Keys to the Kingdom

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With multi-billion dollar investments in transportation infrastructure, can Saudi Arabia successfully market itself as a land of opportunity to the logistics industry?

The international focus on Saudi Arabia's logistics industry has increased in recent months, with the Kingdom offering a welcome solace for investors that have been crippled by the global recession. It's little surprise, therefore, that instead of tightening their purse strings, companies such as DB Schenker, TALKE Logistics and Kuehne + Nagel have continued to pump their millions into the local market.

Matching the private sector's enthusiasm, even the local government has entered a spending spree, funding the development of several warehousing and transportation hubs throughout the country, from the US$8 billion Prince Abdul Aziz bin Mousaed Economic City in the northern city of Hail to the $26.6 billion King Abdullah Economic City in the western coast of Rabigh.

Such levels of confidence were recently reinforced by the findings of a research paper - the Saudi Arabia Supply Chain Intelligence Report (SCIR) - which was commissioned by local player Hala Supply Chain Services to determine the opportunities and challenges that lay ahead for the logistics sector.

According to the report, approximately 88% of companies believe the importance of supply chain management is increasing, with logistics operations being considered the second most important business function after sales and marketing. There is, however, a traditional reluctance when it comes to outsourcing these operations, with a surprising number of companies willing to take risks with a Do-It-Yourself (DIY) approach.

"It's unusual that a number of companies with limited expertise in supply chain management are still intent to conduct these operations themselves," states Husam Al-Saleh, general manager of Hala Supply Chain Services. "On a global level, it's become normal to outsource the management of supply chain functions or even the whole operation in some cases. However, skills and capabilities are being tested in Saudi Arabia by higher volumes of business operations and increased diversity from oil-based activities, which suggests that the situation could be changing in the near future."

According to the report, a significant number of companies had experienced low-levels of success when implementing their supply chain operations in-house, mainly due to limitations in relevant skills and capabilities of the workforce. Al-Saleh therefore recommends that companies embrace a different approach, as the current scenario of internally managed improvements will only lead to further pressure on the supply chain and the perpetuation of challenges.

"One of the most important and revealing aspects of the survey is the low-level of collaboration, both upstream and downstream, that companies have between their suppliers, suppliers' suppliers, customers and customers' customers," he says.

"Collaboration is considered to have several fundamental advantages in overcoming challenges, particularly in the areas of planning, forecasting, coping with increased volumes and increasing the skills and capabilities pool. Companies in Saudi Arabia mostly collaborate upstream by only one tier - with their suppliers. The real strategic potential of collaboration is yet to be unlocked."

Participants in the Saudi Arabia Supply Chain Intelligence Report consisted of chief executive officers, managing directors, logistics managers, technology specialists and sales executives from a variety of different industries. Whilst the majority hailed from the food and beverage sector (23%), strong responses were also received from the construction (9%), automotive (9%) and logistics (5%) industries.

"In terms of supply chain objectives, respondents placed the improvement of services offered to customers as the most important. However, little emphasis was placed on redefining supply chain strategies, which could prove to be a major weakness as service delivery is directly related to the capabilities of the supply chain," continues Al-Saleh. "Interestingly, when it came to meeting these objectives, the greatest hurdle was seen to be the increasing volumes in supply chains. Other major challenges included a shortage of appropriate skills, the ability to accurately forecast, and the varied needs of customers."

Ultimately the first Saudi Arabia Supply Chain Intelligence Report demonstrates that the concepts of supply chain flexibility, visibility and responsiveness in a changing market place will lead to competitive advantage. The disconnect highlighted by the study between objectives and practices (such as low-levels of outsourcing, collaboration and skills and capabilities) requires strategic leadership and vision in order for companies to realise competitive advantage and secure an economic position within the Middle East and neighbouring regions.

Saudi company profiles

A road map of logistics companies operating in Saudia Arabia

TALKE Logistics

With a focus on emerging markets in the Middle East, TALKE Logistics selected Saudi Arabia as the host country for its first warehousing centre in the region. The facility, which opened in the Port of Al Jubail last year, measures 100,000m2 in total and provides a base for the storage of petrochemical products, together with a range of value-added services for plastics in granulate or powder form. "We are convinced that our investment will play a positive role in the development of logistics in Saudi Arabia," says Alfred Talke, managing director of TALKE Logistics.

According to Riyadh Al-Saad, president of Saudi Arabia TALKE, the facility at Al Jubail supports the strong development of the petrochemical industry and the Kingdom's role in the global economy. Approximately 45 people have been employed at the warehouse, although the number is expected to reach 15 employees by 2010. "Our new facility is a major milestone in our strategy to support the local petrochemical industry with state-of-the-art logistical concepts, which will support the tremendous growth here in the Kingdom," he says. "This will help our manufacturers to bring their products to the global markets in a flexible and efficient manner."

TNT Express

Although TNT entered the Saudi Arabia market relatively late, the global operator has still managed to find opportunity in the Kingdom. "Since TNT enjoys a smaller market share, we can offer a more personal and engaging service to our customers," explains Martyn Wright, the company's Saudi Arabia director. "We operate a number of depots and warehouses in the three provinces and have more than 50 retail access points across the Kingdom to support the requirement of customers."

Almajdouie Group

Almajdouie Group has developed a strong presence in logistics circles throughout the Kingdom, overcoming the traditional reluctance of companies to outsource their supply chain operations. "This year will undoubtedly be a challenge for everyone, however the government has taken a number of measures to minimise the impact of a global recession, which will benefit the logistics market too," says the company's president Abdullah Almajdouie.

GAC

The humble beginning of Gulf Agency Company (GAC) in Saudi Arabia was marked with a single office in the Eastern Province of the Kingdom, where customers were provided with the basic amenities of supply chain management. However, with an economic boom following shortly afterwards, the company's operations have developed in leaps and bounds, encompassing everything from warehousing and distribution to ship agency and marine operations.

"GAC became a pioneer in Saudi Arabia's logistics market when we introduced freight forwarding to our service portfolio in 1985, which gave us the first mover advantage," says Sreedharan Lalithan, business manager of logistics services, GAC Saudi Arabia. "Over half a century of operational experience in the Kingdom has given us strong local expertise. We are optimistic about the future as there is still tremendous growth potential in Saudi Arabia."

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