Innovating Relief: Responsive Supply Chains for Humanitarian Assistance

Transcription

1 Innovating Relief: Responsive Supply Chains for Humanitarian Assistance Laura Rock Kopczak Adjunct Professor Zaragoza Logistics Center Calle Bari 55 Edificio Nayade Zaragoza, Spain [email protected] Jayashankar M. Swaminathan GlaxoSmithKline Distinguished Professor The Kenan Flagler Business School University of North Carolina Chapel Hill, NC [email protected] January,

2 Introduction As is all too obvious from recent emergencies in Haiti, Pakistan, Japan and Somalia, humanitarian response involves much more than sending in a few planes after an earthquake or coup. Prolonged situations such as refugee movements, displacement of people by natural disasters, malnutrition and lack of health facilities in troubled or failed states require a prolonged response involving provision of beneficiary distributed items over months or years. International humanitarian organizations (IHOs) work with their partners to procure, deliver and distribute food, medicines, shelter and relief items through replenishment supply chains that have been described as multiple, global, dynamic, and temporary. 1 These supply chains face uncertainty and complexity equal to or greater than that faced by commercial world supply chains and involve a diverse set of public and private stakeholders with limited information sharing and coordination (see Figure 1 below). As a result they are not as responsive as their commercial cousins. Innovating to improve the performance of these supply chains could have profound and lasting impact on society at large. This article focuses on how these supply chains operate and how to improve them by drawing a comparison between their operational models and those of commercial supply chains. The literature on supply chain practices in commercial supply chains is elaborate. 2 There are numerous articles on recent operational improvements at the IFRC in the literature on humanitarian supply chains, but relatively few articles describing operational improvements at other IHOs. 3 There is no article that has compared the generic single humanitarian organization operational model to its commercial counterpart. While there are significant differences among the large IHOs, we feel that the model we present will be useful for understanding the similarities among them. Furthermore, making the comparison between commercial and humanitarian supply chains is helpful in initiating a discussion among stakeholders as to what is changeable vs. fixed and envisioning options for breaking down seemingly insurmountable barriers to improvement. Our article is similar in spirit to a recent working paper which deals with in country logistics and distribution issues faced by global health supply chains and contrast these supply chains to those for in country distribution of soft drinks. 4 While the focus of our article is the operational models in these supply chains, using the case example at UNICEF we also provide managerial guidance around how to improve the performance of humanitarian supply chains based on selective adoption of best practices from commercial supply chains. International health organizations such as IFRC, MSF, UNHCR, UNICEF and WFP operate supply chains to support activities in many countries simultaneously. For example, as reported in their annual reports 5, In 2010, WFP provided 4.6 million metric tons of food and nutrition assistance to million people in 75 countries affected by conflict, storms, droughts, displacement, financial crises and other shocks. In 2010, UNICEF Supply Division provided $1.995 billion of health, nutrition, water, education and construction items to over 100 countries. In 2009, UNHCR procured $170 million of goods, including $69 million of core non food items (tents, tarps, blankets, sleeping mats, jerry cans kitchen sets and bednets) for distribution to refugees and Internally Displaced Persons. 1 Blackett Memorial Lecture: Humanitarian aid logistics: supply chain management in high gear, L. N. Van Wassenhove, Journal of the Operational Research Society (2006) 57, See for example Aligning Supply Chain Strategies with Product Uncertainties, Hau L. Lee, California Management Review, 44(3), Spring 2002 and Don t Let your Supply Chain Control your Business, T. Choi and T. Linton, Harvard Business Review, December Among others, The Yogyakarta earthquake: Humanitarian relief through IFRC s decentralized supply chain, A. Gatignon, L. N. Van Wassenhove and A. Charles, International Jourmal of Production Economics, 126 (2010), pp discusses improvements to warehouse network structure, information flows and staffing, Does the Current Constraints in Funding Promote Failure in Humanitarian Supply Chains? M. Jahre and I. Heigh, Supply Chain Forum, Vol. 9, No. 2, 2008, pp discusses funding issues and Logistics performance management in action within a humanitarian organization, Sabine F. Schulz and Ian Heigh, Management Research News, Volume 32, No. 11, 2009, pp discusses performance measures. 4 Always Cola, Never Essential Medicines: Comparing Medicine and Consumer Product Supply Chains in the Developing World, P. Yadav, O. Stapleton and L.N. Van Wassenhove, INSEAD working paper 2011/36/ISIC. 5 These numbers include total procurement spend, a portion of which goes through replenishment supply chains. 1

