications/Online%20assess
