Scientific Research Methodology

MBA G233
Group 2 Report

Effect of COVID-19 reopening on

Shortage of raw materials imported
for SUGEST Company and its relation
with skyrocketing of shipping prices
& Product Cost.

Supervised by:
Dr. Tarek Mohammad Ali
Effect of COVID-19 reopening on Shortage of raw materials
imported for SUGEST Company and its relation with
skyrocketing of shipping prices & Product Cost.

Research Proposal

1
Project Team Members and Contribution:
S. No Name Contribution

1 Hazem Amin Field of application, introduction, abstract, phenomena

definition and description, Suggested reasons and
research gap, literature review, conceptual framework,
research hypothesis, sources of data collection, data
collection approaches, data collection methods
techniques and tools, data analysis methods and
techniques, conclusion & references.

2 Ayman Salem Field of Application, Suggested reasons and research gap,

problem statement, research hypothesis, research
limitations, complete census vs sampling, sample size and
type & references.

3 Basma Gamil Field of Application, Suggested reasons and research gap,

problem statement, research hypothesis, research
limitations, complete census vs sampling, sample size and
type & references.

4 Ali Albayaa Field of application, research background, phenomena

definition and description, variables definition, data
analysis methods and techniques, units and levels of
analysis & references.

5 Asaad Mostafa Field of application, research background, phenomena

definition and description, variables definition, data
analysis methods and techniques, units and levels of
analysis & references.

6 Mohammad Gamal Field of application, introduction, abstract, literature

review, conceptual framework, sources of data collection,
data collection approaches, data collection methods
techniques and tools, conclusion & references.

Table of Contents
 Abstract:................................................................................4
1....................................................................................................................................Introduction:
5
1.1 Research Background:.....................................................................................................................6
1.2 Phenomenon Definition and Description:........................................................................................7
1.2.1 Phenomenon Definition:..............................................................................................................7
1.2.2 Phenomenon Description:...........................................................................................................8
1.2.2.1 Raw materials..........................................................................................................................8
1.2.2.1.1 Butyl Acetate increasing prices........................................................................................9
1.2.2.1.2 Methoxy-propyl Acetate Price............................................................................................10
1.3 Suggested Reasons and Research Gap:..........................................................................................11
1.3.1 Suggested Reasons:...........................................................................................................11
1.3.2 Research gap:.....................................................................................................................12
1.4 Problem Statement:.......................................................................................................................13
2. Theoretical frame work.....................................................................................................................14
2.1 Variables Definitions:...........................................................................................................................15
2.2 Literature Review:...............................................................................................................................16
2.3 Conceptual Framework:......................................................................................................................19
2.4 Research Hypothesis:..........................................................................................................................20
3. Data Collection and Analysis..............................................................................................................21
3.1 Sources of Data Collection:..................................................................................................................21
3.2 Data Collection Approaches:...............................................................................................................21
3.3 Data Collection Methods, Techniques, and Tools:.........................................................................22
3.4 Data Analysis Techniques and Tools:.............................................................................................23
4. Population and Sampling:..................................................................................................................24
4.1 Units and Level of Analysis:.................................................................................................................24
4.3 Complete Census and Sampling...........................................................................................................25
4.4 Sample size and Type:..........................................................................................................................25
Conclusion:................................................................................................................................................26
References:................................................................................................................................................27

3
 Abstract:

This research study phenomena of the Impact of Raw Material prices on the
relation between marine shipping prices & petroleum oil prices, and DURA
Thinner product cost moderated by customs authority and international policies
in SUGEST company.
Data collected on the phenomena occurred at 2021 where there was rise in raw
materials prices more than usual prices before reopening after the closing due to
COVID-19 pandemic.
Study illustrated the phenomenon description based on the secondary
quantitative data collected from SUGEST company about procured raw material
prices.
Study established the conceptual frame work depending on the literature review
collected from secondary data, where all data processing were significant at 97 %
with stated hypothesis.
Data collection & analysis done based on:
 Primary data: research hypothesis testing: “Re-formulation of product then
make inspection & Customer Satisfaction”.
 Secondary data: in this research compilation of available published sources to
gather information and also through SUGEST SAP system to gather purchasing
prices, phenomenon description, suggested reasons, hypothesis variable
definitions, and literature review.
Population and sampling depend on: the internal and external working processes
of SUGEST company for the production of DURA Thinner finished product, in
which 100 large customers in both Jeddah, Riyadh, Medina, Tabuk, Dammam, and
Al-Qassim regions.

