research on sabic company

JULY 2018

STRATEGIC ALLIANCE FINAL REPORT

2

Classification: Internal Use

DISCLAIMER

Important message to any person not authorized to have access to this report.

Any person who is not an addressee of this report or who has not signed and returned to PricewaterhouseCoopers a Release Letter is not authorized to have access to this report.

Should any unauthorized person obtain access to and read this report, by reading this report such person accepts and agrees to the following terms:

1. The reader of this report understands that the work performed by PricewaterhouseCoopers was performed in accordance with instructions provided by our addressee client and was performed exclusively for our addressee client’s sole benefit and use.

2. The reader of this report acknowledges that this report was prepared at the direction of our addressee client and may not include all procedures deemed necessary for the purposes of the reader.

3. The reader agrees that [PricewaterhouseCoopers], its partners, principals, employees and agents neither owe nor accept any duty or responsibility to it, whether in contract or in tort (including without limitation, negligence and breach of statutory duty), and shall not be liable in respect of any loss, damage or expense of whatsoever nature which is caused by any use the reader may choose to make of this report, or which is otherwise consequent upon the gaining of access to the report by the reader. Further, the reader agrees that this report is not to be referred to or quoted, in whole or in part, in any prospectus, registration statement, offering circular, public filing, loan, other agreement or document and not to distribute the report without PricewaterhouseCoopers’ prior written consent.

3

Classification: Internal Use

TABLE OF CONTENTS

Section Overview

1 Project overview

2 SABIC’s strategic alliances 6 step framework

3 Step 1 - planning and preparation

4 Step 2 - segmenting suppliers – including polls

5 Step 3 - identifying potential alliance candidates

6 Step 4 - approaching alliance candidates

7 Step 5 & 6 - developing the outline and executing the alliance

Appendix

1. Introduction to strategic alliances

2. Benchmarking and case study

3. Strategic alliances data analysis

4. Strategic alliance toolkit

5. Strategic alliance process framework

4

SECTION 1

PROJECT OVERVIEW

5

Classification: Internal Use

PWC WAS APPOINTED TO SUPPORT SABIC IN DEVELOPING AND EXECUTING A STRATEGIC ALLIANCE FRAMEWORK…

As part of SABIC’s mission to become a top quartile procurement function amongst the leading companies globally, PwC was appointed to develop a framework in which to establish strategic alliances.

Phase 1: Synthesis & baseline understanding Phase 2: Design & create

Assess current

alliance criteria

1

Baseline criteria for alliances

2

Define alliance mechanism

3

Develop process,

R&Rs, policies

4

Design alliance toolkit & templates

5

Our approach:

6

Classification: Internal Use

…WHICH WAS EXECUTED IN 8 WEEKS

Activity May June July

27th 3rd 10th 17th 24th 1st 8th 15th

B 1 . A

s s

e s

s

c u

rr e

n t

a lli

a n

c e

c ri

te ri

a

Understand current strategic objectives over 2-3 years

Conduct current state assessment meetings

Document potential gaps in criteria

B 2

. B

a s

e lin

e

c ri

te ri

a

Design fit for purpose segmentation criteria

Conduct workshop with relevant stakeholders

B 3

. D

e fi

n e

A

lli a

n c e

m

e c h

a n

is m

Develop supplier segmentation tool

Hold validation workshop with relevant stakeholders Eid break Eid break

Define and finalize alliance strategies

B 4

. D

e v

e lo

p

p ro

c e

s s

, R

& R

s ,

p o

lic ie

s

Develop details of strategic supplier alliance process

Define relevant policies which govern the new processes

Define a detailed RACI matric for each process

B 5

. D

e s

ig n

a

lli a

n c e

t o

o lk

it &

t e

m p

la te

s Design tool to measure health of strategic alliance

Design alliance charter including templates, KPIs, etc.

Design alliance participation letter

Project Management

Workshop #1

Project kick off

Finalized supplier segmentation criteria

Strategic alliance toolkit

Finalized supplier segmentation tool

Workshop #2

Workshop

Weekly Status Update

7

Classification: Internal Use

OUR COMPREHENSIVE DELIVERABLES HAVE BEEN DEVELOPED TO ENSURE CONTINUED SUCCESS IN ESTABLISHING STRATEGIC ALLIANCES AT SABIC

# Deliverable Description Snapshot of deliverables

1 Supplier segmentation model Model which segments suppliers against pre-set, weighted criteria to map them on the segmentation matrix

2 Supplier segmentation report Report which highlights the segmentation methodology and how the potential alliances were derived from the pool of ~5000 suppliers

3 Strategic alliance process framework Framework which outlines the strategic alliance detailed processes that should be deployed by SABIC based on leading practice

4 Strategic alliance health check questionnaire Questionnaire which measures the overall health of the strategic alliance through pre-established questions to complete periodically

5 Strategic alliance charter Document which serves as an agreement between SABIC and the supplier to define governance, roles and responsibilities, KPIs, etc. of the alliance

6 Strategic alliance participation letter Document which serves as an introductory approach to the supplier when gauging their interest in an alliance with SABIC

7 Strategic alliance presentation templates PowerPoint templates which will be used throughout the alliance duration to track performance and risks/ issues

8

SECTION 2

6 STEP STRATEGIC ALLIANCE

FRAMEWORK

9

Classification: Internal Use

WE DEVELOPED A 6 STEP STRATEGIC ALLIANCE FRAMEWORK TO PROVIDE GUIDANCE FROM STRATEGY THROUGH EXECUTION

Planning and preparation • Define SABIC alliance

vision & objectives • Team formation • Benchmark studies • Data gathering

1

Segment suppliers based on criteria

• Selection criteria • Best practices • Segmentation tool

2

Identify potential alliance candidates

• Shortlist final suppliers • Segmentation matrix

3

Approach alliance candidates for buy-in

• Size opportunity • Acquire approval

4

Develop outline alliance with supplier

• Collaboration charter • KPIs • Performance

management

5

Execute & manage the alliance

Sign-off by SABIC CEO

6

SABIC strategic alliance lifecycle & stakeholder engagement:

GPS

Manufacturing Manufacturing

E&PM E&PM

LC team LC team

T& I T & I

Legal Legal

Suppliers

Obtain supplier buy-in

S ta

k e

h o

ld e

r E

n g

a g

e m

e n

t

1Research and Technology

10

SECTION 3

STEP 1 - PLANNING AND PREPARATION

11

Classification: Internal Use

WE DEFINED THE OBJECTIVES OF STRATEGIC ALLIANCES BY REVIEWING SABIC’S OVERALL VISION AND BY ENGAGING MULTIPLE STAKEHOLDERS

SABIC strategic alliance objective setting

Conducted strategic alliance team workshop

We ran a workshop with the immediate strategic alliance team in order to confirm understanding and ensure alignment on the key objectives and focal areas

Deployed an objectives survey and analysed findings

We conducted a survey for the wider stakeholders to rank the most important to least important priority areas to ensure the strategic alliance objectives capture these focus points

Reviewed SABIC’s strategic vision

We conducted an assessment of SABIC’s overall mission to ensure the strategic alliance objectives are in line with the broader organisational goals

12

Classification: Internal Use

THE RESULTS FROM OUR OBJECTIVES SURVEY SHOWED THAT EHSS SAFETY, UNIT COST AND MAINTENANCE COST REDUCTION WERE THE TOP PRIORITIES

The following objectives/initiatives were ranked from most important to least, which the wider stakeholder felt should be the top priority for SABIC to collaboratively work on with its strategic suppliers

8.08

12. Improve engagement between suppliers and plants through continuous data sharing10.38

11. Early access to future cutting-edge technologies and opportunity to be part of piloting with suppliers

1. EHSS safety incidents reduction

3. Maintenance cost reduction5.46

5.25

2.89

5.57

2. Unit cost reduction

7.27

8. Local content increase7.00

7. Efficiency increase of plants utilizing latest techniques provided by suppliers (e.g. predictive analysis, etc.)

7.68

6. Production losses and disruptions minimization

5.65

4. Competency development, people knowledge transfer and skills improvement through training programs

10. Innovative solutions and products implementation

6.64

5. Technical support improvement by suppliers (e.g. on-time and on-site technical support availability, etc.)

9. Inventory cost reduction

6.00

Average ranking position Objectives

TOP 3 PRIORITY AREAS

13

Classification: Internal Use

BASED ON OUR ASSESSMENT, WE DEFINED 4 KEY OBJECTIVES FOR STRATEGIC ALLIANCES

Strategic Alliance

02 Enhance business continuity

Reduce safety incidents

Increase reliability

Reduce production losses/ disruptions

Cost-out Reduce unit cost

Reduce inventory cost

Reduce maintenance cost

01

Build competency capability

Improve people knowledge & skills

Improve productivity

03 04 Access to technology & data

New technologies

New innovative solutions

Data sharing

Strategic Alliance

Planning and preparation

1

Local Content

14

SECTION 4

STEP 2 - SUPPLIER SEGMENTATION

15

Classification: Internal Use

OUR SEGMENTATION APPROACH WAS DEVELOPED TO SHORTLIST THE 5000+ SUPPLIERS TO 5-10 POTENTIAL ALLIANCES

Input to segmentation Supplier segmentation through tool Segmented outputs

• Suppliers segmented on matrix based on score across enablement v/s efficiency

• Individual supplier scores adjusted, as required, on detailed review upon business objectives

Workshops and meetings: These contributed to validation of segmentation criteria, understanding of general supply base and special cases.

Market research & benchmarking: Benchmarking & research was conducted on specific suppliers to understand best practices, supplier offerings, and capture essential data for segmentation.

