As the number of humanitarian emergencies in the world have increased, relief organizations not only provide help to those in need, but also save lives through their supply chains. Crises often emerge due to geopolitical instability, as well as natural disasters. The most vulnerable in these life threatening situations are children. Due to resultant food shortages, lack of clean water, poor sanitation and insufficient health care, children often suffer from malnutrition. Currently, malnutrition causes 3.1 million children deaths every year. These numbers leave no doubt that effectiveness and efficiency of supply chain processes in emergency relief organizations could help reduce deaths caused by malnutrition during turbulent times.
UNICEF Example
The United Nations Children’s Fund (UNICEF) provides a great example of constant improvement and innovation of supply chain processes with the aim of achieving greater efficiency. Within UNICEF, there are different types of supply chains used to deliver different products, e.g. the Cold Chain is used for keeping and distributing vaccines. One of the most important types is the Nutrition Supply Chain, utilized to provide ready-to-use therapeutic food (RUTF). RUTF is a rich paste made of peanuts, oil, milk powder and sugar. It is fortified with minerals and vitamins. The paste is used to help children who are suffering from severe acute malnutrition (SAM).
One of the main differences between a typical product supply chain and UNICEF’s supply chain is that demand is not measured by the number of customers wanting to buy their products, or their ability to pay for it. It is instead usually measured by the UN and their partner agencies, like UNICEF and other NGOs, according to demographic information. However, due to the fact that it is nearly impossible to predict the next crisis and how vast it will be, accurately forecasting the demand for RUTF becomes very difficult. A forecasting failure took place in 2008, when a famine crisis occurred in the Horn of Africa (Somalia, Kenya, Ethiopia and Djibouti). Due to a lack of suppliers, UNICEF was not prepared to meet the unexpectedly high demand of RUTF. During the emergency, only 27% of supplies arrived on time, while the remaining shipment was delayed by 37 days. Moreover, supplies had to be delivered by air, which is much faster, but about 88% more expensive than shipping by sea.
In order to learn from this supply chain mistake, UNICEF conducted a research study to identify weaknesses of its supply chain processes and find solutions for them. The study provided UNICEF with several suggestions on how to improve supply chain processes, including:
– introduce buffer stock to decrease lead times,
– increase and diversify supplier base,
– increase collaboration with sponsors and agencies,
– improve data quality used for RUTF demand forecasting,
– improve information flow and transparency.
UNICEF and their partner organizations have gradually solved or are working on solutions for the identified problem area. For example, UNICEF initiated a competitive bidding process to find new suppliers, which resulted in an increased number of global RUTF suppliers, from 1 in 2002 to 12 in 2011. And since 2006, 7 local suppliers have been added to the network. UNICEF has also started to forecast demand for RUTF annually to improve accuracy.
In 2013, UNICEF moved its global supply warehouse to Copenhagen’s free port. The new warehouse is equipped with a track and conveyor system, where the loading, stacking and picking up of pallets is automated. Almost 50% of supply orders are processed without any worker’s assistance. In addition, the inventory in the central warehouse is traced in real time. This was possible due to a global roll out of an SAP-based ERP system. These innovations help reduce lead times, use fewer workers, and hence save resources.
Future UNICEF supply chain improvements
The RUTF supply chain is organized through a cycle called Plan-Procure-Produce-Deliver. The cycle takes 80 days on average to complete, however, it can also be between 40 and 120 days long.
If supplies are delivered by air, the cycle can be significantly reduced. However, transportation costs increase drastically, from $0.17 when shipping by sea to $2.40 per kilogram of RUTF when using air delivery. Therefore, there is a clear need for cheap and fast delivery during crises. One possible solution in the future could be making deliveries using drones. Packages could be brought straight to the community centers from a local warehouse. It is a favorable solution for places with poor infrastructure. Currently, there is a drone-based delivery network pilot project taking place in Bhutan, where drones are used to connect hospitals with rural areas. If these projects prove to be successful, this delivery system could be implemented in other areas, like emergency relief operations.
Private and public sector collaboration
Private and humanitarian sector organizations could learn a lot from each other. Supply chains in both sectors need to have three main traits: adaptability, agility and alignment. Humanitarian organizations, like UNICEF, could provide private sector companies with knowledge about rapid delivery during an upsurge in demand, forming alliances, risk management and resource sharing. In return, businesses could advise charities on how to improve responsiveness and efficiency. Moreover, private companies could guide humanitarian organizations when forming dynamic supply chains, and managing different interests of multiple shareholders.
Another way to create collaborations between the public and private sectors is through corporate social responsibility projects, which have recently grown in importance for businesses. According to Porter and Kramer (1999), ‘the more social improvements relate to a company’s business, the more it leads to economic benefit as well.’ Private companies cooperating with the humanitarian sector could positively influence their image and increase employee motivation. Helping improve humanitarian supply chains could also help companies gain new skills, hence a competitive advantage over other companies when dealing with emergencies in their own business.
Do you think humanitarian organizations and private companies should establish closer collaborations? What examples of this have you seen on the market?
1 comment
Very interesting read. I’ve never heard of this case study before in any Supply Chain lectures, very well selected and explained!
The question of private and public sector collaborations is tricky. Although I do generally believe that certain private sector principles can help non-for-profit organizations (i.e. the bidding process), I feel an unease when examining things like famines and humanitarian catastrophes from a business perspective. Although I understand why it is necessary to compare the different means of transport (air vs. sea), I understand that many people might find it unsettling to know that UNICEF tries to save money in these situations. Even though it might be for the motif to save more people overall, outsiders might not have that macro-realist-view. It doesn’t speak against doing such calculations, but it should be very well presented to the public what the underlying goal is. I think non-for-profits face more public scrutiny than for-profit organizations, when it comes to things like operational costs.
The bidding process can demonstrate this even more. Although I first thought it was a good example of private sector practices, it might just be the case, because nothing has “gone wrong”. If a catastrophe happens and one of these suppliers does not manage to provide the service agreed upon, public anger will most probably be aimed at UNICEF.
This is definitely the sort of article that will keep me pondering a few more days. I think it addresses a very central problem of the non-profit sector in a smart way, enjoyed it very much.
Comments are closed.