4
 1. Introduction:

 German Metal Surface Treatment Company “SUGEST” was established

in 2003 in Riyadh, Kingdom of Saudi Arabia as the specialty chemicals’
manufacturing & marketing arm of Al-Areefi Group of Companies. In
collaboration with German Technology, our first venture was the Metal
Surface Treatment Chemicals’ production.
 From the earlier stage, we identified that Research & Development is a
corner stone for our success. Currently, we have a very sophisticated
laboratories distributed among the three main provinces of KSA
representing the hub of our products’ invention, development and
formulation, fully equipped with state-of-the-art technologies and most
advanced related lab machines, equipment and tools managed by a
world of proven talent whom are top qualified personnel delivering
breakthrough innovative tailor-made solutions.
 Today, SUGEST has grown to be one of the leading companies in
manufacturing and marketing Metal Surface Treatment Chemical
products & Specialty Chemicals in the region with more than 135 items.

5
 1.1 Research Background:

 The shipping of Goods and Raw Materials between countries either by

sea or air or land freight is a direct influence in your life, starting from
the details of your breakfast in the morning to the components of space
rockets, and what is meant is not shipping in general, but the shipping
industry in particular.
 Containers revolutionized the world of freight forwarding, and changed
global shipping systems. Today, 90% of goods are transported by
containers that are stacked on the deck of giant sea tankers, and the
number of shipments shipped worldwide is currently 200 million
containers annually.
 International standard container capacity is measured in units (Twenty-
foot equivalent Units) (TEU) the containers on the board of ship, trains
and trucks have 3 sizes 20-40-45 feet.
 So, we can imagine the quantity of goods shipped by year in those
containers, it’s a huge amount.
 The rate for a single shipping container has skyrocketed after 18
months of the COVID-19 pandemic start, disrupted supply chains and
trade channels.
 Market conditions are driving up the cost of many raw materials,
currently buyers are shocked with price increases across multiple
materials. The price of raw materials is increasing and manufacturers
face severe challenges through the supply chains. Prices of raw
materials have sustained their upward momentum that began in the
second quarter of last year. The Raw Material Price Index stands nearly
18% higher than a year ago. Raw material prices are expected to
average 10% higher this year, compared to 2020, before the unsure
stabilizing in 2022.
 The relationship of going up Raw Materials prices and inflation in
shipping costs is a phenomenon we should study.

6
 1.2 Phenomenon Definition and
Description:

1.2.1 Phenomenon Definition:

The phenomenon we face is classified as a Cost-Push inflation, in

which prices increase due to increases in production costs, such as
raw materials, and wages.
The demand for goods is unchanged while the supply of goods
declines due to the higher costs of production. As a result, the added
costs of production are passed onto consumers in the form of higher
prices for the finished goods.
N.B Other Inflation type Known as: Demand-Pull Inflation, in which
strong consumer demand for a product or service, results in
increased prices.
In SUGEST CO., one of our valued products which is DURA CRYL
Thinner was facing a cascading phenomenon that the raw materials
prices - like Butyl Acetate and Methoxy-propyl Acetate prices- getting
dramatically increase which will affect the production quantity and
price.