3 Donors Governments Private sector Individuals International Bodies and Initiatives UN Clusters Milllenium Development Goals WHO, GAVI, PEPFAR Recipients Beneficiar ies Families of Commercial Partners Local/global suppliers Local/global transporter Local/global service providers Figure 1. Stakeholders International Humanitarian Organizations UN Organizations Red Cross NGOs Local Partners Local governments Ministries of Health Community leaders In this article we discuss how the operational model of these organizations constrains the supply chain, thereby limiting responsiveness. We further discuss fragmentation of the supply chain and other barriers to supply chain improvement. We conclude by suggesting how to go forward to pursue innovation to improve supply chain effectiveness and performance, using the UNICEF Ready to Use Therapeutic Food (RUTF) supply chain as an example. Our analysis and insights were developed through several years of experience working with humanitarian organizations on their supply chains. Our insights apply generally to replenishment supply chains run by large IHOs. Research Methodology The insights presented here have been developed through action research working with several large IHOs on their supply chains and then comparing across these projects using a multiple case study approach. The operational models and insights from those cases were contrasted with the existing knowledge of operational models and responsiveness for high tech supply chains, from literature and the authors own experience working with these supply chains. Specifically, one of the authors worked with UNICEF during 2009 on its supply chain for RUTF, resulting in a set of recommendations that have been implemented and in the 300+ page report, A Supply Chain Analysis of Ready to Use Therapeutic Foods for the Horn of Africa: The Nutrition Articulation Project (November 2009). The other author worked (in a team) with UNHCR from 2008 through 2011 on a series of projects. The report from the first assessment, UNHCR SCM: Assuring Effective Supply Chain Management to Support Beneficiaries (November 2008), was widely circulated among IHOs as a call for improvement. She has also been involved in ongoing work that faculty at Zaragoza Logistics Center has been doing with MSF, resulting in three masters theses and an assessment of MSF s supply response for the Haiti earthquake. Since the projects with these three agencies all involved replenishment supply chains, findings from the UNICEF project were corroborated by evidence/findings from the UNHCR and MSF projects. Replenishment Supply Chains in Support of Programs Our focus is on supply chains that support prolonged international humanitarian assistance, the vast majority of which is delivered in low income countries. For example, as shown in the malnutrition hotspots map developed by MSF (below), South Asia, the Sahel and the Horn of Africa are areas with the highest incidence of 2

4 child malnutrition and mortality. 6 Similarly, most refugees and IDPs, as well as most people living with HIV/AIDS reside in low income countries. Oftentimes multiple replenishment supply chains for delivering different items are established to support the program needs in a particular location or region. For example, as a result of the Somali crisis, hundreds of thousands of Somalis have fled across the border to Kenya. UNHCR manages three refugee camps around the town of Dadaab, Kenya with a total population as of the end of August 2011 of over 450,000 people, of which 100,000 had arrived during that June through August. UNHCR partners with WFP to have WFP procure, deliver and distribute food commodities twice a month to every family in the camp. UNHCR contracts with CARE to distribute core relief items blankets, tarps, kitchen sets, jerry cans and sleeping mats to all new arrivals. These items are procured and delivered to the camp through UNHCR s replenishment supply chain. Last, UNHCR contracts with MSF to run health clinics within the camp, relying on MSF s replenishment supply chain. i The local context may affect program need (demand) as well as delivery efficiency, the ability to supply needed items and the ability to operate (supply) in subtle ways, increasing uncertainty and complexity in operations. For example, the situation may be complex, such as when conflict, malnutrition and a high incidence of HIV/AIDS co exist. Roads may be impassable. Ground transporters, implementing partners and other interested parties may collude to divert aid and share the proceeds, as happened recently with food aid in Somalia. 7 Personal security is also increasingly an issue that affects ability to operate. Operational Models and Supply Chain Responsiveness The operational model of an organization affects and constrains the capability of its supply chain. As described in a 2003 article, ii as the field of Supply Chain Management evolved, companies such as Wal Mart and Dell revolutionized competition in their sectors by creating breakthrough operational models linked to fundamental 6 Downloaded on January 7, 2011 from 7 Ibid,page 60. 3

