Petro Rabigh’s procurement strategies lead to an exciting new era in Saudi Arabia as the company embraces Vision 2030
In a country driven by change amidst the incoming Saudi Vision 2030, companies in Saudi Arabia have an obligation to adapt to and embrace the latest trends in order to thrive in a competitive petrochemical industry. With ambitions of becoming one of the most profitable refinery and petrochemical plants in the world, Petro Rabigh knows first-hand just how vital the next few years are to the future of Saudi Arabian businesses.
Originally formed in 2005 as part of a joint venture between Saudi Aramco and Sumitomo Chemical, Petro Rabigh produces 18.4mn tons per annum (mtpa) of petroleum-based products and 2.4mtpa of ethylene and propylene-based derivatives. With the plant’s Phase I and recently launched Phase II together valued in the region of $20bn, Michael Gustafson, General Manager of Material, Procurement and Contracts, believes that these foundation partners laid the ground work for the company’s success.
“We have two incredible foundation partners in Saudi Aramco and Sumitomo Chemical; a terrific partnership with aligned goals that have brought the strengths and diversity of two great organisations into this project,” says Gustafson. “Both companies possess a deep set of technical and commercial experiences and world class product mix that continues to improve with expansions to capitalize on the strategically placed location and resources.”
Maintaining procurement strategies
As a way of affirming Petro Rabigh’s commitment to the Saudi Vision, the company has confirmed the imminent arrival of The Petro Rabigh Phase II expansion project, which provides an even more diversified product slate with the implementation of a number of new high added value petrochemical products. The project is set to cost approximately $9.4bn with capital project debt funding. Gustafson outlines the procurement strategy his company is utilising in this exciting new era for the Kingdom.
“We’ve almost finished Phase II to expand our business. It’s like you’re running on a treadmill and the speed is set at a six-minute mile but you're used to running an eight-minute mile,” he explains. “People think of procurement as being some sleepy, back office support group. But, it’s not. You're actually on the front line and if this spare part, chemical additive, or catalyst doesn't arrive on time, you could shut down a facility.”
Procurement is certainly an area that Petro Rabigh prioritises. The firm has three different departments operating in that area of its organisation; with contracting, material handling and procurement all housed under the same roof. Gustafson maintains its current procurement strategy is to enhance its existing arrangements. “In general, the majority of our strategy is to push our agreements and expand into MRO and chemical agreements,” he explains. “This is opposed to the ongoing spot buying that takes place, which decreases the time it takes to turnaround, as well as the cycle time.”
In a bid to handle its supply chain items more effectively, Petro Rabigh has made the decision to split into two separate groups.
“The group here in Saudi Arabia handles all the inbound supply items and we have a separate organisation that is responsible for the finished goods and products. It’s primarily more of a marketing and sales function,” explains Gustafson. “Alongside that, there’s the production planning which coordinates what the needs of the refinery and petrochemical business are, as well as the requirements of our customers. I believe it's very much a collaborative effort to enable the supply chain to get going.”
With the company investing almost $400mn annually on its supply chain activities, Gustafson is well aware just how big Petro Rabigh’s supply chain is. “The magnitude of it is that it spans to over 2,000 suppliers worldwide that are split evenly between America, Asia and Europe,” says Gustafson. “Of those, we have around 1,200 really active, highly consumable suppliers. They deal with everything from highly dangerous explosive and chemical additives, all the way to papers and pens. We cover the full spectrum.”
Embracing Saudi Vision 2030
In a bid to reduce Saudi Arabia’s reliance on oil and diversify its economy, Crown Prince Mohammad bin Salman announced plans in 2016 to launch Saudi Vision 2030. With around 80 projects expected to be completed in Saudi Arabia by 2030, Gustafson believes it’s an interesting time to be involved in such a historic process. “These are exciting times for Saudi Arabia. When I tell my friends about it back home in America, I feel like I've got a front row seat,” explains Gustafson. “It's a major transformation in the Kingdom and these are fabulously exciting times. There are things going on in Saudi Arabia that are truly historical.”
Petro Rabigh has responded to Vision 2030 by embracing all 24 areas highlighted in the vision to provide a thriving economy, a vibrant society and an ambitious nation for the Kingdom of Saudi Arabia. In order to meet these requirements, Petro Rabigh has rolled out a number of initiatives such as plans to increase women’s participation in the workplace, supporting improvements to logistics and building relationships for additional direct foreign investments. However, Gustafson insists Petro Rabigh isn’t finished yet.
“We could and will do more in the area of women participating in the workplace; I just hired the first female secretary at Petro Rabigh and she’s doing a great job,” says Gustafson. “We also have several women within the supply chain organisation and we intend to hire more in the future.”
