The supply chain solution that keeps on delivering despite the pandemic
Supply chain disruption has been a dominant theme throughout the COVID-19 pandemic, as the rising price of goods and product scarcities placed additional strain on a world already stretched by an unprecedented health crisis.
Tight inventories, component shortages, soaring shipping rates, and health-related workforce restrictions are just some of the factors which have hampered the global economy and impacted customers around the world.
Yet during the crisis, Aramco — one of the world’s leading integrated energy and chemicals companies — was able to navigate the pandemic. Over many decades, and despite several global energy market disruptions, we have locked supply chain efficiency and reliability into our operating model.
This has been further enhanced by the launch of the company’s In-Kingdom Total Value Add supply chain localization program in 2015, which has been key to our resilience.
Of course, we could never have predicted the significance of IKTVA in the context of COVID-19.
When we launched the program, our goal was to build a diverse and globally competitive industrial base inside Saudi Arabia. By investing in a skilled network of local suppliers — and partnering with the world’s top energy, logistics, manufacturing, and services companies — we wanted to strengthen Aramco’s resilience and ensure we remain one of the world’s most reliable energy companies.
As such, all of our suppliers — whether domestic or international companies — have to meet IKTVA requirements to work with Aramco. This may involve establishing local manufacturing facilities, recruiting Saudis, and investing in research and staff training. The result is that when the unexpected happens, we have a strong ecosystem of local business partners who we can rely on to deliver.
It also helps that our international partners have bought into the project: IKTVA has attracted more than 540 investments from more than 35 countries. Some of these investments are already realized and manufacturing new and innovative products locally, reducing our reliance on imports. In fact, our suppliers are actually exporting from Saudi Arabia to more than 40 countries, and their investment in domestic small and medium-sized enterprises has grown by an annual rate of 50 percent since the launch of the program.
We have also seen an annual average increase of 30 percent in suppliers’ local procurement, driven by the closure of supply chain gaps. In addition, our suppliers are investing four times more on research and development in Saudi Arabia, they are employing and training twice as many Saudi nationals, and Saudi employees have benefited from a 20 percent increase in salaries and a 30 percent increase in training and development to meet the needs of the market.
Through IKTVA, we have also established 16 vocational academies in 10 cities across the country, providing skills that meet the needs of the job market and prepare graduates for careers not only in the oil and gas industry, but also the maritime, aviation, IT, facility and hospitality management, construction, power, drilling and inspection sectors.
So, while Aramco benefits directly from a more robust local supply chain, the IKTVA program also contributes to broader economic growth and diversification, creates quality jobs and improves skill sets to meet the needs of a rapidly changing environment. Currently, 59 percent of all Aramco’s supply chain spending remains in the Kingdom. Yet we are driving for more by supporting Saudi industry – as a customer and a business partner – to future-proof our economy.
There are benefits for our partners too: Local companies capitalize on access to new opportunities, while international companies have an on-ground presence that enables them to respond more quickly to changing market dynamics, develop new solutions, and achieve cost efficiencies.
IKTVA is a good example of how nurturing the local commercial ecosystem can deliver tangible business results on a local and global scale. This has certainly helped Aramco maintain its high levels of reliability through the COVID-19 pandemic. During Q3 2021, our most recent reporting period, we delivered crude oil and other products to our customers with 99.7 percent reliability.
Businesses around the world are now weighing up their options, as they reconsider the “just-in-time” operating model that was originally intended to save time, labor and money — but which has come up short over the past two years. As they do, large firms in particular may do well to contemplate the benefits of closer integration with their domestic supply chain partners.
This not only provides commercial benefits, but also contributes to the broader economy in which they operate. And, in recent years, there has emerged a powerful global consensus that profits alone can no longer be the primary measure of corporate success.
In a world where companies exert unprecedented influence on society, they have a responsibility to deliver tangible and sustainable value to the countries and communities they inhabit.
Ahmad Al-Sa’adi is senior vice-president of technical services at Aramco.