5 changes in their supply chains that dramatically improved supply chain responsiveness their ability to match supply and demand, given uncertainty and market dynamics. 8 In this section we contrast the operational model for beneficiary distributed items for prolonged emergencies with that for high tech consumer products sold at retail stores. We then analyze how the operational model affects supply chain responsiveness. The operational models are shown below. 8 Living in Dell Time, Bill Breen, Fast Company, Nov. 1, 2004, p. 2; Apple, P&G, Cisco and Wal Mart Tops Among Global Supply Chains, Thomas Walgum, CIO, June 24,

6 Operational Model for Beneficiary Distributed Items for a Prolonged Emergency Operational Model for a High Tech Product Sold Through Retail Stores 5

7 In the above diagrams, matching of supply and demand is represented by the two circles labeled the number of people that show up and amount available. While for the high tech product, matching results in revenue and profit, for beneficiary distributed items, matching results in beneficiary impact. In both diagrams, goals, planning and execution is at the top, context at the bottom, demand on the left and supply on the right. While the models are similar in many ways, the one for beneficiary distributed items is more complex, with more interactions and with the local context feeding into more points. Furthermore, while the operational model for the high tech product depends on access to financial markets, that for beneficiary distributed items depends on funding. Also, needs advocacy and supply advocacy feature only in the operational model for beneficiary distributed items. Instead of advocacy, the high tech operational model relies on product promotion/advertising to increase awareness and demand. Instead of supply advocacy, the high tech operational model relies on contractual incentives, information sharing, supplier coordination and negotiation to influence suppliers. Thus, for both demand and supply, interaction and influence (with customers/beneficiaries and with suppliers) is more direct in the high tech operational model. On the demand side, high tech companies are customerdriven while IHOs use advocacy to offset the fact that they are donor driven. On the supply side, while high tech companies use various types of supplier relationships ranging from spot market to close partnership, IHOs, being in the public realm, focus on arms length supplier relationships. Furthermore, assessment of outcomes is difficult due to the multi dimensional nature as well as numerous standards in the case of IHO supply chains. While for private sector companies being efficient and meeting customer needs together directly drive customer sales and profit, for IHOs the equivalent linkages (to funding levels and impact) are more complex and opaque, because of the strong role of donors and limited choice/influence of beneficiaries. Responsiveness Across Three Time Horizons Responsiveness and how to achieve responsiveness is a central topic of discussion in the commercial supply chain literature. 9 Some articles in the humanitarian supply chain literature address responsiveness. 10 The chart below contrasts the two operational models and how responsiveness is achieved for three time horizons. We discuss each of these time horizons in turn, examining demand management and supply management. 9 Among others, see The Triple A Supply Chain, Hau L. Lee, Harvard Business Review, October See "Humanitarian aid: an agile supply chain? R.Oloruntoba and R. Gray, Supply Chain Management: An International Journal, Vol. 11 Iss: 2, 2006, pp and The Yogyakarta earthquake: Humanitarian relief through IFRC s decentralized supply chain, A. Gatignon, L. N. Van Wassenhove and A. Charles, International Jourmal of Production Economics, 126 (2010), pp for discussions of responsiveness in emergency response situations. 6