Strategic alliance objectives: The objectives defined gave us a general direction and vision for alliances which helped us further define our criteria in line with the objectives.

5000+ suppliers

38 suppliers

5-10 suppliers1

Segment suppliers based on criteria

2

1Final alliance candidates to be defined

16

Classification: Internal Use

TO REACH THE SHORTLISTED 38, WE CONDUCTED AN INITIAL FILTRATION EXERCISE

Filter by type of supplierClassification by spend

Relevant suppliers for strategic

alliance1

Shortlisted suppliers

SABIC total suppliers

(past 5 years)

I II

 High Spend (50mn+ SAR)

Excluded:  Non-core businesses (transportation,

IT, medical, raw material, etc.)  Sole source suppliers  Traders, agents, distributors  Limited # of affiliates served  Limited experience

5000+ 38

1Categories excluded: logistics, projects, transportation, insurance and medical

The 38 suppliers need to be further segmented based upon defined segmentation criteria to be able to focus SABIC efforts on truly strategic suppliers

Segment suppliers based on criteria

2

17

Classification: Internal Use

THE 38 SHORTLISTED SUPPLIERS SERVE 110+ CATEGORIES WITH MORE THAN 10 YEARS OF EXPERIENCE1 WITH SABIC

Segment suppliers based on criteria

2

1Information is based on averages of the 38 suppliers

Key statistics1

Materials & services

affiliates served

10+

SABIC categories served

110+

Bilfal10

ABB1

Alfa Laval5

Asco 9

Borsig14

Eagle Burgmann18

Burckhardt22

Caterpillar26

Coperion31

Danieli35

Elliott2

Emerson6

Endress & Hauser11

Ericsson15

Flowserve19

Gulf Heavy Industries Co.23

Hitachi32

Honeywell36

Inmasteel3

John Crane7

Kobelco12

Koch16

Kubota20

Linde24

Manoir29

Midrex33

Mitsubishi37

Mollers4

Saudi Valves8

ThyssenKrupp13

Schneider17

Siemens21

Sumitomo25

Tomoe30

Yokogawa34

York38

Schmidt28GE27

AC MOTOR

COMPRESSOR GEARBOX FURNACE PELLETIZER EXTRUDERS PRESSURE VESSEL HEAT EXCHANGER SHELL AND TUBE ROLLING MILL STAND HEATER

years of experience with SABIC

10+

Top 10% products supplied:

18

Classification: Internal Use

IN ORDER TO FURTHER DIFFERENTIATE THE 38 SUPPLIERS, WE INITIALLY CAME UP WITH 17 CRITERIA

Enablement

Finance criteria

Efficiency

Operations criteria

1 Total spend

2

3

SABIC % revenue to supplier

Total sales to supplier

1

2

# of served affiliates

3

4

Production losses

5

Local content score

6

# of global regions served

7

# of SABIC focus areas

Part of performance killer list?

# of RL1 & RL2 equipment

Technology criteria People criteria

R&D expense % of revenue

2 # of patents in category

3 Critical to innov./product/service

1 1 # of training/knowledge academies

2 # of certifications offered

3 # of partnerships with universities

4 Quality of program

Segment suppliers based on criteria

2

19

Classification: Internal Use

WE CONDUCTED A WORKSHOP TO SHORTLIST, VALIDATE AND WEIGH THE SEGMENTATION CRITERIA

1. Agree on the preliminary strategic alliance toolkit and any exclusions or additions

2. Understand the process framework behind strategic alliance

3. Understand principles of supplier segmentation and the segmentation levels

4. Define and agree on the supplier segmentation criteria and weighting

Objectives Outcomes

Validated and weighed segmentation criteria and obtained stakeholder sign-off

Segment suppliers based on criteria

2

20

Classification: Internal Use

1Workshops conducted with the wider business as well as affiliates

WE REFINED AND ASSIGNED WEIGHTS THROUGH OUR FIRST SEGMENTATION WORKSHOP1

Finance: Total sales to supplier for the past 5 years 7%

9%

4%

Operations: Are they part of the performance killer list?

Operations: Level of demand anticipated in next 3 years

8%

Operations: Production losses (SAR mn) related to their equipment

Operations: # of SABIC focus areas supplier provides equipment in

5%

Operations: Local content score 6%

Operations: # of equipment under RL1 and RL2 list

10%

Finance: % of revenue that SABIC represents for the supplier

Finance: Total spend for the past 5 years

12%

Operations: # of served affiliates

11%

13%

Operations: # of global regions served for SABIC

9%

1%Operations: # years of experience with SABIC

Finance: Supplier financial stability

Operations: Latest supplier performance score 3%

2%

People: Quality of training programs 14%

Technology: # of patents in the category for the alliance

Technology: R&D expense as a % of revenue

Technology: Criticality to future innovations/products/services

People: # of partnerships with universities 4%

18%

21%

25%

People: # of certifications offered

People: # of training/knowledge academies 7%

11%

E n

a b

le m

e n

t E

ff ic

ie n

c y

No added value, same

answers for all

Data to be captured at later stage

Will be considered as

tie breaker

Redundant criteria

Segment suppliers based on criteria

2

21

Classification: Internal Use

OUR FINALISED SEGMENTATION CRITERIA BASED ON THE OUTPUT FROM OUR FIRST WORKSHOP

Enablement

Finance criteria

Efficiency

Operations criteria

1 Total spend

2

3

SABIC % revenue to supplier

Total sales to supplier

1

2

# of served affiliates

Production losses

3

4

5

# of SABIC focus areas

Part of performance killer list?

# of RL1 & RL2 equipment

Technology criteria People criteria

R&D expense % of revenue

2 # of patents in category

3 Critical to innov./product/service

1 1 # of training/knowledge academies

2 # of certifications offered

3 # of partnerships with universities

Segment suppliers based on criteria

2

22

Classification: Internal Use

WE THEN CONDUCTED A SECOND WORKSHOP TO GAIN A MANUFACTURING PERSPECTIVE TO RE-VALIDATE THE CRITERIA

Enablement

Finance criteria

Efficiency

Operations criteria

1 Total spend

2

3

SABIC % revenue to supplier

Total sales to supplier

1

2

# of served affiliates

Production losses

3

4

5

# of SABIC focus areas

Part of performance killer list?

# of RL1 & RL2 equipment

Technology criteria People criteria

R&D expense % of revenue

2 # of patents in category

3 Critical to innov./product/service

1 1 # of training/knowledge academies

2 # of certifications offered

3 # of partnerships with universities

Segment suppliers based on criteria

2

# SABIC focus areas

Production Losses

Part of performance

killer list? # RL1 & RL2 equipment

45% Total weight to redistribute

23

Classification: Internal Use

AS PART OF WORKSHOP 2 WE RE-ASSIGNED WEIGHTS TO THE EFFICIENCY CRITERIA ITEMS

Operations criteria

1

2

3

Production losses

4

# of SABIC focus areas

Part of performance killer list?

# of RL1 & RL2 equipment

Old weight

New weight

13% 20%

11% 12%

12% 8%

9% 5%

+7%

+1%

-4%

-4%

1. Validate and agree key strategic suppliers

2. Define strategic alliance and understand the differences between other types of supplier relationships

3. Develop an understanding of SABIC’s 6 step strategic alliance framework

4. Communicate our current progress on the strategic alliance initiative

5. Obtain manufacturing input into the supplier segmentation activity

Objectives Outcomes

Validated efficiency criteria and re-weighed segmentation criteria items

Segment suppliers based on criteria

2

24

Classification: Internal Use

WE FINALISED OUR EFFICIENCY CRITERIA DEFINITION, SCORING AND WEIGHTING BASED ON BOTH WORKSHOP OUTPUTS

Area # Segmentation Criteria Scoring Guideline

New Weighting 1 - Low 2 - Medium 3 - High 4 – Very High

Efficiency

1 Total spend for the past 5 years <80mn 80mn-200mn 200mn-400mn 400mn + 16%

• Total spend (SAR mn) in the past 5 FY

2 SABIC % revenue to supplier <1% 1-10% 10-20% 20% + 15%

• % of revenue that SABIC represents for the supplier

3 # of served affiliates <10 10 - 15 15 - 20 >20 14%

• # of affiliates served as of last FY

4 Production losses (SAR mn) <10mn 10mn-24mn 24mn-38mn 38mn + 20%

• Total production losses related to their equipment (SAR mn) in the past 5 FY

5 Performance killer list? No N/A N/A Yes 8%

• Is this supplier currently on the performance killer list?

