Supply Chain in Saudi Arabia - Some initial facts

After such a long time did not write in this blog. Here I am, already about 1 year assignment in Saudi Arabia.
Building the greatest chemical complex ever built in single phase.. "A Game Changer" in the industries.

Most of Expat are from US and EU, being the only one Indonesian in the Club,  I feel blessed that I have a cultural sensitivity with our team, the Saudi..
Fact.1. In my opinion, understanding the culture is very important for the success of project implementation. You will know the rational behind the situation and could be useful to identify improvement in future.

Contribution of Strong "Oil" income and spending:
Fact. 2. Road Transportation equipments are vary, most brand new from Europe manufacturer for fuel and chemical distribution...  Look very nice. But law enforcement and driver qualification is something need to be improved
Fact. 3. Road condition relatively good... Hope Indonesia to get improve
Fact. 4. SeaPort facility also very good, all prepared for long term development with good spare capacity.. the exception is 2 main ports: Dammam and Jeddah.. They experience some congestion, but is it the port or the process... let see. 2015 finding: process improved in Dammam..
Fact. 5. Airport, relatively huge and empty... but long immigration queue... 2015: improve queue
Fact. 6. Waterway.... it is a desert.... No water way... :-)
Fact. 7. Railway.. great plan in place... great execution to be seen. 2015: Passenger train Mekkah Madinah... how about the land bridge linking Dammam to Jeddah?
Fact. 8. Customs operations, import take about 10 days to clear.. Export only 2 day gate opening.. What is the challenges.. let me learn more.
Fact. 9. Surveyor services, availalbe with international reputable operators
Fact. 10. ISOtank cleaning facility, very limited option 2 operator with 3 location in East Coast... more to come.. let see.. 2015: many promises, but slow execution.
Fact. 11. Forwarding agent and customs broker. Various quality and capabilities are available... local and international brand.... :-)
Fact. 12. Man Power in logistic sector... mostly expat... favorite Indian, Pakistani (Majority), Philipinos (less)...
Fact. 13. Consultant firm... plenty... seem a trend to use this service... I could have sufficient knowledge for this kind of work later... 2015: I think I am ready... :-)
What else... perhaps good enough for time being

Trade Balance Indonesia China

Kontan today Aug. 16, 2011: Pasar China Semakin jadi Andalan
Import from China USD 12 Billion (Jan.-Jun, 2011), growth 33%
Products: Textile, electronic, toys, etc (consumables, end products)
Export to China: USD 1 - 1.9 Billion per bulan
Products: Coals and Palm Oil (Batubara dan Minyak Kelapa Sawit) Raw Material
Strange government officer proud on above situation. Howcome?
Consider this:
- Can Indonesia make consumable products that imported from China?
- Will import of consumable treat Indonesia industry? Will this support Industry growth in Indonesia?
- Can human being manufacture Coal and Palm oil? Are these part of Natural resources advantages? Will this treathen industry in China?
- How much in Qty/tonage comparison of Import vs export (than USD value)? This will shown the value added.

Trade balance is only a number, we shall factor in others. In the past we have Repelita (5 years development plan), Perhaps Industry and manufacturing shall be our focus to utilized natural resources for our own consumption and some for export.
Nevertheless, Human Resources in Indonesia shall be productive and creative in this global situation (World is Flat, but there's always a swimming "Black Swan" and "Flying Butterflies" which caused a huricance somewhere)

Logistic and traffic efficiency in Jakarta

Jakarta traffic jammed is getting serious. While some action might be taken, but let see some perspectives: Economic and theory of liquid flow.
Since started of Bus way lane, we identified some bottle neck already. Some of them:
3 bottle nect from Semanggi to Cawang, due to bus stop and/or pedestrian bridge.
What are the economic impact:
- If average delay due to this bottle neck is 20 minutes/vehicle/day
- If average vehicle cross this area 10000 units/day
- If fuel in efficiency due to the traffice is 0.2 liter
- If fuel cost is USD 1 per litter
- If working day per year is 250 days
So the economic per year = 10000 * 0.2 l * USD 1 * 250 = USD 500.000
This is more than enough to finance for the bottle necking of this section.... True?
I wonder if the authority responsible did not recognized this..
Even worst economic if we consider human brain potential that wasted in this traffic jam...
How can we (Indonesia) could compete with others?

