Saudi Aramco goes local to cut costs

Published December 2nd, 2015 - 10:00 GMT

Saudi Aramco wants to double to 70 per cent the amount of goods and services it sources from the local market by 2021 as the kingdom's oil giant outlined plans to spend $300 billion on its supply chain in the next 10 years.

The local sourcing target comes at a time of significant financial stress in Saudi Arabia, as the Gulf's largest economy adjusts to a projected period of sustained lower oil prices and subsequent reduced state spending and economic growth.

As part of its local focus for the supply chain, Aramco aims to create around 500,000 direct and indirect jobs for Saudi nationals, Saudi Aramco president and CEO Amin Nasser said, according to the text of a speech given on Tuesday.

He was speaking at the launch of the In-Kingdom Total Value Add (IKTVA) programme, aimed at increasing investment, economic diversification, job creation and work force development within Saudi Arabia. The event was presided by Prince Saud bin Nayef bin Abdulaziz, Governor of the Eastern Province; Dr Tawfiq Al-Rabiah, Saudi Arabia’s Minister of Commerce and Industry; and Abdullatif Al-Othman, Governor of the Saudi Arabian General Investment Authority.

"It puts local content at the heart of our procurement process, and will be a requirement of doing business with Saudi Aramco going forward," Nasser said.

The 70 percent figure seemed to include foreign businesses producing goods inside the kingdom.

"Companies that build a deep and lasting relationship with the kingdom by setting up shop here and investing in workforce development will capture the major share of Saudi Aramco's spend on materials and services," Nasser said.

Saudi Aramco wants to double to 70 per cent the amount of goods and services it sources from the local market by 2021 as the kingdom's oil giant outlined plans to spend $300 billion on its supply chain in the next 10 years.

The local sourcing target comes at a time of significant financial stress in Saudi Arabia, as the Gulf's largest economy adjusts to a projected period of sustained lower oil prices and subsequent reduced state spending and economic growth.

As part of its local focus for the supply chain, Aramco aims to create around 500,000 direct and indirect jobs for Saudi nationals, Saudi Aramco president and CEO Amin Nasser said, according to the text of a speech given on Tuesday.

He was speaking at the launch of the In-Kingdom Total Value Add (IKTVA) programme, aimed at increasing investment, economic diversification, job creation and work force development within Saudi Arabia. The event was presided by Prince Saud bin Nayef bin Abdulaziz, Governor of the Eastern Province; Dr Tawfiq Al-Rabiah, Saudi Arabia’s Minister of Commerce and Industry; and Abdullatif Al-Othman, Governor of the Saudi Arabian General Investment Authority.

"It puts local content at the heart of our procurement process, and will be a requirement of doing business with Saudi Aramco going forward," Nasser said.

The 70 percent figure seemed to include foreign businesses producing goods inside the kingdom.

"Companies that build a deep and lasting relationship with the kingdom by setting up shop here and investing in workforce development will capture the major share of Saudi Aramco's spend on materials and services," Nasser said.

Nasser said: “IKTVA is a step-change in our commitment to local content development that is now required across our domestic and international supply chain.”

He added: “Sourcing a majority of materials, goods and services that we require locally will enable Saudi Aramco to, not only embed greater competitiveness and efficiency in our operations, but will also help us fulfil our potential in support of the Kingdom’s growth, job creation and economic diversification objectives.”

IKTVA will create win-win, mutually beneficial partnerships between Saudi Aramco and its suppliers, he said.

“The scale of our diversified energy business and associated capital expenditure programs clearly create significant opportunities for those suppliers ready, willing and able to invest in Saudi Arabia and partner with Saudi Aramco on a long-term, sustainable basis,” he said.

IKTVA is underpinned by mandatory ‘local content development’ of suppliers and contractors that prioritises the purchase of goods and services from a local supplier base. Three critical objectives guide the programme: Doubling the percentage of locally-manufactured energy-related goods and services to 70 per cent by 2021; helping raise the export of Saudi-made energy goods and services to 30 per cent over the same time frame; and creating direct and indirect jobs within the energy related sector for a growing and talented Saudi population.

AbdulKarim Abdulaziz, vice president of materials supply, said: “The IKTVA program will help make our supplier relationships more strategic, mutually beneficial and focused on long term value creation. The initiative will help recognize the full value and potential that all our suppliers can bring to the table. Our goal is to create a win-win, more formal and systematic mechanism that puts everyone on an equal footing and increases competition to drive growth.”

IKTVA will provide a level playing field for domestic and international suppliers though greater consistency and increased transparency in application and process. Uniform evaluations for both service and material suppliers will be consistent across the company, providing investment stability and assurance, the statement said.

The program will first establish a three-year baseline score for each supplier measured against key metrics for local content and value creation. After this, Saudi Aramco and each supplier will jointly develop an IKTVA action plan to increase the IKTVA score and impact. Performance will be tracked and measured on an ongoing basis, it said. 

A new function - the Industrial Development & Strategic Development Supply Department - has been created within Saudi Aramco Materials Supply to champion and integrate the IKTVA program and optimise the supply chain.

 


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