Executive Summary
Saudi Aramco Company is one of the largest firms in the petroleum industry. In this report, the focus was on reviewing operations and quality management processes at this firm and how they affect its competitiveness. The analysis reveals that the company has employed unique operational strategies, which have enhanced its competitiveness in the market. The workflow analysis conducted identifies major areas of operation that the firm has mainly focused on to enable it to become as competitive as possible in the market. Although the strategy that focuses more on exploration, extraction, and processing has made it become the largest oil-producing company in the world, its limited focus on sales and marketing of the final products reduces its net earnings compared to a rival such as the Royal Dutch Shell. Emerging technologies, especially in the field of IT, may be disruptive but present unique growth opportunities for the firm. Using project management methodologies discussed in this paper, the firm can redefine its operations and eliminate various weaknesses that may impede its growth.
Introduction of Company
Saudi Aramco is one of the largest companies in the Kingdom of Saudi Arabia. Founded in 1933, the company has grown to become the largest oil producer and exporter in the global market. Headquartered in Dhahran, Saudi Arabia, the company is currently headed by Amin Hassan. Al-Nasser, who is its president and chief executive officer. The financial records show that the firm’s revenue in the year ended 2019 was USD 329.8 billion, and it had a net income of USD 88.2 billion. The firm currently employs more than 96,000 people (Peterson, 2020). The firm has been keen on embracing emerging technologies to ensure that it can improve efficiency and lower costs of operation. The firm is facing stiff competition in the global market from other rival international companies. As such, it has to find ways of ensuring that it can charge competitive prices on its products without hurting its profitability. Operations and quality management processes are, therefore, of great essence in ensuring that the intended goals are achieved despite the stiff competition. As an operation and quality consultant at Saudi Aramco Company, the researcher has developed this report to specifically review the operations and quality management processes at this firm.
Overview of Operations at Saudi Aramco Company
Effective management of operations within a company defines its level of success. Wisner (2020, p. 78) defines operations management as that which is “concerned with converting materials and labor into goods and services as efficiently as possible.” Successful firms must learn how to embrace lean operations to ensure that they lower the overall cost of operation. At Saudi Aramco Company, the management has been keen on embracing emerging trends and practices in its operations. The firm is replacing human capital with machines as a way of enhancing efficiency and lowering the cost of production. The current strategy that the firm uses can be classified as corporate strategy and cross-functional interactions (Quinley, 2020). The management understands that the firm is a system of interconnected parts that have to function in unison to achieve the best outcome. Some of the recent operation strategies of the firm can also be defined as customer-driven tactics. The firm is keen on meeting the expectations of its global clients in the best way possible.
It is important to acknowledge the operations challenges that the firm has been facing. One of the major challenges is the rapid digitization of operations in the industry. The principal competitors of this company, especially those in North America and Europe, are embracing emerging technologies at a rapid rate, and it forces this firm to do the same for it to remain competitive (Wisner, 2020). Another major challenge is that sometimes the company has to rely on expatriates to help in implementing complex technology-based strategies. Although the firm has not faced any major financial constraint within the last two decades, some of these new strategies are costly to implement.
Operations Principles with Case Relevance
Scholars have developed various operations principles to help guide companies when trying to achieve sustainable growth in the market. In this section of the report, the focus will be only on those principles which are relevant to the case under investigation. One of the most important principles of operation is accountability. The top management of Saudi Aramco must ensure that operations of the firm are made accountable to the shareholders. Departmental heads responsible for various operational activities must be accountable to the chief executive officer of the firm. Every employee of the company has a duty to make sure that they embrace the concept of accountability. Change is another major principle that the firm has to embrace. The industry is facing massive transformation, including the disruptive move to green energy (Quinley, 2020). The firm has to ensure that its operations are aligned with emerging changes in the industry. Collaborating with customers is another major principle of operations that the company has embraced. It has been keen on ensuring that all its global customers have access to purchased products within the promised period. Quality control is another principle of operation that should not be ignored. Every department of the firm should ensure that their operations are defined by the highest quality standards possible.
Quality Management Tools and Techniques
It is necessary to have specific quality management tools and techniques needed to facilitate effective operations at the firm. Some of the tools that the company can use include a cause-and-effect diagram also known as Ishikawa or fishbone diagrams, control chart, Pareto chart, scatter diagram, and stratification. In this case, the chosen tool is a check sheet. As shown in table 1 below, it helps the management to identify defects in the operations management of the firm on a daily basis. The sheet can be developed for a month or a week, such as the one shown in the table below. The management can then identify these defects, how they affect the quality of products and the overall productivity of the firm and the resultant cost.
Table 1: Weekly Defect Assessment Check Sheet at Saudi Aramco.
