M#224575953 Driving Value Through Procurement and Supply 2022

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San Francisco State University *

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Chemistry

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Nov 24, 2024

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1 Driving Value Through Procurement and Supply Name and Number Course and Number Institution Affiliation Due Date

2 Contents 1. Executive Summary ................................................................................................................................. 2 Purpose .................................................................................................................................................... 2 Current Situation ..................................................................................................................................... 2 Planned Objectives .................................................................................................................................. 2 Proposed Strategies ................................................................................................................................. 3 2. Background ............................................................................................................................................. 4 3. Introduction ............................................................................................................................................. 6 4. Body ........................................................................................................................................................ 9 Product or Services of Spend ................................................................................................................... 9 Stakeholder Management and Importance to Stakeholders ................................................................... 10 Brief Market Analysis and Demonstration of How the Procurement Function Will Function and Create Value ..................................................................................................................................................... 14 Procurement Process: ........................................................................................................................ 14 Technical and Commercial Requirements: ........................................................................................ 15 Negotiation Plan: ............................................................................................................................... 15 S-Chem Position: ............................................................................................................................... 16 Brief Market Analysis and Demonstration of How the Procurement Process Will Create Value for Stakeholders .......................................................................................................................................... 16 The Current Approaches to Manage Prices and Costs ........................................................................... 18 5. Conclusion ............................................................................................................................................. 21 6. Recommendation ................................................................................................................................... 22 References ................................................................................................................................................. 24 1. Executive Summary Purpose This report demystifies the current procurement and supply chain management situation at S-Chem, a chemical-based company in Saudi Arabia. Then, the report identifies the main challenges with S-Chem procurement of flux oil use in bitumen production sites. Finally, this report proposes relevant recommendations on improving the procurement process to bring value to stakeholders based on the TBL (triple bottom line) and CSR (corporate social responsibility).

3 S-Chem culture is sustainability and CSR-oriented; hence its supply chain processes, including the procurement activities, must be compatible with sustainability goals. Current Situation Currently, S-Chem has a highly costly strategy to produce flux oil by mixing LCO (light cycle oil) and diesel, leading to high costs and exposing people, including employees and the public, to safety and health hazards. Hence, this problem is addressed by using an alternative such as wash oil over ordinary flux oil. Green flux oil is also a better option than ordinary flux oil because it can help in lessening environmental concerns. In addition, storage and transporting flux oil is a highly costly process. S-Chem can reduce costs and improve efficiency in producing and distributing flux oil by choosing the options below. Planned Objectives  Recentralize supply chain management of al group companies by utilizing highly talented and capable leadership and management team.  Improving efficiency by lowering procurement and production costs at the company  To maximize ecological and social benefits to the community and employees while sustaining profitability levels  Improving the competitive advantage over the top competitors in the chemical industry  Offering share services, including accounting, internal control, IT (information technology) management, business & finance planning, HR (human resource) & administration, and other activities.  Participate in re-engineering by using the company’s internal resources and external consultants

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4  Harnessing the management team capabilities on corporate levels to improve existing companies and begin new business projects Proposed Strategies The proposed strategy is for S-Chem to establish contracts with wash oil suppliers, which are premium products to meet S-Chem specifications, and have efficient suppliers to manage storage and transportation costs, saving the company at least $1,250,000 annually. Another proposal is to use wash oil as an alternative for flux oil. Unlike flux oil, wash oil is of superior quality. Although wash oils come with higher costs, it provides better value to stakeholders and will trim costs in the long term. For example, a road constructed with bitumen mixed with wash oils lasts longer, improving durability and lowering maintenance costs. Another proposal involves maintaining short-term contracts because they provide the best prices. In addition, short-term contracts have room for contract renegotiation, creating a chance for stakeholders to strike the best deal. 2. Background S-Chem is a petrochemical company formed by three subsidiaries: SCP (Saudi Chevron Phillips Company), SPco (Saudi Polymers Company), and JCP (Jubail Chevron Phillips Company), launched in 1999 in Saudi Arabia (S-Chem, 2021). S-Chem headquarters are in Jubail, Saudi Arabia. At S-Chem, the major specialties produced are benzene, gasoline components, ethylene, butane, polystyrene, hexene, propylene, styrene, and polypropylene. S- Chem has between 5,000 and 10,000 employees working in various departments (S-Chem, 2021). Since its launch in 1999, the primary focus has been to develop and produce superior quality products at competitive prices while covering the growing market for petrochemicals. At

5 the heart of S-Chem Company, major segments are the petrochemical, logistics, and aviation sectors. Major activities at S-Chem include:  Domestic fossil fuel trading  Fertilizer manufacturing and supplying  Renting logistics facilities and infrastructure, including chemical storage rentals, facility rentals, and warehouse rentals  Manufacturing lubricating oil  Specialty chemical production and distribution  Manufacturing commodity chemicals and trading S-Chem has a classic vision, mission, CSR (corporate social responsibilities), and supply chain chains consistent with TBL (triple bottom line). At S-Chem, the vision is “to become Saudi Arabia’s leading petrochemical firm, ideal employer, and trusted partner devoted to shared value creation.” S-Chem achieves shared value by committing resources (human power, technology, and money) to build a safe environment and focus on sustainable growth (S-Chem, n.d.). S- Chem's mission involves offering safe, reliable, and sustainable products with superior quality while accountable to stakeholders. S-Chem also helps its stakeholders to achieve their expectations ( Rudnicka, 2016 , p.204 ) . Social responsibility is also a fundamental practice at S- Chem. At S-Chem, the company believes that contributing to the surrounding community via sponsoring social events and supporting community engagement is critical to improving and achieving sustainable value ( Schonebeck & Pöllinger, 2020 , p.33 ) . S-Chem also strives to build superb distribution channels that deliver shared value to the stakeholders. Excellent distribution channels are ideal for the company to cut costs and improve sustainability and CSR.

