2010 Middle East State of Supply Chain Management

State of the Supply Chain Management: Middle East Series 2010

B2G Consulting

Supporting Growing Markets

2

© 2010 B2G Copyright - Middle East Series

Foreword

3


Foreword

Asia and Europe. This confers to the

region a large source of business

opportunities, which are still mostly

untapped. In this race, many GCC

countries have started to differentiate

themselves by launching large scale

initiatives. For example, the Kingdom of

Saudi Arabia, one of the leading

countries, has embarked on a massive

transformation through Saudi Arabian

General Investment Authority (SAGIA).

Important investments have been done

to support the development of logistics

infrastructure in the Kingdom (road and

rail networks, ports and airports facilities

etc…). In addition, laws and regulations

are in the process of being adapted to

sm

iddle East benefits from an

exceptional position between

chain from performing to its

optimum level the supply chain

from performing to its optimum

M

smoothen and ease business

transactions. However, the complex

challenges in the region cannot be

ignored, and should be addressed as an

opportunity to revolution the current

situation. Supply chain management is

clearly lagging compared to more

mature markets such as Europe, but we

believe at “Art of International Trading

and Import (Artiti)” that the region

should find innovative ways to

distinguish itself by providing world-

class services. We hope to see soon

more GCC organizations globally

recognized for their high dedication to

customers, outstanding quality and

operational excellence, supported by a

dynamic and highly trained professional

workforce.

Mohammed H. Al Qhahtani

ARTITI

level the supply chain from

performing to its optimum

4


Foreword 2

01 Introduction 6

02 Executive summary 8

03 Survey panel analysis 10

Where are your headquarters located?

What is your company’s annual revenue?

What is your number of employees?

What is your main sector of activity?

Industry insights: Conducting a cost reduction program

in the transport sector 12

04 Supply Chain maturity

How is the level of knowledge of your Supply Chain organization? 14

What are the Best practices currently used by your organization? 15

What are the activities outsourced? 16

What is your supply-demand model? 17

Which technology is being used to support your Supply Chain operations? 18

How is your Supply Chain considered by the top management? 19

What is the frequency of training for the Supply Chain staff? 20

Industry insights: Human Resources Management –

Recruiting Supply Chain Experts 22

Table of contents

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Table of contents

05 Supply Chain performance metrics

Perfect order fulfillment 24

Delivery performance 25

Total supply chain management cost 26

Cash-to-cash cycle time 27

Inventory days of supply 28

Days of payable outstanding 29

Days of sales outstanding 30

Industry insights: 3PL outsourcing in the Petrochemical

Industry 32

06 Supply Chain challenges

What are the top Supply Chain concerns your organization is facing? 36

How difficult is the recruitment of Supply Chain professionals? 37

What are the next initiatives you are planning to implement? 38

07 Conclusion 40

08 Appendix 41

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free from the effects of global recession,

and once again looks forward to the

good times. Senior leadership of

multinational companies based within

GCC is justifiably optimistic about the

economic upswing, however upon closer

inspection, one finds that only a few

have taken the opportunity during this

crisis to strengthen their operational

readiness. Companies that exclusively

opted for short-termism through ruthless

cost cutting as a means of survival

during the crisis, will find themselves

unable to respond to the upturn, since

they will struggle to counter demand

through scaling production, this coupled

with unresponsive supply chains will

lose valuable time to market.

they will struggle to counter demand

through scaling production, this coupled

with unresponsive supply chains will

lose valuable time to market. How will

these companies face the upcoming

operational and supply chain

challenges, in an increasingly complex

global market, characterized by local

specificities? As a region, the GCC has

undergone an extraordinary

transformation in recent years and has

emerged as a global freight hub by

virtue of its strategic location between

Asia, Africa and Europe. Spurred on by

World economic growth (before 2008),

its position as a global transit hub

further solidified in recent years as

increasing volumes of finished goods

and raw materials passed through its

borders.

further solidified in recent years as

increasing volumes of finished goods

and raw materials passed through its

borders. The collective aspiration and

commitment of the region, in becoming

a world class transit hub, is evidenced

by unprecedented levels of investments

in logistics infrastructure that will be able

to cope with expected increase in freight

over the coming years, driven by double

digit growth in South and East Asia.

However set against this present and

future context, the following report

poses a serious question: Do current

players within the region, whether at

company, country or regional level have

the vision and oversight to make the

necessary shift in paradigm, from a

mindset which is purely focused on

logistics, to one which is holistic in its

Introduction

ptimism is back in the Middle

East, as the region shakes itself

free from the effects of global

recession, and once again looks

forward to the good times.

effects of global recession, and

once again looks forward to the

good times.

recessioptimum level the supply

chain from performing to its

optimum

O

01

7


Introduction

the vision and oversight to make the

necessary shift in paradigm, from a

mindset which is purely focused on

logistics, to one which is holistic in its

treatment of the complete supply chain.

Supply Chain Management (SCM) is the

corner stone of any successful strategy

and yet paradoxically it is also the least

understood of all disciplines, often under

resourced and devoid of investment.

Misconceptions about the term “supply

chain” abound often leading to

confusion between itself and logistics.

While logistics involves getting the right

goods, to the right place, at the right

time, at the right cost, in the right

condition, and with due care and

attention to the environment, Supply

Chain Management (SCM) deals with all

business activities associated with

condition, and with due care and

attention to the environment, SCM deals

with all business activities associated

with satisfying a customer‟s demand.

SCM is the oversight of materials,

information, and finances as they move

in a process from supplier to

manufacturer to wholesaler to retailer to

consumer. SCM involves coordinating

and integrating these flows (Information,

physical, financial flows) both within and

among business partners (suppliers,

service providers, customers). It is said

that the ultimate goal of any effective

supply chain is to increase the customer

satisfaction in the most profitable way

by reducing inventories, lowering

operating costs, speeding product

availability, and increasing service level.

by reducing inventories, lowering

operating costs, speeding product

availability, and increasing service level.

Structuring the supply chain requires an

understanding of the demand patterns,

service level requirements, distance

considerations, cost elements and other

related factors. These factors are highly

variable in nature and this variability

needs to be considered to improve any

supply chain.

The ‘State of the Supply Chain

Management Middle East’ aims to

draw a concise portrayal of the

current situation as seen by supply

chain practitioners in the Gulf region.

There are six key elements to a supply

chain:

Supply

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research by B2G Consulting, bringing

together under one publication the

collective wisdom of over 225

participating companies based within

the GCC region. Supply chain

management (SCM) is the cornerstone

of any successful organization and the

discipline increasingly finds itself

included in top management‟s strategic

agenda. This is further borne out by the

fact that 28.9% of all respondents

consider their supply chains as strategic

to their business goals. 39.5%, of all

respondents‟ perceived their supply

chains as chiefly driven by customer

demand, loosely linked together by

collaborative end-to-end partners,

23.7% stated that their supply

chains as chiefly driven by customer

demand, loosely linked together by

collaborative end-to-end partners,

23.7% stated that their supply chains

were organized by function whilst only

18.4% were structured in processes.

The quality of human resource is the

critical success factor of any

organization and supply chains are no

exception, collaborative chains are

stretched across longer distances,

across many borders, in their search for

low cost resources and at the heart of

these networks are people managing

complexity, technology and cross

cultural relationships. To maintain

leadership in the face of competition,

increasing complexity and innovation,

supply chains must continually, invest in

their human resource just to maintain

leadership in the face of competition,

increasing complexity and innovation,

supply chains must continually invest in

their human resource. However

investment in training is particularly low

in the region and the majority of

respondents (68%) provide training less

than 5 times a year to their supply chain

staff, this phenomenon becomes

especially acute when considering that

60% of their employees possess only

rudimentary knowledge of fundamental

concepts. Not surprisingly education

reform is a top priority amongst GCC

counties and there is a real need to

develop best talent across the region.

GCC firms face a unique challenge

where they are compelled to source

from a small pool of qualified local

professionals, who are hard to recruit

his report is the culmination of

over six months of dedicated

optimum level the supply chain

from performing to its optimum

level the supply chain from


T

02

Executive summary

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Executive summary

GCC firms face a unique challenge

where they are compelled to source

from a small pool of qualified local

professionals, who are hard to recruit

and even harder to retain, 84% of

respondents found recruitment of

qualified supply chain professionals

difficult, especially at middle

management level (59.5%). Although

outsourcing presents an immediate

opportunity as a promising alternative, it

is still a nascent industry in the region.