6

# of SABIC focus areas supplier provides equipment in

1 focus area 2 focus areas 3 focus areas 4 focus areas 12%

• # of SABIC's 4 focus areas supplier provides equipment in

7 Total sales to supplier for the past 5 years <1mn 1mn-20mn 20mn-100mn 100mn + 10%

• Total sales (SAR mn) in the past 5 FY

8 # of equipment under the RL1 and RL2 list 0 to 20 20 to 100 100 to 1000 1000 + 4%

• # of equipment that could potentially cause production losses

Segment suppliers based on criteria

2

25

Classification: Internal Use

WE FINALISED OUR ENABLEMENT CRITERIA DEFINITION, SCORING AND NEW WEIGHTING BASED ON BOTH WORKSHOP OUTPUTS

Area # Segmentation Criteria Scoring Guideline

New Weighting 1 - Low 2 - Medium 3 - High 4 – Very High

Enablement

1

Criticality to future innovations/ products/ services

No involvement and very little

potential

Some involvement and some potential

High involvement and high potential

Collaborative approach with

continuous involvement

27%

• Suppliers importance to SABIC to help develop new innovative products and/ or services

2 R&D expense as a % of revenue 0-1% 1-5% 5-10% 10% + 23%

• Supplier's latest FY R&D expense as a percentage of latest FY revenue

3 # of patents in the category for the alliance 0 1 to 2 3 to 4 5 + 20%

• # of patents related to the category SABIC is interested to create alliance in

4 # of certifications offered 0 1 to 2 3 to 4 5 + 13%

• # of certifications/ diplomas offered through the supplier related to alliance category

5 # of training/ knowledge academies 0 to 10 10 to 25 25 to 50 50 + 9%

• # of supplier training/ knowledge academies globally

6 # of partnerships with universities 0 1 to 2 3 to 4 5+ 8%

• # of academic partnerships supplier has with universities

Segment suppliers based on criteria

2

26

Classification: Internal Use

WE FINALISED OUR TIE BREAKER CRITERIA DEFINITION, SCORING AND WEIGHTING ON BOTH WORKSHOP OUTPUTS

Segment suppliers based on criteria

2

Area # Segmentation Criteria Scoring Guideline

Initial Weighting 1 - Low 2 - Medium 3 - High 4 – Very High

Tie breaker

1 Level of demand anticipated in next 3 years

Low demand, rare consumption

Seasonal demand, scattered

consumption

Consistent demand, regular

consumption

Very high demand, ongoing

consumption

4%

• Total level of anticipated future demand in the next 3 years

2 Latest supplier performance score To be determined To be determined To be determined To be determined 3%

• Latest FY supplier performance score

3 Supplier financial stability To be determined To be determined To be determined To be determined 2%

• Suppliers financial health as of the latest FY

4 # years of experience with SABIC <10 years 10 - 15 years 15 - 17 years >17 years 1%

• # of years supplier has been in business with SABIC

27

Classification: Internal Use

WE THEN TRANSLATED THE CRITERIA INTO A SURVEY IN ORDER TO COLLECT DATA AND GAUGE INTEREST IN ALLIANCES

Sample of questions asked externally (non-exhaustive):

1

2

What % of revenue does SABIC represent to your company?

3

4

What is SABIC’s rank in your top customers list at a company level?

5

What was your R&D expense as a % of revenue of the past 3 fiscal year?

6

What are the patents you have filed in the last 3 years?

7

Would you be interested in co-developing new technology with SABIC?

How many training/ knowledge academies do you have globally?

What are the top 3 opportunities you would prioritize to jointly solve with SABIC?

1

2

3

What is the supplier’s latest FY saudization rate?

4

What is your overall perception of this supplier?

How critical is the supplier to our future innovations/products/services?

What are the top 3 challenges you would prioritize to jointly solve with SABIC?

Sample of questions asked internally (non-exhaustive):

39 Total questions

70+ Total responses1

Segment suppliers based on criteria

2

117 suppliers replied with incomplete information; assumptions/ research was done to fill incomplete responses

28

Classification: Internal Use

1Represents 21 shortlisted suppliers who completed the survey 2SABIC R&D expense as of Y’17 was < 1%

THE INSIGHTS FROM THE SURVEY CONDUCTED REVEALED THE KEY OPPORTUNITIES AND CHALLENGES FOR ALLIANCES1

According to the survey, SABIC represents… The top opportunities for alliances

The top challenges for alliances

According to the survey, suppliers…

…have 200+ training academies globally

…offer 500+ certifications

…have filed 25+ patents in the past 3 years

…spend on average 3% of revenue on R&D2

Digitalization/ Internet of Things

Sustainability

Process optimization

Localization

Safety

Unclear communication

Lack of momentum for initiatives

Inefficient payment processing

Local resource capability

Administrative burdens

1

2

3

4

5

1

2

3

4

5

22%

22%

36%

10%

10%

40 to 80% of supplier’s business

40% of supplier’s business

<20% of supplier’s business

80% of supplier’s business

20 to 40% of supplier’s business

Petrochemical business

Segment suppliers based on criteria

2

29

Classification: Internal Use

IN PARALLEL, WE ALSO REVIEWED SUPPLIER IMPACT ON CORE STRATEGIC BUSINESS UNITS FOR FURTHER INSIGHTS

E & 3Ps

ETP

OLEFINS

OXYGENATES

PEPPMETALS

FCA FI & NB

GLYCOLS & GASES NITROGEN

# of SBUs impacted

Supplier # of SBUs impacted

Supplier # of SBUs impacted

Supplier # of SBUs impacted

Supplier

8

1

1

1

2

1

5

1

6

6

6

5

7

5

8

5

2

2

2

1

4

8

1

8

3

7

3

SABIC core SBUs

Segment suppliers based on criteria

2

Utilities

30

Classification: Internal Use

SHORTLISTED SUPPLIER TO SBU MAPPING DETAILS (1/2) Segment suppliers based on criteria

Supplier Products/ services (top 5 by spend) SBUs

ABB

• Power sources • Electrical equipment maintenance or repair • Industrial electric power distribution • Circuit protection devices and accessories • Power supply units

8

Alfa Laval

• Heating system maintenance and repair service • Gaskets • Cleaning Equipment and Supplies • Cleaning and janitorial services • Filters

1

Asco 1

Burckhardt

• Compressor kits • Completion tools and equipment • Machining and processing services • Pumps or compressors manufacture services • Rod

2

Caterpillar 1

Coperion

• Thrust bearings • Conveyor screw • Plate • Bag filters • Barrels

5

Danieli

• Rollers • Assembly fixtures • Foundry molds • Miscellaneous hardware • Hoses

1

Eagle Burgmann

• Seal mechanical • Industrial process machinery and equipment and supplies • Compressor kits • Industrial Production and Manufacturing Services • Seal kits

1

Supplier Products/ services (top 5 by spend) SBUs

Elliott

• Pumps or compressors manufacture services • Conventional pumping services • Joint sealing services • Seals

1

Emerson

• Control valves • Relief valves • Valve parts or accessories • Valve kits • Nozzles

6

Endress + Hauser

• Environmental management • Liquid and gas flow measuring and observing instruments • Level sensors or transmitters • Flowmeters • Detectors

6

Flowserve

• Seal mechanical • Industrial process machinery and equipment and supplies • Machining equipment rebuild and refurbishment service • Valve actuators • Valve kits

5

GE 7

Hitachi

• Manufacturing equipment maintenance and repair services • Pumping station maintenance or management services • Grinding services • Bushings • Balance equipment

5

Honeywell

• Software maintenance and support • Industry specific software maintenance • Electrical and electronic engineering • System and system component administration services • Electronic Components and Supplies

8

Kobelco 5

2 SABIC to complete

missing items

31

Classification: Internal Use

SHORTLISTED SUPPLIER TO SBU MAPPING DETAILS (2/2) Segment suppliers based on criteria

Supplier Products/ services (top 5 by spend) SBUs

Koch 2

Kubota

• Tubes tubing and tube fittings • Coil • Structural products • Control valves • Assembly fixtures

2

Linde

• Chromatographic measuring instruments and accessories • Heat exchangers • Valve parts or accessories • Miscellaneous hardware • Butterfly lug pattern valves

2

Midrex

• Catalysts • Hardware and fittings • Foundry bellows • Ball valves • Oil and gas exploration services

1

Mitsubishi

• Rotors • Seals • Power sources • Heating equipment and parts and accessories • Miscellaneous hardware

4

Mollers 8

Schmidt

• Coil • Tubes tubing and tube fittings • Boilers • Pipe bends • Assembly fixtures

1

Siemens

• Power sources • Roller bearings • Seals • Electrical equipment maintenance or repair • Electrical system services

8

Supplier Products/ services (top 5 by spend) SBUs

Sumitomo 3

Yokogawa

• Software maintenance and support • Computerized controls installation service • Industry specific software maintenance • System and system component administration services • Network planning services

7

York

• Oils • Heat exchangers • Cooling or refrigeration services • Pumps or compressors manufacture services • Seals

3

2 SABIC to complete

missing items

32

Classification: Internal Use

ONCE DATA WAS COLLECTED AND ANALYSIS WAS COMPLETED, WE THEN WERE READY TO SEGMENT THE 38 SUPPLIERS

Potential strategic alliance

candidates

5-10

•Potential suppliers for strategic alliance will then be identified following the matrix assessment

•The 2 main areas assessed are: − Efficiency − Enablement

Segmentation tool1Segmentation criteriaIII IV

Relevant suppliers for

strategic alliance1

38

Criteria examples - Alternative sources - % revenue to supplier - Production losses - # of critical

equipment - R&D expense

Matrix assessmentV

Enablement

E ff

ic ie

n c

y

Alliance zone

•A segmentation tool will plot 38 suppliers against a 2D matrix representing efficiency vs enablement

Segment suppliers based on criteria

2

33

Classification: Internal Use

WE LEVERAGED OUR SUPPLIER SEGMENTATION TOOL IN ORDER TO PLOT THE 38 SUPPLIERS AGAINST OUR MATRIX

Supplier Segmentation matrix

The final output of suppliers mapped against a pre-defined, weighted criteria

Supplier Segmentation tool

The excel model that was developed to calculate supplier scoring based on the agreed criteria

