The dynamics of Saudi Arabia’s supply chain management TEY_post_Saudi-Power-Line-Trading-–-Francesco-BALORDI

Companies that are well structured will grow along with the market, and so will companies that invest in assets in the country.


The dynamics of Saudi Arabia’s supply chain management

December 15, 2023

Francesco Balordi, general manager of Saudi Powerline Trading, talks to The Energy Year about the drivers behind activity in supply chain management in Saudi Arabia and the main challenges of new traders becoming suppliers in the country. Saudi Powerline Trading provides and warehouses equipment and supplies for various sectors.

What are the main drivers fuelling activity in supply chain management in the Saudi market?
There is a huge demand for (onshore and offshore) drilling equipment and pipeline equipment due to all the awarded and upcoming projects in the sector.
In 2023 Aramco will do the awarding for the Master Gas project, one of the largest pipelines in Saudi Arabia It is around 3,000 kilometres of 56-inch pipeline. They invited all the main pipeline contractors to bid, hoping to split the contract among five or six companies, as it’s a huge project.
Between 2023 and 2025, infrastructure developments will also generate a lot of demand because the government is pushing to develop projects such as NEOM, The Line and The Red Sea project. They want to promote tourism and diversify the economy away from oil and gas. In relation to these projects, the IKTVA [In-Kingdom Total Value Add] programme and Vision 2030 aim to create a stronger industrial sector, with materials being produced in Saudi Arabia for export.

What are the main challenges with respect to new traders becoming suppliers in Saudi Arabia?
A small company without a structure for sustaining high running costs and the Saudisation requirements will likely not succeed in this market.
Consider the following: to obtain a trading licence from the Saudi Arabian General Investment Authority (which oversees foreign investment) and register in Saudi Arabia, a company needs to pay a high entrance fee, which is a way of forcing companies to invest in the country and purchase material from the local manufacturers.
Companies that are well structured will grow along with the market, and so will companies that invest in assets in the country. Due to Covid and the crash in oil and gas prices, many companies closed in Saudi Arabia.
Now that the market is once again attractive, Aramco is seeking new contractors and suppliers to come and promote their products and services. However, the competition is high. Historically there have been many traditional Saudi families involved in trading. I’m not expecting many new traders to come given the current scenario.


What is your value proposition in terms of smart warehousing and stock management?
Our strength is in services and technologies. We are one of the first traders to implement SAP’s CRM [customer relationship management] system, which enables us to be in direct contact with our customers’ procurement system and manage a virtual stock of material that our customers can review in real time on a daily basis.
The advantage we try to provide concerns consignment stock. Logistics has a significant impact on EPC and drilling contractors’ overall cost structure. To maintain the stock of materials they require, they need warehouses, shelves, operators, forklifts and a system to manage all the inbound material.
We propose to our clients that they should outsource all this activity to us. We want to become their stock source and manage the stock and warehouses for them. We can deliver on an on-call basis. Our target is to obtain framework agreements with a validity of one or two years, where we would keep prices stable.

How do your supply chain management services differ from sector to sector?
We have agreements with different EPC and drilling contractors for mechanical, electrical, structural materials, spares parts and personal protective equipment. They provide the list of materials they need for a certain project, and we maintain and secure the stock for them until they need us to deliver.
We can approach most drilling contractors in Saudi Arabia with the same list of materials. A rig is a rig, and we know exactly what consumables and materials each rig needs to perform its job.
Construction is a little bit different because, even if we have a framework agreement in place, each project is different. A pipeline is a pipeline, but what supplies are needed depends on the pipeline’s diameter, thickness and material. It is much more difficult to put in place an agreement that covers all the project materials and the day-to-day consumable materials.

How important is price relative to delivery time in the commercial phase of a bid?
If your price is 2-10% above the cheapest offer, you can be among the top three companies that clients normally shortlist. If your price is more than 10% over the cheapest bid, then you’re out. However, many bids significantly depend on the delivery and availability of a certain product. It’s very important. If it is urgent, even if your price is higher than your competitor’s, but if your delivery is much better than your competitor’s, in some cases, you’ll win because of that.

What are the key variables of your sourcing and storing strategy?
This is a business that you can manage with 1,500 square metres (dedicated to each family of products we are dealing with) because we manage stock on a rolling basis. You don’t have to always keep a stock of materials and accumulate them. We circulate materials based on the forecasted demand of our customers or the market. We mainly keep in stock the fast-moving items, which come in and out every three months.
For all other items, we have framework agreements with our suppliers in Saudi Arabia, the UAE and Europe. From Saudi Arabia we buy standard materials, such as carbon steel and stainless steel.
For special alloys, such as nickel, duplex, super duplex and other special materials that are mostly used in offshore activities, we have agreements with suppliers in the UAE, mainly Dubai, and some in Europe. This system took more than 10 years to be put in place, and now we can support our customers 24/7 with great service on an on-call basis.

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