76.3% of respondents outsource at least

one logistics function. However,

regardless of whether the supply chain

is in-sourced or outsourced, the biggest

challenge facing the industry is the lack

of visibility, both internally between

critical processes and between critical

partners (nodes) within the supply

challenge facing the industry is the lack

of visibility, both internally between

critical processes and between critical

partners, leading to soaring inventory,

long lead times, high operating costs

and low customer satisfaction. The

volatility in the economy has been

mirrored by fluctuating demand, which

has made forecasting, fraught with

errors and much more difficult to

manage. 73.7% of respondents stated

that improving their level of demand

forecasting was on top of their agenda

for 2011, followed by 63.2% who wished

to pursue inventory optimization. To

improve demand forecasting, 20.7% of

all respondents had implemented Sales

& Operations Planning Process) in a bid

to achieve a level of best practice and

more companies intend to set up such

all respondents had implemented Sales

& Operations Planning Process, and

more companies (42.1%) intend to set

up such initiatives within the next 12

months. Pressures on lead-times,

inventory levels and costs have led the

large majority of respondents to define

mid-term plans to reduce logistics costs

(36.8%), reduce delivery lead-times

(34.2%), optimize inventory levels

(31.6%) and improve suppliers‟

performance (21.1%). Lastly, the

importance of information is often

overlooked as a critical competitive

resource, but its role is crucial to

achieve higher productivity.

responsiveness, interconnectedness

(internally and externally) and lower

costs.

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The “State of Supply Chain Management – Middle East Series” represents B2G consulting‟s largest annual review of global

supply chain performance focused on the GCC region. With participants from Saudi Arabia, Bahrain, UAE, Oman, Kuwait and Qatar,

the survey provides deep insight into the most critical yet least understood lever, i.e the Supply Chain management, to improve

significantly any company‟s operational profitability and margin‟s growth.

Consisting of a comprehensive online questionnaire, participants were invited to respond to 21 key questions covering the

different aspects of the supply chain management in terms of challenges, maturity and performance level.

Headquarters location

03

Survey panel analysis

Number of employees

48.6%

2.9%

20.0%

5.6%

2.9%

11.4%

6.0%2.6%

Saudi Arabia

Bahrain

Dubai

Abu Dhabi

Oman

Kuwait

Qatar

Other

48.6%

2.9%

20.0%

5.6%

2.9%

11.4%

6.0%2.6%

Saudi Arabia

Bahrain

Dubai

Abu Dhabi

Oman

Kuwait

Qatar

Other

18.4%

28.9%

15.8%

18.0%

18.8%

<101

101-500

501-1000

1001-5000

>500018.4%

28.9%

15.8%

18.0%

18.8%

<101

101-500

501-1000

1001-5000

>5000

Study background

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Survey panel analysis

Nearly 230 companies participated in this 2010 survey, with data collection completed in November of 2010. The survey

population is composed of organizations from a diverse set of industries, including Retail, Oil&Gas, Consumer Goods, Mining and

metals, transport, industrial manufacturing, services, telecommunications, construction, health care and agriculture. The survey

reflects the response of the population which is composed of more than 60% senior executives in supply chain management, with

15% at the CXO-level. The region surveyed is only focused on the Middle East region particularly on the GCC countries: Saudi

Arabia, Bahrain, UAE, Oman, Kuwait and Qatar. And more than half of survey participants are companies with annual revenues

superior than $500 Million with a minimum of 500 employees.

21.1%

10.5%

11.1%

26.3%

10.0%

7.9%

13.2%

1M-25M

26M-50M

51M-150M

151M-500M

501M-1B

1B-10B

>10B

21.1%

10.5%

11.1%

26.3%

10.0%

7.9%

13.2%

1M-25M

26M-50M

51M-150M

151M-500M

501M-1B

1B-10B

>10B

Company annual revenue ($US) Main sector of activity

Survey participants

1,8%

1,8%

3,6%

3,6%

3,6%

5,4%

5,4%

7,1%

7,1%

8,9%

8,9%

10,7%

14,3%

17,9%

0% 5% 10% 15% 20%

Real estate

Agriculture

Telecommunications

Health care

Other

Construction

Mining and metals

Transport

Oil & Gas

Food and beverage

Retail

Consumer goods

Services

Industrial manufacturing

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01 Company background and

Challenges

In few words, please describe your company

activity.

“Mubarrad is a publicly listed Kuwait-based company,

specializing in land transport, logistics, heavy transport, truck

manufacturing and maintenance. Mubarrad is a GCC player

with operations in Kuwait, Dubai, Oman and Egypt. With a

market value of 21.6 Million KD, its assets are worth 37

Million KD for a total of 200 employees (excluding drivers).”

Which pressures forced Mubarrad to embark on a

cost reduction program?

“After several acquisitions and major internal

transformations, a new management team has been

appointed in mid 2010 to restructure completely the financial

and operational departments in order to drastically reduce

costs. The situation when we arrived was a very high SG&A

costs compared to the revenue, accentuated by a difficult

economical context.”

What did Mubarrad decide to do to overcome this

challenge?

“The new management team decided to go for the best

practices in the industry, and conducted several analyses

(SWOT, balanced SCORE Card, zero based costing, Porter

analysis…) with the support of management consultants.”

Industry insights

Conducting a cost reduction program in the transport sector

02 Results

Which results have been obtained after the

implementation? How long did it take to reach the

expected outcomes? What are the next steps?

“It took six months after implementation to start seeing

improvements. The team built a 6-year strategic plan with

clear objectives. At that time there was a significant drop in

sales, but we finally managed to increase the revenue by

33%. Several strategic initiatives were launched such as:

Upgrading transport asset quality and improving

utilization rate

Securing long term contracts

Concentrating businesses in Oman and Dubai to

increase profitability

Building up a new executive committee with a cross

functional view to drive the change and bear

decisions as a team

Implementing a CRM system to optimize the

decision making process with the market dynamics

Increasing project planning and execution to

increase the projects success rate

Close monitoring of losses

Focusing on employees efficiency while

transforming the mindset from employees to

leaders

Diversifying the logistics offering

Expanding the regional coverage

13


Mohammad E. Al-Muaili Vice Chairman - CEO

Mubarrad Transport Company

03 Key lessons learned

Did Mubarrad face any difficulties during the

project phase?

“The major issue that we faced during the project

phase was the change resistance from the existing staff,

so we had to take tough decisions in order to

institutionalize a full commitment from everyone and to

bring the morale up within the company. As a new team,

we were constantly walking on eggs, as we wanted to

improve the situation but without jeopardizing the day-

to-day operations. It was helpful to set up employees

SCORECard, not only to monitor the individual

performance of each employee but as well to assure

that everyone would be able to measure its own

contribution to the global initiative.

One of the very first things that we did was to bring all

top management (including myself) in the same office

close to the operations, as the executive office used to

be remotely located. It was important for us that we, the

management, lead by example and demonstrate by our

own acts the high commitment that we were expecting

from our employees.”

04 Which lessons to retain in conducting

such initiative?

“People are definitely the most important assets for a

company, especially when the company decides to embark on

a major transformation program that involves changing the way

it operates. We can witness it every day at Mubarrad, so we

tried to really have the right personnel with the right mindset

who considers himself as an owner of the company rather than

just an employee. In the end, the success of the company lies

in a team effort and not on one-man show.

“People are definitely

the most important

assets for a company”

The challenge in the GCC is mainly

about having the right people, and

unfortunately, there is a workforce

deficiency in this market, which is

even stronger in the area of supply

chain and logistics. At Mubarad, we .

through two educational segments:

one with small workshops to improve

the technical and soft skills of the

employees and harmonize the levels

between departments, and one with

extra professional activities organized

by the company to cement the bonds

and improve the interpersonal

relationships within the company.”

decided to tackle the skills issue through two educational

segments: one with small workshops to improve the technical

and soft skills of the employees and harmonize the levels

between departments, and the other one with extra

professional activities organized by the company to cement

the bonds and improve the interpersonal relationships within

the company.”

So far, the results were the reduction of the loss to 71 K KD

from 2.2 Million KD at the same period in 2009. The road is

long and we haven‟t finished yet our mandate.”

not only to monitor the individual

performance of each employee but

as well to assure that everyone would

be able to measure its own

contribution to the global initiative.

One of the very first things that we

did was to bring all top management

(including myself) in the same office

close to the operations, as the

executive office used to be remotely

located. It was important for us that

we, the management, lead by

example and demonstrate by our own

acts the high commitment that we

were expecting from our employees.”

did was to bring all top management (including myself)

in the same office close to the operations, as the

executive office used to be remotely located. It was

important for us that we, the management, led by

example and demonstrated by our own acts the high

commitment that we were expecting from our

employees.”

“So far, the cost reduction program has brought in substantial cost savings and this has

reflected positively in the overall result. The road is long and we haven‟t finished yet our

mandate.”

Industry Insights

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04 #1: How is the level of knowledge of your Supply Chain organization?

Knowledge of Supply Chain organization

32,0%

60,0%

8,0%Mature – with knowledge about advanced models such as SCOR and supply

chain best pratices (S&OP, VMI, etc…)

Average – with basic knowledge about supply chain (operational

fundamentals)

Low – with ad-hoc knowledge on supply chain

Introduction

Most companies enter supply chain to

improve profitability, through process

improvement and technology for more

responsiveness to consumer demands.