8 Time Horizon Start up Real time Real time Medium term Pipeline fill Demand supply Matching Cash management Demand supply planning Beneficiarydistributed High tech product Planningdriven, Pipeline size jointly determined Real time sales data with weekly action Real time visibility of cash flows with weekly action Short data lag, monthly analysis and action Event driven, Pipeline size determined by funding decisions of donors Lack of real time distribution data, Periodic ordering with limited information Poor visibility of cash flows, periodic accounting with great effort Open loop Planned, committed quantities wellestablished supply chain Real time pipeline visibility with weekly adjustment Instantaneous payment, large corporate cash pool Short data lag, monthly analysis and action Table 2. Achieving Responsiveness: High Tech Products vs. Beneficiary Distributed Items Demand Supply Activity Management Management Beneficiarydistributed High tech items product Items Event driven, quantities ordered after event, new supply chain in a challenging context Lack of real time pipeline visibility, supply in response to orders Periodic donor funding releases unrelated to realtime demand, with erratic timing Open loop Medium term Coordination of supplier capacity Quarterly planning and commitment, with flexibility and risk sharing Annual or semiannual planning, with no commitment or risk sharing Quarterly capacity adjustment based on commitments and risk Risk aversion with conservative addition of capacity Medium term Quarterly/ annual cash management Planning driven with rolling horizon, linked to quarterly budgets and reporting, with good flexibility in how money is spent Event driven, earmarked by program, with limited budget line flexibility, limited carryover to next year and heavy reporting requirements Always open liquid financial markets, active management of working capital, one pool of cash Event driven, subject to donor priorities, Slow annual grant cycle with funding releases that do not correspond with timing of needs. Responsiveness at Start Up New product introduction at high tech companies is a planned activity that is well coordinated with critical suppliers and the retail channel. Working together, the companies in the supply chain obtain capital from financial markets, build the product and fill the pipeline in anticipation of the launch date. While provision and delivery of the product is a global effort, production generally occurs in places that are well understood and stable and most retail sales occur in familiar, well developed countries. Transport mode is chosen by considering the expediency of an earlier product launch vs. the cost of a quick pipeline fill. 7

9 In contrast, humanitarian response is event driven the level of response is determined after the event occurs. Even for slow onset disasters such as drought related famine, in which one might expect that the response could be planned while the situation is developing, by the time donors acknowledge it as a full blown malnutrition emergency and fund response, an immediate response becomes essential. Thus the event which drives response is funding, not the emergency. Large IHOs may stock a limited set of standard items in advance as a preparedness stock, typically on a regional basis. Once funding is committed and the green light given, IHOs source and transport items on an emergency basis and may compete for limited supply of items and transport. The underlying philosophy is one of now or never. Delivery is made to a new location in a less developed country that has been disrupted by natural calamity and/or conflict. The IHO will typically have to establish new relationships with local suppliers and transport providers on the fly in competition with other IHOs and have to deal with local power structures. Real time Responsiveness Once the market has been established, the high tech supply chain players match supply and demand on a realtime basis, based on real time visibility of demand (using Point of Sale data) and of supply (using data from multiple entities along the supply chain). Typically quantities of product in the pipeline can be viewed, reallocated and adjusted on a weekly basis, assuring that available product flows to the places with greatest need (potential to sell) and adjusting quantities based on sales level. Real time adjustment is financed by efficient flow of funds quick payment by retail customers (using a credit card) and use of working capital by each supply chain entity.. In contrast, the players in the humanitarian supply chain lack real time information about demand (actual distribution quantities) and supply in the pipeline. Real time demand supply matching is not possible. Instead, orders are placed periodically by downstream entities and then filled by upstream entities. With fragmented information systems and high employee turnover, particularly in hardship locations, there is a significant probability of duplicate ordering and/or gaps in ordering. Similarly, supply may be delayed but the delay not communicated. Furthermore, ordering is impeded by erratic timing of releases of donor funding and long lags in adjusting the funding level as the level of need changes. Medium Term Responsiveness Players in the high tech supply chain usually create a demand plan and supply plan on a quarterly basis and communicate that information to partners, with some level of commitment and flexibility. The plan typically uses a rolling horizon of 12 to 18 months, in which the first one or two quarters is committed (with flexibility) and the plan for subsequent quarters is indicative. Suppliers adjust capacity based on the plans submitted by their various customers. Suppliers and high tech companies have a high incentive (maximum, predictable profit) to invest in the information systems, people resources and supply chain relationships to plan well. Budgeting and financial planning along the chain support demand and supply planning, channeling financial flows so that adjustment can occur. Furthermore, if one product line performs poorly and another performs well, financial and other resources are adjusted accordingly. In contrast, generally speaking, IHOs do not create a credible rolling demand plan and supply plan with donors and suppliers. Donors and IHOs plan on an annual basis, in line with annual grants. 11 Much effort goes to track spending against budget, program by program, because funds are earmarked. This focus is driven partly by the need to report results based on the objectives of the annual grant. In addition, the funding level and the schedule for funding releases for the following year are very uncertain. Meanwhile, absent provision of credible medium term plans (with commitment and flexibility) by their customers, suppliers to IHOs are risk averse and so add capacity conservatively. 11 Some grants may be for longer time periods. 8