7
1.2.2 Phenomenon Description:

In reality, manufacturing is a complex system that includes several

functional areas which are mutually dependent to each other from
procurement of raw materials to the finished products and the failure
in one function has an impact on the other. It is found that the
manufacturing enterprises encounter some internal and external
disturbances, which have potential to put them at risks in the context
of production, safety and business operations. The production system
may fluctuate from the actual performance because of presence of
some disturbance agent.
In that context, the research has been conducted to build a scenario
of raw material increase prices that occur in particular period of time
at SUGEST CO. and also to identify production interruption caused
by raw materials shortage. By conducting the research, we focus on
the following: to identify the suggested reasons behind the increasing
raw materials prices and also to figure out the gap and suggest
solution for the subjected weird phenomenon.
1.2.2.1 Raw materials
Production of paint thinners is not very complicated. For the
production, there is need usable and tried a formulation, raw
materials and mixing tank. For raw materials to be used should have
good quality.
There is a rising demand for raw materials and also rising in raw
material prices, in what fellows we will review the increasing pricing
that affect the supply and availability of our raw material Butyl Acetate
and Methoxy-propyl Acetate.

8
 1.2.2.1.1 Butyl Acetate increasing prices

One of the main raw materials which affected by this phenomenon

and its mainly used as main component of solvent thinner. In
SUGEST CO., an exponential rise in the prices of Butyl Acetate was
witnessed in the third quarter. Moreover, lower imports from US
because of Ida hurricane led to the tight supply of upstream n-Butanol
and Acetic acid which consequently fumed Butyl Acetate prices.
Buoyant freight charges and extreme shortage of shipping containers
further sent ripples to the prices of Butyl Acetate. However, the
demand from the downstream industries in SUGEST CO. remained
firm throughout the quarter.

Butyl Acetate prices increase

12000
10419.8
9847.4
10000

8000
SAR/MT

6000 5210 4929

4630 4579.2 4505
4000

2000

0
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Oct-21

1.2.2.1.2 Methoxy-propyl Acetate Price

Another material of the main raw materials which affected by this

phenomenon was the Methoxy-propyl acetate, since 2020, there has
been further increase in market prices due to strong demand and
limited availability of raw materials. Additionally, costs of utilities and
domestic and international transportation have been significantly 9
rising. So, our supplier has been making a continuous effort to
decrease these costs, but increases in raw fuel and logistics costs
 have exceeded the limits of their cost-
containment efforts. That’s why There was thus shift towards
increasing costs and correction of profit margins that appear
significantly in the last quarter.

Methoxy-Propyl Acetate Price

14000 12800
12000
10000
7700
8000 6850
SAR/MT

5300 5700 5650

6000
4000
2000
0
Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Oct-21

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1.3 Suggested Reasons and Research Gap:
 1.3.1 Suggested Reasons:

1- Sudden opening of markets and high demand after long period of

market closing due to COVI-19 pandemic.
2- High Demand on Marine Shipping Containers specially SUGEST
Imports solvents raw materials from Russia and China.
The global shortage of shipping containers has led to a sharp rise in
transport costs from Asia to Europe thus further restricting supplies to
Europe
The cost of shipping goods from China to Europe has more than
quadrupled starting on January 2021, hitting record highs as a
shortage of empty containers stemming from the pandemic disrupts
global trade. The cost of shipping a 40-foot container from Asia to
northern Europe has increased from about $2,000 in November to
more than $9,000, according to shippers and importers.

Source: https://www.statista.com/statistics/1250636/global-container-
freight-index/
The oil price has risen by 58% since November 2020
Brent crude, the international benchmark, rose to as much as $80.69
on the day, the most since October 2018 and for sure it will affect raw
material price.
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1.3.2 Research gap:

The increasing of marine shipping prices and also petroleum price

increases and how they will affect of the raw materials of DURA
Thinner quality and price which been produced by SUGEST Co.
starting of January 2021.
In January 2021 SUGEST Co. found that the raw materials of DURA
Thinner like (Butyl Acetate, Methoxy Propyl Acetate) start increasing
and sure that would affect the price of the final product and by
searching found that the most reasons of prices increase is the
shipping prices because most of these raw materials come from out
of KSA specially CHINA and RUSSIA also the petroleum price
increase due to the political issues and the low demand for petroleum
in the lock-down period in the period of COVID-19 pandemic which
affected the price of petroleum products.

