Boosting local content,leveraging buying power
Ma’aden’s procurement spend in 2016 was SAR12.5 billion.
Projects accounted for SAR7.9 billion, while the share of
operations was SAR4.6 billion. Ma’aden’s investments in
new large-scale projects inevitably lead to a procurement
budget that runs into billions of riyals but they also
give us the opportunity to leverage our buying spend and
adopt strategic priorities
based on a larger vision.We have set an ambitious
2025 target of tripling local content in our
procurements, quadrupling the number of jobs
in our supply chain for Saudi citizens and
ensuring that 35 percent of our annual spend
is allocated to Saudi-owned SMEs.
The two most important goals driving Ma’aden’s procurement now are:
- To leverage the combined buying power of the Ma’aden Group to deliver maximum savings while ensuring the best value for money and minimizing our inventory.
- To maximize the local content in our purchasing, serving the sustainable development goals of Ma’aden, which are aligned with Saudi Vision 2030 and the NTP.
In 2016, we established a Strategic Sourcing and Local Content function under the Corporate Strategy Department. Strategic Sourcing and Local Content will pursue a focused plan to achieve our goals in line with our localization priorities under the 2025 strategy and Ma’aden’s cash generation program.
As Ma’aden continues to expand its industries and ventures into new projects, we believe that we have a unique opportunity to strengthen the local content in our buying, support small and medium enterprises (SMEs) and reinforce our competitive advantages.
We have set an ambitious 2025 target of tripling local content in our procurement, quadrupling the number of jobs in our supply chain for Saudi citizens and ensuring that 35 percent of our annual spend is allocated to Saudi-owned SMEs. In strengthening local content, we will adopt proven best practices and draw lessons from local content development initiatives elsewhere. All Ma’aden mines are empowered to procure from the local community whenever possible.
Ma’aden will follow a proven approach to localization, starting with an analysis of the portfolio to prioritize potential categories and establish targets. We will take the lead in the categories that directly apply to our industries but we will also collaborate with other local mining companies and institutions in identifying localization opportunities.
Strategic sourcing using category management will change our procurement function in a significant way. We are adopting world-class category management methods and negotiating framework agreements to support Ma’aden operation.
To accelerate this transformation, Procurement is collaborating with businesses to develop a program that weighs purchasing requirements over an 18-24 month period. The program will support our local content aspiration, yield significant savings and establish framework agreements that will be made available to other local smaller mining and metals companies.
We aim to implement this plan over four phases. In the first phase, Ma’aden will launch strategic category management for prioritized spending, identify the areas for local content and align with stakeholders, and also establish tracking and monitoring mechanisms to report progress. In the second phase, strategic sourcing will be institutionalized and a well-defined local content plan will be rolled out. The last two phases will be about sustaining and enhancing strategic sourcing and local content.
As part of Ma’aden’s resource consolidation program, we reorganized the procurement functions of the headquarter and two fully owned subsidiaries, MGBM and IMC, under the shared services umbrella. The consolidation program was completed in 2016 resulting in cost savings of SAR152 million from a combined operational spent of SAR785 million. We managed to reduce procurement workforce by 10 percent through consolidation, which also involved the smooth relocation of our staff from Jeddah to Riyadh.
Through negotiations with our suppliers we ensured that Ma’aden did not incur unwarranted additional costs because of the 2016 fuel price increase in Saudi Arabia. During the year, we also achieved substantial savings through negotiations. Additionally, we saved SAR209 million in cost avoidance through more efficient materials management by maximizing the use of existing inventories while maintaining high product availability.
As part of our focus on ethics and our improved Supplier Relationship Management (SRM) process, Ma’aden now requires all suppliers to sign our Supplier Code of Ethics. This is a pre-requisite for all suppliers applying to register with Ma’aden.