6 Chemical logistics is a critical part of the supply chains and procurement process at S- Chem and similar companies operating in the chemical industry. According to Camelot Management Consultants, logistics is critical for chemical industries to leverage their competitive advantage and compliance with relevant legal requirements (n.d.). In many companies in this industry, chemical production sites are decades-old plants, which are unsuitable to operate effectively in the current times. Contemporary trends, including growing sustainability focus, greater need for technology use, and tight capacity, have impacted the chemical logistics activities (Thomas Publishing Company, 2019, June 18). Logistics can hardly operate effectively by adopting smart solutions in such an environment. Compliance with legal requirements, extremely dangerous commodities, and actual transport capacity can induce significant problems for chemical logistics. In addition, maintaining people in a highly hazardous environment within chemical facilities is a major problem that S-Chem faces (S-Chem, n.d.). For example, S-Chem faces the critical challenge of having people working in a highly hazardous environment, and raw materials continue to rise (Thomas Publishing Company, 2019, June 18). At chemical-based companies, the products are volatile and may require employees to take extra precautions, including wearing protective gear to thrive in such an environment. Hence, the demand for smart logistics solutions is critical. 3. Introduction Brief Description and Explanation of Logistics and Supply Chain Procurement is a supply chain activity that obtains the merchandise, services, or works needed for a business or organization to operate effectively ( OGC, n.d. ) . The organization acquires materials, services, and goods from third parties (suppliers) in the procurement process. On the other hand, a supply chain refers to upstream and downstream relationships built by companies with third parties (vendors and clients) to efficiently deliver superior value to stakeholders (shareholders, public, and customers) (Christopher, 2016). Increasingly, SCM (supply chain management) identifies the companies for partnering with, allowing firms to

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7 become more responsive and enable them to become part of the larger organizations. (Christopher & Ryals, 1999). Purpose Chemical industry is not without challenges, competition is increasingly harder, and continuous improvement as per lean principles is gaining momentum. The performance will also not improve if the companies do not adopt smart solutions to address emerging challenges, including new compliance requirements and safety needs, and cut costs to improve resilience and effectiveness (S-Chem, n.d.). In addition, the chemical industry presents unprecedented risks to people, including employees and communities ( Schonebeck & Pöllinger, 2020 , p.33 ) . Hence, adopting measures to reduce people from being exposed to hazardous conditions is important for the market players to thrive. Available studies have revealed the importance of collaborative partnerships among the supply chain players. According to research, effective relationships between suppliers and clients improve financial performance and profitability (de Macedo Ferreira et al., n.d., p.2). This report aims to verify how S-Chem can drive supply chains and procurement value by adopting smart options such as embracing collaborative technologies and building strategic partnerships or relationships. This report identifies S-Chem's procurement issues, including inefficiencies and high costs of sourcing flux oil inconsistent with its CSR and TBL-oriented mission and vision. Finally, this show shows viable recommendations, including replacing flux oil with wash oil, embracing short-term contracts, and strengthening relationships with suppliers and customers to remain competitive. 4. Body Product or Services of Spend Flux oil is the product that S-Chem needs in the quench tower of the MFC unit to control viscosity. Flux oil is critical content needed by the S-Chem mix feed cracker for effective site

8 operation (Bituminous Products PTY LTD, n.d.). Flux oil is a common substance used to sustain the production process and other supply chain activities in chemical industries. Flux oil is content used to alter the bitumen’s physical structure, including lowering its boiling point and viscosity (Bituminous Products PTY LTD, n.d.). As a result, this ensures that the bitumen mix has a lasting workability time. In its natural state, bitumen has a high viscosity. However, the big problem is that S-Chem cannot obtain flux oil from any supplier but FCC (Fluid Catalytic Cracking) Refineries because of its strong commitment to delivering the highest quality and value to customers. FCC Refineries are the flux vendors renowned for supplying excellent quality and value to customers. S-Chem has specified quality requirements that it would want to use. For example, S-Chem wants low-sulfur flux oil with high aromatics content and boiling range. S-Chem will need about 15,000 MT of flux oil annually (Total Energy, n.d.). In addition, S-Chem is committed to its environmental sustainability goals. Hence, S-Chem will require green flux with minimal environmental implications. For example, green flux consumes less energy to be mixed with bitumen. Green flux is produced from the petroleum distillates to reduce bitumen viscosity (Total Energy, n.d.). In addition, green flux can increase the durability of the bitumen poured on the road surfaces. Thus, this lessens the road maintenance and saves road development authorities on costs they incur in maintaining the road surfaces. The stronger resistance of the bitumen mixed with green flux to harsh environmental conditions contributes to stronger durability (Total Energy, n.d.). Hence, using green flux oil instead of the ordinary flux oil mixed with the bitumen applied in road construction and other building activities.