10 Barriers to Improvement While many parties within the IHO supply chains are aware of the need to improve, several barriers prevent them from innovating. Diverse Stakeholders: In commercial supply chains the various stakeholders suppliers, logistics providers, manufacturers, distributors and retailers come to the table to create joint innovation that improves end to end responsiveness, in spite of their individual objectives. The IHO supply chain, however, has many additional stakeholders, including care delivery NGO s, local governments, IHOs and funding agencies all of whom have their own metrics. Given the diverse yet regimented processes and regulations related to how business must be conducted it is very hard to develop out of the box innovative supply chain collaborations. Regulations and stakeholder fragmentation drive the organizations to focus on compliance rather than supply chain innovation. Resource Shortfall and Uncertainty: A commercial supply chain s success depends greatly on the available physical, informational, financial and human resources. Unfortunately, many IHO supply chains lack resources at all these levels. While the need to operate with low quality and a high degree of uncertainty related to transportation infrastructure and real time information may not be a surprise given the local setting, the dismal level of supply chain readiness around finances and human resources is quite surprising. The cash flows through these supply chains are extremely complicated, top down and bureaucratic with minimal authority and control at the levels closest to the beneficiary. This severely restricts the ability of the supply chain to respond to needs on the ground. While a commercial supply chain has a well defined strategy and implementation plan when entering new markets, IHO supply chains have to do this on the fly with limited resources. This exacerbates the deficiencies in supply chain management awareness among the workforce and implementation of cutting edge supply chain principles. Lack of Initiative and Leadership: Most IHO supply chains are compliance based as compared to innovationbased commercial supply chains. The IHO supply chain partners have a social focus while most commercial supply chains are profit focused. As a result, many IHO supply chains are aware of their supply chain weaknesses but often blame it on the system (or the rest of the players) because they see only limited possibilities for improvement in their part of the supply chain. Risk averseness and the stranglehold of regulations translate into lack of leadership. Therefore, supply chain improvement is not even a focus of attention. Instead, the objective is limited to delivery of as many products as possible subject to all the constraints in the current supply chain, and even that becomes a challenge for some IHO supply chains. Box: Responsiveness: A Question of Uncertainty? One approach to improving commercial supply chains has been to understand uncertainty and its effects and then work to reduce or mitigate against the uncertainty. Humanitarian supply chains are also hostage to uncertainty Is there greater uncertainty in humanitarian supply chains? Or is it that the operational model is less responsive with respect to existing uncertainty? Consider four types of uncertainty: Program Uncertainty. Humanitarian supply chains are temporary and immediate, because they meet emergency related needs and are supported by grant based funding. This uncertainty makes it inherently difficult for IHOs to plan for size, location and nature of programs and supply chains. Demand Uncertainty. Given the funded need, demand uncertainty is similar to demand uncertainty for some commercial products, such as high tech products. However, the impact of demand uncertainty is 12 This phrase appeared in the article Effective Supply Chain Management Tom Davis, Sloan Management Review, 34:4 (1993: Summer), pp The article describes types of uncertainty and how to mitigate against uncertainty in high tech supply chains. 13 See Managing Risk to Avoid Supply Chain Breakdown, by Sunil Chopra and ManMohan S. Sodhi, MIT Sloan Management Review (Fall 2004) for a summary of different types of uncertainty in developed world commercial supply chains and how to mitigate against them. See (Beresford, Taylor?) for humanitarian world 9