Segment suppliers based on criteria

2

34

Classification: Internal Use

THE SEGMENTATION TOOL SCORES EACH SUPPLIER AGAINST THE EFFICIENCY AND ENABLEMENT CRITERIA

Weights may vary depending on

corresponding criteria and is adjustable in the

model

6 segmentation criteria were

categorized under enablement

8 segmentation criteria were

categorized under efficiency

Supplier name

Efficiency criteria

Enablement criteria

Weightage

Segment suppliers based on criteria

2

35

Classification: Internal Use

OUR FINAL SUPPLIER SEGMENTATION OUTPUT SHOWS 8 POTENTIAL ALLIANCE CANDIDATES

E n

a b

le m

e n

t (i

n c

lu d

e s

p e

o p

le a

n d

t e

c h

n o

lo g

y )

YORK

SIEMENS

SAUDI VALVES

MANOIR

JOHN CRANE

Efficiency (includes operations and finance)

SCHMIDT (1FA1)

SUMITOMO KUBOTA

HONEYWELL

TOMOE

THYSSENKRUPP

MOLLERS

MIDREX

SCHNEIDER

LINDE

YOKOGAWA

KOCH GLTSCH

KOBE STEEL

MITSUBISHI

ENDRESS AND HAUSER

ERICSSON

INMA STEEL

ELLIOTT

GHI

COPERION (2FA1)

BURGMANN

ASCO

FLOWSERVE

HITACHI BURCKHARDT

BORSIG

DANIELI (1FA1)

ALFA LAVAL

BILFAL

GE

EMERSON

CATERPILLAR

ABB (1FA1)

Potential strategic alliance candidates

Critical suppliers

Essential suppliers

Segment suppliers based on criteria

2

Local presence Focus area

36

SECTION 5

STEP 3 - IDENTIFY POTENTIAL ALLIANCE

CANDIDATES

NEXT STEPS

37

Classification: Internal Use

IN ORDER TO SELECT THE ALLIANCES, A DEEP DIVE ANALYSIS MUST BE CONDUCTED ACROSS 4 BROAD AREAS

Identify potential alliance candidate

3

Potential strategic alliance

candidates

5-10

• Detailed customer profile

• Root cause incident analysis

• Historical unit cost analysis

• Commodity analysis

• Supplier performance

• Reliability analysis

• SABIC people technical gap analysis

• Supplier training program assessment

• Supplier academic partnership strategic fit

• Research on supplier innovation capability

• Patent analysis

• Supplier strategy (e.g. focus on digital?)

Supplier deep dive analysis

Non exhaustive

Finance Operations

TechnologyPeople

38

Classification: Internal Use

WHEN ASSESSING POTENTIAL ALLIANCE CANDIDATES, SABIC MUST UNDERSTAND WHAT SUPPLIERS MAY ASK FOR IN RETURN

Supplier benefits

Access to SABIC training academy to develop the workforce and build employees’ knowledge

Quicker and efficient payment processing times

Preference given to suppliers in SABIC technical and marketing events

Visibility of data/ future forecasts and industry insights from SABIC to streamline logistics and facilitate production planning

Non exhaustive

PR rights given to supplier to mention their strategic alliance with SABIC to other customers

Exclusivity on some commodities if the supplier is within 10% of the lowest price

Identify potential alliance candidate

3

Access to SABIC technology / patents to collaborate on innovative solutions

Financial

Technology & innovation Knowledge transfer

Collaboration

Regular participation of SABIC leaders at supplier trade shows Building competency through engineers’

rotation programmes

Access to SABIC Home of Innovation and preference for launching new technologies

Utilise SABIC Local Content support structure for ease of doing business in KSA

Co-investment / co-piloting opportunities for new innovative solutions

Deep level engagement between executive teams and long term business commitment

Provide opportunities to buy complete systems rather than stand along machinery

39

Classification: Internal Use

ADDITIONALLY, IT IS IMPORTANT TO ALWAYS KEEP IN MIND THE CHALLENGES WITH ALLIANCES AND HOW TO MITIGATE…

Challenges Mitigation measures

Poorly defined business objectives Every entity is looking for different objectives which creates a mismatch between both cultures and working strategies

Pre-alliance meetings Identify the results that will cause the alliance to be most beneficial for your business

Weak launch planning Failure to prepare proper start of alliance

Proper planning Prepare ahead of time all required documents for the alliance depicting risk & benefits sharing, roles, meeting frequency

Limited Executive support Limited executive support once the deal has been prepared

Documented support Document the elements provided by each party, and ensure leadership involvement in role definition

Poor governance structure Ill-conceived and minimally resourced governance structure and set of coordinating mechanisms

Well defined structure Define the structure and operating issues that need to be addressed to achieve the pre-agreed alliance benefits

Misaligned supplier selection Supplier(s) selected may not be aligned with SABIC’s strategic alliance objectives

Thorough review and of supplier objectives Conduct an assessment of the suppliers vision and goals to determine prior to the strategic alliance if they have aligned objectives

Identify potential alliance candidate

3

40

Classification: Internal Use

…INCLUDING POST-ALLIANCE RISKS

Post-alliance risks Mitigation measures

Culture clash Difficulty to break the typical adversarial mentality and understand one another culture

Pre-alliance meetings Meet with management to align on how to integrate two different cultures, and highlight importance of alliance

Lack of management focus Leaders becoming distracted by other key issues

Management focus Hold regular meetings to keep track of alliance KPIs

Integration failure Failure of building better relationships (pessimism) across the organizations

Vertical integration awareness Hold workshops with all workforce levels to shed the light on the importance and benefits of a successful alliance

Lack of agility Inefficient or bureaucratic processes work against collaborative behaviors

Preferential treatment Agree on exclusive treatment to ease transaction processes and other business activities

Lack of performance monitoring Inadequate understanding of how performance will be evaluated and managed

Proper performance management Hold regular executive reviews and resolve performance issues linked to the alliance KPIs

Identify potential alliance candidate

3

41

Classification: Internal Use

SABIC MUST FOLLOW BEST PRACTICES IN SELECTING AND FORMING ALLIANCES WITH SELECTED SUPPLIERS

Rigorous partner selection

Ensure a clear scope of work, cross- functional reviews of suppliers, and

honest supplier self-assessment

Shared strategy and objectives

Ensure strong alignment of goals and approach, with a clear value proposition for all partners

Right contracting models

Match contract model with project, market conditions, and internal

competencies

Appropriate risk allocation

Apply only appropriate risk to contractors to create win-wins

Transparency in collaboration

Increase transparency toward partners and involve them early in projects;

communicate widely

Relentless focus on governance

Develop formal governance structures to ensure efficient and effective

delivery

Strong alliance leadership

Ensure that leaders are problem solvers, collaborative, well connected

and able to deal with ambiguity

Deep integration

Integrate technical delivery approach, locations, and people development; make building relationship a priority

Value-based decision making

Identify value opportunities early and consistently make project decisions on

the basis of value

Robust performance management

Develop KPIs linked to alliance benefits; hold regular executive reviews and

resolve performance issues

Partner selection and contracting Streamlined operating model for the alliance

Identify potential alliance candidate

3

42

SECTION 6

STEP 4 - APPROACHING ALLIANCE

CANDIDATES

NEXT STEPS

43

Classification: Internal Use

WE HAVE CONDUCTED STEPS 1-3 TO DATE, HOWEVER IN ORDER TO EXECUTE AND MANAGE THE STRATEGIC ALLIANCES STEPS 4-6 MUST BE IMPLEMENTED

Planning and preparation • Define SABIC alliance

vision & objectives • Team formation • Benchmark studies • Data gathering

1

Segment suppliers based on criteria

• Selection criteria • Best practices • Segmentation tool

2

Identify potential alliance candidates

• Shortlist final suppliers • Segmentation matrix

3

Approach alliance candidates for buy-in

• Size opportunity • Acquire approval

4

Develop outline alliance with supplier

• Collaboration charter • KPIs • Performance

management

5

Execute & manage the alliance

Sign-off by SABIC CEO

6 GPS

Manufacturing Manufacturing

E&PM E&PM

LC team LC team

Legal Legal

Suppliers

Obtain supplier buy-in

S ta

k e

h o

ld e

r E

n g

a g

e m

e n

t

Next StepsSteps completed

Res. & Tech.1 Research & Technology

1Research and Technology

44

Classification: Internal Use

SABIC MUST LEVERAGE A 4-STEP METHODOLOGY TO JOINTLY SIZE THE OPPORTUNITY FOR THE STRATEGIC ALLIANCE

Activities

Define ambition

level

1

Define alliance

objectives

2

Identify opportunities

and initiatives

3

Develop high level

business case

4

What is it that we want to strive for?

What do you want to reach?

What are the opportunities and initiatives we can undertake to

create value?

What is the ‘size of the prize’ for both of our organizations?

