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Benefits and Importance of Implementing Local Content to Ensure Supply Chain Sustainability and Build Trust

Moatissim Halis

٢٥ شعبان ١٤٤٤ هـ

Introduction:

Supply chains are vital to the success of any organization or company, as they play a crucial role in securing the necessary materials and services for the production process. Among the factors that influence supply chain sustainability and build trust is the implementation of local content standards. In this article, we will explore the benefits and importance of implementing these standards.


Enhancing Sustainability and Reliability:

Compliance with local content enhances the sustainability of supply chains and increases reliability. When local resources are consistently provided, geographical distances are reduced, and dependence on foreign resources is minimized. This helps mitigate potential risks associated with product or service supply disruptions and contributes to building a reliable foundation for future operations and planning.


Developing National Skills and Achieving the 2030 Vision for Sustainable Development:

Promoting training and developing local skills is an essential part of complying with local content. It aligns with the 2030 Vision for Sustainable Development by efficiently utilizing human and natural local resources. By enhancing local education and training, the younger generation is empowered and equipped with the necessary cognitive and practical skills to effectively utilize local resources and accumulate valuable experience.


Boosting the Local Economy and Stimulating Economic Growth:

Implementing local content contributes to boosting the local economy and stimulating economic growth. When investments and contracts are directed towards local companies, the productivity of the local industry is enhanced, and new job opportunities are created. Consequently, a positive economic cycle is established, further promoting sustainable development and diversifying income sources within the country.


Enhancing Consumer Confidence:

Prioritizing local content increases consumer confidence in the easy availability of goods and adherence to local and environmental standards in the long term. This contributes to avoiding product accumulation and wastage while improving the efficient use of financial resources.


Firstfix and commitment to local content

Complying with the standards of local content has become an official requirement in contracts with government and quasi-government entities, both currently and in the future. This entails achieving a specific percentage of local content in the core operations of the company, as well as a higher percentage in the project itself.


Currently, quasi-governmental companies prefer contractors who achieve a higher percentage of local content in their core operations because they have the ability to commit to those ratios in their approved contracts for specific projects. This helps these companies in achieving their internal plans to provide better ratios of local content to government entities. On the other hand, strict penalty clauses and significant deductions are imposed in contractor contracts if they fail to comply with the specified ratios of local content. This leads to a drastic and significant change in the contractor's accreditation and conditions in the Saudi market today.


In general, the shape of contractor accreditation and their conditions undergoes significant changes in the Saudi market today due to the increasing focus on local content and the necessity of achieving the specified ratios. This prompts companies to search for contractors capable of meeting these growing requirements in their contracts.

How to achieve the highest standards of compliance with local content:

It is the responsibility of all employees in the company, but the employees of the Supply Chain and Human Resources departments are specifically responsible for this work on a daily basis.


First: Human Resources Management

The required work stages for Human Resources to implement the local content mechanism for 2024 are as follows:


  1. Compile all labor leasing contracts and leases by offices that have an active commercial registration within the Kingdom of Saudi Arabia during 2023, in order to revise the contract texts to align them with the local content mechanism and present them to the consulting office.

  2. Develop a policy for job functions and external assignments and document it within the system, and implement the policy as part of the Human Resources workflow.

  3. Compile all job titles according to the residence status of non-Saudis in the system and ensure their compliance with the visa, to ensure that the titles appearing in the abstract are consistent with the work system, and find alternative solutions if they are not compliant.

  4. Update the ticket policy and embarkation orders by issuing them only through national airlines.

  5. Request the cooperative insurance company to provide us with a baseline certificate upon contracting or after contracting, in order to take precautions regarding its impact on the company's percentage and find alternative solutions if it does not comply with its private sector activities, such as financial and insurance activities.

  6. Human Resources localization plan for 2024.

  7. Work on developing a policy for professional training and qualification of Saudis, in accordance with Article 43 of Royal Decree No. (M/46) dated 5-6-1436 AH.


Secondly: Procurement Management Guidelines

Phase One: Identifying the most consumed items and determining the top 50 suppliers by cost during the period, as follows:

Conduct a comprehensive analysis of the consumed items based on the previous period, identifying items with a significant impact on the budget. This step helps prioritize purchases and improve inventory management.

Classify suppliers and determine the top 50 suppliers in descending order of cost. This reveals the extent of each supplier's impact on overall costs. This step helps identify key suppliers, contributing to reducing overall procurement costs through negotiation processes and obtaining the best possible value from deals.


Phase Two: Updating the construction code for each category/item in the system, as follows:

Determine, through procurement management, whether this product is supplied or not, and then define each category with its specific construction code. The mandatory list is attached to facilitate the task.


The system will be subsequently updated by the Information Technology Management by adding the construction code to link the category/item name to its national sources. This step contributes to better categorization, cost tracking, and data accuracy, facilitating reporting and analysis operations, leading to clear decisions regarding penalties applied to mandatory list items.


Phase Three: Adding the names of national suppliers listed in the mandatory list and linking them to the construction code for the category/item, as follows:

The Information Technology Management is provided with the names of national suppliers/factories to link them to the construction code. This contributes to unifying and organizing the database, making monitoring and reporting more accurate, enhancing cost control, and reducing risks.


Phase Four: Excluding suppliers and determining a time frame to link them to the mandatory lists and issuing a certificate, as follows:

Through the implementation of the previous phases, the Procurement Management will perform the following:


  1. Exclude non-compliant suppliers, reducing the risks of government fines.

  2. Determine time frames for suppliers to improve their status.

  3. Provide recommendations to suppliers regarding the requirements of the local content certificate (baseline). This, in turn, contributes to more sustainable partnerships with the company, making the baseline a key factor in evaluating the submitted offers and whether this percentage positively or negatively contributes to the planned local content growth. This is done by examining the sector to which the supplier belongs (providing goods or services) and comparing it with the verified baseline certificate they possess.


Conclusion:

Implementing local content is a crucial factor in achieving supply chain sustainability and building trust. It enhances sustainability and reliability, develops national skills, boosts the local economy, stimulates economic growth, reduces transportation and distribution costs, and enhances consumer confidence and satisfaction. Therefore, efforts should be made to promote the implementation of local content as a fundamental component of strategic supply chain management.

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