11 heightened by the lack of responsiveness resulting from long supply lead times, minimal communication of information and an absence of planning. Furthermore, there is a culture of reactivity because of the emergency nature of the business. Supply Uncertainty. Supply uncertainty is higher in humanitarian supply chains. Some of this is related to the delivery locations delays related to customs clearance, difficulties to charter local transport and local events on the ground. In addition, because supply chains are temporary and immediate, not as much effort is taken to streamline the shipping process (with transport partners) nor to reduce supply uncertainty. Gaps in the stream of funding create delays in ordering and lead to gaps in supply. And as mentioned above, lack of collaboration on capacity planning may lead to underutilization and to gaps in capacity. Handover and Use Uncertainty. Handover uncertainty relates to how well distribution points are located and uncertainty about whether beneficiaries will come to collect the items. Use uncertainty relates to whether the item is used as intended. For example, a bednet may be used for fishing rather than for the toddler to prevent malaria. As we see it, while there are some important differences, the same principles apply. Much of the uncertainty results from the way things are organized, rather than from inherent demand or supply uncertainty. And the impact of uncertainty is higher because of lack of responsiveness. So, while it is important to understand uncertainty, the path to improvement is through innovation to improve the operational model underlying the supply chain and so improve responsiveness. Case Study: Improving the RUTF Supply Chain iii In 2008, UNICEF, as Global Nutrition Cluster lead agency, decided to study its supply chain for ready to use therapeutic food (RUTF) into the Horn of Africa (Kenya, Ethiopia and Somalia) and utilize the outcome of the study to revamp the RUTF supply chain and provide guidelines for supply chains pertaining to other nutrition products. UNICEF had to change from a reactive to a responsive operational model if the supply chain performance was to be improved. The insights from this project are relevant to humanitarian replenishment supply chains in general. UNICEF adopted the use of RUTF for treating malnourished children in support of Millenium Development Goals #1 and #4 (reducing poverty and hunger and improving child health). Most of the RUTF purchased by UNICEF has been Plumpy Nut, an oil based paste of peanuts, sugar, milk powder, vitamins and minerals manufactured and packaged in 500 calorie foil sachets by Nutriset, a company based in Malaunay, France. Most consumption has occurred in Africa. UNICEF Supply Division oversees UNICEF s global procurement and logistics operations and runs warehouse hubs in Dubai, Panama and Shanghai. UNICEF country office staff are involved in program implementation and collect estimates of RUTF need from local UNICEF partners (ministries of health and NGOs). The order planning process starts when a local partner identifies a specific need, assesses how much RUTF is required and relays this information either directly to the UNICEF country office (as in Somalia) or to the ministry of health and then UNICEF (as in Kenya). Once the funds for the order are cleared then the order is placed to the UNICEF Supply Division in Copenhagen, who in turn places an order with the manufacturer. As of 2008, delivery occurred as follows. Nutriset engaged the logistics company Kuehne + Nagel to transport product from Le Havre by sea or from Paris by air to various African ports. The product was cleared through customs, stored and distributed within the country based on agreements with Ministries of Health, local transportation agencies, UNICEF country offices and NGOs. Between 2003 and 2008, UNICEF s demand for RUTF grew 100 fold, to roughly 9000MT in Unfortunately the supply chain lacked the readiness required to deliver the increased volumes in the most efficient and responsive manner. As a result, UNICEF observed a rapid rise in emergency orders, supply chain costs and delivery lead time. 10