However maintaining a competitive

advantage depends on the ability of

each unit in the chain to apply

knowledge innovatively. Knowledge is

the competitive advantage in a supply

chain – it not only enhances the

efficiency of the operations but also

enables to foresee and manage

complexity and change. The major

challenge for companies is to acquire,

develop and retain skilled supply chain

professionals to sustain efficiently their

supply chain performance.

Results

The respondents were asked to indicate

the level of knowledge of their supply

chain organization. The results show

that:

32% of respondents have

advanced knowledge of supply

chain concepts

60% present basic knowledge

on supply chain

6% admit to have less

knowledge

Analysis

The supply chain is one of the most

rapidly evolving disciplines, and the

variances in supply chain activities

require new set of skills and

experiences for world class supply chain

professionals. The noticeable shortage

in the Middle East of supply chain

professionals with the required skill-sets

is not something exclusive to this region

but it is likely to be accentuated by

some governmental initiatives that

encourage the employment of their

nationals

nationals (Saudization, Emiratization

etc…). In the face of fierce global

competition to recruit the skilled

resources, GCC Companies should

start looking at ways to develop and

secure domestically the skilled

manpower, required to support the

expansion of their organizations. In

fact, some of the respondents have

already jumped on the bandwagon by

establishing “learning centers” to

develop training and education

programs to enhance local work force.

understanding of the true root causes

preventing the supply.

Supply Chain maturity

15



#2: What are the best practices currently used by your organization?

Best practices in place

Results

The top 5 best practices used by the

respondents are:

#1 Sales & Operations Planning process

#2 End-to-End supply chain visibility

#3 Performance measurement

#4 Customer segmentation

#5 Integrated business planning

Due to the recent financial crisis, there is

a noticeable growing trend for financial

supply chain practices, which were not

very popular in the Middle East in the

past years.

Analysis

The lack of visibility: internally amongst critical

processes, and externally between business

partners; have incurred high inventory levels,

significant operating costs, longer lead times

and lower customer satisfaction. To forecast the

demand more accurately and plan the supply

accordingly, the respondents have implemented

one of the most powerful best-practices in

demand planning: the Sales & Operations

Planning Process (S&OP). The S&OP process

provides optimum results when complemented

with end-to-end visibility systems and efficient

performance measurement tools for segmented

customers. This would logically explain

the position of the top 3 best practices used by

the respondents. The most advanced

companies have elevated the conventional

Introduction

Everybody talks about best

practices. But what does it really

mean in the Middle East context? It

does not mean always getting the

latest technology or doing exactly

what best-in-class companies did

lastly. “Best-practices” are the

methods, processes or activities

that are the most effective at

delivering the highest outcome in a

particular context. It is critical to

understand that the way of using

best practices are business-specific.

Consequently success depends on

choosing them with a thorough

understanding of the operations

involved while considering the

specific business environment.

customers. This would logically

explain the top 3 best practices

used by the respondents. The most

advanced companies have

elevated the conventional S&OP

process to integrate R&D, Product

management, marketing and

financial issues into the process to

merge the operational and financial

plans into a seamless business

planning and tactical execution-

directing process: The Integrated

Business Planning (IBP).

0.6%

1.6%

1.6%

1.0%

1.3%

1.6%

1.9%

2.2%

2.5%

3.2%

5.1%

5.7%

6.4%

8.0%

10.2%

11.1%

15.3%

20.7%

0% 5% 10% 15% 20% 25%

Other

Financial supply chain (cash flow management)

JIT - Just in time

Formalized supply chain risk management

Supplier collaboration

Vendor Managed Inventory

Competitive Benchmarking

Customer collaboration

Lean methodology

Collaborative forecasting

Supply chain costing (Activity Based Costing)

Joint service agreement (JSA)

Real time information

Integrated business planning

Performance management

End to end Supply chain visibility tool

Customer segmentation

Sales and Operations Planning Process

16


#3: What are the activities outsourced?

Outsourced activities


Introduction

Outsourcing in the Middle East is a fairly

new trend knowing that most companies

have been in-sourcing the majority of

their activities so far. In order to

optimize costs and deliver greater

efficiencies on all managed services,

Middle Eastern Corporate went through

an intermediary phase of shared

services with a central department. As

the supply chain sector has

professionalized along with the level of

maturity of the organizations, an

increasing number of new ventures

have spun off, meanwhile developing

the outsourcing service offerings.

Results

23.7% of respondents do not outsource

any of their activities. Amongst the

respondents, who outsource some of

their functions, there are:

28.9% outsource Logistics

function

18.4% work with contract

manufacturers

15.8% outsource Warehousing

services

Considering the enabling functions, IT

and R&D represent altogether slightly

more than 23%.

Analysis

Managing the supply chain has become

increasingly complex, especially

coupled with the specific challenges in

the Middle East: narrow local supply

base, regulated markets, level of

maturity of business partners, shortage

of qualifies manpower etc…which has

forced some companies to outsource

some of their non-core activities such as

logistics, warehousing or IT but as well

some of their very core activities

including R&D, manufacturing,

procurement and including the provision

of manpowerof . information and

financial flows along the Customers by

optimizing the physical, information and

financial flows along the Supply Chain

of manpower. One of the biggest

challenges in outsourcing is to be able

to understand and master the activity or

function that the company wants to

outsource. Especially, before handing

over its operations with potential related

unresolved issues. Else this will only

limit this initiative to outsource the

current issues the company is facing.

Innovative companies amongst the

respondents have embarked in a

journey, where they are accompanying

the service provider, as a partner, to

grow at the same pace, hand in hand.

28,9%

15,8%

18,4%13,2%

10,5%

23,7%

10,5%

Logistics

Warehousing

Manufacturing

R&D

IT

None - Inhouse

Other

17


#4: What is your supply-demand model?

Supply-demand model

Introduction

Competitive pressures on lead-times,

inventory level and costs have led many

organizations to review their production-

inventory-delivery practices. In their

quest for “zero-inventory” goal, World-

class companies have started to

determine the optimal conditions when

to hold a finished good inventory and

when it is not. Based on that, the

resulting configuration selected, i.e.

Make-To-Stock (MTS) / Make-To-Order

(MTS) / Make-to- Engineer (MTE), is

determinant of the performance of the

company‟s supply chain.

Results

The configuration of the supply chain

generally depends on the industry sector;

however the respondents‟ responses

give a good indication of the leading

supply chain model present at the

regional level, which helps to understand

the related supply chain challenges. The

large majority of respondents (55.3%)

indicates that their supply chain model is

a mix of Make-to-Stock and Make-to-

Order. For the other supply chain

configurations:

18.4% only have Make-to-Order

10.5% only have Make-to-Stock

13.2% have Make-to-Engineer

Analysis

Inventory carrying costs count for a

large portion of total costs in many

supply chains, so unsurprisingly

effective inventory management is one

of the most important issues that supply

chain managers are facing. Managers

have the difficult task to determine

which products should be made to

order, and which should be made to

stock in order to reduce the inventory

level while increasing (or maintaining)

the level of service. For made-to-stock

products, accurate demand forecasting

and proper inventory management

strategies must be determined to reduce

the level of inventory hold. For made-to-

order products, approaches for reducing

customer lead time must be developed.

The decision to use either a MTS or

MTO strategy depends strongly on the

business specificities and has a

significant impact on the supply chain

performance. Indeed, with 55.3% of

respondents using a combined

MTS/MTO strategy, it appears to be

much more effective than using either

strategy exclusively. For this reason,

most companies are employing a hybrid

MTO–MTS approach, holding inventory

in some cases, and producing to order

in other cases.

10,5%

18,4%

55,3%

13,2%

Make/Deliver-to-stock

Make/Deliver-to-order

Mixed of Make to stock /

Make to Order

Make-to-Engineer


18


#5: Which technology is supporting your Supply Chain operations?

Technology supporting the Supply Chain operations


Introduction

The importance of information is often

overlooked as a critical competitive

resource. Indeed, its contribution to the

management of the supply chain is not

always very well understood. However,

the role of the information technology in

supply chain management is crucial to

achieve higher productivity,

responsiveness and lower costs. The

everlasting changing customers‟

expectations have greatly increased

along with the internet trend, and have

put on the spot the necessity of an

efficient information system to support

the end-to-end supply chain operations.

Results

The top 3 information systems used by

the respondents are:

(34.2%) Warehouse management

system (WMS)

(26.3%) Forecasting tool

(23.7%) Performance measurement

tool

Further to the growing interest in the

S&OP process, there are 21.1% of

respondents who are using related

tools.

Analysis

Traditionally, warehouse management

systems have been widely used to

monitor the warehouse operations and

transactions. Indeed, WMS counts for

34.2% of respondents‟ answer. On the

other hand, the lack of market visibility

in the Middle East coupled with a

versatile and hectic demand signal has

forced companies to improve their

demand planning with more accurate

forecasting tools. The market is

currently shifting from a supplier-push

model to a more customer- pull model

that

5,3%

10,5%

13,2%

13,2%

13,2%

18,4%

18,4%

21,1%

23,7%

26,3%

34,2%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Other

Capacity planning tool

Supplier management e-portal

e-invoicing

SRM application

Transportation management system

CRM application

S&OP tool

Performance measurement

Forecasting tool

Warehouse management system

that imposes a greater discipline in

anticipating and fulfilling the market

demand in a more cost-effective way. In

this regard, to measure and control the

effectiveness of their organization to

supply the demand, companies have

embarked on initiatives to improve both

the visibility of their internal performance

and that of their business partners. The

volume of information processed

requires the use of Business

Intelligence tools to segregate the most

relevant information to support key

business decisions.