12
Then, the proposal introduced to cover the following research
questions and objectives:
 1- What are factors influenced increasing of raw materials prices, or
caused to happen shortage of raw materials?
Objectives: identify causes of raw materials shortage and overprices
by March 2021
2- Why did all prices of raw materials get inflation starting by March
2021?
Objectives: shows the effect of the re-opening by March 2021 on
maritime shipping and petroleum oil prices on cost of DURA Thinner
finished product.
3- How to overcome the shortage of raw materials or higher prices?
Objectives: Explaining the role of Research and Development
department in problems of raw materials shortage by using locally
purchased alternative raw materials form local manufacturers “ex.
Sabic Company” and re-formulation of finished product without
affecting product quality.

1.4 Problem Statement:

Impact of Raw Material prices on the relation between Marine

Shipping Prices & Petroleum Oil Prices, and DURA Thinner Product
Cost moderated by international policies.

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2. Theoretical frame work
 Theories are formulated to explain,
predict, and understand phenomena. The theoretical framework is the
structure that can hold or support a theory of a research study. The
theoretical framework introduces and describes the theory that explains
why the research problem under study exists. A theoretical framework
consists of concepts and, together with their definitions and reference to
relevant scholarly literature, existing theory that is used for our study
diagramed in reliable frame work. That’s why we are going to present our
theoretical frame work through defining the variables and conducting the
literature reviews for these variables to explain the relation between each
component of our framework.

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 2.1 Variables Definitions:

Independent Moderating Intervening Dependent

Marine
Shipping
Prices Raw Product
International
Politics Materials Cost
Prices
Petroleum
Oil Prices

We use variables to describe and measure the items or ideas we are

studying. We used four types of variables in order to measure, manipulate
and control in statistics of our research, independent, moderating,
intervening and dependent variables.
Independent variables are singular characteristic that the other variables
in our experiment cannot change, we will use it to find out whether an
independent variable causes other variables to change and in what way.
A moderating variable is a qualitative or quantitative variable that affects
the direction and/or strength of the relation between an independent
variable and a dependent variable.
Intervening variables: those factors that theoretically affect the observed
phenomenon but cannot be seen, measured or manipulated; its effect must
be inferred from the effects of the independent and moderator variables on
the observed phenomenon. Presence of this variable strengthens the link
between the independent and dependent variables. It surfaces between the

15
 time the independent variable operates to
influence the dependent variable and their impact on the dependent
variable.

The dependent variable relies on and can be changed by other

independent variables, we used it to well explain the phenomena and to
determine what makes the dependent variable change and how.

2.2 Literature Review:

2.2.1 The impact of marine shipping prices on raw material prices:

 The positive impact could be investigated through the graphs of marine
shipping prices globally before COVI-19 pandemic, through period of closing
due to COVID-19 pandemic, and period after re-opening of global economy
“specially after March 2021” in which the global economy returned to re-
opening after long period closure.
 Graphs indicated that marine shipping prices increased after re-opening in
March 2021 by 186% / Container unit.
 The marine shipping price per container after March 2021 get increase by time
and reached increasing in September 2021 by 422% from China to Saudi
Arabia.
 The impact of COVID-19 is far-reaching. Since 2020, there have been less
supplies, more demand, delays in major ports, a global shipping container
shortage, and an overall increase in shipping costs.
 Shipping prices at the first half of 2020 were significantly effective in fewer
limits than the effect after March 2021 due to the high demand of shipping
and according to the principle of supply and demand.

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2.2.2 The impact of petroleum oil prices on raw material prices.
 Since solvents used in production of the finished product under study “DURA
CRYL Thinner” are petrochemical derivatives, then the price of these solvents
will increase by the increase of petroleum oil price.
 This hypothesis could be investigated through the graph of petroleum oil price
through time before COVID-19 pandemic, during COVID-19 pandemic
economy closing, and after re-opening of global economic “manufacturing,
and trading global wise”.
 Although petroleum oil price got increasing trend due to high demand after
re-opening, but study noticed that the highest impact on raw material prices
was due to the marine shipping price, because after re-opening the highest
price is near to petroleum oil price in years 2018-2020.