OTD controversy

It has been long every one would like to measure OTD (On Time Delivery) as part of important KPI, why? Really Customer’s satisfaction?

Quite many times we do measure performance for the sake of measuring only.
By understanding the underlying background of customer satisfaction, hope we can understand better, how should we measure this OTD:
- Is this really what customer request?
- How accurate is the requirement?
- How much would customer or shipper pay for this?

Examples of potential conflict:
- Cost : Customer want to get new style of product and ready to pay premium. Customer cooperate to delay/earlier delivery, to get best price… still the same product anyway.
- Time : Customer want to get product at origin time requested Vs Customer request for delay delivery on existing order due to customer’s issue (ie. Storage, production, etc)

Is OTD based on Customer driven? Or negotiation?

MTS or MTO

A friend commented that MTS decision as requested by sales team. Is this true?
Do you think sales team have full accountability?

Perhaps Supply Chain has to take accountability to decide whether:
- MTS: Make to Stock or RTS (Replenish to Stock)
- MTO: Make to order or Indent (for import)
Certainly to decide this, we need all stake holders input, including sales.

Here is some rationale to decide:
MTS/RTS: Fast moving, large volume, less fluctuate demand pattern.
MTO/Indent: Slow moving, in consistent demand, project items

Exception: Gambling… rare situation
Exclusive hi cost consequence spare part with no substitute. Example: an electric fuse than specifically designed for Power station, very expensive. But need immediate replenishment to avoid catastrophic black out.... but Do you want to stock the whole power plant?

How do you think?

Inventory or Stock level

I shared about safety stock already… Ok, a bit more general how about inventory..
How much inventory shall we keep?
Why we need this inventory?
These more …. where shall we keep the inventory, when, who shall keep this?

Let focus on How much and Why (also for Finish Goods/FG only)
A friend said… about 20 days… if too less.. becoming JIT (Just in Trouble)…..
The other friend said, …. We target about 12 days, but currently at 9 days….
The other business maintaining more than 40 days….
How come? Who’s right?

My opinion: Ideal INVENTORY = SAFETY STOCK + CYCLE STOCK

SAFETY STOCK = Securing against fluctuation/uncertainty

CYCLE STOCK, depend on your business… how much time required on production cycle/ replenishment leadtime.

Extreme example:
- Ship building industry, this is make to order… no FG stock required.
- Consumers good…. Need more inventory, ensure available in market pipeline… never allow your customer has any reason to buy competitor product due to stock out at retail selves

So how much inventory shall you keep? Depend on your industry, fluctuation, cycle time, etc…. This is the art, what is the right level…. Which also shown your Supply Chain expertise level… :-)

Safety Stock or convenience stock

It is similar (if not exactly the same) as you do at home. What do you stock at home? Soap, Shampoo, dish soap, softener, nail, paper.
Why you keep that stock? Convenience, right? Easy to grasp

How much would you like to spend ($$$$$....) for this conveniences?
Perhaps an extra USD 100 for your toiletries and consumer goods… no problem..
How if your inventory value USD 10MM, with about 10% working capital rate = USD 1 MM per year = USD 80000 per month…. How if part of this value use for your employee benefit? Hmmmmmm

But… if no stock the risk is very big…. depend on your business nature.
I don’t say, “no stock”, but how much…
If we double our stock…. Will we eliminate 100% risk.??? I dont think so..

So, how should we calculate the risk and ensure we have sufficient stock and risk and "conveniences"….. :-)