“Build the best product, cause no unnecessary harm, and innovate disruptive technological solutions in our industry”

1. Create value through operational improvements and technological innovations

2. Create a safe working environment

1. Reduce cost to SABIC by procuring materials in bulk based on SABIC future demand

2. Increase profit to supplier by assuring future business 3. Conduct joint safety training for all staff involved

1. Assess supplier TCO and identify areas for cost reduction 2. Forecast SABIC future 5-year demand requirements &

allocate business to supplier 3. Develop safety training curriculum using best practices

Illustrative

Approach alliance candidates for buy in

4

45

Classification: Internal Use

1Typical duration is based on benchmark data. Actual duration of alliances is dependent on the objectives and context of the alliance

STRATEGIC ALLIANCES VARY IN PURPOSE AND DURATION DEPENDING UPON AGREED OBJECTIVES

Non exhaustive

Alliances build knowledge across their employees through leveraging: training centres, certification bodies and academic partnerships

Purpose to improve technological know how through consolidated R&D centres, establish agreements on technology commercializing or joint product development

Taking advantage of existing marketing and distribution infrastructures to achieve wider reach across geographical borders to enhance sales output

Sharing sales forecasts and co-investing in production enhancement initiatives to achieve cost optimization to streamline logistics and reduce inventory costs

Cost and process optimization

Marketing, sales and services

Technology and innovation

Technical training and knowledge transfer

Approach alliance candidates for buy in

4

Typical duration1

3 + years

2 - 3 years

1 – 2 years

6 months - 1 year

46

Classification: Internal Use

WE DEVELOPED A STRATEGIC ALLIANCE TOOLKIT INCLUDING A PARTICIPATION LETTER AND KICK OFF DECK TEMPLATE

Introductory meeting template

SABIC could initiate a kick off meeting with the supplier to discuss their current relationship and the potential to develop an alliance

Supplier participation letter

Letter sent to the supplier when approaching the potential alliance to establish their interest in perusal

Approach alliance candidates for buy in

4

47

SECTION 7

STEP 5 & 6 - DEVELOP OUTLINE AND

EXECUTE ALLIANCE

NEXT STEPS

48

Classification: Internal Use

SABIC CAN USE VARIOUS TECHNIQUES TO INCENTIVIZE SUPPLIERS TO JOIN AN ALLIANCE

The contract will hold as a binding document between SABIC and the supplier

We will refer to the alliance charter as an additional clause in the contract

SABICSupplier

Alliance incentives Exclusivity

Sole source exclusivity

Long-term relationship

Increase contract length from 5 to 10 years

Preferential treatment

Preferential treatment during bidding process

Access to our data & knowledge

Access to our data and forecasts

Efficiency

Collaborate on improving operational efficiencies

1

2

Illustrative

Execute and manage

6 Outline alliance

5

49

Classification: Internal Use

SABIC’S TOOLKIT HAS MANY TOOLS WHICH CAN BE LEVERAGED THROUGHOUT THE ALLIANCE DURATION (1/2)

Strategic alliance health check questionnaire

Measure the overall health of the strategic alliance through a generic questionnaire with pre-established questions to complete periodically

Strategic alliance charter

The signed agreement between SABIC and the supplier to define governance, roles and responsibilities and KPIs etc.

6 Outline alliance

5 Execute and manage

50

Classification: Internal Use

SABIC’S TOOLKIT HAS MANY TOOLS WHICH CAN BE LEVERAGED THROUGHOUT THE ALLIANCE DURATION (2/2)

Strategic alliance process framework

An outline of the strategic alliances detailed processes based on best practice

Strategic alliance presentation templates

Templates provided for the executive, management and operational level reviews to manage and track the alliance

6 Outline alliance

5 Execute and manage

51

APPENDIX 1 – INTRODUCTION TO

STRATEGIC ALLIANCES

52

Classification: Internal Use

Strategic Alliance Potential Benefits

Economies of scale

Efficiency improvement

Access to new markets

Sharing knowledge & experience

Acquire skills

Quality and safety improvement

Cost optimization

Uniting forces

Co-product development

Innovation

Confronting competition

Sharing risk & benefits

SABIC Supplier

A strategic alliance is a long term, cooperative relationship designed to

leverage the strategic and operational capabilities of individual participating

companies to achieve significant benefits to each party.

INTRODUCTION TO STRATEGIC ALLIANCES

Mandate to use SABIC products

53

Classification: Internal Use

PROCUREMENT TRANSFORMATION JOURNEY

Transactional Focus on unite price, equal treatment

Category Management Focus on TCO, aggregated demand, quality, capabilities

SRM Key enabler

Strategic Alliance Focus on collaboration, mutual added value

V a

lu e

t o

t h

e

o rg

a n

iz a

ti o

n

High

Low

Where we are today

Procurement Transformation Journey (Acceleration Model)

54

Classification: Internal Use

THE EVOLUTION OF THE PROCUREMENT JOURNEY

Cost Out

SABIC

• Reliability improvement

• Efficiency • Technical support • Proactive risk

management • Capability building • Technology & data

sharing

55

Classification: Internal Use

THE KEY DIFFERENCES BETWEEN A STRATEGIC ALLIANCE, JV AND M&A

Agreement negotiation

Duration

Benefit & risk allocation

Governance

Culture

Strategic alignment

Alliance

Collaboration and co- creation

Unilateral planning Can’t shift gears easily – a lot must be

planned up front

M&A Key nuances between Alliances and

JVs/M&A

Agreements must be flexible

Upfront planning around the alliance

Upfront agreement on how risks and rewards will be shared

Need to collaborate in decision making

Recognize the inherent difference in cultures, embrace and adapt

Alliances must be reviewed regularly around specific milestones

Conflicting (buyer/seller) agendas

Infinite

Individual

One management team

One prevailing culture

Integrate acquisition

Flexibility due to same end game

Finite

Shared

Numerous management teams

Different cultures of partners

Regular review of alliance

Joint Venture

Co-creation/unilateral planning

Flexibility due to same end game

Finite/Infinite

Individual (new entity)

One management team

One prevailing culture

Integrate entity

Entity Each entity remains totally

independent One entity

Separate and independent entities

One entity (new subsidiary)

56

APPENDIX 2 – BENCHMARKING AND

CASE STUDY

57

Classification: Internal Use

Purpose and objectives Benefits and outcomes

CASE STUDY – DOW AND OSHA

 Shared ideas to identify and prevent occupational hazards (regular participation in webinar and stakeholder forums)

 Collaborated through frequent knowledge and experience sharing to develop innovative solutions (e.g. Ammonia refrigeration eTool)

 Developed case studies to raise awareness (e.g. ergonomics and motor vehicle safety)

 Realised process improvement and a significant drop in injury rates (e.g. 95% drop between 1995 and 2007 in the annual injury rate goal for contractors at Freeport)

 Facilitated outreach events (e.g. H&S week)

To leverage collective expertise, enhance a culture of prevention and develop technological knowledge in:

 Process safety management

 Health management systems

 Emergency preparedness

 Employee wellness programs

The 7 year alliance between DOW and OSHA had two major goals:

1) Effective outreach and communication

2) Promoting national dialogue on health and safety

58

Classification: Internal Use

Source: Sourcing strategy report by D. Pyke, Strategic Alliance thesis by Anna Pellicelli, Alliance in the oil field report by J.Heidt, C. Austin, Richard Lewis

BP’s Andrew alliance

BP formed an alliance with 7 contractors.

• Achieved a project 20% under budget and 6 months ahead of schedule

CRINE Industry wide initiative

Several operators and contractors participated in this program

• Reduced costs (-40%)

Ford, GM and Daimler Benz

Aim to develop and standardize common transaction ($250b/year)

• New car model plan decreased from 40 to 15 months (-63%)

Amoco Southeast alliance

Amoco alliance with Schlumberger companies

• Reduced pumping costs from $253k to $200k (-20%)

• Reduced fracturing costs from $210k to $160k (-24%)

DuPont alliance

DuPont worked closely with a supplier of maintenance, repair, and operating

supplies.

• Cut inventory cost by $118M over 10 years

• Supplier saved $16M/year

Chrysler alliance

Chrysler alliance with its suppliers

• Saved over $2b from supplier generated ideas

John Deere’s alliance

Working with key suppliers

• Reduced cost (-25%) • Reduced cycle time from 32 to 2

days (-94%)

Vermilion 331 alliance

Alliance between 4 contractors

• Reduced drilling cost from 92$/ ft. to 79$/ ft. (-15%)

• Increased production from 6030 bbl of oil/ day to 7840 bbl of oil/ day

(+30%) • Increased drilling capacity of 592

ft./ day to 921 ft./ day (+56%) • Reduced time from 6.6 days/gravel

pack to 4.8 days/gravel pack

(-28%)

WE BENCHMARKED LEADING ORGANIZATIONS TO UNDERSTAND THE POTENTIAL BENEFITS FROM FORMING ALLIANCES (1/2)…

Non exhaustive

59

Classification: Internal Use

Source: Sourcing strategy report by D. Pyke, Strategic Alliance thesis by Anna Pellicelli, Alliance in the oil field report by J.Heidt, C. Austin, Richard Lewis

Confronting competition

• In the earth-mover sector, neither ClarkEquipment nor

Volvo had enough production volume (the former in the United States, the latter in Europe) to take on the global leaders Caterpillar and Komatsu.

• In the mid-80’s they decided to create an alliance called CLARK-VOLVO.

Access to new markets

• In mature segments, a company often wants to develop in a market segment where it is not present through an agreement with another company.

• Hence, an alliance was created between Daimler-Benz and

the Swiss microelectronics company SMH to create the SMART vehicle.

Access to technology

General Instruments, Microsoft, Intel. • In the “information gateway” alliance, General Electric

brought its experience and market share in converter boxes; Microsoft contributed its software and Intel its microprocessors.

Dividing risks

• For certain projects, risks of failure are high, and even higher when investments are elevated.

• CFM International. The alliance (50-50 joint venture) between General Electric and Snecma was made to plan,

develop and produce a new airplane propeller. • Over 10 years of R&D work and more than $2b dollars

were necessary to sell the first engine.

