3PL outsourcing in the Petrochemical Industry by Frederic GOMER

Industry insights

3PL outsourcing in the Petrochemical Industry 01

Company background

The company was therefore seeking to develop a high-quality

“Petro Rabigh was originally a refinery with a capacity of 400,000 bbls/day which belonged to Saudi Aramco. When

strategic partnership with a Logistics Services Provider that could: 

Provide a global logistics services offer (Freight

Saudi Aramco decided to enter the Petrochemical market, it

forwarding, warehousing, distribution, reverse

was decided to create a new venture with Sumitomo which

logistics)

was called Petro Rabigh. The company is located in Rabigh, 165



to manage Petro Rabigh’s logistics operations

kilometers north of Jeddah on the Red Sea coast. It is now producing a wide range of polymers, monomers and refined

Whichchallenges challenges PetroRabigh to Which forcedforced PetroRabigh to come to the

outsourcing the logistics department? department?



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

products.”

come toofthe oflogistics decision outsourcing the decision ofdecision outsourcing

Demonstrate the required experience and capability

the

logistics

Was this decision a premier in KSA?

In the

Petrochemical industry? And in which perspectives?

decision was a premier Petrochemical sector and “Tinhisthedecision was a premier in “We were “Thisseeking in the region. The initiative covers the logistics outsourcing by the Petrochemical sector and in the “P etroRabigh was seeking to be world-class a 3PL of PetroRabigh’s MRO business to door to be world-class “P etroRabigh was seeking to be worldregion. The including, initiative Door covers the be world-class organized. Its organized. Its motto was to become globally Freight forwarding, Warehousing management, Delivery to class organized. Its motto to become logistics outsourcing by a 3PL of “PetroRabigh was was seeking to be world-class organized” motto was toand become globally recognized locally committed. In this Internal end users including collection of end-user’s returned globally recognized PetroRabigh’s MRO business organized. Its mottoandwas locally to become globally

department?

recognized and tolocally regards, we decided build a world-class committed. In thislogistics regards, logistics function within theweorganization. To build a function world-class logistics the organization. that, we had to regards, we within decided tofunction buildToado world-class decided to had buildtoaface world-class do that, we the reality about the fact within organization. To that, weorganization. face thethe reality about thewithin factdothat logistics was considerably logistics function the To logistics function within the that logistics was considerably lagging in the had to face the country realitytoabout that lagging in we the compared to the West. Consequently, do that, had facethe thefact reality about the fact organization. To do that, we country compared to the West. Consequently, logistics was considerably lagging in the Petro Rabigh decided outsource its complete that logistics was toconsiderably lagging inbound in the had toRabigh face thedecided reality about the Petro to outsource its complete country compared totoand the West. supply. logistics activity for its MRO chemicals country compared the West. Consequently, fact that logistics was inbound logistics activity for its MRO and Consequently, Petro Rabigh to decided to Petro Rabigh decided outsource itsa high-quality complete The company was therefore seeking to develop considerably lagging in the chemicals supply. outsource its logistics completewith inbound logistics inbound activity for its Provider MRO and strategic partnership a Logistics Services that country compared to the West. could: activity for its supply. MROwas and chemicals supply. chemicals The company therefore seeking to develop Consequently, Petro Rabigh 2010 B2G -aMiddle East Series  Copyright Provide global logistics services offer a © high-quality strategic partnership with a The waswas therefore seeking to Thecompany company therefore to develop decided to outsource its (Freight forwarding,seeking warehousing, develop high-quality strategic Logistics aServices Provider that could: reverse logistics) a high-qualitydistribution, strategic partnership with a committed. In regards, we decided to In this this regard, decided to build a world-class recognized and locally committed. In this

materials internal stock transfer, Reverse (EndIncluding and Door to door Freight forwarding, Warehousing including, Door to Logistics door Freight users returns &Delivery Return toforwarding, wereusers conscious that management, toVendor). InternalWeend including Warehousing being the first company to do that could have posed some risks, collection of end-user’s returned materials and internal stock management, Delivery to Internal but we felt that logistics, which is an emerging industry in transfer, Reverse Logistics returns collection & Returnthe to end(End-users users including of region, needed to be supported a leading organization. As a Vendor). We were conscious thatbybeing the first company to do end-user’s returned materials and major company, rolesome is torisks, develop local industry and that could have our posed butthe wetransfer, felt that logistics, internal stock Reverse especially to support logisticsinsector which is strategic in which is an emergingtheindustry the region, needed to be Logistics (End-users returns & KSA. We took the risk albeit in a calculated way and it pays off.” supported by a leading organization. a major company, our Return to AsVendor). We were UAE, Qatar and Saudi role is to develop theArabia.” local industry and conscious thatespecially being to thesupport first the logistics sector which company is strategictoin do KSA.that We took thehave risk could 31 02 Manpower landscape in the Middle East albeit in a calculated way and it pays off.” posed some risks, but we felt that How is the Middle East manpower landscape? Specifically

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” supported by a leading organization. As a major company, our

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

role is to develop the local industry and especially to support

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

the logistics sector which is strategic in KSA. We took the risk

logistics provider was being integrated into Petro Rabigh’s

albeit in a calculated way and it pays off.”

structure. Then, the third phase aimed at supporting the newly

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

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.”