19


#6: How is your Supply Chain organization considered by top management?

Supply Chain organization perception by top management

Introduction

In today‟s business world, operations

and supply chain management are the

backbone of many companies. In this

regard, more CEOs are including supply

chain management in their strategic

agenda to differentiate themselves from

their competitors. This shift has helped

to see more supply chain executives at

the board table and has been

accompanied by a transformation of the

way the supply chain management was

perceived within the organization.

Results

The respondents‟ perception of the

supply chain is mainly demand driven-

customer centric (39.5%), collaborative

with end-to-end partners (21.1%) and

considered as a strategic department

(28.9%), but remains organized by

functions (23.7%) rather than by

processes (18.4%). Although for a

minority of companies (10.5%), the

supply chain is considered as a profit

generator, the majority still sees it as a

cost center (23.7%).

Analysis

With supply chains becoming more

dynamic and complex, organizations

have begun to understand the

significance of having a high level

supply chain executive influence their

business strategy. Indeed, an efficient

supply chain management, which is

aligned with business strategy,

becomes critical to remain competitive

and profitable. Competition is no longer

companies against companies but

supply chains versus supply chains.

This mindset shift has supported

organizations to reshape their supply

chain management in a more customer-

centric supply chain. However major

organizational changes, from a

functional model to a more process

oriented model, are still slow to occur in

the Middle East. Besides this, there is

an increasing trend to expand the

boundaries of the company‟s supply

chain to integrate more external

partners. As a matter of fact, each

member of the supply chain has an

impact on the performance of the

others, the overall supply chain and

ultimately the end customer.

7,9%

10,5%

18,4%

21,1%

23,7%

23,7%

28,9%

39,5%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Manufacturing driven - Internal focused

Considered as a Profit center

Process oriented (PLAN/SOURCE/MAKE/DELIVER/RETURN/ENABLE)

Collaborative with End-to-End partners (Suppliers / Customers)

Considered as a Cost center

Function oriented (LOGISTICS/PRODUCTION/PURCHASING…)

Strategic function (part of top management board)

Demand driven - Customer centric


20


#7: What is the training frequency of the Supply Chain staff?

Training frequency of Supply Chain staff

28,0%

68,0%

4,0%

Never

Below 5 times a year

Between 5 to 10 times a year

Above 10 times a year


Introduction

Today, the global supply chain has

become more complex with more

integrated perspectives, linking

suppliers and customers. And one of the

most important drivers for success in

deploying and running an efficient

supply chain is People. The challenge

for supply chain executives, in the

Middle East, is to understand which

knowledge and skills are required, and

to define the appropriate training and

education for their existing staff. As the

scarcity of skilled supply chain

resources is exacerbated in the region,

training appears to be an adequate

solution more than anywhere else.

Results

The frequency of the staff training gives

a good indication of the importance of

education to the respondents‟

management:

68% of respondents provide

training to their supply chain staff

below 5 times a year

4% of respondents provide training

between 5 to 10 times a year

28% of respondents never provide

any training

Analysis

Education reform is on the top priority

list of the GCC governments, as the

need to develop best talents across the

region becomes urgent to tackling the

skills gaps, in a globalised economy. As

a recent discipline, Supply chain

management is lacking of universities

and private training centers to prepare a

highly skilled workforce for the future in

the Middle East. In this process, several

major initiatives in Education have been

launched to enter the era of Knowledge:

while in the UAE and Qatar private

institutions are booming, in Saudi Arabia

the focus is less on private universities,

but rather on improving the quality of

public universities such as KAUST.

Bahrain is making a point to differentiate

itself from Dubai and Qatar by offering

training in services to cater for various

sectors, including banking and

hospitals. However, Supply Chain

management has not found its place yet

in the academic programs and degrees

of GCC universities and private

institutions.


21


22


“Good professionals

who can handle the

full supply chain cycle

are very hard to find”

Industry insights

Human Resources Management: Recruiting Supply Chain Experts

01 Company background

In few words, please describe your company

activity

“We are a recruiting agency which represents IESF in

Dubai. IESF (International Executive Search Federation) is

the largest retained executive search group in the world

identifying talent and leadership in 160 offices and 40

countries globally. We look for experts/specialists and talents

using direct search approach. We have successfully made

searches in all support functions (HR, Finance, Supply

Chain, Logistics, Procurement and Project ement

improve processes to increase quality, decrease costs and

optimize cycle times. Consequently, decision makers are not

able to improve the existing processes.

What attracts talents in the Middle

East? How difficult is it to retain

skilled resources?

“Some young talents look forward to getting

more exposure than they would have in a

mature market and to endorsing real

responsibilities. Besides, the packages

offered can be higher and tax free in some

countries of the Middle East. On the other

hand, retaining talent is extremely difficult

because of high inflation rates which have to

be reflected in salary increases. In addition,

recognition is very important to employees so

that management should be able to offer

training & development, career growth,

promotions, incentives on target reached…”

makers are not able to improve the existing processes.

Moreover, logistics companies are not using latest

technologies and thus, need more manpower to compensate

this lack of technology.

What attracts talents in the Middle East? How

difficult is it to retain skilled resources?

“Some young talents look forward to getting more

exposure than they would have in a mature market and to

endorsing real responsibilities. Besides this, the packages

What levels are the most lacking in the Middle East?

“Senior Levels and Middle Management are not strong

enough to ensure that the strategies and tactics decided by

the Board/Executives are efficiently implemented.”

How do the nationalization programs affect local

companies?

“It should be a two-way street; instead of focusing on these

programs, companies should make a real selection of

candidates and hire only motivated ones. Newly hired

employees should be provided with detailed job descriptions

and expected targets. It can take some time so it is better to

start early during training and internships. New employees

should gain more confidence in themselves and be helped

by a mentor.”

Management) and in the following industries:

IT/Telecom, Logistics, Engineering,

Manufacturing, Construction, Large Retailers

and FMCG for UAE, Qatar and Saudi Arabia.”

02 Manpower landscape

in the Middle East

How is the Middle East manpower

landscape?

“Good professionals who can handle full or

part supply chain cycle are very hard to find for

two main reasons. First, universities in the

region are not focusing enough on Logistics-

Supply Chain despite the huge needs of skilled

manpower in this sector. Moreover, we can find

a lot of good operational people but they

cannot think out of the box, improve processes

to increase quality, decrease costs and

optimize cycle times. Consequently, decision

makers are not able to improve the existing

processes.

“Good professionals who can handle full or part supply

chain cycle are very hard to find for two main reasons.

First, universities in the region are not focusing enough on

Logistics-Supply Chain despite the huge needs of skilled

manpower in this sector. Moreover, we can find a lot of

good operational people but they cannot think out of the

box, improve processes to increase quality, to decrease

costs and optimize cycle times. Consequently, decision

What attracts talents in the

Middle East? How difficult is it to

retain skilled resources?

offered can be higher and tax

free in some countries of the

Middle East. On the other

hand, retaining talent is

extremely difficult because of

high inflation rates which have

to be reflected in salary

training & development, career

growth, promotions, incentives

on target reached…”

What levels are the most

lacking in the Middle East?

“Senior Levels and Middle

Management are not strong

enough to ensure that the

strategies and tactics decided

by the Board/Executives are

efficiently implemented.”

How do the nationalization

programs affect local

increases. In addition, recognition is very important to

employees so that management should be able to offer

training & development, career growth, promotions,

incentives on target reached…”

Which levels are the most lacking in the Middle

East?

“Senior Levels and Middle Management are not strong

enough to ensure that the strategies and tactics decided by

the Board/Executives are efficiently implemented.”

“It should be a two-way street; instead of focusing on

these programs, companies should make a real selection of



23


Zoran Marinkovic Partner - HR Solutions

BM Management Consultancies – I.E.S.F.

How is the educational system in supply chain?

“Instead of focusing on proposing Business Administration

degrees, universities should offer Logistics and Supply chain

programs. Internships and trainings are not very developed

in the Middle East whereas they would give a professional

exposure and experience to students. Students would be

able to work with specialists and experts in supply chain and

logistics as well as discover the various functions of this

industry.”

How do you foresee the future of supply chain

manpower landscape in the Middle East?

“With the increase of regional competition and because

supply chain and logistics are critical in order to be able to

deliver the right quantity and quality of products on time and

at the right cost, we need professionals who can challenge

the existing procedures and who are familiar with the latest

technologies. Companies should understand that they need

to spend time to draw-up an outstanding Supply Chain cycle

which can be implemented in a mid-term view.”

How do nationalization programs affect local

companies?

