Saudi Aramco Procurement Process - Essay Example

?Saudi Aramco Procurement Process Hard System Topic: Hard Systems applied to Saudi Aramco Procurement Procedures The millennium is characterized with information technology as instrument for world wide business expansion, networking and in engaging with business partners for sustainable operations. Information technology also improved communication processes and hastened responses to corporate needs and systematized all operations. For some institutions and companies, this optimized virtual mechanism for complex procedures by thoroughly mainstreaming transactional contract relations. This means that through technology, corporation evolved into certain level of structural sophistication in centralizing internal mechanism and resolving once complex manual procedures, including assertiveness in the interaction of business decision processes. All this are made possible through the development of systematized digitized system of information technology. This essay will attempt to explicate and illustrate how information technology improved procedural procurement engendered organizational readiness in terms of corporate financial and technological resources as well as of its capacity to respond to external pressure due to competition with trading. Transactional relations of contact and procurement are now even done using the internet. It will also attempt to analyze if hard system model befits Saudi Aramco Company’s procurement procedures. Procurement Procedure is a process on how a contract is obtained. It is a mechanism to control the nature, object, expectations, and delivery of outcome based on agreements. It is a universal mechanisms adopted by companies and institutions that are operating in large scale, or in a multi-enterprise level with expensive capital investments but is constantly confronted with concerns on production technologies adaptation, volatile markets and pervasive regulation (Estache & Atsushi (2008). This situation is true with oil and gas extractive industries where there are standards and control mechanism that should be adopted to systematize its operations. This is considered as complexity management. Managing Information System There is a systematic approach used in managing information systems. This approach is technology-focused, process-sensitive, quantitative and qualitative in application and methodical in analysis, procedures, tools and techniques (Dumitrascu, 2006). This is evident in computerized system designed by infotech experts like Cisco. It helped in knowledge management and in systematizing transactions by increasing it company’s corporate virtual realities, although these require persons equipped with knowledge to ensure that the system will be effectively interactive. This means that the person must be knowledgeable too in maximizing digitized information in documentation as well as in technical system optimization to protect it from overload and techie backlog. Complexity management treats all hard structured and soft unstructured problems. Its system is rational, scientific and logical and it’s developed with the assumption that the world is clear out there and can be customized based on our needs (Dumitrascu, 2006). Complexity management can be done using varied diagrams. This can be Spray Diagram, Systems Maps, Influence Diagrams, Multiple-cause diagrams, Sign graphs, and Control Model Diagram. These are explicated as follows: a. Influence Diagram— also known as relevance analysis or a decision network illustrated graphical and mathematical representation in decision-making. It was developed in 1970s and is now adopted widely and becoming an alternative to decision tree which typically suffers from exponential growth in number of branches with each variable modeled (Detwarasiti and Shachter, 2005 ; Holtzman,1989). ID is practicable for team decision analysis because it allows incomplete sharing of information among team members to be modeled and solved explicitly. The semantic of influence diagram is founded on logically arranged construction of nodes and arcs. The specification is defined by the d-separation criterion of Bayesian network. According to this semantic, every node is probabilistically independent on its non-successor nodes given the outcome of its immediate predecessor nodes (Detwarasiti and Shachter, 2005 ; Holtzman,1989) b. Spray Diagrams—is developed by Tony Buzan (1974) and is used for representing the structure of an argument, to encapsulate the relationships between the ideas of others or for note taking. Mind maps are a little bit like brainstorming by writing on the paper in a very unstructured way. They are a simple fast technique for getting ideas down without being concerned by details structure of the connectivity of thought. c. System Maps is essentially a snapshot of a specific situation showing the views of the stakeholder who is looking at it at that time. Some components might be seen as parts of other components (i.e. systems, subsystems and environments) or they might overlap with each other (e.g. if the stakeholder viewing the situation sees certain stakeholder interests as being related or in alliance) (Howard and Matheson, 1981). d. Multiple-cause Diagrams--- are utilized to explore the causes why a specific event happened. The system is not predictive of behavior but give clues or factors to bear mind of similar situations (Koller and Milch, 2003). It also helps determine to know causes why some things go wrong to do things differently next time. It can help develop reflection and strategy formulation (Koller and Milch, 2003). It consist of system boundary; description of factors, events that contribute to include interactions with the environment. e. Sign Graphs—is a graph with edge described with positive or negative sign (Zaslavsky, 1982). Using a formula, sign graph ? is a pair (G, ?) that consists of a graph G = (V, E) and a sign mapping or signature ? from E to the sign group {+,?