2.2.3 The moderate impact of international politics on the relation between

petroleum oil price and raw material price.
 Relation between countries is moderating variable in the relation between
petroleum oil price and raw material price, as the relation between
governments in politics will affect the need of some countries to increase the
petroleum oil as a primary governmental cash imports, while other countries
will suffer this increasing of petroleum prices.
 This black gold war “petroleum oil prices war” is out of SUGEST company
control, and deal with the international price by the nature of free economics.
 Many differences in countries politics, and finally the study noticed the price
increasing of petroleum oil, specially after re-opening in March 2021.

17
2.2.4 The impact of raw material prices on DURA CRYL Thinner production cost.
 By the nature of manufacturing and processing industries, the raw material is
highly effective in product cost.
 In the product under study “DURA CRYL Thinner” all constituents are organic
solvents “petrochemicals” which are mixed to produce paints thinner in
acceptable quality by customers.
 All active raw materials “chemicals in the product rather than packing
materials” are organic solvents “processed and manufactured in external
petrochemical plants”, some of them are external to Saudi Arabia “imported
from Korea, Russia, and China”, while the other some are manufactured and
processed inside Saudi Arabi “procured by Sister company RMI “Rawabi
Marketing International”.

2.2.5 The intervening impact of raw materials price on the relation between
petroleum oil prices and DURA CRYL Thinner production cost.
 Since raw materials are organic solvents “petrochemical processing and
manufacturing”, that results in the price increasing of organic solvents raw
materials when happen international increasing in petroleum oil prices.

2.2.6 The intervening impact of raw materials price on the relation between
marine shipping prices and DURA CRYL Thinner production cost.
 Since some of raw materials are externally imported through marine shipping,
that results in the price increasing of organic solvents raw materials cost when
happen international increasing in shipping prices.

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 2.3 Conceptual Framework:

H6 +ve

Marine Shipping
H1 +ve
Prices Raw Materials H4
Product Cost
Petroleum Oil H2 +ve Prices +ve
Prices

H3 H5
+ve +ve

International
Politics

19
 2.4 Research Hypothesis:

H1: if the marine shipping price is high then the price of raw material will be
increase because all the raw materials are coming from outside of KSA and sure
the cost of raw materials will be affected by shipping prices.
H2: the higher petroleum oil prices increase the higher of raw material prices
because the raw materials are Petroleum Derivatives.
H3: there is a significant positive average moderator impact of international
politics in the relationship between petroleum oil prices & Raw material prices.
H4: if the raw material prices increase, then the Dura thinner production cost will
be increase.
H5: there is a significant positive above average intervening impact of raw
material prices in the relationship between petroleum oil prices & DURA Thinner
production cost.
H6: there is a significant positive high intervening impact of raw material prices in
the relationship between marine shipping prices & DURA Thinner production cost.

20
3. Data Collection and Analysis.

3.1 Sources of Data Collection:

o Data collection in the study is suggested to be through both primary

and secondary sources of data collection.

- secondary sources of data: compilation of available published

sources to gather information and also through SUGEST SAP system
to gather Purchasing Prices, will be used in phenomenon description,
suggested reasons, hypothesis variable definitions, and literature
review.

- primary source of data: Research Hypothesis testing: “Re-

formulation of product then make inspection after using alternatives
to imported organic solvents by other locally manufactured solvents.

3.2 Data Collection Approaches:

o Approaches of Data Collection: is supposed to be hybrid between

qualitative and quantitative.

- Quantitative Data: used to learn about our phenomena & make

predictions, which will be used in all research aspects including
suggested solutions.
- Qualitative Data: used to understand and collect narratives and
open-ended observations, which will be used in structured
questionnaire and suggested solutions.

21
3.3 Data Collection Methods, Techniques, and Tools:

o Methods of data collection:

- Case Study in SUGEST Company.
- Direct observation: in stages of Phenomenon description &
hypothesis testing.
- Survey: of customer satisfaction in market through Sales team of
SUGEST after pilot batch production and releasing in market.

o Techniques of data collection:

- Direct participant Observation: for describing the phenomena and
“Re-Formulation & Inspection” in R&D lab.
- structured Questionnaire: for both samples and pilot batch
feedback by sales team represented and authorized by paints sales
division manager as paints sales team leader.

o Tools of data collection: Hybrid between Online and Off-line Tools:

- Online: for data about purchasing prices, phenomenon description,
suggested solutions, and market feedback through sales team.
- Off-line: for data about observations inside R&D lab, samples of R&D
lab at customers, and pilot batch processing.