“It should be a two-way street; instead of focusing on these

programs, companies should make a real selection of



and expected targets. It can take some time so it is better to

start early during training and internships. New employees

should gain more confidence in themselves

selves and be helped by a mentor.”

03 Recruiting Supply Chain

specialists

Are Supply chain professionals

more demanded compared to other

areas? What is the trend?

“The world credit crunch has made people realize that they

should focus on their core business and expertise. This is

the case in Dubai where professionals were less demanded

in Supply Chain than in the real estate or in the banking

industry. However, the trend will see a huge demand in

Supply Chain with new ports coming up like renewed Zayed

Port & Khalifa Port in Abu Dhabi, Kuwaiti port near the

border with Iraq, Saudi‟s Red Sea Gateway Terminal

extension, the Port of Salalah, extensions of several ports in

Dubai…”

Which positions in supply chain

are the most sought?

(Procurement, sourcing, planning,

warehousing, distribution,

“Instead of focusing on

Business Administration

degrees, universities

should propose Logistics

and Supply chain

programs”

areas? What is the trend?

“The world credit crunch has made

people realize that they should focus on

their core business and expertise. This

is the case in Dubai where professionals

were less demanded in Supply Chain

than in the real estate or in the banking

industry. However, the trend will see a

huge demand in Supply Chain with new

ports coming up like renewed Zayed

Port & Khalifa Port in Abu Dhabi,

Kuwaiti port near the border with Iraq,

Saudi‟s Red Sea Gateway Terminal

extension, the Port of Salalah,

extensions of several ports in Dubai…”

is the case in Dubai where professionals were less

demanded in Supply Chain than in the real estate or in the

banking industry. However, the trend will see a huge

demand in Supply Chain with new ports coming up like

renewed Zayed Port & Khalifa Port in Abu Dhabi, Kuwaiti

port near the border with Iraq, Saudi‟s Red Sea Gateway

Terminal extension, the Port of Salalah, extensions of

several ports in Dubai…”

Which positions in supply chain

are the most sought?

(Procurement, sourcing,

industry.”

How do you foresee the

future of supply chain

manpower landscape in

the Middle East?

“With the increase of regional

competition and because

supply chain and logistics are

critical in order to be able to

deliver the right quantity and

quality of products on time

and at the right cost, we need

professionals who can

challenge the existing

procedures and who are

familiar with the latest

technologies. Companies

should understand that they

need to spend time to draw-up

an outstanding Supply Chain

cycle which can be

implemented in a mid-term

quality of products on time and at the right cost, we need

professionals who can challenge the existing procedures and

who are familiar with the latest technologies. Companies

should understand that they need to spend time to draw-up

an outstanding Supply Chain cycle which can be

implemented in a mid-term view.”

Industry Insights

24


05

Supply Chain performance metrics

#1: Perfect Order fulfillment

Perfect order fulfillment (%)

Introduction

The Perfect Order Fulfillment represents

the percentage of orders that are on

time, in full, with complete and accurate

documentation and no shipping

damage. This customer-facing metric is

crucial as it measures the performance

of the organization, as perceived by the

Customer. Needless to say that this

metric directly impacts the company‟s

top line and affects the relationship with

its Customer. Although the precise

quantification of its contribution to the

revenue growth is relatively challenging,

the benefits are confirmedly substantial.

Results


the level of their perfect order fulfillment:

35.5% of respondents indicate that

their perfect order fulfillment

reaches 95% and above.

16.1% of respondents have a

perfect fulfillment comprised

between 90-95%

22.6% of respondents say that their

perfect order fulfillment ranges

between 80-90%

9.7% of respondents do not

measure this metric.

Analysis

Achieving high „perfect order fulfillment‟

levels demands more than just

computing data from software.

Companies must configure their supply

chain processes from end-to-end to

deliver the highest possible

performance. It involves much more

than the logistics aspect of delivering a

customer. It includes putting in place

accurate forecasting process and tools,

building information systems that

connect suppliers, customers and

internal departments, or developing

strong

relationship that enhances collaboration

and speeds up transaction between

supply chain partners. Companies that

boast some of the highest Perfect Order

rates carry less inventory, experience

shorter cash-to-cash cycle time, and

have significantly less stock-outs when

compared to their competitors. AMR

Research says the pay-off for

companies with high rates of "perfect

orders" can be substantial. A 3 percent

improvement in perfect order fulfillment

translates to a 1 percent increase in

profits, AMR says.

3,2%

12,9%

22,6%

16,1%

35,5%

9,7%

50-60%

60-80%

80-90%

90-95%

95-100%

Not measured

25


Supply Chain performance

#2: Delivery performance (line item delivery to first commit)

Delivery performance (%)

Introduction

The „Delivery performance‟ or „On-time

delivery‟ is one of the key components

of the perfect order fulfillment. On-time

delivery is measured as percent

achievement within a window of time

that brackets the customer-requested

date/time and/or the business'

committed date/time. While price has

always been a key element in the

purchasing decision, a constant and

timely delivery is becoming increasingly

important due to the market‟s pressure

for speed and product instant availability

Results

The survey results indicate that:

32.3% of respondents outperform

above 95% of On-time delivery

22.6% of respondents deliver with a

performance between 90-95%

29% of respondents reach an

average on-time delivery between

80-90%

16.2% of respondents are lagging

with a delivery performance below

80%

Analysis

The first step in improving on-time

delivery is defining what it is. This is

generally a major challenge. Each

customer may have his own definition of

„on time‟. Companies will need to

develop an operational definition for on-

time delivery that is aligned with their

business partners. Once done, it is

important to understand that improving

on-time delivery is mainly a matter of

issues concerning time and

expectations. Indeed, the expectations

must be well understood by both parties

in order to avoid unnecessary

pressures. On the process side,

Forecasting, demand planning and the

supply chain configuration play a major

role in the performance of the on-time

delivery. So to address the issue, supply

chain managers must examine carefully

their demand processes to identify and

measure those that are contributing in

the desired on-time outcome. From this

analysis, managers will be able to tackle

counter performance related to process

lead times, capacity bottlenecks,

process quality and etc… in the quest of

the 100% on-time delivery.

6,5%

9,7%

29,0%

22,6%

32,3%

50-60%

60-80%

80-90%

90-95%

95-100%

26


#5: Total Supply Chain management cost


Total Supply Chain management cost (% revenue)

Introduction

The Total Supply Chain Management

Cost measures the fixed and

operational costs associated with the

Plan, Source, Make, Deliver and Return

supply chain processes. Concretely, the

supply chain costs take into account

order management (Deliver), material

acquisition (Source), inventory carrying

(Indirect Plan), planning/finance (Plan),

returns management (Return) and

information technology costs (Indirect

Enable). In a context of severe cost

competition, it is important to know the

total supply chain cost to be able to

reduce the total cost of acquisition on

any item.

Results

The respondents indicate that their total

supply chain management cost counts

between:

15 to 25% of their operational

revenue for 19.1% of respondents

10 to 15% of their revenue for

46.8% of respondents

5 to 10% for 23.4% of respondents

Under 5% of their revenue for 4.3%

of the respondents

Analysis

The total supply chain management cost

can vary significantly between industry

sectors however the differences between

best-in-class companies smooth over

regardless the industry sector. Median

companies have a supply management

cost which generally spans from 10%-

15%, and best-in-class companies

achieve cost performance under 6%.

This metric is still very difficult to track as

it involves many processes, however the

Supply Chain Council‟s SCOR model

(Supply-Chain Operations Reference)

model) the Customers by optimizing the

physical, Customers by optimizing the

physical,

provides a standard definition that helps

to align the way this metric is calculated.

"It is estimated that reducing the supply

chain cost by 1 percent can be the

equivalent of increasing revenues from

4 to 12 percent" says Scott Stevens,

CTO for the council. To reduce the

supply chain costs, managers should

focus on non-value added time and

costs in the supply chain including

excess inventory, communication

inefficiencies, long cycle times and

discoordination of efforts.

4.3%

10.6%

12.8%

19.1%

14.9%

12.8%

8.5%

10.6%

6.4%

0% 5% 10% 15% 20% 25%

<5%

5%-7%

8%-9%

10%-11%

12%-13%

14%-15%

16%-17%

18%-25%

>25%

27


#6: Cash-to-cash cycle time

Cash-to-cash cycle time (days)

Introduction

Often called cash conversion cycle, this

metric represents the time it takes for a

dollar to flow back into a company after

it has been spent on raw materials. It is

one of the major metrics to determine

how well a company is managing the

working capital flow from suppliers

(accounts payable) to customers

(accounts receivable) through the

capital tied up in the company

(inventories). It consists of days of sales

outstanding, days of payables

outstanding and inventory days of

supply.

Results


their performance related to the cash-to-

cash cycle time (C2C). Companies which

are notable for their superior performance

in managing their working capital, have a

cash-to-cash cycle time that is 2 times

shorter than the median and 3.5 times

shorter than the laggard.