} (Gleason & Cartwright, 1969; Zaslavsky,1999). It has asset of positive circles denoted by B(?). A signed graph, or a subgraph or edge set, is called balanced if every circle in it is positive (Systems, 2011). f. Control-model Diagrams -- allows you to decide whether the elements support achievement of the purpose. Using this as diagnostic tool meant that one is conforming to the rules. If the diagram is unworkable, this means that the system used disallowed its workability or that elements are mismatched, wrong or missing (Seidel,1976). If employed in a system, this means that it’s used is intended to diagnose causes of its failure to effect the transformation (Systems, 2011), or achieve the purpose it was meant to achieve. It also suggest that the system is achieved by adding missing components; by connecting components of the system together in other ways; by changing components so that they better match the intention; or by, for example, using alternative measures of performance (Systems, 2011). g. Hard System - The hard system, part of complexity management, is mathematical, technical, quantitative-focused in solving problems, and logically presumed that reality can be manage, solved and balanced using the linear problem-solving (Unknown Author, 2011). This means that optimum responses are only accorded whenever problem arises. In cases like this, analyst interacts with the system and utilizes knowledge, experience and background in understanding the situation. It is reactive in its process and technical factors characterized it. This system is also known as Structured Systems and Analysis and Design Methodology (SSADM). Hard system has eight stages of interactive levels. These are (1) system description which describe existing situation, problems, environment and behavior; (2) identification of quantitative and qualitative objectives or constraints through clarifications as well as discussions on commitments from emerging concerns and in later parts of the project; (3) the imaginative or free-thinking determination of possible routes toward achieving the objectives; (4) formulating measures of performance as standard to assess effectiveness and potential solution, and decision for desired objectives as well as to effectively communicate, hopefully, satisfactory results; (5) modeling or relating of outcomes; (6) evaluation or assessing of outcomes using determined measures; (7) choosing the best route; and (8) the stage of implementation that is action-oriented and which details necessary strategy to get things done. So the whole stages have actually set potential problem or opportunity; process of decision-making; perception of problem or opportunity, toward implementation. The stages involved serious logical cognitive processes and actions. It should also be noted that Stage 4 needs ample time and analysis for optimal route to complex situation to ascertain satisfaction in the process. Indeed Managing Complexity focuses on analyzing real-world complex systems and transferring knowledge from the complex-systems sciences to applications in business, industry and society (Marken, 2002). This interdisciplinary have been helpful in varied fields such as markets and production logistics, traffic control, critical infrastructures, network design, information systems, social conflicts and building consensus (Marken, 2002). It improve readers' awareness about counter-intuitive behavior of complex systems and aided them integrate insights gained in complexity to planning, decision making, strategic optimization, and policy (Marken, 2002). Saudi Aramco’s Procedural procurement system Saudi Aramco, a leading extractive oil and gas industry operating in Saudi Arabia and distributing products worldwide, claimed that their procurement process characterize mandated progressive procedures and interrelated steps in obtaining contracts (Saudi Aramco, 2011). It professed that it has a procurement proceeding designed to ensure that Saudi Aramco's Contracting Policies and Procedures are complied while partners are seeking to avail necessary procurement services (SA, 2011). It hold on to its standard for contractors to perform in full compliance of works given in specific scope within prescribed period at the cost of Saudi Aramco and in consonance with its ethics and fairness code. It informed potential contractors online that the company provides procurement services for its corporate affiliates worldwide based on existing policies and procedures that regulate contracts (SA, 2011). The methodology is also published online in its corporate web that is managed by infotech experts and accessed by registered Contract Proponents through its Contract Representative (SA, 2011). Saudi Aramco prefers that contracts are in writing and must be executed before contractor actually works. It used Lump Sum contracting (SA, 2011). Contractor may undergo competitive bidding for the company to select technically and financially qualified contractor whose bid represents the least overall cost to Saudi Aramco (SA, 2011). Negotiated contracting, on exceptional case, can only be done if reasonably explicated and if it has prior approval from Saudi Aramco Management(SA, 2011). The company hires contractors on the bases of technical and financial qualifications and will award contracts solely for registered or licensed companies to conduct business in Saudi Arabia (SA, 2011). They however encourage development of strong, broad-based local contractor community for all operations by informing them as widely as possible of works for bid although the Company will also succumb to confidentiality relating to contractor screening inquiry and documents on bids including attachments, and all drawings(SA, 2011). Contractors must seek Aramco’s prior approval before disclosing information to third party (SA, 