In-Kingdom Total Value Add (IKTVA) Program - Saudi Aramco · Key questions that must be answered as you complete ... Saudi Aramco is providing you this guide to allow your organization

May 2016

In-Kingdom Total Value Add (IKTVA) Program

2

Saudi Aramco: Confidential

Agenda

Time Topic Speaker

07:15 – 08:00 Registration and Check-in –

08:00 – 08:40 IKTVA Program Overview Thomas Deeb

08:40 – 09:30 ITKVA Survey Finance Team Overview Bradley Nielson

09:30 – 09:40 Break –

09:40 – 10:40 IKTVA Planning Guide Overview Maha Sabah

10:40 – 11:15 Break Out Session Q&A Team

11:15 – 11:30 Conclusion Ghadeer Ibrahim

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Agenda

Time Topic Speaker




09:30 – 09:40 Break –




4


In-Kingdom Total Value Add (IKTVA)

Partnership and collaboration

• Supplier focused

• Jointly develop action plans

• Mutual benefit and commitment

Opportunity

• Diversified local Saudi economy

• Better trained, qualified Saudi

workforce

• Export your local content to

neighboring GCC markets

IKTVA supplier engagement

• Cooperative engagement – suppliers

and Saudi Aramco

• Sponsorship from both

Objective

To drive key activities toward localization

and job creation.

Introduction

The in-Kingdom Total Value add (IKTVA)

Program is designed to drive domestic value

creation and maximize long-term economic

growth and diversification to support a

rapidly changing Saudi economy.

Creating a level playing field

• Uniform evaluations (services and

materials)

• Access to information

• Supplier solution center

Strategic imperative

A bedrock of Saudi Aramco’s strategy is to

create value in every aspect of our

business, maximizing long-term economic

growth and diversification. Through the in-

Kingdom Total Value Add (IKTVA) Program,

Saudi Aramco is taking action to drive

additional domestic value creation to

support a rapidly changing Kingdom and

foster future prosperity.

IKTVA planning

To enable focus and drive IKTVA to success,

Saudi Aramco is engaging our suppliers to

create 5 year IKTVA plans and implement

those plans as the instrument to drive

IKTVA metrics to the levels suggested by

Saudi Aramco.

The intent of this guide is to give Saudi

Aramco suppliers a framework of suggested

inputs as IKTVA plans are created and

stewarded forward. The guide is not

exhaustive and each supplier and sector

will have its own nuances and differences

that require the supplier to plan and

customize accordingly.

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Step Change – In-Kingdom Total Value Add Program

2021 TARGETS ARE:

IKTVA is a program,

not a metric

IKTVA will work with

suppliers in a new way for

success

IKTVA is a Saudi

Aramco Strategic

Imperative

Saudi Aramco vision is to enable a

globally competitive Saudi Industrial

Base

70% Local Content 500,000 Jobs 30% Exports

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The In-Kingdom Total Value Add (IKTVA) Program

The objective is to drive key activities towards localization and job creation, which will be assessed against the

following metrics:

A. Localized goods and services ($)

B. Salaries paid to Saudis ($)

C. Training & Development of Saudis ($)

D. Supplier Development Spend ($)

E. In relation to revenue (spend from Saudi Aramco or

estimated major contract value)

Supplier IKTVA Formula

% IKTVA = 𝑨+𝑩+𝑪+𝑫

𝑬∗ 𝟏𝟎𝟎

DEFINITION

The IKTVA program

drives, measures and

monitors the “added-

value” brought to the

Kingdom by a supplier.

Additional Info.

Number of Saudi Employees

Investment ($)

R&D spend ($)

Exports ($)

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IKTVA Supplier Guidelines -Highlights

Included Excluded

Goods & Services • IK Manufactured Goods &

Services

• IK Operating & Admin

Expenses

• OOK Goods & Services

• Materials/Services

from Agents

• Capital Expenditures

Compensation Saudi Compensation:

• Salary & Bonus

• Housing

• Transportation

• Education Assistance

All Expat Base Salary &

Bonuses.

