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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Gamb

ia, T

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aurit

ania

Kyrgy

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Tajik

istan

Benin

Burki

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aliCa

mbod

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mbia

Ugan

daEt

hiopia

Bang

ladesh

Timo

r-Le

steCa

pe V

erde

Swazi

land

Mold

ova

Arme

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nega

lPa

ragua

yEl

Salva

dor

Côte

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atema

laSri

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aEc

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orocco

Ukrai

nePa

kistan

Egyp

tIn

done

siaCh

inaM

onten

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Mace

donia

, FYR

Botsw

ana

Alba

niaPa

nama

Urug

uay

Lithu

ania

Azerb

aijan

Bulga

riaKa

zakhst

anAl

geria

Chile

Colom

biaAr

gentin

aVe

nezu

elaM

exico

Brazi

lBa

rbado

sBr

unei

Darus

salam

Eston

iaTr

inida

d and

Tob

agoLa

tvia

Luxem

bourg

Puert

o Rico

Qatar

Kuwa

itHu

ngary

Israel

Hong

Kon

g SAR

Portu

galFin

land

Greec

eTa

iwan

, Chin

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rway

Polan

dSw

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and

Korea

, Rep

.Ca

nada

Italy

Fran

ceJap

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lth L

evel

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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Chad

Lesot

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Tunis

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Portu

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Chile

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Cypr

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Finlan

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Latvia

Country

Level

Iran OmanZambia Sweden

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Health Transportation Infrastructure Communication inf rastructure Purchasing sophisticati on Production sophistication

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6

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ARFr

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Health Transportation Infrastructure Communication infrastructure Purchasing sophistication Production sophistication

Latvia

Country

Level

Iran OmanZambia Sweden

Lu nd U niver sity / De par tme nt o f In dus tr ial M ana gem en t an d L ogistics / Engin eer ing L ogis tics

1

2

3

4

5

6

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Zamb

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mbou

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Health Transportation Inf rastructure Communication infrastructure Purchasing sophistication Production sophistication

Latvia

Country

Level

Iran OmanZambia Sweden

Lu nd Un iver sity / De par tme nt o f In dust rial M ana gem en t an d Lo gistics / Engin eer ing L og ist ics

1

2

3

4

5

6

7

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rundi

Niger

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Burki

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Nami

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Rep

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ngary

Portu

gal

Malt

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ong S

ARFr

ance

Cypru

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Luxem

bourg

Spain

Israel

Icelan

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Health Transportation Infrastructure Communication infrastructure Purchasing sophistication Production sophistication

Latvia

Country

Level

Iran OmanZambia Sweden

Lu nd Un ivers it y / De par tmen t o f Ind ustr ial Ma nag em ent and Log istics / En ginee rin g Lo gistics

12

345

67

Chad

Zamb

iaBu

rundi

Nige

riaSo

uth A

frica

Burki

na Fa

soRw

anda

Timo

r-Le

steGa

mbia,

The

Nami

biaPa

kistan

Tajik

istan

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iaKa

zakhs

tanM

ongo

liaPh

ilippin

esDo

minic

an R

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ailan

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lombia

Hond

uras

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an Fe

derat

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lgaria

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aPa

nama

Brun

ei Da

russal

amEg

ypt

Sri La

nka

Saud

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alta

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Kon

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prus

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xembo

urg

Spain

Israel

Icelan

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Health Transportation Infrastructure Communication infrastructure Purchasing sophistication Production sophistication

Latvia

Country

Level

Iran OmanZambia Sweden

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!