2011). Saudi Aramco requires updated information on active contractors while newbies are directed to register at Saudi Aramco's Contracting Department. Corporate information required in its electronic database system are contractor’s financial status and capability which will be disclosed to the Contracting Information and Control Unit of the Contracting Department. Those who have successfully registered will be accorded with Saudi Aramco Contractor Number. Applicant’s corporate information will be confidentially stored in a SAP, a system that monitor contracts and contractors’ activity (SA, 2011). In case of substantial developments among contractors, necessary information should be forwarded to the Contracting Department for immediate input of changes on its database. The information is used to determine bid slates (SA, 2011). Saudi Aramco has four systems in procuring contracts. These are as follows: 1. Open Bidding – Information is posted on Saudi Aramco Bulletin Boards in Dhahran and other Saudi Aramco offices which features the nature of the work, pre-qualification requirements, and date of Job Explanation Meeting. This procurement method is open for all (SA, 2011). 2. Open Solicitations With Selective Bidding – Information are posted on Saudi Aramco Bulletin Boards to encourage equal opportunity for contractors to manifest interest in submitting bids. The best qualified will be invited to attend the Job Explanation Meeting. This is most preferred procurement of the Company (SA, 2011). 3. Restrictive Selective Bidding - Saudi Aramco choose from registered contractors who are imbued with capabilities to perform the tasks. This method applies when contract requirements is stringent and only few can qualify or if the high cost of preparing a bid specifies limited size of the bid slate (SA, 2011). 4. Sole Source – is a method that is rarely used and not so much favored by Saudi Aramco. This style of procurement applies only whenever there are unique circumstances to justify it, such as when operator provides distinct proprietary service, unusual urgency to the work, or when contractor is mobilized or does not mobilize another contractor (SA, 2011). In this case, Saudi Aramco reviews bidder’s financial and technical qualifications to determine its qualification through its Saudi Aramco's Treasurer's Organization. Contractor is further required to have an asset above SR. 15,000,000 with audited financial statements (SA, 2011). During the Job Explanation Meeting (JEM), the details of the work is explained and be subjected for review and are encourage to do ocular inspection to determine the extent and nature of the required in this job(SA, 2011). The Company will also post information of the exact opening bid and its closing date. Bids are deposited in a bid box until the bid opening which will be conducted by the Contracting Department and the Finance Organization (SA, 2011). The company also does not negotiate competitive bids. The Company assumes that the bidder's first price is its best and its last price. It does not also expect contingency for negotiation although it conducts clarificatory meeting to clarify all terms and conditions attached of approved bids (SA, 2011). All Procurement plans and award recommendations are reviewed by Saudi Aramco Corporate Management for high value contracts. When awarding is concluded, contracts are signed by both parties to make agreements binding and enforceable (SA, 2011). Unsuccessful bidders will also be notified by telex or facsimile or by general announcement on the Saudi Aramco Bulletin Board located in Dhahran or Jiddah. Those who failed to get the bid, may formally request for debriefing to know reasons of their failures and to know how they can improve their proposals in the succeeding bid (SA, 2011). In case of dispute, resolution will be fairly done through the Claims and Technical Services Unit of the Contracting Department based on required processes (SA, 2011). If claimant is unsatisfied with decisions, the dispute may be brought to the Saudi Aramco Contract Dispute Settlement Board (Appeal Board) (SA, 2011). Further, other requirements for contractors are its adherence to Saudi laws and regulations. It also required contractors to employ Saudi Arab nationals for the performance of Saudi Aramco contract work (SA, 2011). When the contractor finds it necessary to employ foreign labor, compliance with the Saudi Arabian Government regulation and control of visas and iqamas is the responsibility of the contractor. Questions on this regard will be referred to Contract Representative in the Contracting Department and to Contract Information and Control Unit (SA, 2011). Contractors’ registration in ECN is necessary to enable them to receive Saudi Aramco solicitations of interest and invitation (SA, 2011). They can register at http://esr.aramco.com. Successful registrants can access their profiles at "Registration in ECN for Existing Aramco Contractor" after undergoing easy and self-explanatory instructions. Vehicle stickers are also accessible online after accessing extranet forms (SA, 2011). A revised CD Pack is also developed from the Industrial Security Area offices Kingdom-wide or through the Contracting Department which contains training, awareness presentations and general information relating to the e-Security applications (SA, 2011). The company has also regulated access routes through approved codes for internal industrial security. They have also automated the approval of the use of Saudi Aramco Vehicle requests for Contractor Employees through SAP workflow technology to allow seamless processing in a timely manner (SA, 2011). Online, companies are asked to complete their online applications for Extranet IDs if they do not have access (SA, 2011). Nominated persons will be responsible for the submission of service requests for all Contractor employees. Forms are dubbed SA-9696 (Saudi