Training All Costs Associated With Saudi

Training

• Internships

• Scholarships

• Travel and Accommodations

• Course Fees

Training Costs Associated

With Expats

Supplier

Development

All Cost Including Workforce,

Materials, Travel,….

Note: For items that have a substantial impact (>5%), the total value was prorated based on the tier 2 suppliers IKTVA

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Agenda

Time Topic Speaker




09:30 – 09:40 Break –




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IKTVA Package

Available at www.iktva.sa

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IKTVA Survey Worksheet

• 3 years provided to create baseline

• Report both Saudi Aramco and Total KSA (including

Saudi Aramco)

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General Instructions

1. All financial amounts should be reported in USD.

2. Amounts reported should correspond to the company’s fiscal year end.

3. Assumptions and calculation methodologies utilized should be consistent with prior

years.

4. Except for R&D expenses, amounts should not be double counted. For example, if

Training Costs are provided, these costs should not also be included in Goods and

Services or Payroll.

5. For JVs and subsidiaries, incorporate Parent’s share of operations into their own IKTVA

calculation – one submission per parent company

6. Reports will be submitted annually

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Company Information

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Category E – Section 1: Revenue

Includes

revenue from

Aramco

$45 mil / $60 mil = 75%

• Includes company-wide revenue sources

from SA and in-Kingdom customers

• For partially owned entities of the

company, partial credit is given

• Saudi Aramco total:

• includes indirect revenue through

agents and EPC revenue

• excludes partially owned

subsidiaries and JVs

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Category A – Section 2 – Goods and Services

• Exclude taxes, customs, duties, iqama/visa

fees

• Exclude capital expenditures,

depreciation, and amortization

• Include financing charges

• Include IK sourced selling, marketing,

administration and other operating costs

Goods & Services ≠ COGS or COSGoods & Services = IK COGS/COS +

SG&A + R&D

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Section 7 – Top in-Kingdom Suppliers

>

70%

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SA/KSA Sales Ratio

Unless otherwise justifiable, Saudi Aramco Goods & Services can be estimated using a simple ratio.

Challenges:

• Inventory fluctuations

• Length of supplier table

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Category B – Section 3 - Saudi Payroll

Unless otherwise justifiable, Saudi Aramco headcount and compensation can be estimated using a simple ratio.

Can include Saudi

Expat compensation

and headcount

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Category B – Section 3 - Saudi Payroll

Saudis Only

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Category C – Section 4 - Training & Development

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Category C – Section 4 - Training & Development

Cost can also include a portion of expat

compensation and OOK costs related to

T&D of Saudis

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Category D – Section 5 – Supplier Development

• Can include customer training & development

costs related to skills/capabilities

improvements

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Section 6 – In-Kingdom Investment

Highlighted in Supplier Profile

Annual Additions

Only

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Section 6 – In-Kingdom Investment

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Barriers

8.0

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Other

• Exclude costs not related to IK revenue sources even if purchased IK – highlight in notes

• Client releases to allow open dialogue

• Confidentiality of detail IKTVA numbers

• Website will have latest details and FAQs

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IKTVA Submission

• Cover Page Stating IKTVA Engagement for Client X

• Index (Optional)

• Agreed Upon Procedure (one page report plus AUP appendix)

• Management Representation Letter

• Final Client IKTVA Template/Questionnaire

• Include PDF and Excel version

Email to [email protected]

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Contact Information

Brad Nielson, Financial Consulting Division

[email protected]

013-873-3526

Tom Deeb, Industrial Development & Strategic Supply Department

[email protected]

013-874-0115

www.IKTVA.sa

mailto:[email protected]

mailto:[email protected]

http://www.iktva.sa/

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10 Minute Break

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Agenda

Time Topic Speaker




09:30 – 09:40 Break –




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IKTVA Plan Methodology Defined

As you embark on the journey of creating your 5 Year IKTVA plan utilizing

this guide, you will find that you have collected a tremendous amount of

valuable data. The key question asked is “Now What?” You must take this

information and present it in a way that tells a detailed story of how you

plan to get from 2016 to 2021 and achieve the desired goals set forth in

the IKTVA program. Key questions that must be answered as you complete

this are:

1. Have we documented each year what the expected benchmarks,

milestones and outcomes will be?