Results

supply of the right parts becomes a critical key to guarantee a

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

seamless operation of the plant. Finally, our objective was to

managed to put in place efficient processes that enable the

expand the level of know how in logistics both, for us internally

logistics operations to be more responsive to urgency,

by bringing a logistics expert within our organization, and as

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

well, by helping a 3PL to gain maturity in outsourcing and to

the other hand, the tangible result was a significant

acquire

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

specific knowledge in the MRO-Petrochemical

business.”

Which strategy was selected?

“The project started with the selection of the Logistics

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

Service Providers (LSPs). We conducted both a technical and a

program to support our suppliers to improve their delivery

commercial evaluation to assess the capabilities of the LSPs to

and reliability performance. Through more awareness and

stronger incentives with a rewarding system, we expect to see

in a second phase of the project where selected

a significant improvement in our suppliers’ performance 32 levels.”

Industry insights Abdullah Al Saif Materials Supply Manager Petrorabigh

stronger incentives with a rewarding system, we expect to see

“We have experienced the outsourcing concept at Petro Rabigh,

significant improvements in our suppliers’ performance levels.

and the results are more than convincing. I can only

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? beginning, we we had had to to face face strong strong resistance to change, “At the beginning, resistance to to delegate key company, and with to delegatetokeychange, activities an external

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 of data is really critical amongst the quality of data is quality really critical amongst the supply chain

““It is high time tosecure the supply chain partners to secure the partners to integrity of the end-to-end information integrity of the end-to-end information flow.”Conclusion with time, we have built3PL trust and weThe can other main challenge transparency with our partner. capitalize on our flow. now in totala transparency with our was work to develop cost-consciousness mindset, as 1% of cost “It is high time to capitalize on our the To conclude, it isexperience high time amongst to capitalize 3PL partner. Thetoother reduction equals 5% ofmain sales challenge increase. So we experience had to educate amongst supply chain professionals, the Petrochemical and to on our inexperience amongstsector, the supply was to develop a cost-consciousness our people to be more cost-focused in their management of the start sharing the outcomes of such initiatives. model has chain professionals in the The Petrochemical the supply chain mindset, as 1% of cost reduction equals to operations.” been tried successfully as and a pilot at Petro Rabigh and can be sector, to start sharing the outcomes of 5% of sales increase. So we had to professionals” easily duplicated. We need to work as a group towards the goal What would you recommend companies which are such initiatives. The model has been tried educate our people to be moretocostactivities an built external time, we to have trustcompany, and we and can now work in total

looking to their outsource their of logistics services? Key management the focused inintheir management of their operations.” success factors, pitfalls to avoid? operations.”

What would you recommend to companies which are “We have experienced outsourcing concept at Petro Rabigh, What would you the recommend to services? willing to outsource their logistics Key

and the results are are morelooking than convincing. I can only companies which to

success factors, pitfalls to avoid? recommend to otherlogistics companies to focus on their core business outsource their services? What would their you recommend to to companies and outsource non-core activities as long as theywhich find the Key success factors, pitfalls are looking to outsource logistics path, services? Key right partner. For us their the critical besides avoid? success factors, pitfalls to avoid? the change management, had been the quality

of the information: we faced quality issues

“We have experienced the outsourcing concept at Petro concept at Petro Rabigh,systems and the results from our different which had impacted

of helping each othersuccessfully to overcome challenges. kingdom asour a pilot at PetroThe Rabigh and

of Arabia is located ateasily the strategic place willtowards have to canSaudi be easily duplicated. need to work asWe aand group can beWe duplicated. need to work fully playofits role of hub between thechallenges. andeach the the goal helping each other to overcome our The aslogistics a group towards the goal ofEast helping West, andofeach of us haveisto liftovercome the level ofour expertise and know kingdom Saudi Arabia at a strategic place and will other tolocated challenges. The how it happen.” haveto tomake fully play itskingdom role of logistics between the East of Saudihub Arabia is located at and the the West, so each of us has place to liftand the will levelhave of expertise and strategic to fully play improve their delivery and reliability performance. Through know how to make ititshappen.” role of logistics hub between the East more awareness and stronger incentives with a rewarding and the West, and each of us have to lift the system, expect to see significantperformance. improvementThrough in our improve we their delivery anda reliability level of expertise and know how to make it suppliers’ performance levels.” incentives with 33 more awareness and stronger a rewarding happen.” system, we expect to see a significant improvement in our