Impact of Productivity and Workflow on the Company’s Competitiveness
The productivity of a firm has a direct impact on its competitiveness in the market. A firm that is highly productive and with an effective workflow tends to perform well in a highly competitive business environment. The oil and gas industry is one of the most competitive sectors globally and it often attracts large corporations, some of which are supported by governments. The Saudi Aramco Company currently faces stiff competition from companies such as Royal Dutch Shell, China National Petroleum Corporation, BP, and ExxonMobil (Ramady, 2018). It has to ensure that its operations are streamlined in a way that lowers the cost of production while at the same time increasing the output.
A Comparative Analysis of Saudi Aramco’s Productivity with That of Royal Dutch Shell
In the oil and gas company, Saudi Aramco and the Royal Dutch Shell are considered some of the largest companies. They operate globally and have been keen on expanding their market shares. As Peterson (2020) observes, as of 2020, Saudi Aramco was still considered the world’s largest producer of oil in the world, ahead of the Royal Dutch Shell. One of the reasons why the Saudi Arabian firm is leading the rest in terms of productivity is the fact that it controls rich oil reserves in the country. The management of this company has also invested heavily in the automation of systems. The company has made an effort to reduce its reliance on human resources and in its place, it has introduced machines. The direct support that the firm receives from the Saudi Arabian government is another factor that has facilitated the growth. These factors have enabled the firm to operate with ease, enabling it to increase its productivity in line with the global demand.
The Royal Dutch Shell was ranked second-largest oil company within the same period in terms of revenue generated. Although Saudi Aramco was able to produce and sell more oil and gas to the international market, the Royal Dutch Shell has a better strategy of making its products more valuable in the market. Instead of selling the product in its raw form or relying on oil retailers to ensure that their products reach final users, the Royal Dutch Shell owns the entire production chain. They are responsible for the extraction, processing, and retailing of their products in the international markets (Ballard, 2019). The firm has created an effective brand image as one that offers the best quality for its products. Comparatively, Royal Dutch Shell is getting more value out of its products than Saudi Aramco Company. This competitor has realized that it can generate more revenue by fully controlling the production and sale of products in the market instead of relying on other business entities to facilitate the sale of products to customers as Saudi Aramco does. This is one area that this Saudi company will need to redefine operations in to ensure that it increases its revenues without having to increase the price for its products.
Workflow at the Company
The management of Saudi Aramco has been keen on ensuring that its operations are as competitive as possible. As such, it has developed a simple workflow structure that defines key activities that have to be completed to ensure that the operations are as successful as they possibly can be. Figure 1 below identifies the five steps that have to be taken in the entire operational activities of the firm. The first stage is the exploration process (Nuninger and Chatelet, 2020). The goal at this stage is to identify new oil fields, especially at a time when the output in the current fields starts to deteriorate. The company has been relying on both expatriates and local experts to conduct the exploration process. Once new oil fields are identified, they are named and prepared for extraction.
The second stage is the extraction process. Oil extraction is a complex process that requires unique engineering. It is not only dangerous to the environment but also to human beings, especially those who are directly involved. The Deepwater Horizon is a perfect example that demonstrates how dangerous the process can be of proper operational steps are not taken. The oilrig exploded, killing 11 people and injuring 17 others (Verhoeven, 2018). The impact on the environment was disastrous as it is estimated that over 4.9 million barrels of oil was spilled in the sea within an area of about 68,000 square miles. The company had to pay USD 18.7 billion in fines (Garavini, 2019). Great care must be taken at this stage to avoid such accidents.
The third stage involves processing the crude oil into finished products (diesel, kerosene, petrol, jet fuel, and other byproducts) which are ready for use. According to Salah and Rahim (2018), the initial mandate of Saudi Aramco did not include processing the crude oil. However, the government decided to hand over the role of processing to the company. It was considered as being the easiest way to cut costs of operation. Processing of crude oil is also dangerous and requires special skills. This company has made major milestones in automating most of the activities at this stage. However, more improvement is needed to ensure that these activities pose as minimal threat to the environment as possible.
Once the product is processed, the next phase involves transportation to the market. As shown in the figure below, Saudi Aramco is often not keen on undertaking operational activities in the last two stages. Its primary focus is the exploration, extraction, and processing the crude oil. It relies on large transport companies to facilitate the transportation of these products to the global market. Once they reach the market, it is the responsibility of individual oil marketing companies to ensure that the product is made available at fuel pumps and in other places where it is accessible to the final consumers. The comparative analysis conducted above showed that the Royal Dutch Shell does all the activities from the exploration to the sale of the product and promotion of the brand. The management of Saudi Aramco should consider getting actively engaged in the sale of its processed products as a way of increasing sales.
