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MTTN45 Humanitarian Logistics Sourcing and Procurement Nonprofit Organizations shaping the Market of Supplies 12 April 2013
Content• Purchasing power in the
humanitarian sector• Impact of purchasing power on
purchasing strategies• The case of vaccine procurement • Nonprofit organizations shaping their
supply market
Who has the power to shape the market?
Nonprofit-for profit relationship
• The disdain history
• The mutual need of collaboration
More relationships, collaboration, and dependencies
Distribution of Power: Resource Dependency Theory
Resource dependency theory (RDT)• Focus on core competencies
outsourcing• Exchange relationships dependence• Power as relative dependence more
influence
All organizations strive to maximize their power through reformulating these dependencies.
Issue of power dominance in procurement
1. Understand its power position2. Move toward more favorable position
Buyer power
attributes relative
to supplier
Supplier power attributes relative to
buyer
Buyer dominance
Supplier dominance
Interdependence
Independence
(Cox et al. 2000: 18)
What are drivers of purchasing power?
• Substitutability• Interconnections • Demand share• Information symmetry • Reputation
Lund University / Department of Industrial Management and Logistics / Engineering Logistics
supplier Recipient country
Local distributors
beneficiaries
3PL
Donors
Hum. Orgs
Ultimate supplier
Humanitarian logistics– Added stakeholders with conflicting incentives– Shared management and need for collaboration– Lack of funding– Lack of infrastructure and local capacities
Lund University / Department of Industrial Management and Logistics / Engineering Logistics
High Income countries
Low and middle Income countriesProduction sophisticationPurchasing sophistication
TransportationCommunication
Lund University / Department of Industrial Management and Logistics / Engineering Logistics
050000
100000150000200000250000300000350000400000450000500000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
All Donor countries TotalDAC Countries TotalG7 countriesUnited States
Year
USD donation
Based on OECD (2011) data
Based on WEF(2010) data
Based on pre-study data
What does the humanitarian sector look like?
What does the humanitarian sector look like?
• The disdain nature of nonprofit (NPO)-for profit relationship
• Scarcity of supplies“The products may not always be commercially
attractive, nor the market transparent. Manufacturers are often not aware of the needs, or may consider the risks associated with entering the market too high.” (UNICEF, 2008)
•The essentiality of supplies•The limited buying power
Purchasing power’s impact on purchasing
• How do you think low purchasing power impacts purchasing decisions and strategies?
• Accept the situation and be weak– Few suppliers with high prices in country X.
Gather funds and buy from• Accept the situation and safeguard
– Few suppliers with high prices in country X. Have a detailed and strict contract so terms are set for a longer time
• Understand the situation and try to change it
– Few suppliers with high prices in country X. Insource, invest in developing more suppliers maybe local
THE CASE OF VACCINE PROCUREMENT IN THE SECTOR
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Fran
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Lower income Countries
Lower-middle income Countries
Higher-middle income Countries
High income Countries
Figure 1 Health level of countries in a 1-7 scale according to different economy groups (retrieved from WEF data, 2010)
Delivery of health in humanitarian aid supply chains
Global health SCM– Health a reflection of development and poverty reduction (UN, 2011)– Nature of disease: geographical, weather, culture, social, educational,
economic– The public good nature of the related products– Higher weight of quality– High donor dependency (viewed as a global good)– Different purchase profiles among countries
Based on WEF(2010) data
Boundaries of the study
Vaccine supply chain
for developing countries
Overview of vaccine SCs for developing countries
• Subset of global health SCs• Willingness of governments to pay• Epidemiological justifications• Under valued by governments and market• Some differences between industrial and emerging• Concentrated supply market• Emerging economy producers increasing• Procurement being considered a main issue in
shortage
A schematic view of the positioning of different actors along the vaccine chain in humanitarian networksWhy? The practical instance of the issue
• Strict high quality standards• High fixed and set up costs for production• Monopolistic markets• Limited competition• Mainly in the developed world
Humanitarian organizations
Few suppliersCountry buyers & beneficiaries
System sub-optimalitiesin countries:• Lack of buying capacity• Lack of sophisticated transportation and
communication infrastructure,• Political complication and sensitivities, • Special vaccines required• Un-transparent demand
• Procurement intermediaries• Economies of scale• Aggregating demand• Decreasing prices • Increasing forecast accuracy• Increasing availability• Securing supply
DonorsMonetary donation
Monetary donation
Monetary donation
• Financial collapse of 2008• Fewer funds
So power is shifted to the suppliers
• What are different ways buyers (e.g. different governments and organizations) can buy vaccines the best way in this situation?
Cases based on their sample group and purchase strategy
Sample group Developing countries Humanitarian orgs
Industrial country
Cases Iran Latvia Oman (GCC) Zambia UNICEF IFRC
Skane region
(Sweden)
Purchasing
strategies
Self-purchasing with
local productio
n
Self-purchasing without
local productio
n
Cooperative
purchasing
Purchasing through
humanitarian
organization
Humanitarian
organization focusing on
vaccine purchase
Humanitarian
organization not
focusing on vaccine
purchase
Self-purchasing Outside of the context
sample
Lund University / Department of Industrial Management and Logistics / Engineering Logistics
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Based on WEF (2010) data
SEVERAL COUNTRIES WHICH HAVE COMPLETELY OUTSOURCED THEIR PURCHASE TO HUMANITARIAN ORGANIZATIONS (PROCESS AND FUNDING)
Initiator NPO/NPOs Initiative Initiative objective Result in the market
1 PAHO & UNICEF Aggregating demand in high volume purchase
Achieving noticeable discounts Lower pricesDevelopment of product in the market
2 GAVI Securing long term funding Increase production capacity New suppliers to the market
3GAVIUNIVEF & PAHO
Aggregating demand Economies of scaleAttract new suppliers
Increase production capacityNew suppliersBuild up competitionReduce prices
4 WHO, GAVI, UNICEF Enabling manufacturers from developing countries
Securing supplyEnabling developing countries
Better availabilityLower prices
5 WHO National strategies for all Deeper relationships and collaboration between all players including NGOs and business sector
Developed industry incentivesHealthier markets
6 WHO Providing better forecast Improve corporate image and industry incentives
Healthier markets
7 GAVI Collaboration with business sector Bringing a fresh view to the board Increase productionBetter availability
8 IAVI International collaboration between public private sector
Share risks, cost, and benefitsDevelop research and product development
New resources in the market
9 UNICEF Long term arrangements with current & potential suppliers
Introduce and develop new suppliers in the market
New suppliersBetter availabilityLower pricesHigher quality productsGAVI’s consolidation of demand for vaccines secure supply (Gavi, 2009: 16) Price drop of Pentavalent (GAVI, 2009: 16)
NPO initiatives in shaping the market of supplies
QUESTIONS?Thank you!