The Application of Supply Chain in SABIC


Supply chain is a crucial aspect of every business. It involves the movement of finished products from the manufacturer to the consumers. One vital factor in this field is the terms and conditions which enable firms to ensure that the supplier is effective enough and guarantees the delivery of quality products, which is a key performance measure. This also provides that the organisation does not have to wait until the supplier fails to deliver based on the performance measures in order to raise alarm. There are various approaches that may be adopted by the Saudi Basic Industries Corporation (SABIC)in engaging with its stakeholders as part of enhancing the procurement process and making the consumers satisfied with the delivery services. The company can reduce its costs by carrying out portfolio evaluation in line with product indexing. It can as well check on its fixed and variable costs and find an alternative to the high prices through available means to make more profit(Tatoglu et al., 2016). The performance appraisals and cost budget analysis would also help the firm make substantive approaches to the maximisation of proceeds and lowering the costs. Nonetheless, this paper evaluates the viability of the supply chain as an operation management aspect in SABIC.

Terms and Conditions in Supply Contract

To begin with, before SABIC takes on supply and chain contract, it will need to put the supply policies into consideration as a priority not only in Saudi Arabia but also across the world.Such provisions, for example, cite the penalties that are to come about as a result of failure to deliver the right goods at the scheduled time. Also, the company has to account for the damages caused. This also applies to the liability for damages arising from ethical issues. Other consequences include the termination of contracts due to default by the supplier or the failure to meet the performance measures outlined (Maczka et al., 2015). The consequences that are described in the terms and conditions make it possible to manage the supplier to ensure that they meet the performance measures under the contract. The management and monitoring of the critical actions under the agreement are achieved by providing that the supplier gets a good understanding of the terms and conditions. This is a clear indication that supply chain is applicable to operation management.

Furthermore, any form of compromise on SABIC’s key performance indicators is established in advance for necessary action to be made. The terms and conditions also allow for the inspection of goods during the production process, before they are packaged, and when they are delivered. Inspection and teasing during the production process ensure that the right raw materials are used and that all theprocedures are effective, and this calls for the use of big data analytics (Tang and Musa, 2011). Thus, the management within the organisation needs to be involved. The goods are also inspected before packaging to ensure that only those ofthe highest quality are packaged and after delivery to guarantee that they are in the right condition. Among the approaches that may be adopted by the company in engaging with the stakeholders is involving the suppliers(Schönsleben, 2016, p. 90). On this note, SABIC’s management engages with the suppliers to guarantee that the supply chain operations areimproved to reduce errors, which would be costly in the end by considering suggestions. This shows the relevance of supply chain in operations management.

The Role of the Employees on the Procurement Process

The employees are also important stakeholders within the procurement process ofSABIC Company. This is because they are responsible for the actual implementation of the concepts that have been suggested by the management and other parties. This is where the operations management comes into play in improving SABIC’s competitiveness in the Saudi market (Wang et al., 2015, p.9). The employees who are deployed down the supply chain are required to be conversant with the specific concepts that enhance value in the firm. This will uphold competitiveness in the petrochemical industry ( 2019).In this regard, SABIC may survey to determine the extent of demand for a specific product and this calls for skilled operations management agents. Data collected in this context help the company in determining the amount of stock to hold and the lead time.In the long term, this helps in reducing the levels of inventory and the costs of maintaining it.

SABIC may notice weaknesses in the production process and raise the alarm in advance to avoid delivery of goods that do not meet the set standards. In 2018, the operationalized ways of doing things ensured that five cases of substandard petrochemical goods were intercepted, thus showing the importance of supply chain in operations management.The organisation can give feedback to the supplier on the assessment made professionally and constructively.This applies in cases where it feels that the supplier is not in line with the performance measures either as a result of compromise on quality, timeliness, ethical issues, or any other concerns (Coenen et al., 2018). This way, the two parties can work together to come up with the necessary changes to guarantee that the supplier is able to function in line with the performance measures. There are a number of issues that SABIC needs to put in consideration in the event of curbing loopholes in expenditure with the intention of adding value to the entire supply chain process of the firm (Baumgartner et al., 2016). It is remarkable that SABICinvolves itself in two significant industries which include manufacturing and retail sectors. As for the manufacturing industry, a critical success factor is the accounting treatment on research and development cost within the supply chain (Wild, 2017). As for the retail industry, its significant success factor is inventory management. Thus, SABIC is adopting appropriate policies because it is suitable for its operation in two sectors (Schönsleben, 2016).