How Key Operations Strategies of the Firm Contribute to the Business Strategies
A firm can embrace different operations strategies depending on goals that it seeks to achieve within a given period. Operations strategies can be analyzed from the angle of product management, supply chain, inventory, forecasting, scheduling, quality, and facility planning and management (Pardy and Andrews, 2019). Key operations strategies that a firm embraces can directly contribute to its business strategies. Saudi Aramco cannot ignore any of the seven functions of operation, but it has often emphasized product management. The company has been keen on ensuring that it makes available quality products for its international customers. It explains why it has embraced a business strategy of engaging organizational buyers (oil marketers) in the global market instead of trying to sell directly to customers at a retail level. It has also improved its supply chain to ease the delivery of these products to final customers.
The Impact and Contribution of Supply Chains within the Operations
In the petroleum industry, supply chains have a major impact and contribution within operations. After processing the product, it is critical to ensure that it is made available in the market within the right time. When a firm fails to deliver the product to the market, its rivals may eat into its market share. Saudi Aramco has been keen on creating a unique relationship with major international transport companies to ensure that processed petroleum products reach the global market at the right time. The strategy has enabled it to facilitate a timely delivery of its products to customers. The management can assess the effectiveness of the current strategies through various indicators to determine if it is using industry’s best practices. The first one is client retention rate (CRR) (Slack and Brandon-Jones, 2018a). If the firm is successful in retaining its local and global customers, it means that its strategies are working. The second performance indicator is the profitability rate. The strategy that the firm uses should assure it of increased profitability. The last performance indicator is inventory turnover. The supply chain strategy used should ensure that finished products have a speedy and smooth transit from the company’s storage facilities to the market. It will help in lowering the cost of storage.
Management Information Systems and ICT
Emerging technologies, especially in the field of communication, are providing a unique platform for the rapid growth of firms operating in the global market. New technologies such as teleconferencing are redefining the approach that firms are taking when it comes to arranging and conducting corporate meetings. This section focuses on emerging ICT and how they have and can influence operations at Saudi Aramco Company.
The Concept of MIS
The concept of management information system (MIS) has gained massive popularity over the recent past. It involves the use of a computer system to gather and process information that is then used to make critical operational and strategic decisions within an organization. Mukhopadhyay (2020, p. 78) explains that MIS “gathers data from multiple online systems, analyzes the information, and reports data to aid in management decision-making.” It eliminates the practice of making forecasts based on personal feelings and guesswork. It ensures that every decision that an organization makes is based on factual information collected and processed within a specified period. MIS is currently used among different firms around the world. ExxonMobil is one such firm that currently relies on this technology to define the output of its product. The firm often collects data to enable it to have an accurate forecast of the quantity of products needed in the market. It will then deliver the exact amount to avoid deficits or surplus production. The strategy enables it to lower the cost of storage in the market while at the same time ensuring that customers always have access to products that they need.
Ways in Which MIS Can Benefit its Operation
The management of Saudi Aramco has been keen on embracing emerging technologies to enhance efficiency in the firm’s operations. However, there is no clear plan on how the company has been using MIS to enhance efficiency when making decisions. This technology can benefit the firm’s operations in many ways. Saudi Aramco can use the same system to ensure that it makes an informed decision, especially in defining the output of its products. It will have clear data about the amount of oil it should deliver in the market within a specific period to avoid unnecessary losses or additional costs arising from long periods of storage. Using this technology, the firm will understand how to engage important clients responsible for making the product available in the international market.
Challenges in Using Such Platforms
Using MIS has numerous benefits, but the management of Saudi Aramco should understand that it also has numerous challenges. One of the biggest challenges is designing information system architecture. The architectural design that works for BP or the Royal Dutch Shell may not necessarily work at Saudi Aramco although these firms are in the same industry. The firm must understand the architectural design that will enable it to collect and process information that it needs more effectively and process it to make important decisions. Another challenge is the constant change witnessed in the industry (Jensen, 2017). The firm has to remain flexible enough to embrace these changes. It is also necessary for the management to understand that success in using MIS requires it to maintain highly skilled experts. Maintaining these top talents within the firm can be an expensive undertaking. The management of this company should be ready to deal with cyber-attacks, which is currently the biggest challenge for firms relying on digital data to facilitate their operations.
The Role of ICT in Supporting and Enhancing Operations Management
ICT plays a critical role in supporting and enhancing operations management within a firm. It centralizes data and makes it available to relevant officers at all times. It means that time that was initially wasted when paper files had to be moved from one office to the next can now be used in other constructive activities. Cases of lost, misplaced, or destroyed files are also eliminated, enhancing efficiency in operations management. This technology has eliminated time wastage when managers have to meet. Instead of having all the executives in one physical office to facilitate a discussion, it is now possible to have virtual meetings through teleconferencing using software such as Zoom. It saves time and minimizes the chances of others failing to attend important meetings. ICT also simplifies the process of supervising activities within the firm.