THEN, WE BENCHMARKED LEADING ORGANIZATIONS TO UNDERSTAND THE POTENTIAL BENEFITS FROM FORMING ALLIANCES (2/2)…

Non exhaustive

60

Classification: Internal Use

…AND THE BENEFITS CAN BE CATEGORIZED AS FOLLOWS

Non exhaustive

Intangible

Tangible1

Strategic alliance

Reduced inventory cost

Reduced unit price

Reduced production losses

~ 50%Reduced lead time

Increased productivity

Increased capacity

Hard

Hard

~ 25%

~ 30%

~ 50%

Confronting competition

Dividing risks

Access to technology

Access to new market

Soft

Soft

Soft

Soft

Soft benefits

Hard benefits

61

Classification: Internal Use

ALFA LAVAL APPLIES A 5 PHASE FRAMEWORK TO STRATEGIC ALLIANCES

Strategic Alliances Benchmark

ALFA LAVAL’s MISSION:

“To optimize the performance of customer’s processes. Time and time

again”

• Multinational company in the business of heat transferring, separation and fluid handling

• 9,500 employees worldwide

• Est. in 1883 with local presence in over 100 countries

• 70 service centers and 20 large production units

• Sales of 1,719 EUR mn and an operating margin of ~11%

5 PHASE APPRPOACH TO STRATEGIC ALLIANCES

4. ESTABLISH RELATIONSHIP

3. SCREENING 1. . OBJECTIVES &

STRATEGY 2. IDENTIFICATION

5. EVALUATE RELATIONSHIP

Determine the strategic need and overall purpose for a supplier alliance, the sought outcome and the team responsible for delivery

Identify potential partners, applying a set assessment criteria. Unfit candidates are eliminated at this stage

Interested suppliers go through further assessment to ensure requirements are met before pursuing a relationship

Clarify goals and expectations for the alliance in writing but not in a formal contract. Frequent meetings and top management alignment is critical at this stage

Review pre- defined perceived benefits to assess if the alliance has delivered the intended benefits and identify possible areas of failure

62

Classification: Internal Use

Strategic Alliances Benchmark

SETTING STRATEGIC ALLIANCE OBJECTIVES AND PURPOSE

Case Study: Nissen

• Alfa Laval sought a partnership to fill a gap in their product portfolio (air/oil coolers) where they lacked the internal competencies

• Aim to expand presence in the hydraulic market

1

Ultimate goal to expand product portfolio and become a leading suppliers in the hydraulic market

Case Study: Zorzini

• Extension of the transactional relationship with Alfa Laval who procure Zorzini’s manhole covers

• Sought a strategic alliance to achieve sufficient volumes with production efficiency

2

Widen product portfolio and sell more complete solutions, establishing themselves as the only provider

of Zorzini covers in certain markets

When considering a strategic partner, Alfa Laval sets

the following overarching objectives:

Commitment to maximize shared benefits and performance gains

1

Frequent and open flow of information to share knowledge and resources

2

Regular face-to-face interactions to maintain long lasting relationship

3

Solve common problems by seeking joint technological solutions

4

Reduce time to market through early product development

5

4. ESTABLISH RELATIONSHIP

3. SCREENING 1. . OBJECTIVES &

STRATEGY 2. IDENTIFICATION

5. EVALUATE RELATIONSHIP

63

Classification: Internal Use

Strategic Alliances Benchmark

PERCEIVED BENEFITS OF STRATEGIC ALLIANCES

Case Study: Nissen

• Significant projected rise in sales volume

• Knowledge sharing on D&D and process improvement

• Leveraging joint capabilities and supplier network

1

Achieve joint product and technology development through Leveraging Nissen’s internal competencies

and commodity customization

Case Study: Zorzini

• Logistics cost reduction and reduced lead times through the sales network and distribution structure

• Quality and process improvement pressures applied by Alfa Laval to drive innovation

2

Close relationship sought to enhance product development efficiency, streamline logistics and

achieve greater conformance to high quality standards

Product Development

• Increased development efficiency • Higher production efficiency. • Reduction in risk and ‘cost creep’

Logistics cost reduction

• Increasing information sharing (e.g. access to real sales data) suppliers can plan production accurately

Access to new technology

• Close relations creates foundations for long term competitive advantage

Quality Improvement

• Regular reviews of design and tolerances

• Improvement of process capabilities and conformance to standards

The main purpose for establishing a strategic

alliance is rooted in the following 4 potential benefits:

4. ESTABLISH RELATIONSHIP

3. SCREENING 1. . OBJECTIVES &

STRATEGY 2. IDENTIFICATION

5. EVALUATE RELATIONSHIP

64

Classification: Internal Use

Strategic Alliances Benchmark

IDENTIFYING AND SCREENING POTENTIAL PARTNERS

Cost

Delivery

Reliability

Financial stability

Organisational fit

Technological capabilities

Quality

S u

p p

li e

r S

e le

c ti

o n

C ri

te ri

a

Case Study: Nissen

• Traditional measures of supplier performance applied to selected firms

• Further Assessment based on the overall situation, firm healthiness and risk of market conflict

1

Evaluation based on overall situation as well as traditional supplier selection methods, excluding an

analysis of organisational fit

Case Study: Zorzini

• Development of existing transactional relationship to a strategic alliance due to enhance cost efficiencies and production efficiency

• No formal assessment process was undertaken

2

Zorzini’s commodity classified as a ‘strategic product’ in the matrix, stimulating the development of a

strategic partnership

To ensure that a strategic alliance is the most suitable

fit, Alfa Laval conduct an assessment including:

- Standard

purchasing

selection

criteria

- Additional

selection

criteria for

strategic

alliances

1. Commodity selection matrix: (mapping products on a matrix in terms of supplier risk and product importance)

2. Supplier selection criteria:

4. ESTABLISH RELATIONSHIP

3. SCREENING 1. . OBJECTIVES &

STRATEGY 2. IDENTIFICATION

5. EVALUATE RELATIONSHIP

65

Classification: Internal Use

Strategic Alliances Benchmark

ESTABLISHING STRATEGIC RELATIONSHIPS

Case Study: Nissen

• Cross functional team formed with inter-firm representation and top management participation

• Established a general contract (design ownership, prices, market activities etc.)

1

There was a notable lack of participation of the Global procurement team in coordination activities

Case Study: Zorzini

• Established a 3 year contract with guidelines and to regulate major issues e.g. division of markets

• Portfolio management team established to manage and track performance

2

Structured contract signed and oversight team established, however no top management interface

and absence of a cross functional team

Achieve central coordination of the relationship with purchasing representatives kept in the loop

Ensure coordination and alignment of top management agendas through regular face to face interactions

Success factors to minimize risk of failure include: commitment, trust and shared reward

Establish clarity through a non- formalized document that includes details of the alliance (e.g. IP rights)

Clarify understanding through written document

Establish success factors and risk of failure

Establish top management alignment meetings

Deploy a cross-functional team

4. ESTABLISH RELATIONSHIP

3. SCREENING 1. . OBJECTIVES &

STRATEGY 2. IDENTIFICATION

5. EVALUATE RELATIONSHIP

66

Classification: Internal Use

Strategic Alliances Benchmark

EVALUATING STRATEGIC ALLIANCES

• Considerable interaction and coordination - establishment of a extensive cross functional team with top management involvement and interaction during product development

• Information shared freely – access to all information in a fair and open manner throughout the alliance

What Went Well

• Lack of organisational fit – Nissen was not cost-focused and there was a lack of alignment in ways of working

• Lack of reward sharing – Alfa Laval demanded high profit margins and a greater share than Nissen

• Cost calculations impossible to validate - cost creep through design and construction changes and lack of alignment

• Lack of trust and perceived commitment - Alfa Laval’s intent for product ownership and risk of moving to a lower cost supplier

What Went Wrong

6-12 months after the alliance became operational an evaluation is undertaken to assess overall performance and future prospects.

Evaluations are centered around the extent to which benefits and objectives have been achieved through four major KPIs:

Delivery on time1

Product quality2

Lead time3

Cost reduction4

• Close collaboration – open and wiliness to share information (e.g. access to sales forecasts) in addition to sharing rewards

• Conformance to high standards – extra quality controls of products secures premium quality

• Commitment to a long term relationship – regular investment in tooling and closing all in-house production

• Interrupted production - high demands placed on lead times became difficult to manage effectively

• High inventory costs – frequent stock-keeping units for urgent requests

N is

s e

n Z

o rz

in i

N is

s e

n Z

o rz

in i

4. ESTABLISH RELATIONSHIP

3. SCREENING 1. . OBJECTIVES &

STRATEGY 2. IDENTIFICATION

5. EVALUATE RELATIONSHIP

67

APPENDIX 3 – STRATEGIC ALLIANCES

DATA ANALYSIS

68

Classification: Internal Use

SUPPLIER SPEND AND INCIDENT COSTS1

Shortlisted share of SABIC total materials and services spend (5 years)

382 manufacturers spend (SAR, 5 years)

Total spend (SAR, 5 years)

9.3 bn

31.8 bn

Shortlisted share of SABIC total incident losses (5 years)

38 manufacturers cost (SAR, 5 years)

Total cost (SAR, 5 years)

530 M

3.1 bn

1Data only includes direct spend (e.g. EPC related spend is not included) and excludes logistics, medical, chemical and IT (~44.8 bn) 238 manufacturer represent 7.8% of our filtered suppliers (excluding logistics, medical etc.) but represent <1% of our total 5000 + suppliers

< 1% of total

suppliers

69

Classification: Internal Use

SHORTLISTED SUPPLIER STATISTICS1

Top 5 shortlisted manufacturer spend (SAR mn, 5 years)

Top 5 shortlisted manufacturer incidents cost (SAR mn, 5 years)

Top 5 shortlisted manufacturer inventory cost (SAR mn, today)

1Data only includes direct spend (e.g. EPC related spend is not included) and excludes logistics, medical, chemical and IT

70

Classification: Internal Use

CATEGORY LOSSES STATISTICS1

Top 5 categories total production and maintenance losses (SAR mn, 5 years)

% of equipment causing losses per category (Top 5, 5 years)

Average losses per equipment category (SAR k, 5 years)

1Data only includes direct spend (e.g. EPC related spend is not included) and excludes logistics, medical, chemical and IT

71

APPENDIX 4 – SEGMENTATION

TOOLKIT

72

Classification: Internal Use

Icon Description

Internal healthcare questionnaire

External healthcare questionnaire

Segmentation tool

Alliance charter

Participation letter

Kick-off deck

Executive alignment meeting template

Business alignment meeting template

Operational review meeting template

ALLIANCE TOOLKIT

73

Classification: Internal Use

EXAMPLE OUTPUT OF SOME OF THE TOOLS

Segmentation tool to identify and plot the final 5 to 10 strategic suppliers

Questionnaire to assess the on-going health of the alliance

End-to-end process framework on how to implement strategic alliance from start to finish

Alliance charter and Participation letter detailing the characteristics of the alliance, governance structure, KPIs, etc.