9 Stakeholder Management and Importance to Stakeholders Wash oil is an alternative to flux oil. Although wash oil is of superior quality to flux oil, it attracts higher prices. Because adopting a new strategy to use wash oil, the procurement team will initiate an alternative by blending diesel with LCO and not the end-users. Hence, stakeholder management will be critical to succeed in the procurement process to earn their support. The procurement project manager used the SWOT framework below to persuade the stakeholders to support changing the strategy. Strengths Weaknesses  Multiple wash oil suppliers compared to a single LCO supplier  Wash oil can be of superior quality to alternative flux oil  Higher availability of the wash oil than LCO  Ability to reduce risk in the wash oil or flux oil replenishment because the shipment lead time is 4- 6 months  Wash oil attracts higher prices than flux oil  Lack of smart technologies to improve procurement and production process  MFC lacks wash oil experience, which may require adjustments before new chances. Opportunities Threats  Research and identity more distillation plants that can produce green flux oils or wash oil  Industrial rental and estate infrastructure  Failure by C10 to produce green flux oil to suit S-Chem demands and requirements  Inability to use wash oil to replace flux oil as an alternative

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10  Global oil marketing and trading  Alternative petrochemicals and addictive trading  Natural gas-related trade activities, including conversion of natural gas to become natural-gas compatible  Export and important supply-chain integration, which encompass air freight activities  Safety and health hazards in developing wash oils At S-Chem, various stakeholders are involved in procurement and logistics activities. First, the procurement project managers are major stakeholders responsible for planning and coordinating activities to ensure that the organization acquires materials. The procurement managers also supervise logistics and procurement management activities to ensure that the project runs smoothly. Second, suppliers and external customers are major stakeholders. S-Chem develops relationships with customers and suppliers, including sharing supply chain information ( Schonebeck & Pöllinger, 2020 , p.33 ) . However, S-Chem hopes to strengthen its relationship with suppliers and customers. Stronger relationships improve communication and promote better management of the supply chain risks. In addition, stronger relationships will help S-Chem negotiate better deals with suppliers and customers ( Schonebeck & Pöllinger, 2020 , p.33 ) . S- Chem will eliminate unnecessary suppliers, including LCO and diesel suppliers because they will no longer ship LCO and diesel to the storage facilities.

11 Direct managers at the departmental levels are also critical stakeholders, responsible for identifying demand requirements in their respective units. Another major stakeholder involves the legal department with lawyers that advise the organization on the compliance requirements, including safety and quality standards S-Chem should meet to realize organizational goals ( Schonebeck & Pöllinger, 2020 , p.33 ) . The finance department, led by a financial manager, is another stakeholder that will evaluate suppliers’ financial statements and ensure that purchase invoices tally with payment requests. The procurement administrator and service division are also essential stakeholders organized for the procurement contract of materials, works, and services. S-Chem terminal & marine departments are also stakeholders actively involved in the port storage. However, S- Chem will phase out this department in the lean process because port storage will no longer be important. Another department that S-Chem will eliminate is the trade compliance department because it will no longer clear LCO vessels ( Schonebeck & Pöllinger, 2020 , p.33 ) . S-Chem will use the following matrix to manage the stakeholders: This Mendelow’s Matrix illuminates a stakeholder management plan: Ensure Optimal Satisfaction Key players  Finance Department and Experts  Procurement Directors and Department  Legal Department and Experts  MFC Directors Minimal Negative Effect Keep Informed  LCO and Diesel providers  Provider of transportation service  Direct and line managers  Procurement Departments

12  Storage service providers  Trade compliance Department  Marine & Terminal department  Potential vendors The success of procurement and logistics management for S-Chem in procuring flux or wash oils will also depend on its relationship and interactions with various stakeholders. Effective stakeholder interactions allow the company to earn social, moral, and political support to progress its business activities. From the suppliers to clients and the public to investors, a stakeholder is instrumental in the company's success. Internal Stakeholders (Connected Stakeholders) In procurement management, it is essential for procurement project management. Each stakeholder group has unique interests and perspectives likely to affect organizational success in diverse ways. The internal stakeholders (team and managers) will voice their interests, including proper remuneration and observing safety or health demands in the workplace. Hence, S-Chem must meet internal stakeholder needs, including safety and health. External Stakeholders (Secondary Stakeholders) External (secondary) stakeholders are parties likely to deliver superior value to the consumers. On the one hand, clients may demand high-quality products at reasonable prices. On the other hand, suppliers may demand prompt payment. Relationship with Stakeholders Collaborative relationships will drive significant value to the organization and stakeholders. First, these relationships will improve efficiency and overcome waste in procurement and logistics activities. For example, suppliers and customers can work with S- Chem to develop a collaborative information sharing system to ensure that both supply chain levels read the same script to prevent inconsistencies. Collaborative information sharing also

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13 eliminates by ensuring that players are up-to-date with the supply chain requirements. Hence, this ensures that the right materials are at the site in the right quantity and time, saving costs by ensuring that the company does not have excess stock that wastes space. The following matrix illustrates how S-Chem show prioritizes and manages stakeholders: Brief Market Analysis and Demonstration of How the Procurement Function Will Function and Create Value Procurement Process: The proposed procurement process at S-Chem will promote transparency and value. The procurement officer will document each step involved in sourcing materials, including flux or wash oil. As a result, this will provide an audit trail and reduce the risk of mismanagement or misuse of the procurement assets. Documenting these steps can also be used for future reference when preparing a new procurement strategy.