30% of respondents have a C2C

below 30 days


between 30 and 90 days


above 90 days

Analysis

The Financial supply chain is taking

more importance in CFO and Supply

chain top executives‟ agenda, as it

offers significant potential to generate

bottom line improvement and create

competitive advantage. The Financial

Supply Chain refers to the end-to-end

trade processes and information that

drive a company‟s cash, accounts, and

working capital. An optimized

management of the Financial Supply

Chain allows reducing the amount of

cash corporations need to hold. And the

cash-to-cash cycle time represents one

of its key performance indicators. The

shorter the cash-to-cash cycle, the less

the company needs working capital,

however depending on the industry

sector some significant differences

exist: sectors like Retail, Hospitality and

Telecommunication show negative cycle

times whereas sectors such as

Agriculture, Mining & Metals, Industrial

products or Chemicals have a cash-to-

cash cycle time that is superior to 130

days. It is important for a company to

shorten its C2C cycle time as much as

possible, but also to balance its Days of

Sales Outstanding (DSO) and its Days

of Payables Outstanding (DPO) to

optimize its operational performance.


30%

15%

20%

35%

0

0

0

0

0

0

0

0

0

<30 Days 30-60 Days 60-90 Days >90 Days

28


#7: Inventory days of supply (DIO)


Inventory days of supply (DIO)

Introduction

Inventory is the backbone of the war in

supply chain management. Raw

materials, goods in process and finished

goods all represent various forms of

inventory. Each type represents money

tied up until the inventory leaves the

company as purchased products. This

inventory represents a large portion of

the business investment and needs to

be well managed to maximize profits.

One of the most important challenges of

inventory control is to have the items in

stock at the moment they are needed

while optimizing the cost of carrying this

inventory.

Results

Days inventory outstanding (DIO), is

also defined as days sales of inventory.


how many days on average their

company turns its inventory into sales:

10% of respondents have a DIO

below 30 days




above 120 days

Analysis

Successful inventory management

involves balancing the costs of

inventory with the benefits it provides.

A poor management of inventory can

result in a significant expense that can

affect profitability. Many executives

fail to appreciate fully the true costs of

carrying inventory, which include not

only direct costs of storage, insurance

and taxes, but also the cost of money

tied up in inventory. Value of DIO

varies from industry and company.

But in general, a lower DIO is better;

especially when the company is able

to meet its customer expectations.

With improved visibility into supply

and demand, supply chain managers

can make critical decisions about

how and where to reduce inventory

and still maintain the highest level of

customer service. Regardless the

nature of the business, the main

challenge lies in the capability of any

organization to forecast accurately

the demand and plan accordingly the

supply including inventories.

10%

25%

35%

30%

0

0

0

0

0

0

0

0

0

<30 Days 30-60 Days 60-120 Days >120 Days

29


#8: Days of payable outstanding (DPO)

Days of payable outstanding (DPO)

Introduction

The Accounts payable (A/P) are

becoming a key component in the

optimization of the working capital, but a

lack of maturity (technological, process,

organization) in this discipline is slowing

down its evolution. One of the key A/P

indicators is the days of payables

outstanding (DPO) which are a measure

of the company‟s average payable

period. Despite the general belief, a

longer DPO can negatively affect the

suppliers and indirectly impact the

company on the long term.

Results


how many days on average their

company pays their suppliers‟ invoices:

55% of respondents have a DPO at

30 days or below

40% of respondents have a DPO


5% of respondents have a DPO

above 90 days

Analysis

The downturn in the economy and the

global financial credit crisis have

produced tremendous pressures on

cash reserves. Although the Middle East

region has been less impacted,

overseas suppliers have strengthened

the management of their credit affecting

the cash flow of companies, which used

to stretch payables period. Recently,

this metric has been less in control of

the company but rather defined by the

suppliers‟ payment terms. However, the

DPO has still its importance in the

management of the supply chain as it

directly affects the financial capability of

the company‟s supplier which can limit

its growth and operational capability. As

the supplier plays a major role in the

company‟s flexibility, responsiveness

and costs, the company may bear the

substantial consequences of a

mismanagement of the A/P (operational

and financial). A win-win situation can

be established between the company

and its supplier, for example shorter

payment terms can be negotiated

against better service level or higher

discounts on material purchase.


55%

25%

15%

5%

0

0

0

0

0

1

1

=<30 Days 30-60 Days 60-90 Days >90 Days

30


#9: Days of sales outstanding (DSO)


Days of sales outstanding (DSO) Introduction

The Accounts Receivable (A/R) is one

of the most critical factors in the

optimization of working capital. Due to

the high importance of cash involved in

running a business, it is in a company's

best interest to collect outstanding

receivables as quickly as possible. To

measure the average number of days

that a company takes to collect revenue

after a sale has been made, the

following indicator is commonly used:

Days of Sales Outstanding (DSO). By

quickly turning sales into cash, the

company is more likely to reinvest faster

and to support its growth.

Results

The respondents indicate how many

days on average their company is able

to collect the cash from their customers:

30% of respondents have a DSO at

30 days or below

65% of respondents have a DSO


5% of respondents have a DSO

above 90 days

Analysis

Amongst the different opportunities,

Accounts receivable is preferably used

by most companies to improve

positively the cash flow. The sooner the

company can collect cash from its

customers, the better it can re-invest

the money where it is needed. In

addition, it is important to note that the

timely collection of receivables helps to

predict more accurately the cash

requirements and limits the financial

risk. Best-in-class companies are able

to collect receivables twice as faster as

median companies, and forecast with

40% greater accuracy than median

companies. To improve the DSO,

companies should streamline and

automate the cash collection processes.

An automated process will fasten the

cash collection (ex: access to SWIFT)

and improve the invoicing accuracy. It is

highly recommended to manage the

DSO in a more integrated way through a

formal Order-to-Cash (OTC) process,

where the entire process from the

customer order to the cash collection is

completely managed and controlled.


30%

35%

30%

5%

0

0

0

0

0

0

0

0

0

=<30 Days 30-60 Days 60-90 Days >90 Days

31


32


Industry insights

3PL outsourcing in the Petrochemical Industry

01 Company background

“Petro Rabigh was originally a refinery with a capacity of

400,000 bbls/day which belonged to Saudi Aramco. When

Saudi Aramco decided to enter the Petrochemical market, it

was decided to create a new venture with Sumitomo which

was called Petro Rabigh. The company is located in Rabigh,

165 kilometers north of Jeddah on the Red Sea coast. It is

now producing a wide range of polymers, monomers and

refined products.”

Which challenges forced PetroRabigh to

come to the decision of

outsourcing the logistics

department?

“PetroRabigh was seeking to be world-class

organized. Its motto was to become globally

recognized and locally committed. In this

regards, we decided to build a world-class

logistics function within the organization. To

do that, we had to face the reality about the

fact that logistics was considerably lagging in

the country compared to the West.

Consequently, Petro Rabigh decided to

outsource its complete inbound logistics

activity for its MRO and chemicals supply.

The company was therefore seeking to

develop a high-quality strategic partnership

with a Logistics Services Provider that could:

The company was therefore seeking to develop a high-

quality strategic partnership with a Logistics Services

Provider that could:

Provide a global logistics services offer (Freight

forwarding, warehousing, distribution, reverse

logistics)

Demonstrate the required experience and capability

to manage Petro Rabigh‟s logistics operations

Support Petro Rabigh to moving forward, during the

transition phase, from Project to operations mode”

Was this decision a premier in KSA? In the

Petrochemical industry? And in which

perspectives? Perspectives?

“This decision was a premier in the Petrochemical sector and

in the region. The initiative covers the logistics outsourcing

by a 3PL of PetroRabigh‟s MRO business including, Door to

door Freight forwarding, Warehousing management,

Delivery to Internal end users including collection of end-

user‟s returned materials and internal stock transfer,

Reverse Logistics (End-users returns & Return to Vendor).

We were conscious that being the first company to do that

could have posed some risks, but we felt that logistics, which

is an emerging industry in the region, needed to be

supported by a leading organization. As a major company,

our role is to develop the local industry and especially to

support the logistics sector which is strategic in KSA. We

took the risk albeit in a calculated way and it pays off.”

UAE, Qatar and Saudi Arabia.”

02 Manpower landscape in the Middle East

How is the Middle East manpower landscape?

Specifically in supply chain management

“PetroRabigh was seeking to be

world-class organized. Its motto was to

become globally recognized and locally

committed. In this regards, we decided

to build a world-class logistics function

within the organization. To do that, we

had to face the reality about the fact that

logistics was considerably lagging in the

country compared to the West.



activity for its MRO and chemicals

supply.


develop a high-quality strategic

partnership with a Logistics Services


committed. In this regard, we decided to build a world-class

logistics function within the organization. To do that, we had

to face the reality about the fact that logistics was

considerably lagging in the country compared to the West.

Consequently, Petro Rabigh decided to outsource its

complete inbound logistics activity for its MRO and

chemicals supply.