74

APPENDIX 5 – STRATEGIC ALLIANCE

PROCESS FRAMEWORK

75

Classification: Internal Use

THE STRATEGIC ALLIANCE FRAMEWORK SET OUT IN THIS PROCESS OUTLINES THE LEADING PRACTICE PROCESSES TO BE DEPLOYED FOR SABIC

• High level process map • Process scope & description • Process starting point

• Level 2 process map • Data inputs

• Process step • Description • Inputs and outputs of the process

• Relevant tools & templates1

• Process triggers for use of tools2

Strategic Alliance Process Framework

Strategic Alliance Tools

Process Scope

Detailed Process Map

Process Description

Tools & Templates

1Tools are numbered based upon the folder structure for the toolkit

76

Classification: Internal Use

THE FOLLOWING PROCESS FRAMEWORK HANDOUT FORMAT WILL GUIDE THE WAY WHICH SABIC UTILIZES THE ALLIANCE METHODOLOGIES AND TOOLS

Process Model Decomposition

Level 1 Level 2

1. Supplier Segmentation

Prepare for segmentation

1.1

Define key capabilities

1.2

Segment supply base

1.3

Select potential alliance

suppliers

1.4

2. Strategic Alliance Management

Approach alliance

candidates

2.1

Develop outline alliance

2.2

Execute & manage alliance

2.3

77

Classification: Internal Use

PROCESS STRUCTURE: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Supplier segmentation

Level 1 Level 2

1. Supplier Segmentation

Prepare for segmentation

1.1

Define key capabilities

1.2

Segment supply base

1.3

Select potential alliance

suppliers

1.4

Scope description and guidelines

Scope: • The scope of segmenting the supply base entails the standard segmentation process activities towards selection of

the potential Strategic Alliance suppliers. The scope of this process applies to SABIC suppliers to properly assign each supplier to the relevant segment (strategic, critical, operational, or transactional) in order to focus alliance efforts.

Guidelines: • The segmentation exercise is focused on existing suppliers only. • Suppliers which are deemed strategic to SABIC may not be applicable for strategic alliance if the supplier does not

view SABIC as an attractive customer and / or SABIC does not represent a high value of spend to the supplier. • The strategic supplier segment should generally not exceed 5-10 suppliers. • Supplier segmentation should be repeated on an annual basis.

78

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Supplier segmentation

Level 1 Level 2

1. Supplier Segmentation

Prepare for segmentation

1.1

Define key capabilities

1.2

Segment supply base

1.3

Select potential alliance

suppliers

1.4

1.1 Prepare for segmentation

Need for segmentation

Define strategic vision & direction

for strategic alliances

Identify supplier ecosystem

Segmentation process

prepared

1.1.1 1.1.2

Establish segmentation team

1.1.3

79

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

ID Process activity Description Input Output

1.1 Prepare for segmentation

1.1.1 Define strategic vision & direction for strategic alliances

Define SABIC strategic vision & direction in order to understand where SABIC wants to be over the next 2-3 years.

• SABIC strategic plans • SABIC business

objectives

• Clear vision and objectives for SABIC

1.1.2 Identify supplier eco- system

Establish the long list of current active suppliers to perform the segmentation activity on.

• Supplier raw data

• Long list of current, active suppliers

1.1.3 Establish segmentation team

The team members that will be involved need to be contacted and informed (from Procurement and the business).

• List of potential team members across several functions

• Team selected

80

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Supplier segmentation

Level 1 Level 2

1. Supplier Segmentation

Prepare for segmentation

1.1

Define key capabilities

1.2

Segment supply base

1.3

Select potential alliance

suppliers

1.4

1.2 Define key capabilities

Segmentation process

prepared

Define strategic alliance

objectives

Brainstorm potential alliance

initiatives

Key capabilities determined

Define capabilities to offer alliance

1.2.1 1.2.2 1.2.3

81

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

ID Process activity Description Input Output

1.2 Define key capabilities

1.2.1 Define strategic

alliance objectives

Once segmentation team is established and SABIC’s vision is understood, strategic alliance objectives should formally be defined

• SABIC vision • Strategic

alliance objectives

1.2.2 Brainstorm potential alliance initiatives

Based upon strategic alliance objectives, the team should brainstorm potential initiatives which could help achieve the objectives defined; these initiatives are only draft until further discussions happen with shortlisted suppliers

• Strategic alliance objectives

• Potential initiatives

1.2.3 Define capabilities to offer alliance

In addition, SABIC should discuss and agree capabilities/ value proposition which it can ‘bring to the table’ for any potential alliance which is formed

• Strategic alliance objectives

• Capabilities/ value proposition for alliance

82

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

People OperationsFocus areas FinanceTechnology

 Improve people knowledge and skills

 Improve productivity

 Share manpower and people resource

 Increase efficiency

 Reduce production losses and disruptions

 Reduce safety incidents

Strategic objectives

 Reduce unit cost

 Reduce inventory cost

 Reduce maintenance cost

 Improve business forecasts

 Access to new technologies

 New innovative solutions

 Data sharing

 Joint strategic planning

 Access to training centers

 Access to expanded network of people regionally and globally

 Joint process redesign

 Joint specification analysis

 Joint risk management

 Preferred access to capacity

Capabilities & potential initiatives

 Joint cost modelling

 Perform collaborative forecasting, planning and risk management

 Visibility in the supply chain

 Joint product design

 Gain sharing

 New technology access

 Preferred access to resources

By using a top down approach, SABIC must first define the strategic objectives which trickles down into existing capabilities and potential initiatives to target

when scanning the supply base for strategic alliances.

Enablement Efficiency

83

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Supplier segmentation

Level 1 Level 2

1. Supplier Segmentation

Prepare for segmentation

1.1

Define key capabilities

1.2

Segment supply base

1.3

Select potential alliance

suppliers

1.4

Key capabilities determined

Define segmentation

criteria & scoring

Define segmentation

weighting

Segmented supply base

Segment supply base

1.3.1 1.3.2 1.3.4

Gather relevant information and

data

1.3.3

84

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

ID Process activity Description Input Output

1.3 Segment supply base

1.3.1 Define segmentation criteria & scoring

Review existing/ best practice segmentation criteria and choose the relevant ones for SABIC. Segmentation criteria may also be created if there is a pressing issue which needs to be taken into account for the segmentation exercise (e.g. maintenance costs rising over past 2 years).

• Key capabilities • What is important to

SABIC • Strategic alliance

objectives

• Segmentation criteria & scoring

1.3.2 Define segmentation weighting

Assign to each criteria a weighting so that on each axis the sum is 100%. The weightings for each segmentation criteria will depend upon what is important to SABIC. Remember that if the segmentation results do not look reasonable, weightings can be adjusted to better reflect SABIC’s business.

• Segmentation criteria • Strategic alliance

objectives

• Criteria weightings defined

1.3.3 Gather relevant information and data

Gather relevant data and information internally & externally to perform execution of segmentation.

• Spend data • Market information • Market research

• Relevant info • Data collected

1.3.4 Segment supply base

Segment your supply base using the segmentation tool and assigning the correct scores based upon the scoring criteria defined in the instructions tab of the tool.

• Defined weightings • Relevant stakeholder

input

• Segmented supply base

Relevant tools & templates for process step:

Ref 1.3.4 Segmentation tool

85

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Supplier segmentation

Level 1 Level 2

1. Supplier Segmentation

Prepare for segmentation

1.1

Define key capabilities

1.2

Segment supply base

1.3

Select potential alliance

suppliers

1.4

Segmented supply base

Discuss & confirm

outcomes with business

Select potential candidate(s)

Potential candidate(s)

EscalateGo to step 1.3.1

Yes

No

Agree on outcome?

Additional criteria

required?1

NoYes

Assign Category Manager

1.4.1 1.4.2 1.4.3

1.4.5 No

86

Classification: Internal Use

PROCESS FLOW: SUPPLIER SEGMENTATION

Supplier

Segmentation

1

Strategic Alliance Management

2

ID Process activity Description Input Output

1.4 Select potential Strategic Alliance suppliers

1.4.1 Discuss and confirm outcomes with business

Discuss and confirm the segmentation outcomes with involved stakeholders and other relevant business stakeholders

• Segmented supply base

• Segmentation outcomes confirmed

1.4.2 Select potential candidates

If the outcomes of the segmentation process are confirmed, the potential candidate(s) for Strategic Alliance can be selected

• Confirmed segmentation outcomes

• Selected candidate(s)

1.4.3 Assign Category Manager

After selection of the potential candidate(s), the relevant category manager and stakeholder from the business need to discuss how to manage the alliance with the business taking a lead on owning the alliance with the supplier

• Selected strategic alliance suppliers

• Assigned strategic alliance team

1.4.4 Review additional business segment criteria

If the outcomes of the segmentation process are not confirmed, discuss whether additional segmentation criteria need to be added to the current set of criteria or if the weightings need to be adjusted

• Segmentation outcomes not confirmed

• Decision to add criteria or adjust weights

1.4.5 Escalate If needed, critical issues and concerns are escalated to business leadership

• Decision to escalate • Resolved

issue

87

Classification: Internal Use

PROCESS STRUCTURE: STRATEGIC ALLIANCE MANAGEMENT

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Strategic alliance management

Level 1 Level 2

Scope description and guidelines

Scope: • This process covers the formal way of how to assess, develop, and execute a strategic alliance with the selected

suppliers based upon the segmentation exercise.