14 The next step will involve supplier evaluation to ensure only the suppliers that meet eligibility criteria can supply materials or works. Auditing the potential supplier will also allow S-Chem to maintain integrity and reputation in the supply chain ( Schonebeck & Pöllinger, 2020 , p.33 ) . Only the suppliers that resonate with S-Chem’s values, CSR, and ethics will qualify for supplying materials to the company. Then, the S-Chem procurement manager will meet in person with the potential ideal suppliers that meet S-Chem’s criteria after sending a formal RFI (request for information). Next, the procurement manager will issue RFP (request for proposal) to 7 ideal suppliers that meet S-Chem supply criteria. Chosen suppliers will have commercial and technical capabilities to supply the materials. Technical and Commercial Requirements: The RFP will specify various technical and commercial requirements. On the one hand, the technical requirements specified by RFP will encompass available capacity, lead time, MSDS (material safety data sheet), lead time, and S-Chem specifications. In addition, technical requirements will encompass a list of raw product components, the source of material components, and compliance with S-Chem specifications. On the other hand, commercial requirements will encompass price, price change mechanisms, payment terms, demurrage costs, and compliance with S-Chem’s ethics. Negotiation Plan: The procurement process will also involve a negotiation plan. At S-Chem, the primary negotiation objective will ensure that the procurement and other supply chain processes are within the budget. Price change management through procurement formula is also another objective. Cost minimization or eliminating demurrage costs also constitute major objectives that S-Chem seeks to achieve. Desired quality delivery to the customers is another objective that S-

15 Chem seeks to achieve. Moreover, the negotiation plan will seek to cultivate flexibility for the procurement contract because of the unclarity of the diesel and LCO to the storage facilities. S- Chem will also award the contract to more suppliers to leverage the S-Chem. S-Chem Position: Currently, S-Chem has identified and selected all the suppliers it will use to supply LCO and diesel for its supply chain activities mentioned above. S-Chem's current position is within the leverage category based on the portfolio analysis. Importantly, the primary reason is that its requirements depend on requirements that command a relatively higher value. Additionally, wash oil commands a higher value than FCC’s flux oil or LCO. Supplier Position: The procurement manager will send RFP to all identified to supply the raw materials. After sending RFP, the suppliers responded that they believed they were most qualified to meet S-Chem's supply chain needs and demands. Most suppliers are willing to supply S-Chem because it consistently keeps the promise (McCrea, 2018, February 15). For example, the prompt payment within the agreed date constitutes a major factor in suppliers’ express willingness to supply to S-Chem. The only negative is that they will have to share the volume supplied to S- Chem from the suppliers' perspective. Brief Market Analysis and Demonstration of How the Procurement Process Will Create Value for Stakeholders The procurement process will create value for the stakeholders mentioned before. First, cost savings is one way the proposed procurement process will create value for stakeholders (Allcock, n.d.). S-Chem could save up to $1.25 million annually on demand forecast if the negotiated price per batch of material supply is $680. To ensure that S-Chem enjoys ideal prices, short-term procurement contracts covering 1- 2 years are ideal. In addition, short-term

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16 procurement contracts provide room for contract renegotiation. S-Chem can also divide volume to improve suppliers' capacity that offers the best quality and prices. Accountability to stakeholders will also improve if S-Chem improves supplier relationships. S-Chem procurement managers and other officials such as senior executives will learn how to develop robust supplier relationships or collaborations to improve accountability. Effective relationships among stakeholders allow them to be accountable to each other. Better accountability is an ideal factor in boosting business performance, client satisfaction, and growth in the market share (McCrea, 2018, February 15). In addition, the better collaboration will enhance S-Chem's competitive edge by allowing all players in the supply chain network to succeed. Hence, this reduces operating costs and maximizes the organization's competitive advantage. S-Chem will undertake various steps to develop resilient collaborations and improve value creation for the stakeholders. The first step will involve vetting the right customers and suppliers (Allcock, n.d.). Many firms seek to establish connections with the largest customers or suppliers because they believe that size creates value. However, this is not always the case. Smaller clients and suppliers can prove to be valuable and ideal partners to derive superior value for an organization. The main aspect that matters when selecting the partners is meeting the organizational mission and vision (Allcock, n.d.). Furthermore, a company may have to invest significant time and resources in developing a relationship with the big suppliers and partners. Hence, the company should consider this when building a relationship with suppliers. The next step should involve regular meetings with suppliers after vetting and choosing the ideal partners (suppliers and customers). Regular meetings with the business partners are ideal for identifying and solving underlying problems that suppliers may be facing. S-Chem will

17 keep its partners abreast with the latest supply chain and procurement (Allcock, n.d.). Regular meetings with partners will allow the collaborators to identify areas to improve their relationship. S-Chem will also improve visibility and transparency. Lack of supply chain transparency and visibility are major issues with a supply chain system. S-Chem will address this by establishing an intranet with its partners to securely share information. In addition, S-Chem and its collaborators will develop joint long-term strategic plans to allow them to understand and work towards each other long-term objectives (Allcock, n.d.). Finally, S-Chem will create open collaborations. Research indicates that a network of supply chain partners extends the company’s efforts to ensure that the right products reach the right people or organizations in the right quantity and time (Allcock, n.d.). Such an aspect is consistent with lean cost minimization and efficiency improvement principles. The Current Approaches to Manage Prices and Costs The 5Rs is an ideal strategy that may help manage costs and prices at S-Chem or an organization (Oxford, n.d.). Ordinarily, procurement management sets procurement objectives, including prices, costs, and quality. The framework identified below identifies the 5Rs. The image below shows the major 5Rs that the procurement management team should seek to achieve:

18 (Oxford, n.d.) Right Quality Quality is a major objective that the procurement process must achieve. Traditionally, quality involves the ability to meet the minimum standards. However, quality is beyond the established standards (Oxford, n.d.). In this era of continuous improvement, quality is infinite. The continuous improvement principle suggests that no item has achieved the highest possible quality and cannot be an improvement. Toyota was the first to adopt the continuous quality improvement concept before its adoption in the other market sectors. As per this philosophy, quality must permeate every business and supply chain area. The right quality not only applies to materials delivered or end-product. Rather, the right quality of communication, relationships, management, image (company), and the process are critical for the business to thrive. Right Quantity The next “R” involves the quantity. Traditionally, the buyers dictated the quantity to supply or source from the vendors (Oxford, n.d.). Although this remains true, other factors that dictate the right quantity to source or supply are sustainability dimensions based on the triple

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19 bottom line (planet, profit, and people). Various procurement managers at S-Chem must consider (CIPS, n.d.). Quantity does not apply to products or raw materials only. Rather, it also involves order, staff, supplier, product, and client quantity to control costs and price. Excess quantity of the above factors leads to excess costs, weakening an organization's competitive advantage. Right Price The “right price” is also critical in the procurement process. Setting the right requires the procurement managers to consider costs and prices. At S-Chem, various costs are considered along the supply chain process (Oxford, n.d.). Hence, S-Chem must keep costs low to reap the highest returns or improve its competitive advantage by affordable its products. Besides the value paid for materials and products (Oxford, n.d.). Other areas considered in determining the right pricing are price to the society and the environment. The operational cost and expenses involved in the procurement department are also major aspects considered in setting the right price for the products. Right Place The “right place” also constitutes another major procurement element to build value in an organization. An effective procurement process creates value consistent with the lean principles if the materials or products become delivered to the right place (Oxford, n.d.). However, this also applies to the procurement function and customer location. In addition, it applies to supply chain sources and places where customers have sourced the materials. Right Time The “right time” is another procurement aspect to control costs and establish prices (Oxford, n.d.). Undoubtedly, time is the only constant resource for all stakeholders and persons. Time spent is irreplaceable. Hence, effective time management is important to cultivate procurement value. Time management applies to various activities, including ordering, negotiation, analysis, and time spent with vendors.

20 4Rs (Responsiveness, Reliability, Resilience, and Relationship) Responsiveness Responsiveness refers to how the supply chain can respond to trends, including market conditions. S-Chem may react to the trend, such as short lead times ( Madhani, 2022 , p.389 ) . For example, S-Chem may attend to clients who demand real-time services. Attending to clients in real-time may improve client relationships. When S-Chem reacts swiftly to market demands, it can adjust easily to the market changes and help to improve service delivery. Reliability S-Chem seeks to improve its service reliability by revamping processes that may affect performance and satisfaction levels. Another way that S-Chem can improve supply chain reliability is by reducing process changes ( Madhani, 2022 , p.389 ) . At S-Chem, reliability will improve via a continuous improvement process. Relationship S-Chem will cultivate supplier relationships to build a resilient supply chain process. Like in other organizations, the procurement process's success depends on the quality of the supplier relationships ( Madhani, 2022 , p.389 ) . Another advantage of a quality supplier relationship is that they allow the smooth flow of materials, helping to avoid delays ( Madhani, 2022 , p.389 ) . Effective source practices are also possible with excellent relationships with the suppliers. Resilience Resilience involves the capacity to respond effectively to unexpected interruptions. Apart from developing and maintaining active relationships, it is necessary to establish a vibrant network of high-qualified suppliers. A quality relationship with the suppliers provides for negotiating the ideal deals. For example, S-Chem can negotiate with its suppliers for flux or wash oil for the best supply deals.

21 Brief Market Analysis The chemical sector is an engine of the global economy, with an estimated sales value of $3.94 trillion as of 2019 (Fernández, 2021, October 19). Sales volumes reached an all-time high in 2014, with $5.4 trillion in value (Fernández, 2021, October 19). The chemical industry encompasses companies that convert natural ingredients, including fossil fuels, waters, minerals, hydrogen, and other materials, into various products, including bitumen, paints, and flux oil (Fernández, 2021, October 19). The products produced via chemical processes have various uses, including construction activities ( Schonebeck & Pöllinger, 2020 , p.33 ) . For example, bitumen is a major ingredient used in transport construction activities. The chemical industry has seen some growth in recent years. According to the growth forecast, the industry will grow by 1.8% over three years between 2021 and 2024 (Fernández, 2021, October 19). Basic chemicals such as flux oil and bitumen will see the highest growth and may see 2.1 growth by 2024 (Fernández, 2021, October 19). The Asia-Pacific region will see the highest growth in the chemical sector from the regional perspective. Since 2012, Asia has represented over 50% of the global chemicals (Fernández, 2021, October 19). Therefore, this shows that the Asia Pacific market has the highest market. Procurements are major supply chain and logistics activities facing challenges, including high costs and inefficiencies in the chemical industry. S-Chem epitomizes a chemical industry company facing challenges in the procurement process of materials involved in producing its major products, including flux fuels ( Schonebeck & Pöllinger, 2020 , p.33 ) . Procurement is not simply purchasing or ordering materials used in the supply chain activities, including production and selling. According to Lamming, it is insufficient to see procurement as merely a function of dealing with suppliers or purchasing items from the vendors. Rather, suppliers have become