22
 3.4 Data Analysis Techniques and Tools:

The research will depend on quantitative data analysis approach, which

describes the relation between variables, mainly the effect of price of
imported raw materials on DURA CRYL Thinner production cost.
After R&D re-formulation we will depend on descriptive statistical data
analysis by using Minitab software to measure the new formula sigma level
between upper specification limit and lower specification limit for results
scuttered lower and upper target value according to analysis data in R&D
lab before production of trial batch in production for the same QC
parameters in the structured questionnaire will be used for measuring the
customer satisfaction, and other QC parameters of production processes,
including: men value, standard deviation, mean values of results for each
question in the questionnaire.
Descriptive quantitative data analysis of pilot batch will be produced
after R&D development will be through percentage (%) of satisfied
customers (100 main traders) as the measuring of majority of workshops
consumed the DURA CRYL Thinner.

23
 4. Population and Sampling:

Population of research is needed to be from SUGEST Company customers

(100 main trader) who will control if the company will keep using these
expensive raw materials or looking for alternative locally supplied raw
materials with lower prices without affecting product quality

4.1 Units and Level of Analysis:

In this research we did depend on the big main traders who deal with SUGEST Co.
for long time it’s a (B to B) research and we were asking about the new developed
formula batch after price of raw material increase and also when the company did
change the imported material to local materials, we made a questionnaire about
the quality of the product
Fig show the units and level of analysis

4.2 Research Limitations:

The research is focusing on SUGEST company one of the leader companies in the
field of petrochemical industries in The Kingdom of Saudi Arabia and the effect of
raw materials price increase in the start in January 2021.
24
4.3 Complete Census and Sampling

For SUGEST Co. customers: stratified one-stage sample with 100 big customers
with these types of measuring

Quantitative testing:
S. No Test Limits
Evaporation Rate with
1 STD ± 5 Sec.
Comparison to STD.
Gloss after Application VS
2 STD ± 10 ᴼ
Standard, Gloss-meter @ 62 ᴼ
Weight of Product in Pail 25
3 20 ± 0.04
Liters, Kg.

4.4 Sample size and Type:

Stratified one-stage sample with 100 big customers

This means 85 measurements/surveys are taken to have a confidence level of 98% that
the real value is within ± 2% of the measured/surveyed value.

25
Conclusion:

The Study of this proposal shows the direct high effect of high marine shipping
prices on final product cost as the highest impact rather than other than
petroleum oil price increasing, thus the proposal is optimistic to find a solution
through R&D department to get a cheaper formula by using locally manufactured
and supplied alternative raw materials through Sabic company “local and national
manufacturer and supplier in KSA” to overcome shortage and skyrocketing of
imported raw materials as Butyl Acetate and Methoxy-propyl Acetate.
Data collected on the phenomena occurred at 2021 where there was rise in price
of imported raw materials. Study illustrated the phenomena description based on
the primary quantitative secondary data collected from SUGEST company SAP
system, and other prices of market stock.

26
References:

https://www.bloomberg.com/news/articles/2021-12-22/inflation-
virus-war-pose-biggest-risks-in-2022-global-survey

https://www.aljazeera.net/ebusiness/
2021/7/8/%D8%A7%D8%B3%D8%AA
%D9%85%D8%B1%D8%A7%D8%B1-%D8%A7%D9%84%D8%AE
%D9%84%D8%A7%D9%81-
%D8%A7%D9%84%D9%86%D9%81%D8%B7%D9%8A-
%D9%85%D8%A7%D8%B0%D8%A7-%D8%A8%D8%B9%D8%AF-
%D8%B1%D9%81%D8%B6

https://www.bbc.com/arabic/business-59341889

https://www.statista.com/statistics/1250636/global-container-
freight-index/

https://oilprice.com/oil-price-charts/

https://www.investopedia.com/terms/i/inflation.asp

27