12 The RUTF supply chain faced many challenges. The underlying demand was quite variable because of lack of real time information and longer term knowledge about the effect of factors such as drought, political instability or violence on the number of malnourished children in a region. The information flow (forward and backward) related to planning, forecasting, inventory and transportation was choppy and infrequent at best. The infrastructure available at the country level for both product and information processing was primitive in most countries. The funding available for RUTF showed a high degree of variability. Further, Nutriset, had not increased their manufacturing capacity in line with growth in demand and was running its facilities at very high utilization levels. Delivery lead times were highly variable. For example, the sea freight journey from Le Havre to Mombasa ranged from 27 to 46 days. Any demand forecasts that were developed were hugely inaccurate and were not communicated to Supply Division. This made it extremely hard for UNICEF Supply Division to create solid aggregate forecasts that it could then share with the supplier in advance of production. The re distribution of RUTF even within adjacent countries in Africa was difficult or impossible due to regulations and civil wars. Tracking of product flow within a country could only be done by following a series of paper trails. Given the high level of utilization of the plant in France, oftentimes orders had to be airlifted to Africa, which significantly increased the cost of transportation. UNICEF attacked this issue along several dimensions. First, UNICEF Supply Division requested rolling horizon forecasts from the various country offices and provided excel based templates for submitting forecasts. UNICEF Supply Division then created and shared a consolidated forecast with other important supply chain players, including the supplier and freight forwarder. The Supply Division also provided incentives (in the form of price rebates) for pre ordering RUTF. Second, the Supply Division diversified production. While Nutriset was responsive to incoming orders, their monopoly position as well as risk aversion had severely hampered the production capacity of RUTF worldwide. UNICEF expanded to 14 suppliers worldwide, with many in local regions. These local suppliers produced close to 25% of total worldwide RUTF production in Expanding the supply base had two consequences: first, the production capacity worldwide dramatically increased and second, the total logistics cost to supply (deliver) RUTF decreased. Specifically, the volume of RUTF transported by air dropped from 36% (in 2008) to 1% (in 2010). Third, UNICEF Supply Division worked closely with donor agencies to proactively position RUTF in Africa. Holding buffer stock allowed the supply chain to respond very quickly to emergency needs that arose. iv ECHO has funded buffer inventory in Ghana and Cameroon for events that might strike West Africa. Through these three major initiatives, UNICEF was able to completely change the dynamics of the operational model underlying RUTF delivery into Africa and other parts of the world. In 2010, UNICEF procured 20,000MT of RUTF worldwide at a production and distribution cost that was lower than the cost to produce and deliver one fourth that amount in Air transportation spend reduced from 8.5 million USD in 2008 to 0.5 million USD in Truly, the UNICEF RUTF supply chain has come a long way. While the UNICEF RUTF supply chain has shown dramatic improvement there are still further opportunities. First, it would be a good step to standardize the forecasting process and focus on improving forecast accuracy at country level. Second, while it is difficult to expect that an IHO supply chain will have the information systems present in many modern day commercial supply chains, advancements could be made in terms of capture and relay of information along the supply chain. Third, the management of RUTF inventory held at care centers and distribution centers can be improved. Managing inventory under funding constraints is not trivial but can lead to significant improvement in performance in high variability funding environments. Fourth, the development of the supply base is important going forward to guarantee long term sustainability of the supply chain. Finally, development of human resources and their knowledge of supply chain management is something that requires additional ongoing work. Five Elements of Successful Implementation IHOs who want to improve and sustain supply chain performance must work on the operating model. In particular, they should channel their energy towards moving away from a reactive mode to a more pro active mode of operation. Five key elements for successful implementation are as follows: 11