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22 integral players and parts of the extended value addition process ( Schonebeck & Pöllinger, 2020 , p.33 ) . Hence, partnership with suppliers is critical for a smooth procurement process. Market Structures Monopoly Monopolies are the single market suppliers or sellers within the same geographic market, such as a region, country, or city ( Shang, Li, & Qi, 2022 , p.462 ) . Monopolies have enormous control over competition. For example, monopolies can charge higher prices because of the absence of competition. Oligopoly Oligopoly involves few suppliers or sellers who collectively exert control over the market. In an oligopolistic market, if one supplier or seller lowers the prices, the others follow suit ( Shang et al. , 2022 , p.462 ) . Oligopolies offer identical services or products. Perfect Competition Perfect competition is the common market structure characterized by many players in the market. In perfect competition, players exert no control over prices ( Shang et al. , 2022 , p.462 ) . Instead, the demand and supply are the primary determinants of the prices. Competition is high in this market structure. Imperfection Competition Imperfect competition is a situation where all the market characteristics do not fulfill all the characteristics of a perfectly competitive market ( Shang et al. , 2022 , p.462 ) . In this market structure, producers and consumers may exert control. As a result, imperfect competition may lead to market failure. Duopoly A duopoly is similar to an oligopoly. The only difference is that a duopoly involves two market players ( Shang et al. , 2022 , p.462 ) . Other features of an oligopoly are similar to those of a

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23 duopoly. Duopolies have serious control over the market. Hence duopolies could control the market conditions. The Product Life Cycle Model – BCG Development is the initial stage when a company is opening. S-Chem is passed that stage. Currently, S-Chem is in the growth stage. S-Chem has been expanding over the years and increasing its presence outside Saudi Arabia. S-Chem is focused on becoming an international company. Maturity is the next stage. S-Chem is on the path to maturity. At this level, S-Chem will fight to maintain market share. Finally, the exit (decline) stage is on the final level. The exit stage will involve the exit of some competitors. S-Chem will diversify its revenue sources by venturing into other markets. STEEPLED The Macro Environment Socio-Cultural The socio-cultural factor is also a major factor affecting S-Chem. S- Chem operates in a country dominated by Islamic traditions. The Islamic traditions can influence HR and marketing practices (Shaw, 2021, March 8). For example, S-Chem must observe Islamic traditions when marketing or procuring services and products. Technological Technology is a major element that may define S-Chem’s success within and outside Saudi Arabia. For example, SCM (supply chain management) software and procurement solutions can streamline supply

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24 chain processes. In addition, big data technologies can allow S-Chem to forecast trends and inform supply chain practices. Economic Saudi Arabia is an upper-middle-income economy with vast natural resources, especially oil. The country has been experiencing vast economic growth, opening opportunities for S-Chem (Shaw, 2021, March 8). Saudi Arabia is also on the path to economic diversification to reduce over-reliance on the oil proceeds for economic growth and advancement. Major industries emerging in Saudi Arabia are the construction and tourism sectors, creating opportunities for S-Chem. Environmental Environmental concerns are prevalent in Saudi Arabia. For example, pollution is high, and S-Chem must reduce adverse environmental concerns (Shaw, 2021, March 8). In addition, S-Chem is experiencing various issues, including overexploitation of natural resources, deforestation, desertification, and other challenges. Political Saudi Arabia enjoys relative political stability. In the Middle East, Saudi Arabia is among the most stable nations. Saudi Arabia is an Islamic monarchy, with the king having absolute control over the country’s affairs. Finally, Saudi Arabia is a member of several regional and international alliances, including the Arab League, UN, and GCC. Legal Saudi Arabia follows Sharia law drawn from Koran. Adherence to Sharia law is non-negotiable. Anybody breaching Sharia law must be arrested and punished according to Sharia traditions. Because S-Chem is a Saudi Arabian firm, it must comply with Sharia law. Ethical Islamic ethics are dominant in Saudi Arabia as the home of Islam. In Saudi Arabia, it is expected to uphold Islamic doctrines and ethics. The Islamic ethics also influence law in Saudi, like in the rest of Muslim- dominated countries (Shaw, 2021, March 8). For example, women, including non-Muslims, must wear hijabs. Demographic Saudi Arabia has a vast youthful population, providing an energetic and productive labor force. In Saudi Arabia, people aged below 25 years accounts for over 50% (Shaw, 2021, March 8). Over 90% are ethnic Arabs, and 10% are Aftro-Asians.

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25 The Kraljic Matrix LEVERAGE ITEMS STRATEGIC ITEMS  An abundance of flux or wash oil  Targetted procurement negotiations  Exploiting the market potential  Long-term relationship development  Partnerships  Flux or wash oil scarcity NON-CRITICAL ITEMS BOTTLENECK ITEMS  Abundant resources  Process Efficiency  Market standardization  Limited control of suppliers  Substitution of flux oil with wash oil  Scarcity of wash oil (Webb, 2017, February 28) Andrew Cox Matrix LEVERAGE (BUYER DOMINANCE) ALLIANCE (INTERDEPENDENCE)  Few suppliers  High supplier dependency on the buyer  Buyer’s low switching cost  The supplier has low information asymmetry  Buyers’ search costs are few  Attractive buyer’s account to the supplier  Few suppliers or buyers  High suppliers’ switching cost  High suppliers’ switching cost  High buyers’ switching costs  Information asymmetry by suppliers is low MARKET (INTERDEPENDENCE) DEPENDENCY (SUPPLIER DOMINANCE)  Many suppliers and buyers  Relatively low market share  Little dependence on the buyers  Low switching costs on suppliers  Many buyers  Low suppliers’ market share  High suppliers switching cost  The supplier has weak information