Aramco Computer Use Policy for Extranet Users). A corresponding form for non-Saudi employeer users are also available (SA, 2011). Contractors are further advised to review the Human Resources Guidelines for them to tailor it to suit their own operations (SA, 2011). The guidelines serves as working framework for Contractor Company's management and employees to fulfill duties and responsibilities effectively by providing parameters and guidance for decision-making (SA, 2011). The guidelines are intended to allow management policy-making flexibility and discretion while providing a basis for consistent administration (SA, 2011). They are further advised to practice Hazardous Waste Disposal Contractors Guidelines to become qualified waste management contractors and register its qualification to Saudi Aramco's Environmental Protection Department (EPD) for evaluation. Even payment for contractors are done electronically via wire transfer as indicated in the Invoicing & Payment provision in Schedule "C" of all contracts. Hard System? Saudi Aramco’s interactive Electronic Contracting Network (ECN) is a major development in transactional relations where Company’s experts’ contract partners in a web-based system that automates all business functions and activities (SA, 2011). Truly, the Company progressed with online interactive sophistication, but only focused on contractors’ online registration; wire-transfer of fees; popularizing its corporate information and its intra-corporate messaging system. The rest remained to be done in office-to-office manual or operational transactions. But this combined traditional and modern system remained attuned to global standard of simplifying or reconfiguring complexity in order to manage risks and maintain flexibility. But if gauged on the system provided by the hard system, there are still structural deficiencies that need to be resolved. While SA's procurement procedure has automated transactional relations with potential contractors, but that is delimited only up to bidder's registration. The bidding is methodical, linear and responses to cases are reactive to potential problems. It is also bidder-focused and award-specific of its outcome. It is unclear how SA and its contracted companies relate with its stakeholders while in the bidding process. This means that both companies are yet to meet the external responses of its stakeholders specially when developments are started to be introduced and such will affect communities or the stakeholders. To note, SA may have been able to describe existing situation, problems, environment and behavior during the pre-bidding and bidding processes but such excluded the participation of stakeholders in the decision-makings. Second, in all of the systems under HS, stakeholders are excluded. Third, both SA and its contractors may have shared the identification of quantitative and qualitative objectives or constraints through clarifications on commitments from emerging concerns and in later parts of the project but only SA does the imaginative or free-thinking determination of possible routes toward achieving the objectives. This is because SA solely set mandatory minimum financial and quality standards for its bidders; decides how the bidding be done (at times, selective in nature) and award contract at its own volitional consideration. Fifth, it’s also unclear at what stage does the standard to assess effectiveness of job performance or appraisal come in to ensure that desired outcome is satisfactorily achieved by the contractor. It is also unclear if SA has intents to model outcomes, if it has desire to evaluate projects' impacts although there is possibility that the stage of implementation and its details are discussed after the contract was awarded to chosen contractor. Staking it out? This is where the gap comes in. Excluding the stakeholders in the decision-making will oddly meet with questions or opposition by stakeholders who would be directly affected by its implementation. Stakeholders are integral of the project because it’s either their investments are at stake; they are affected by the introduction of developments; and it’s in their considerations that such project be implemented (Miles, Munilla & Darroch, 2006). Experts believed that their participation is essential in decision-making because their involvement increase the chances of project’s success through constructive feed-back mechanism. Their involvement will also add confidence for wider social acceptance (Miles, Munilla & Darroch, 2006). Engaging them will further bridge the power distance; provide opportunity to harmonize the collective and individual perceptions on the project; eradicate gender concerns in decision-making and provide an inclusive climate instead of being threatened with the introduction of developments (Miles, Munilla & Darroch, 2006). This precept is in accord to the satisfaction of stakeholders’ universal needs: physiological, safety, social nature, esteem and actualization. If all these are met too in the process, there is a potential wider social acceptability on developments that will be introduced. References Estache, Antonio & Iimi, Atsushi (2008). 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Saudi Aramco (2011). Registration. http://www.saudiaramco.com/irj/portal/anonymous?favlnk=%2FSaudiAramcoPublic%2Fdocs%2FE-Services%2FContracting%2FRegistration&ln=en Accessed: April 4, 2011. Saudi Aramco (2011). The Electronic Contracting Network (ECN). http://www.saudiaramco.com/irj/portal/anonymous?favlnk=%2FSaudiAramcoPublic%2Fdocs%2FE-Services%2FContracting%2FThe+Electronic+Contracting+Network+%28ECN%29&ln=en Accessed: April 4, 2011. Morgan Miles & Linda Munilla & Jenny Darroch, (2006). The Role of Strategic Conversations with Stakeholders in the Formation of Corporate Social Responsibility Strategy. Journal of Business Ethics, Springer, vol. 69(2), pages 195-205. Read More