Requirements, Methods and Technologies Needed to Optimize Operations
When the management of Saudi Aramco is planning to implement a new ICT system in its operations, some steps have to be taken before the new technology can be put to use. Designing the infrastructure is one of the first requirements that is needed to optimize operations. The design should be aligned with internal strategies of operations at the firm and the nature of engagement this firm has with its clients. Figure 2 below shows the primary components required of the MIS system. The method of operation should be based on the industry’s best practices but aligned to the company’s specific needs. Parker (2018) advises that emerging technologies make it necessary for a firm to have an MIS system that also integrates social media platforms. These platforms not only allow the firm to communicate and collect data from clients but also employees of the firm. Artificial Intelligence (AI) has gained massive popularity over the recent past, especially in the industrial sector. AI is a simulation of human intelligence in machines, which are programed to think and act like humans (Mwololo, 2018). It eliminates the need for human intervention in running machines at production plants or any other relevant setting. Saudi Aramco can benefit greatly from this technology as it seeks to lower the cost of operation by reducing reliance on human capital.
Project Management Methodology
When undertaking any project, it is essential to have a clearly defined methodology of how various activities will be conducted. The method should define objectives, scope, roles and responsibilities, and a timeline within which various activities have to be completed. Issues about risk management, stakeholder management, project funding, and the role of leadership should also be defined in clear terms.
Project Objectives
The project management team will need to clearly define objectives that have to be realized within a given period. The following are the specific project objectives that have to be realized within the next one year using the resources explained in the section below:
- To digitize data management system at Saudi Aramco as a way of enhancing operations management;
- To recruit, train and adequately equip employees who will be responsible for managing data;
- To identify challenges of managing digital data and define clear solutions that can be used by the firm.
Organization’s Objectives
Saudi Aramco also has its specific objectives when allowing the introduction of ICT in its operations. The following are the objectives that the management of the company explained to the operations and quality consultant when commissioning this project:
- To improve communication and data sharing within the firm among different stakeholders;
- To lower the overall cost of operations and improve the efficiency at the company;
- To eliminate cases of lost, misplaced, or destroyed files within the firm;
- To enable the management to supervise various operational activities with ease.
Project Scope
In this context, the scope refers to specific functions and features of the project upon its completion. Some of the features of this new system will be a large database capable of managing big data, individual workstations (personal computers) spread across various offices and linked to the database, and a secure local area network (LAN) which can be connected to a wide area network (WAN) when it is necessary. The system should allow the firm to collect, process, store, and share data with all departments as required. It should protect data from cybercriminals who may target the firm for various reasons. It should facilitate decision-making processes within the firm.
Project Assumptions
It is necessary to make some assumptions when undertaking such a major project. One of the main assumptions is that the management will be ready to hire experts who will run the new system. Wisner (2020) emphasizes the need for a firm to ensure that it has highly skilled IT experts who can detect and neutralize cyber threats before they can affect operations. It is also assumed that the firm will fund all activities in this project.
Project Roles, Responsibilities, and Timeline
It is important to define specific roles and responsibilities that various stakeholders will need to play to ensure that the project is a success. Table 2 below identifies roles and responsibilities that different stakeholders will need to play.
Table 2: Roles and responsibilities of different stakeholders.
It was equally necessary to have a clear timeline of activities that had to be completed within the specified period. Gantt chart in table 3 below identifies the timeline of these activities.
Table 3: Gantt Chart.
Risk Management and Stakeholder Management
When implementing this project, the team will need to have effective means of identifying and neutralizing risks before they compromise the outcome. One of the major risks that will have to be properly managed is the inflation of prices. The project manager should ensure that all the needed hardware and software are bought as soon as resources are made available to avoid the threat of cost inflation. Theft of the resources should be managed by having adequate security. Cyber-attacks can be avoided by having adequate security software and experts managing the system. The expectations of different stakeholders should be managed adequately. Employees of Saudi Aramco expect a new system that will make their work easy without threatening their position within the firm. The management expects to have a system that will improve efficiency while at the same time lowering the cost of operation.
Project Funding
Introducing emerging technologies in operations and quality management at Saudi Aramco will need financial resources. The firm will have to fund all the activities in this project. It means that the finance department has to set aside resources that will ensure that the firm can purchase the necessary hardware, software, and hire new workers who will be responsible for undertaking various activities at the firm. An initial investment of 1.2 million Saudi Riyals will be needed to finance all the activities and to purchase the needed system in the project.
TQM Philosophy and Contribution of Project Leadership towards a Successful Project
The concept of total quality management (TQM) can help when implementing the project. The philosophy emphasizes the need to ensure that high quality is maintained at every stage of project implementation. To achieve such high levels of quality standards, the management has a major role to play towards the success of the project. One of these roles is to make available funds needed to undertake various tasks. They also need to offer guidance to the team implementing the project. The management should also be ready and willing to embrace change for the project to be successful.
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