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26  Relatively high suppliers’ costs  Relatively high buyers’ cost  Limited information asymmetry over clients asymmetry  Unique suppliers’ offering 5. Conclusion S-Chem can maximize value through sustainable procurement and supply chain processes consistent with the TBL (triple bottom line). In conclusion, S-Chem faces procurement challenges, hindering sustainable value creation as per the triple bottom line. For example, S- Chem struggles to maximize efficiency, save costs, and improve quality. S-Chem leaders encounter a major challenge of running a competitive chemical-based business while meeting social, ecological, and ethical obligations. Most of these challenges are subsumed under the CSR banner, which needs companies to incorporate social, ethical, economic, and environmental values into their procurement management. Sustainable companies embed TBL into their supply chain activities, including procurement. As per the CSR (corporate social responsibility), the corporate profitability constitutes a major element of the bottom that S-Chem strives to integrate into its procurement and supply chain process. As per the “profit” element, S-Chem ensures maximum profit generation to empower and sustain the community. S-Chem will achieve this by adopting lean practices, reducing costs, and improving operating efficiency. Cost reduction and efficiency improvement are effective ways to control costs and boost productivity. S-Chem does not just consider the economic profit. Instead, it considers both social and economic profits by ensuring that its activities empower not only staff but also shareholders and CEOs.

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27 People (P) constitute the next TBL element that S-Chem seeks to integrate into the supply chain activities. People (P) account is the TBL element that measures the social aspect of CSR. As a TBL-oriented organization, S-Chem will ensure that its activities benefit the public, customers, and other stakeholders. S-Chem is not only concerned about offering benefits to stakeholders. Rather, it is focused on ensuring that its environment is pleasant and safe for people. For example, the company will ensure that its workplace environments suit people's health and comfort. The company will also ensure proper waste disposal to prevent employees from being exposed to serious risks. In chemical industries, employees are at high risk of becoming exposed to toxic chemicals. The toxic substances may also lead to fatalities, attracting lawsuits and compromising the “profit dimension of the TBL. Hence, ensuring that the work environment is safe is necessary to avoid such risks. Finally, the “planet” element is the final TBL element integrated into the TBL and sustainability activities. The planet account measures how the company has a positive attitude towards the environment or solves environmental concerns. Through its commitment to the bottom line, S-Chem strives to ensure its business activities reduce any harm or negative harm and effect on the environment. Organizations create value by minimizing harmful effects through proper waste management, reducing accidental chemical leaks, and other environmentally friendly activities. S-Chem will also commit itself to the highest environmental standards per the ESG framework. There are various practices that S-Chem will use to achieve environmental goals. For example, embracing renewable energy will help S-Chem minimize its environmental carbon footprint. The procurement department at S-Chem plays a critical role in helping it achieve TBL goals consistent with its mission. Sustainable sourcing is a cost-effective process that brings

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28 sustainable value to the business. At S-Chem, the procurement department focuses on green and sustainable sourcing to create value for its stakeholder fraternity. The supply chain will also involve adopting the least-cost alternative to build sustainable value for stakeholders. Customers can also enjoy greater value and choices with sustainable sourcing. 6. Recommendation S-Chem should reform its current sourcing strategy for major products, especially flux oil. Instead of sourcing for flux oil, S-Chem should source for wash oil. Unlike flux oil, wash oil will put S-Chem in a better position to create sustainable value. There are many advantages of using wash oil as an alternative to flux oil. First, wash oil is superior when used in bitumen to lower its viscosity and alter its physical structure. The superior quality will allow S-Chem to improve TBL goals. For example, infrastructures constructed using bitumen mixed with wash oil are more durable than those constructed with bitumen blended with flux oil. Durability reduces maintenance costs (profit account of TBL) and reduces ecological damages, including pollution and land degradation caused by regular maintenance activities. In addition, this will bring social benefits to taxpayers because they will not incur extra tax costs to repay road infrastructure. Another advantageous feature of wash oil is its versatility, unlike flux oil. For example, the user can run continuously and non-continuously into the mixer and gas compressor. The wash oil injection to the gas chamber can happen at different rates and compression points. For example, workers can inject wash oil into the gas chamber inlets at different stages. However, workers should inject wash oil into each impeller to ensure that wash oil reaches each compression stage. If injected only into a section, users could evaporate at different stages before

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29 reaching a later impeller stage and ensuring proper oil dispersion during wash oil injection into the gas compressor casing. S-Chem is rethinking its key logistics challenges, capabilities, and emerging technologies to leverage its supply chain management. Proper leveraging of the supply chain management to stay competitive in the market environment. At S-Chem, trimming energy costs and meeting demand requirements in real-time or demand are major objectives. S-Chem has realized that chemical product shippers are moving towards JIT (just-in-time) orders. For example, shippers are ordering only sufficient commodities, reducing large storage facilities to keep dangerous costs. As a result, this helps these chemical shippers minimize operating risks and costs associated with higher costs. Maintenance of the short-term contracts instead of long-term contracts also constitutes another recommendation proposed to leverage the procurement and logistics at S-Chem. S-Chem will implement a deal that will involve over one supplier. S-Chem can save $1.25 million on- demand forecasts when at least one supplier. One way to help S-Chem acquire supplies at the lowest prices is to use short-term contracts that are more versatile and could be renegotiated. A short-term contract also allows dividing larger volumes into more manageable volumes. Hence, S-Chem can leverage volume to maximize quality and prices. Strategically, S-Chem can take advantage of e-sourcing platforms to allow instant acquisition and sending of procurement information. Leveraging on the e-sourcing platforms also improves integrity and transparency in sourcing activities. Through e-sourcing platforms, there is higher visibility for the potential suppliers. The procurement team also better understands the specific aspects that suppliers could bring to the table and improve success for an organization.