The company was therefore seeking to develop a high-

quality strategic partnership with a Logistics Services


Provide a global logistics services offer (Freight forwarding, warehousing, distribution, reverse logistics)

Demonstrate the required experience and capability to manage Petro Rabigh‟s

Which challenges forced PetroRabigh to come to

the decision of outsourcing the logistics

department?



recognized and locally committed. In this

regards, we decided to build a world-class

logistics function within the organization. To

do that, we had to face the reality about the

fact that logistics was considerably lagging in

the country compared to the West.



activity for its MRO and chemicals supply.


develop a high-quality strategic partnership

with a Logistics Services Provider that could:

Provide a global logistics services offer (Freight

the decision of outsourcing the

logistics department?

“PetroRabigh was seeking to

be world-class organized. Its

motto was to become globally

recognized and locally

committed. In this regards, we

decided to build a world-class

logistics function within the

organization. To do that, we

had to face the reality about

the fact that logistics was

considerably lagging in the

country compared to the

West. Consequently, Petro

Rabigh decided to outsource

its complete inbound logistics

activity for its MRO and

chemicals supply.

“This decision was a premier in

the Petrochemical sector and in the

region. The initiative covers the

logistics outsourcing by a 3PL of

PetroRabigh‟s MRO business

including, Door to door Freight

forwarding, Warehousing

management, Delivery to Internal

end users including collection of

end-user‟s returned materials and

internal stock transfer, Reverse

Logistics (End-users returns &

Return to Vendor). We were

conscious that being the first

company to do that could have

posed some risks, but we felt that

logistics, which is an emerging

industry in the region, needed to be

Including Door to door Freight forwarding, Warehousing

management, Delivery to Internal end users including

collection of end-user‟s returned materials and internal stock

transfer, Reverse Logistics (End-users returns & Return to

Vendor). We were conscious that being the first company to

do that could have posed some risks, but we felt that

logistics, which is an emerging industry in the region, needed

to be supported by a leading organization. As a major

operations

Support Petro Rabigh to moving forward, during the transition phase, from Project to operations mode”

Was this decision a premier in KSA? In the

“We were seeking

to be world-class

organized”

33


meet our requirements. After the bid award of the LSPs, we

entered in a second phase of the project, where the selected

logistics provider was being integrated into Petro Rabigh‟s

structure. Then, the third phase aimed at supporting the

newly implemented logistics operations during the critical

ramp up period.”

How long did the project last?

“The selection of the Logistics Service Provider lasted 3

months whereas the implementation phase took more than 6

months. The ramp up phase lasted 6 months.”

03 Results

“After the integration of the 3PL in our organization, we

managed to put in place efficient processes that enable the

logistics operations to be more responsive to urgency,

especially when a part is needed on a short notice period.

On the other hand, the tangible result was a significant

improvement of the on-time delivery from both side, on the

suppliers side and to the customers side too. However, we

are still facing some issues of low performance from some

suppliers which affect our own 3PL performance, so for the

next steps, we intend to implement a supplier performance

program to support our suppliers to improve their delivery

and reliability performance. Through more awareness and

stronger incentives with a rewarding system, we expect to

see a significant improvement in our suppliers‟ performance

levels.”

company, our role is to develop the local industry and

especially to support the logistics sector which is strategic in

KSA. We took the risk albeit in a calculated way and it pays

off.”

02 Approach

What were the project objectives and expected

outcomes?

“The main objective was to reduce the total cost of

ownership, but besides financial considerations, we needed

to have the right expertise to conduct this critical work.

Indeed, the plant has to function 24h a day, 7 days a week

and the cost of an equipment breakdown can be substantial.

So the timely supply of the right parts becomes a critical key

to guarantee a seamless operation of the plant. Finally, our

objective was to expand the level of know how in logistics

both, for us internally by bringing a logistics expert within our

organization, and as well, by helping a 3PL to gain maturity

in outsourcing and to acquire specific knowledge in the

MRO-Petrochemical business.”

Which strategy was selected?

“The project started with the selection of the Logistics

Service Providers (LSPs). We conducted both a technical

and a commercial evaluation to assess the capabilities of the

LSPs to



Industry insights

“We were conscious that being the first company to do that

could have posed some risks […] We took the risk albeit in a

calculated way and it pays off”

34


Abdullah Al Saif

Materials Supply Manager

Petrorabigh

Industry insights

stronger incentives with a rewarding system, we expect to

see significant improvements in our suppliers‟ performance

levels.

04 Key lessons learned

How challenging was the integration of a 3PL

within Petro Rabigh’s organization? Is a bold

leadership enough to conduct such major change

in an organization?

“At the beginning, we had to face strong resistance to

change, to delegate key activities to an external company,

and with time, we have built trust and we can now work in

total transparency with our 3PL partner. The other main

challenge was to develop a cost-consciousness mindset, as

1% of cost reduction equals to 5% of sales increase. So we

had to educate our people to be more cost-focused in their

management of the operations.”

What would you recommend to companies which

are looking to outsource their logistics services?

Key success factors, pitfalls to avoid?

“We have experienced the outsourcing concept at Petro

Rabigh, and the results are more than convincing. I can only

recommend to other companies to focus on their core

business and outsource their non-core activities as long as

they find the right partner. For us the critical

path, besides the change management, had

been the quality of the information: we faced

quality issues from our different systems

“We have experienced the outsourcing concept at Petro

Rabigh, and the results are more than convincing. I can only

recommend to other companies to focus on their core

business and to outsource their non-core activities as long

as they find the right partner. For us, the critical path,

besides the change management, had been the quality of

the information: we faced quality issues from our different

systems which had impacted the performance of the 3PL.

The integration of our suppliers, 3PL and our company was

very challenging with a lack of data integrity. We could not

compare apples with oranges. The quality of data is really

critical amongst the supply chain partners to secure the

integrity of the end-to-end information flow.”Conclusion

“It is high time to capitalize on our experience amongst the

supply chain professionals, in the Petrochemical sector, and

to start sharing the outcomes of such initiatives. The model

has been tried successfully as a pilot at Petro Rabigh and

can be easily duplicated. We need to work as a group

towards the goal of helping each other to overcome our

challenges. The kingdom of Saudi Arabia is located at the

strategic place and will have to fully play its role of logistics

hub between the East and the West, and each of us have to

lift the level of expertise and know how to make it happen.”

improve their delivery and reliability performance. Through

more awareness and stronger incentives with a rewarding

system, we expect to see a significant improvement in our

suppliers‟ performance levels.”

especially to support the logistics sector which is strategic in

KSA. We took the risk albeit in a calculated way and it pays

““It is high time to

capitalize on our

experience amongst

the supply chain

professionals”

“At the beginning, we had to face

strong resistance to change, to delegate

key activities to an external company,

and with time, we have built trust and

we can now work in total transparency

with our 3PL partner. The other main

challenge was to develop a cost-

consciousness mindset, as 1% of cost

reduction equals to 5% of sales

increase. So we had to educate our

management of the operations.”

What would you recommend to

companies which are looking to

outsource their logistics

services? Key success factors,

pitfalls to avoid?

“We have experienced the outsourcing

concept at Petro Rabigh, and the results

are more than convincing. I can only

people to be more cost focused in the management of their

operations.”


are willing to outsource their logistics services?



are looking to outsource their logistics services?


critical amongst the supply chain partners

to secure the integrity of the end-to-end

information flow.

To conclude, it is high time to capitalize

on our experience amongst the supply

chain professionals in the Petrochemical

sector, and to start sharing the outcomes

of such initiatives. The model has been

tried successfully as a pilot at Petro

group towards the goal of helping each

other to overcome our challenges. The

kingdom of Saudi Arabia is located at the

strategic place and will have to fully play

its role of logistics hub between the East

and the West, and each of us have to lift

the level of expertise and know how to

make it happen.”

improve their delivery and reliability

performance. Through more awareness

Rabigh and can be easily duplicated. We need to work as a

group towards the goal of helping each other to overcome

our challenges. The kingdom of Saudi Arabia is located at a

strategic place and will have to fully play its role of logistics

hub between the East and the West, so each of us has to lift

the level of expertise and know how to make it happen.”

improve their delivery and reliability performance. Through

more awareness and stronger incentives with a rewarding

system, we expect to see a significant improvement in our

suppliers‟ performance levels.”

35


36


06 #1: Top Supply Chain concerns your organization is currently facing?

Top Supply Chain concerns

Supply Chain challenges

Introduction

The supply chain has become

increasingly complex and the volatile

economy has significantly contributed to

bringing in the supply chain landscape

more challenges. Economists and

experts are in agreement that a

recovery is under way and will persist

above 2011; however Supply chain

managers will still have to face greater

difficulties in managing their supply

chain during the upturn, especially those

who drastically downsized their supply

chain capabilities without preparing the

return of the growth.