13 1) Analyze the Supply Chain: First, pick an important high volume product and then work with the various stakeholders in the supply chain map the product, information and funds flows for that product from suppliers through to beneficiaries and from donors through to implementers and, describe supply chain performance, in terms of product cost and availability, timeliness and lead times.. In conjunction with this, understand the operational model and re engineer it to become more pro active. 2) Understand Uncertainty and Constraints of the System: Next, using the data gathered in step 1, identify the various types of uncertainty and major constraints and their associated causes and impact. Separate easy vs. hard to solve issues and focus on strategies that will lead to major improvements, to get the most juice for the squeeze in terms of improvement. 3) Develop Innovative Collaborative Solutions: Think out of the box to find new solutions that change unchangeables or mitigate against them. For example, consider postponement strategies in conjunction with inventory or financial buffers and better planning of demand by implementing partners, addressing all three types of flows product, information and funds. At the same time, innovate within existing technology constraints (eg. leverage Excel and SMS text messaging if they are the best options available for the local context.) 4) Roll Out and Sustain Improvement Strategies: Use pilot implementations to demonstrate benefit and learn, then roll out to additional products and countries. Measure improvements in performance and consider funding additional improvement initiatives and/or roll out from savings realized in early pilots. Sustaining improvement also requires leadership and commitment from senior management and working beyond budget cycles to maintain momentum and get past constraints associated with short duration grants. 5) Strengthen Long Term Resource Capabilities: Development of resource capabilities underlies sustained long term improvement. In particular, development of a responsive, innovative supply base, a well trained, motivated work force of supply chain professionals and flexible, effective supply chain processes and technologies are all critical to long term success. Conclusion International Humanitarian Organizations have the opportunity to dramatically improve the responsiveness of their replenishment supply chains by working with all of the parties in the supply chain to revamp the operational model to address operational constraints and uncertainty. UNICEF is an example of an organization that has demonstrated and quantified improvement in one supply chain for one region and is now seeking to not only make further improvements in that supply chain but also to apply the same approach to other supply chains. We would argue that UNICEF is well positioned to drive supply chain improvement as a humanitarian sector equivalent to a private sector channel leader such as Dell or Wal Mart, because of it s high procurement spend and market share of humanitarian aid that it delivers for products such as vaccines. Indeed IHO supply chains face unique challenges because they are multiple, global, dynamic and temporary and operate in difficult contexts. Furthermore, stakeholder diversity, resource shortfall and uncertainty and lack of initiative and leadership have been significant barriers to improvement. Nevertheless, there are great benefits to be gained from overcoming the barriers and addressing the challenges. By bringing the diverse parties to the table and working together to improve supply chain flows and performance, IHOs will be able to offer better value for money in their efforts to improve the lives of beneficiaries. 12

14 i One of the authors was part of the team commissioned to critique UNHCR supply chain performance. See the final report M. Mizushima, J. Coyne, S. de Leeuw, L. R. Kopczak and J. McCoy, UNHCR SCM: Assuring Effective Supply Chain Management to Support Beneficiaries, (Nov. 2008). ii L. R. Kopczak and M. E. Johnson, The Supply Chain Management Effect, Sloan Management Review (Spring 2003): iii This case study is based on work that one of the authors did with UNICEF. See J.M. Swaminathan, Case Study: Getting Food to Disaster Victims, Financial Times, Wednesday Oct ; and the final report W. Gilland, C. Mourchero-Vickery, A. So and J. M. Swaminathan A Supply Chain Analysis of Ready to Use Therapeutic Foods for the Horn of Africa: The Nutrition Articulation Project (November 2009) iv W. Gilland, V. Mani, C. Mourchero-Vickery, A. So and J. M. Swaminathan, UNICEF Employs Prepositioning Strategy to Improve Treatment of Severely Malnourished Children, under review. 13