Guidelines: • One critical success factor of alliance management is to have a balanced team in place that has a mandate with

representation from the business and procurement. • Key supplier data and information is critical to understand the existing alliance with the supplier and their perception

of SABIC. • Commitment and involvement from SABIC procurement and the business is essential to a successful alliance. • Ensure that all steps are properly followed to ensure proper decision making and that the supplier team is well

prepared before engaging the concerning supplier. • SABIC must be open to receiving honest and constructive feedback from the supplier. This will strengthen the trust

between SABIC and the supplier and also ensure the voice of the supplier is heard.

2. Strategic Alliance Management

Approach alliance

candidates

2.1

Develop outline alliance

2.2

Execute & manage alliance

2.3

88

Classification: Internal Use

PROCESS FLOW: STRATEGIC ALLIANCE MANAGEMENT

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Strategic alliance management

Level 1 Level 2

2.1 Approach alliance candidates

Potential Strategic

Alliance supplier

Establish alliance team and engage

stakeholders

Engage supplier and asses

alliance

Defined alliance approach

2.1.1 2.1.2 2.1.3

2. Strategic Alliance Management

Approach alliance

candidates

2.1

Develop outline alliance

2.2

Execute & manage alliance

2.3

Define supplier alliance approach

89

Classification: Internal Use

PROCESS FLOW: STRATEGIC ALLIANCE MANAGEMENT

Ref 2.1.3 Participation letter

Supplier

Segmentation

1

Strategic Alliance Management

2

ID Process activity Description Input Output

2.1 Approach alliance candidates

2.1.1 Establish alliance team & engage stakeholders

Relevant business representatives and procurement stakeholders are selected, roles & responsibilities are defined, and a stakeholder analysis is performed to define involvement.

• Relevant stakeholders

• Roles & responsibilities

• Stakeholder matrix

• Established alliance team with defined roles and levels of involvement

2.1.2 Define supplier alliance approach

Define what value the supplier currently brings to SABIC and what additional value the supplier has to offer. Define business objectives to address any deficiencies in the quality of supply and a plan to create additional value (e.g. monthly quality meetings).

• Business objectives • Ongoing areas of

concern • Plans to engage

supplier

• Defined objectives and plan to engage supplier and create additional value

2.1.3 Engage supplier & assess alliance

First, send the participation letter to ensure supplier is interested in engaging in a potential alliance. Once confirmed, contact the supplier and set up an initial kick-off meeting to discuss a potential strategic alliance and the value it can create for both SABIC and the supplier. Ensure to discuss the results of the questionnaire as well if the alliance has been ongoing1. Introduce the alliance charter for initial discussion and alignment.

• Kick-off meeting • Questionnaire

results (if available) • Alliance charter

• Supplier kick-off meeting conducted and alliance charter / questionnaire socialized

Ref 2.1.3 Kick-off deck

Ref 2.1.3 Health check questionnaire

Relevant tools & templates for process step:

90

Classification: Internal Use

PROCESS FLOW: STRATEGIC ALLIANCE MANAGEMENT

Supplier

Segmentation

1

Strategic Alliance Management

2

Process Decomposition: Strategic alliance management

Level 1 Level 2

2. Strategic Alliance Management

Approach alliance

candidates

2.1

Develop outline alliance

2.2

Execute & manage alliance

2.3

Defined alliance approach

Define roles & responsibilities for both SABIC

and supplier

Establish joint alliance team and

plan activities

Develop co- metrics to

manage ongoing performance and

risk

Defined outline alliance

Schedule alliance workshop

2.2.1 2.2.2 2.2.3 2.2.4

91

Classification: Internal Use

PROCESS FLOW: STRATEGIC ALLIANCE MANAGEMENT

Supplier

Segmentation

1

Strategic Alliance Management

ID Process activity Description Input Output

2.2 Develop outline alliance

2.2.1 Schedule alliance workshop

Schedule alliance workshops to align on several key activities for successful alliance

• Supplier feedback, insights and inputs

• Confirmed alliance

2.2.2 Define roles & responsibilities for both SABIC and supplier

Map both internal SABIC and external supplier stakeholders and define roles & responsibilities for the alliance (e.g. escalation route, main point of contact, alliance owners, etc.)

• SABIC & supplier joint discussion

• Relevant stakeholders

• Defined roles & responsibilities and mapped stakeholders

2.2.3 Establish joint alliance team and plan activities

Establish the SABIC/ supplier alliance team and layout the meeting schedule for the upcoming year as well as any additional activities to resolve pending concern areas and co-initiatives (e.g. performance improvement meetings).

• Relevant stakeholders

• Proposed meeting schedule

• Any concern areas (if applicable) generated from questionnaire

• Annual alliance plan with established alliance team

2.2.4 Develop co-metrics to manage ongoing performance and risk

Define and develop metrics jointly related to performance and risk management to be monitored over the course of the alliance.

• Joint KPIs • Alliance team • Target setting

• Developed co- metrics to be tracked

Ref 2.2 Alliance charter

Relevant tools & templates for process step:

Ref 2.2.3 Health check questionnaire

92

Classification: Internal Use

PROCESS FLOW: STRATEGIC ALLIANCE MANAGEMENT

Supplier

Segmentation

1

Strategic Alliance Management

2

2.3 Execute & manage alliance

Defined outline alliance

Host agreed meetings as per

the schedule

Ongoing tracking of co-developed

metrics

Ongoing feedback loop

about the alliance & additional

meetings

2.3.1 2.3.2 2.3.3

Executed alliance plan

Process Decomposition: Strategic alliance management

Level 1 Level 2

2. Strategic Alliance Management

Approach alliance

candidate

2.1

Develop outline alliance

2.2

Execute & manage alliance

2.3

93

Classification: Internal Use

PROCESS FLOW: STRATEGIC ALLIANCE MANAGEMENT

Supplier

Segmentation

1

Strategic Alliance Management

2

ID Process activity Description Input Output

2.3 Execute & manage alliance

2.3.1 Host agreed meetings as per schedule

SABIC to host the agreed supplier meetings as per the alliance charter. Meetings agreed will depend upon the agreed meeting frequency that was decided at the beginning of the alliance.

• Relevant stakeholders for meeting

• Performance / risk data for meetings

• Executed meeting with next applicable actions agreed

2.3.2 Ongoing tracking of co- developed metrics

SABIC and supplier to track the co- developed metrics agreed ongoing and report in the meetings as needed.

• Performance and risk data

• Improvement actions to meet/ exceed KPI targets

2.3.3

Ongoing feedback loop about the alliance & additional meetings (if required)

Continuous communication between SABIC and the supplier. Additional meetings may be required due to an escalation of a particular issue or consistent deterioration of the performance or risk metrics.

• Continuous feedback between the relevant stakeholders

• Escalation of issues

• Received feedback and additional meetings (if required)

Relevant tools & templates for process step:

Ref 2.3.1 Executive alignment mtg. template

Ref 2.3.1 Operational review mtg. template

94

Classification: Internal Use

RACI DEFINITION

RACI is an acronym derived from the four potential roles that an individual or function could play relative to a specific activity or task

R - Responsible: Identifies the function(s)/role that is assigned to execute a particular activity. The degree of responsibility is determined by the accountable person. R’s can be shared

A - Accountable: Designates the function/role that is ultimately accountable for the completion of the activity and who has the ability to say “yes” or “no.” There must be one and only one “A” for a decision or activity. Accountability cannot be delegated

C - Consulted: Identifies the function(s)/role that must be “consulted’ before a decision or activity is finalized. This is a two-way communication

I - Informed: Identifies the function(s)/role that must be notified about the completion or output of the decision or activity. This is a one-way communication

Role of RACI in process design

• Clearly assign functional roles to each of the activities; eliminate ambiguity

• Allocate resources across functions to ensure balance across activities

• Focus efforts within specific functions on highest value-added activities

• Define specific actions to address supporting elements (e.g., process design, IT systems)

• Define “exit” criteria for each role for the successful completion of activities

• Simplify complex inter- and intra-organizational processes and alliances

• Accelerate business processes and streamline organizational structure

RACI matrices in this document provide guidance for assignment of roles in line with tasks and activities detailed out in the supplier segmentation & strategic alliance process framework

95

Classification: Internal Use

RACI MATRIX

Process Level 2 Process GPS

Management GPS

Manufactur- ing

E&PM LC team Research & Technology

Legal Suppliers

Supplier Segmentation

Prepare for segmentation

A, I R C C C C

Define key capabilities A, I R C C C C

Segment supply base A, I R C C C C C1

Select potential alliance suppliers

A, I R C C C C C

Strategic Alliance Management

Approach alliance candidates

A, I R I I I I C I

Develop outline alliance A, I R C C C C C C

Execute and manage alliance

I R Responsibility & accountability depends upon objective

of alliance; the business owns the alliance I R

SABIC_StrategicAlliance_Project_Portfolio_Management_VF.pdf