2. Have we tied all of our multiple business lines together to paint the

whole picture of our company and its respective IKTVA plan?

3. Do the objectives and milestones selected achieve our future state as

outlined?

4. Is the plan executable as presented?

5. Is the plan clear, concise and consistent?

A Suggested Methodology: Backcasting

• Backcasting is a planning method that starts with

defining a desirable future and then works

backwards, to identify policies and programs that

will connect the future to the present.

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5 Year IKTVA Plan Format Guide

Format Guide Objective:

Saudi Aramco is providing you this guide to allow your organization to create and provide the most valuable and comprehensive 5 Year IKTVA plan

possible. While this outline is comprehensive in nature, some items based on your material or service may not be applicable. Our expectation is that

you follow the provided outline in the formulation of your plan and provide in a Microsoft PowerPoint (.ppt) format. This document should be

carefully created and presented in a way that is suitable for Executive Management review. Items with an * have an example on page 7 and 8 of this

guide.

Section I. Company Background

This section should include all relevant corporate background details as it pertains to the plan.

A. Annual Updated Executive Summary Sheet*

B. Executive Summary Written Report

C. Current Corporate Structure

D. In-Kingdom Operating Locations/Contact Details and Core Team Roster

E. In-Kingdom Company History

• Investments Prior to 2013 and other In Kingdom Activities not listed elsewhere

Section II. Goods and Services

This section should include relevant details as it pertains to the cost structure and supply chains surrounding your material or service.

A. Supply Chain Overview Map*

B. Detailed Cost Structures and Forecasts for five (5) years*

C. IKTVA Potential with Existing and/or Potential Local Suppliers

D. Key Global Supply Chain Partners Listing

E. In Kingdom Manufacturers Listing and amount spent with IK Manufacturers and the five (5) year plan to increase these values

F. End to End Value Chain Map (identifying IKTVA opportunities at each step)*

TIP: Determine information

you require from Saudi Aramco

Saudi Aramco will assist in providing

the best available data in the forms of

forecasts for the next 10 years. The

suppliers’ responsibility is to define

what is sufficient information to make

the appropriate business decisions.

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Section III. Human Resources

This section should include relevant details as it pertains to the hiring, training and utilization of Saudi Nationals in your

workforce.

A. Number of Saudis Employed, by job function

B. Five (5) Year Hiring Plan of Saudis by job function and year

C. Number of Saudis currently in training (Defined)

D. Five (5) Year Training Plan (Defined by number and training discipline)

E. Current Saudization, next five (5) year plan

F. Total workforce, % of Saudis as a total and five (5) year plan

G. Saudi Training Budget plan for five (5) years ($)

H. In-Kingdom Higher Education Collaboration

I. IKTVA opportunities with peers and across industry sectors, such as shared training facilities

Section IV. Supplier Development

This section should include relevant details as it pertains to enhancing IKTVA through developing and expanding In-

Kingdom existing and potential suppliers.

A. Five (5) Year spend budget for supplier development broken down per year

B. Development plans for In-Kingdom Suppliers (Number per year, detailed actions, etc.)

C. Gap Analysis for Supply Chain (highlighting items or services not currently offered In-Kingdom and how it would

affect IKTVA if they were)

D. Developing new sources of supply by attracting localization

TIP: Highlight opportunities

The IKTVA plans allow suppliers to

demonstrate areas for IKTVA

enhancements along the total value

chain. Opportunities for enhanced

value creation, end to end solutions,

and in-Kingdom development should

all be highlighted and presented.