Results

The top five challenges enumerated by

the respondents are:

Improving demand forecasting

(73.7%)

Reducing and optimizing inventory

levels (63.2%)

Reducing delivery leadtimes

(57.9%)

Improving suppliers performance

(42.1%)

Reducing logistics costs (41%)

Analysis

With a volatile economy, the demand

has been fluctuating much more than

usual which has made the forecast of

the demand more challenging and

less accurate. Unsurprisingly,

improving the demand forecasting

appears on top of the other supply

chain challenges, followed by the

inventory optimization. As demand is

less predictable, the planning of the

resources and in particular inventory

becomes more difficult. This generally

leads to inadequate inventory levels.

Due to limited resources, the delivery

leadtimes have been abnormally

stretched and have become less and

less reliable, both on the customers and

suppliers‟ sides. The recurrent issue is

not new in the Middle East, on the

suppliers‟ side but the phenomenon has

been dramatically emphasized during

the downturn, with a greater lack of

visibility on the demand and supply sides

for the suppliers. This has resulted into

degraded service levels and higher

logistics costs.

10.5%

13.2%

15.8%

19.4%

21.1%

22.5%

23.7%

26.3%

34.2%

39.5%

41.0%

42.1%

57.9%

63.2%

73.7%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Improve asset utilization rate

Reduce manufacturing costs

Reduce time to introduce new product

Increase delivery reliability

Fasten operations with supporting technology

Increase warehousing capacity

Increase inventory turnover

Improve distribution network

Develop collaboration within the supply chain partners

Reduce logistics costs

Improve supplier performance

Reduce delivery leadtimes

Reduce and optimize inventory levels

Improve demand forecasting

37



#2: How difficult is the recruitment of Supply Chain professionals?

Difficulty to recruit Most searched positions

84,0%

12,0%

4,0%

relatively difficult

normal

relatively easy

Introduction

Today‟s supply chains face a severe

global shortage of talent and skills

whereas the demand in the profession

has never been greater. Even though

this shortage is more accentuated in the

Middle East, the trend is really global

and affects every market, regardless its

level of maturity or geographical

localization. The recruitment and

retention of the skilled people who have

to manage companies‟ supply chains is

becoming the next biggest challenge of

the century.

Results

The respondents were asked to cite the

profiles the most searched and to

indicate the level of difficulty in recruiting

supply chain professionals:

84% of respondents find the recruitment

of supply chain professionals relatively

difficult, especially at the middle

management level (59.5%) like

Materials Management Manager, but

also for more technical positions such

as forecaster. 13.5% of respondents are

facing difficulties to recruit top managers

at the position of supply chain directors.

Analysis

People are generally wrongly placed at

the last position after technology and

processes. Basically, Operations are

run by people and the productivity is

directly linked to the performance of the

operators. Even best practices cannot

be effective if the staff is not able to run

them properly. In addition to that, as

supply chain has become more

complex, it has emerged a new breed of

supply chain professionals with a new

set of required skills. To be able to

manage a global and complex supply

chain in a highly dynamic environment,

professionals need to have both “hard”

analytical skills and “soft” leadership

skills. In Today‟s context, the supply

chain professional must be able to

integrate the big picture in his supply

chain strategy which includes finance,

sales and marketing. He also needs to

extend his perimeter across the supply

chain partners, from the suppliers to the

end customers. The strategic position of

this discipline, has forced managers and

directors to develop an effective vertical

communication towards the top

management which considers more and

more the supply chain as a key

competitive differentiator.

13,5%

59,5%

27,0%

Senior positions (VP Supply chain, CSCO,Supply chain

director…)

Middle management positions (Logistics manager, supply chain

manager, Warehouse manager, etc…)

Technical experts (forecasting, supply chain analyst etc…)

13,5%

59,5%

27,0%


director…)




13,5%

59,5%

27,0%


director…)




13,5%

59,5%

27,0%


director…)




13,5%

59,5%

27,0%


director…)




84,0%

12,0%

4,0%

relatively difficult

normal

relatively easy

38


#3: What are the next initiatives you are planning to implement?

Next initiatives planned to be implemented within the next 12 months


Introduction

Against conventional wisdom, it is even

more critical for companies to invest

time, effort and money in improvement

projects during downturn period.

Investing money on projects is often

disputable and difficult to defend without

a solid business case, however the pay

offs have proved to be substantial. It is

often the only way to get ahead of the

competition. To address their

challenges, the interviewed companies

have presented the course of mid-term

actions that they are planning to take.

Results

The top 5 initiatives that the

respondents are planning to implement,

within the next 12 months, correspond

to the major challenges cited previously:

Improving demand forecasting

(42.1%)

Reducing logistics costs (36.8%)

Reducing delivery lead-times

(34.2%)

Reducing and optimizing inventory

levels (31.6%)

Improving suppliers performance

(21.1%)

Analysis

Respondents have clearly identified the

weakest point yet most critical in their

supply chain: their ability to forecast

accurately the demand. Buying too

much inventory can be costly in terms of

space and trapped capital and exposes

the company to high level of

obsolescence. Underestimating demand

usually leads to backorders, stock outs

and poor service levels. Anticipating

demand accurately and efficiently is

crucial to balance a minimized inventory

investment and optimized revenue

opportunities. A more accurate

forecasting provides the company with a

better ability to plan the supply

accordingly, in a more cost-effective

way. As a matter of fact, once the

forecast accuracy has been improved,

there is a subsequent impact on the

inventory levels and the associated

costs. Part of the logistics costs is

automatically reduced and the delivery

lead-times can be improved too. Once

the company has a better visibility of the

demand, the relationship with its

suppliers can switch from an ad-hoc

mode to a more anticipative

collaboration where the supplier is able

to plan ahead of time and fulfill its

delivery commitment.


2.6%

5.3%

13.0%

13.2%

15.1%

15.8%

17.6%

18.0%

18.4%

21.1%

21.1%

31.6%

34.2%

36.8%

42.1%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Other

Reduce manufacturing costs

Improve asset utilization rate

Reduce time to introduce new product

Increase inventory turnover

Increase delivery reliability

Fasten operations with supporting technology

Improve distribution network

Increase warehousing capacity

Develop collaboration within the supply chain partners

Improve supplier performance

Reduce and optimize inventory levels

Reduce delivery leadtimes

Reduce logistics costs

Improve demand forecasting

39


40


Conclusion

apt title for the “2010 State of the Supply

Chain Report”. There was an increased

awareness of the strategic importance of

supply chain management in the Middle

East over the course of 2010 and an

even sharper focus was brought to bear

upon driving bottom line profits.

Strategic Supply Chain Management

has far reaching consequences, beyond

the scope of just logistics and if

deployed correctly can form an

unassailable defense against

competitors, resulting in a true

competitive advantage. As the world

pulls itself free from recession

As the world pulls itself free from

recession, competition for scarce

pulls itself free from recession,

competition for scarce resources will

intensify, there will be a greater

movement of goods across borders, and

there will be a downward pressure on

prices driven by the end customer,

whilst scarcity will ensure rising factor

input costs. Companies merely

competing on cost will find their profit

margins under serious threat and only

companies that decide to innovate

through differentiation will succeed in

defending their margins. In a post

recession world companies will

increasingly find themselves part of an

integrated network of companies, locked

in a supply chain, competing with other

supply chains, all focused in delivering

value to the end customer.

in a supply chain, competing with other

supply chains, all focused in delivering

value to the end customer. Integrated

supply chains underpinned by common

technology, systems and processes, will

lead to agility and flexibility in the form

of shorter lead times, and reduced costs

as a result of lean inventory and lower

cost of ownership through shared

investments. In an adversarial customer

supplier relationship, there will always

be a trust deficit, however, once trust is

replaced by collaboration, the entire

end-to-end supply chain can be equally

profitable for every player: from the

suppliers to the end customers.

pply chain has a greater interest to

maximize the profitability of its business

partners.

Supply chain under

construction… would be an

summa recessioptimum level

the supply chain from


A

Conclusion

07

41


08

Appendix

© 2010 B2G Consulting .This document is the result of primary research performed by B2G Consulting. B2G Consulting methodologies provide for

independent and objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire

contents of this publication are copyrighted by B2G Consulting and may not be reproduced, distributed, archived, or transmitted in any form or by any

means without prior written consent by B2G Consulting.

Appendix

Frederic Gomer

Partner

B2G Consulting

[email protected]

Mobile: +65 972 604 97

Simon Chauvin

Senior consultant

B2G Consulting

[email protected]

Mobile: +973 39 31 98 83

Authors:

About B2G Consulting:

Based in the Middle East, B2G consulting is a newly created firm

focusing on supporting growing markets, from A to Z, we help our

clients to build profitable businesses in new and challenging

markets, transforming their critical challenges into high value

opportunities, and our capabilities to support organizations

encompass every operational aspect:

Definition of operational strategy

Hands-on support for implementation

Execution and interim management

B2G Consulting currently operates in Eastern Europe, Middle

East & Africa, Asia Pacific and China, the organization is

embarking on an ambitious expansion plan with the goal of

reaching 25 emerging markets by 2020…

42


Appendix

2010 Middle East State of Supply Chain Management

Documents

Transcript of 2010 Middle East State of Supply Chain Management