In the case of SABIC, there is a risk of increased costs in the process of contracting for supplies, where the supplier may want to raise the prices as a result of the changes in the market conditions and associated rates. This would be costly as it would mean that the goods have to be sold at a higher cost to cover for the increased input charge (Zairi, 2000). For instance, a container of detergents which was initially costing $5545 would be sold at $5600 to cover for the additional expenses. This is not inclusive of the transportation costs since the supplier has to factor in this cost when delivering the goods to the customers. This kind of price increases will, however, be prevented,since the terms and conditions state clearly that the price quoted will remain fixed. This means that the supplier has to stick to the agreed prices despite the changes in the market trends.Besides, the terms and conditions, and identify the taxes that have been included in the price and those that have been excluded (Chopra and Meindl, 2007). Therefore, this shows that supply chain closely relates to operations management.

Applying Accounting Measures in Supply Chain Management

Additionally, at SABIC, the net realisable value of inventory is estimated according to future turnover of inventory for sale and predicted selling price. This enables managers to estimate the accurate value of existing inventory considering the value of time.There are several issues to analyse any business accounting strategy as that of SABIC (Prajogo, Oke, and Olhager, 2016). Firstly, it disclosed a series of new and changing accounting standards, while some of them are not intended to apply immediately. The annual report also points out some current measures which have been published, but were not adopted in SABIC. This is because there is seldom evidence to show how these new standards can affect financial statements substantially. The second issue is whether the manager faces incentives to use accounting discretion (Mangan, Lalwani, and Lalwani, 2016). Moreover, as for capital market consideration, the managersare recently facing a powerful incentive to use accounting discretion due to its current remarkable decline in the stock price of SABIC.

Moreover, the central forecast variable in SABIC’s model is profits, assets, and sales. If either of the variables in the model gets a hitch, the firm needs to respond accordingly to evade any escalation. The variables, namely assets (both fixed and current assets), proceeds for the firm, as well as sales need to be worked upon and show a positive trend all the time to filter aspects of positive feasibility in the supply chain management(Wang, Wallace, Shen, and Choi, 2015).

Managing the Rising Demand of Office Cleaning Services

Studies also suggest that the levels of negative impact that undesirable economic conditions such as recession have on the demand for cleaning services are low. Even when there is a tough financial time such as a recession, the need for cleaning services is still high; hence, the supply chain is usually busy.This maintains the profitability of the company within the industry in such periods (Schönsleben, 2016). Further, the relatively low prices that are charged by the companies in the office cleaning sector also help in sustaining the levels of demand within the industry. In the first quarter of 2016 alone, the firm served two times more clients than in 2013 (Schönsleben p. 47). This means that SABIC has employed well-conversant personnel to take care of its supply chain management and deliver products to consumers. As it gains more customers, the procurement process continues to play a vital role in improving the level of efficiency over time and minimising the lead time.

Big Data Analytics

As SABIC fights for more market share, it is good to note that the consumers within the market spend only a small percentage of their income on the cleaning services. Thus, being unique in the supply chain and reducing the chances of errors is vital. This calls for the use of big data analytics. As indicated by Addo-Tenkorang and Helo (2016), “the value-adding potential of big data has played a key role in supply chain management.” When petrochemical products are introduced to the target market, their packaging and delivery are usually the same in most companies. In the case of SABIC, the consumers get the value for their money through the integration of technological know-how. However, there are many suppliers of the office cleaning services within Saudi Arabia which compete with SABIC such as Clariant. Intrinsically, SABIC has automated the cleaning and management of such services so that they can make the clients happy (Fredendall and Hill, 2016).


In a nutshell, it is evident that supply chain management as part of the operation management in any firm follows a given laid down rule put in place by the business and the supplier. This can be seen based on how the terms and conditions are outlined and put into practice when dealing with contractors while putting into consideration the need to uphold quality. The parties in business also follow the set guideline by the government in place to remain within the bounds of the law. SABIC firm is no exception. It has also applied big data analytics to ensure that everything runs smoothly as expected in the supply chain and that the end consumers get the value for their money. Clearly, operations management is a wide field and one of the components is supply chain since it deals with the movement of finished goods from the producers to the targeted consumers.Through this report, it is evident that SABIC, a Saudi-based petrochemical company, has mastered the elements of supply chain management to meet the needs of the clients and reduce cost of holding stock.



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