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Section V. Research and Development Initiatives

This section should include relevant details pertaining to the introduction or expansion of your Research and Development (R&D) activities

In-Kingdom.

A. Five (5) Year In-Kingdom Technology Roadmap *

B. Five (5) Year R&D budget and detailed plans with key milestones

C. Five (5) Year Technology Acquisition and/or Deployment Plans

Section VI. Exports

This section should include relevant details pertaining to enhancing IKTVA through exporting Made in Saudi Arabia Products.

A. Current Export $ Volume

B. Five (5) Year Export Growth Plan with Targets and Milestones

C. Five (5) year Global Market Share Projections

Section VII. Business and Market Challenges

This section should include relevant details pertaining to the challenges your business faces in achieving the objectives outlined by Saudi Aramco.

These challenges can exist in many areas, please highlight them here.

A. Historic and Current Facility Utilization

B. Historic and Current Employee and Asset Utilization

C. Global Competitive Challenges

D. Availability of Local Candidates

E. Availability of Raw Materials or Equipment

F. Needs for Changes to Procurement Practices by Saudi Aramco.

G. Other Barriers to Success

TIP: Don’t forget to ask!

The IKTVA plans provide a forum

for suppliers to submit what-if

scenarios. For example, “If

Saudi Aramco offered a long-

term contract for our goods or

services, we could increase our

IKTVA by 30% over five (5)

Years.” Be creative, but

realistic: this is your

opportunity to ask questions.

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Section VIII. 5 Year IKTVA Plan

The final section is where all numbers from the previous 8 sections are calculated showing the year by year changes in the IKTVA values. The expectation is that

these are KPI figures that can be reviewed and evaluated each year, to ensure compliance of the plan by management of both organizations.

A. Utilizing benchmark values from the average of 2013-2015, create the models for the next five (5) years highlighting your path for IKTVA growth

B. Show details on how you will get from one value to the other citing specific examples

C. Your Account Manager is available to answer questions in regards to the plan or its contents, however, it is your responsibility for content and formatting.

IKTVA Plan Submission

Upon completion of your Plan, please submit online at https://www.iktva.sa/iktva-submission

TIP: What should the plan look like?

The IKTVA plan is specific to each company, but the plan should contain the principles and

outline set forth in this guideline. The key part of the plan is it should be clear with

measurable benchmarks as well as be executable as presented. We recommend graphics

illustrating and highlighting key items as well

https://www.iktva.sa/iktva-submission

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Executive Summary Sheet 2016

Performance KPI Value2013-15

Benchmark2016 Target 2016 Actual 2017 Plan 2018 Plan 2019 Plan 2020 Plan 2021 Plan

Goods & Services (A)

Saudi Compensation (B)

Training & Development (C)

Supplier Development (D)

Export Sales

Saudi Jobs Created

IKTVA %

XXXX Key Accomplishments: Human Resources’16 Target ’16 Actual

Number of Saudis Trained

Saudization %

R&D and Capital Investment Supplier DevelopmentPre 2015 ‘16 ‘17 ‘16 Target ‘16 Actual

Facility Investment Spend with Local Suppliers

R&D Investment New Suppliers’ Developed

2013 2014 2015 2016 YTD

Saudi Aramco Sales

$- $- $- $-

KSA Sales $- $- $- $-

Current Actions List Execution Plan

• Cost Savings Potential• Current Facility Utilization• Xx• Xx

• 15% cost reduction with new local manufacturer developed

• 20%• Xx

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Plan Content Examples

Supply Chain Overview Map Detailed Cost Stack UpEnd to End Value Chain Map

Technology Roadmap

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Breakout Session Q&A

Documents

In-Kingdom Total Value Add (IKTVA) Program - Saudi Aramco · Key questions that must be answered as you complete ... Saudi Aramco is providing you this guide to allow your organization