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30 Staff training on the procurement and other supply chain activities are also proposals to improve the procurement process at S-Chem to improve value to the company. According to recent research, many employees lack up-to-date skills in procurement. For example, employees lack skills in applying modern technologies, including e-sourcing and AI-based platforms, to inform their procurement decisions. Hence, training employees on the technologies used in procurement processes is necessary. Employees should also be educated on the advantages of wash oil over flux oil. According to research, wash oil has higher quality than flux oil despite being more expensive. The lessons on the benefits of wash oil over the flux oil will encourage an employee to embrace transformation. Finally, S-Chem should regularly look for wash and flux oil suppliers and new oil refineries. Identifying new suppliers will ensure that S-Chem can maximize value to stakeholders. For example, S-Chem can optimize value by identifying new suppliers that deliver better quality at lower costs, synonymous with TBL and lean management principles. Lower costs and better sustainability are also ideal ways to improve excellence. References Allcock, E. (n.d.). Why supplier collaboration is the key to success. https://www.enable.com/blog/why-supplier-collaboration-is-the-key-to- success#:~:text=The%20main%20benefits%20of%20supplier,Better%20deals %20negotiated

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31 Bituminous Products PTY LTD. (n.d.). Cutters & Flux Oil. https://bituminous.com.au/wp- content/uploads/2015/07/TDS-Cutters-and-Flux-Oil.pdf Camelot Management Consults. (n.d.). Chemical Logistics. https://www.camelot-mc.com/capabilities/distribution-logistics/chemical-logistics/ CIPS. (n.d.). Triple Bottom Line (TBL). https://www.cips.org/knowledge/procurement-topics- and-skills/sustainability/sustainable-and-ethical-procurement/triple-bottom-line-tbl/ de Macedo Ferreira, N., Ferreira, J. D. S. L., & da Silva, M. L. P. A chemical waste management: reverse logistics partnership as a key to cost reduction. https://www.pomsmeetings.org/ConfProceedings/065/Full%20Papers/Final%20Full %20Papers/065-0651.pdf Fernández, L. (2021, October 19). Total revenue of the chemical industry worldwide from 2005 to 2019(in billion U.S. dollars). https://www.statista.com/statistics/302081/revenue-of- global-chemical-industry/#:~:text=In%202019%2C%20the%20chemical %20industry's,5.4%20trillion%20U.S.%20dollars%20worldwide. McCrea, B. (2018, February 15). How Procurement Can Help Boost the “Triple Bottom Line.” https://www.sourcetoday.com/news/buying-trends/article/21867005/how-procurement- can-help-boost-the-triple-bottom-line Oxford. (n.d.). A Broader Look At The Five Rights of Procurement. https://www.oxfordcollegeofprocurementandsupply.com/the-five-rights-of-procurement/ Rudnicka, A. (2016). How to manage sustainable supply chain? The issue of maturity. LogForum , 12 (4), 203-211. https://doi.org/ 10.17270/J.LOG.2016.4.2 S-Chem. (2021). https://schem.com S-Chem. (n.d.). About S Chem Group. https://www.schemgroup.com/aboutus.html

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32 Schonebeck, L., & Pöllinger, T. (2020). Stakeholder Management as a Tool for the Implementation of Sustainable Supply Chains in SMEs in the German Food Industry. https://www.diva-portal.org/smash/get/diva2:1481264/FULLTEXT01.pdf Signal Hire. (2022). S-Chem Petrochemicals Company Overview. https://www.signalhire.com/companies/s-chem-petrochemicals-company Thomas Publishing Company. (2019, June 18). Chemical Supply Chain: Innovative Solutions in the Mix. https://www.inboundlogistics.com/cms/article/chemical-supply-chain-innovative- solutions-in-the-mix/ Total Energy. (n.d.). Fluxes for Bitumen. https://services.totalenergies.uk/business-products/solvents-special-fluids-fluxes-for- bitumen Webb, J. (2017, February 28). What Is The Kraljic Matrix? - Forbes. https://www.forbes.com/sites/jwebb/2017/02/28/what-is-the-kraljic- matrix/? sh=7b71640e675f Shaw, A.A. (2021, March 8). PESTLE Analysis of Saudi Arabia. https://swotandpestleanalysis.com/pestle-analysis-of-saudi-arabia/ Shang, M., Li, Y., & Qi, Z. (2022). Review of monopoly models and implications for antitrust. Procedia Computer Science , 199 , 495-502. https://doi.org/10.1016/j.procs.2022.01.060 Madhani, P. M. (2022). Strategic Supply Chain Management (SSCM): Developing Conceptual Framework and Research Propositions. Facets of Business Excellence in IT , 389-399. https://bit.ly/3w7zF9J

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M#224575953 Driving Value Through Procurement and Supply 2022

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