Forming key strategic partnerships
Establishing and maintaining key partnerships are vital to any successful business. Over the last five years, Petro Rabigh has collaborated with Germany-based logistics firm, DHL, to provide all of its inbound logistics activities, in addition to operating its warehouses. However, having consulted their Key Performance Indicators (KPIs), Petro Rabigh recently split the contract with Kuehne & Nagel to handle all of the company’s international forwarding activities.
“We’re very excited with this joint effort between the two companies. It will enable us to draw on the strengths of each company to ensure a smooth supply chain process,” says Gustafson. “They are our two primary partners that we've got on the logistics side and they’re absolutely essential to us. Our partners have to over-communicate and be joined with us at the hip. DHL and Kuehne & Nagel are two world class organisations and they’ve done a great job.”
Gustafson affirms how much Petro Rabigh relies on the consistent performance of its suppliers.
“The notable suppliers that have been consistently reliable for our business include the likes of CS Japan, Gold Wing, Axens, EableBurgmann and SPIG. We’re highly dependent on the performance of these five outstanding suppliers/vendors in particular, as well as to the other 1,200 active suppliers in our network.”
The introduction of Petro Rabigh’s Rabigh PlusTech Park saw it become the first private industrial estate for conversion industries in Saudi Arabia. Located on a site adjacent to the Petro Rabigh refinery, it provides a place to convert petrochemical products into downstream products and offer substantial investment opportunities to local and foreign investors in conversion industries. Gustafson believes it’s an ideal investment opportunity.
“This large scale, secure complex also houses the Sumitomo Chemical-run Rabigh Plastic Technical Centre that provides tenants with technical support and training in plastic processing technology, warehousing, plug and use utilities and feedstock supply agreement opportunities for sustainable, competitive prices,” says Gustafson. “Rabigh PlusTech Park provides for 37 investors, including nine manufacturing companies that have started production, eight that are under construction and over 30 under negotiations.”
Sustaining a successful future
Petro Rabigh has begun to explore options to fully automate its warehouse operations and review the way they receive, monitor and move spare parts around. This ability to consistently adapt to change is something Gustafson places a lot of importance on.
“In the area of supply chain, I believe we still have work to do in digital transformation,” explains Gustafson. “However, in other areas of the company there has been much more progress made, especially in operations.”
“When things start to change, you've got to be able to adapt very quickly. Whether it's changing your grades or the type of product mix that you can develop. You've got to stay ahead. We've got a lot of big changes going on at the moment with climate change and environmental conditions. And if we don't change, then it’s going to hurt us.”
As far as the future is concerned at Petro Rabigh, the company has lofty ambitions of becoming the best in class in the Gulf Cooperation Council (GCC) within the next 18 months. “We have to deliver on the business expectations in two areas: 99% availability and on-time delivery of materials to support the ongoing operations,” says Gustafson.
“Our processes and practices must change and this will be enabled through the finalisation of the ARIBA implementation, integration with SAP and further digitalisation of the processes.”
“This is crucial for us to handle the increase in volume due to the expanded capacity of the operation. We must reduce the number of touches on work orders from procurement to pay with seamless vendor integration through the process.”
Petro Rabigh also plan to begin to take steps to become a world-class service minded organisation that will enable the firm to provide exceptional customer service that goes beyond expectations.”
“This can happen when we break down silos, over communicate to customers and provide proactive service levels with their absolute best interest in mind,” explains Gustafson. “We will do this through cross development opportunities with operations, by co-locating people closer to the customers they serve and rewarding people for delivering on their commitments.”
Petro Rabigh also plans to increase its employee development, training and planning to ensure everyone successfully obtains their Certified Supply Chain Professional certification as well targeting an 85% or higher Saudization level and a 40% rise in the hiring of women. In addition, the firm expects to make a more deliberate effort in its supply relations and strategic sourcing.
“We will be conducting a major supplier recognition conference soon in order to build deeper, strategic relationships with key suppliers and vendors,” says Gustafson. “This will take time, but the idea is to personally visit our key suppliers for them to understand the direction we’re going, how they can optimally support and ways we can further collaborate together to meet the Saudi Vision 2030 plans.”
With major changes incoming at Petro Rabigh and in Saudi Arabia itself ahead, Gustafson remains determined that the future is bright for the company in the next 18 months and beyond.
“The vision for the future is to continue to make the Material, Contracting and Procurement organisation a great place to work. We also envision becoming a leader in driving collaborative value through matrixed processes, creativity commercial acumen and focused commitment to the priorities that will make Petro Rabigh the most valuable company in the region.”