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Logistics system design for global humanitarian supply chains, PART B: Logistics system design and node analysis

Dennis Bours, Dpbours@yahoo.com

BSM523 Supply Chain Management (A) (6 May 2013)


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Executive summary
The focus of this report will be on logistics system design for humanitarian organizations operating global supply chains with a focus on post-disaster emergency interventions. The operational context is marked by a partial or total breakdown of infrastructure and authority, and emergency response may be compromised by the disaster or conflict, internal and external political objectives, insecurity and other external factors. This report covers the second step of the USAID logistics system design model:

Pre-design assessment

Logistics system design

Logistics system implementation

LOGISTICS SYSTEM DESIGN STEPS

Each step of the logistics system design is crucial and leads into the next phase. The second step has been adapted into the following logistics system design model, further discussed in this report.

Logistics system design

Organisational structure

Supply chain structure Inventory Facilities Transport Information

Linkages and partnerships

Drivers of supply chain performance and cost efficiency

Step 1 has been detailed in a separate report titled Logistics system design for global humanitarian supply chains, PART A: Pre-design assessment (Bours 2013). It should be understood that the logistics or supply chain function in globally operating humanitarian organizations is seen as a support function towards its main humanitarian activities and receives its funding as a percentage of funding for humanitarian activities, impacting its ability towards longer term strategic thinking and development.

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Organizational and supply chain structure The humanitarian organizational structure is often developed around regional offices or regional logistics centers (RLCs) with their specific functional specialists, resulting in a geographical matrix structure in which individuals have one boss in the hierarchical line, but often have reporting responsibilities towards functional lines. This structure allows for flexibility if the humanitarian response phase demands a switch in supply chain type. In post-disaster settings, line management often moves from HQ level down to regional level, to make decisions closer to the operations. The operational focus in the supply chain structure highly depends on the humanitarian response phase and corresponding supply chain type. Beneficiary needs, needed lead time, total supply chain responsiveness, available funds and the implied uncertainty of the working environment will impact the supply chain type and structure deemed most appropriate for each response phase. 1. Developmental intervention, pull supply chain: Taking place in relatively stable environments, limited uncertainty, reliable demand information and no need for high responsiveness. RLCs as supply chain nodes mainly support programmes with supply information and (technical) specifications. There is limited inventory, limited distribution nodes and operational focus is on main in-country warehouse(s) and local warehouse nodes, the in-country supply chain structure and the formulation of specifications. 2. Disaster risk management, preparedness supply chain: The focus is on pre-positioning of standardized emergency items, either within the organizations nodes, as part of regional stockpiles of coordinating bodies/donor partners or through blanket pre-purchase agreements (BPAs) at suppliers. In-country prepositioning is limited unless the area is known for seasonal disasters, or pre-positioning takes place because of a developing slow-onset disaster. Operational focus is on the RLCs, HQ and international warehouse nodes and the flow of goods and information between them and suppliers. 3. Post-disaster emergency intervention, push supply chain: Emergency items are pushed down the supply chain into a disaster area from pre-positioned stocks and supplier level BPAs. Distribution point nodes are set up and local warehouse nodes are increased. Responsiveness is high, as is uncertainty concerning needs and operational context. Coordination often moves down the chain. The operational focus is two-fold; on the pre-positioned items and on delivery. The main warehouse node is often used for transhipment and local warehouse nodes are the central point of activity, also depending on security. 4. Transitional response, call forward supply chain: Characterized by a call forward supply chain the needs and the operational environment will be better known after a while and with a lower level of uncertainty distribution will be matched more to specific needs, limiting the distribution of emergency kits and/or developing kits adapted to the situation. Operational focus moves up from the distribution point nodes to local warehouse nodes, country office and main warehouse(s).
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Responsiveness, efficiency, product segmentation Humanitarian supply chains must be both responsive and efficient, but will never be able to get the efficiency found in commercial supply chains because of the higher degree of flexibility humanitarian operations and their uncertainty require. The lower efficiency in itself is not an issue if the resulting increase in responsiveness matches the strategic fit regarding priorities, strategies and capabilities. Product segmentation supports integration across commodity categories and programmatic sectors. Each segment of products is managed differently to accommodate their characteristics, including different maximum and minimum stock levels, different supply chain types in parallel and alternative procedures. As a result, the supply chain structure designed must be able to cope with various supply chain types within one structure that transform and possibly also overlap in the course of operations. Other critical design decisions to take into account, depending on the specific characteristics of the various supply chain types, are visualized in Table 1.

Supply chain performance drivers Four drivers of performance within the supply chain have been identified and Chapter 3 focuses on their roles, being the supply chain role, strategic role, decision components and trade-off. A short recap: 1. Inventory: Inventories are mostly about managing risks and increasing responsiveness. Most strategic is the use of a three-tier approach, reserving stocks at suppliers through BPAs and partner organizations through MoUs increasing agility, and pre-positioning stocks in the organizations supply chain nodes. 2. Facilities: Decisions on the location of facilities have a significant impact on the supply chain performance because they determine the supply chain configuration and set constraints within which other performance drivers can be used. Choices made depend on the response phase, product segmentation, expected future changes in that respect and local security situations. The trade-off is between cost of the number, location and type of facilities and the level of responsiveness they provide. 3. Transport: There is a clear trade-off here in cost vs. speed. It is recommended to outsource routine transport logistics and focus on specialized humanitarian logistics and supply chain tasks and last-milelogistics. Choice on transport modes and networks should be made on a case by case basis. 4. Information: Information is most important towards linkages between all elements of the supply chain design and related stakeholders. Different roles and levels of information are inter-related. The use of humanitarian logistics management information systems (H-LMIS) and stakeholders access to information are discussed, and supply chain performance monitoring and related indicators are shortly touched upon.
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Table of Contents
Executive summary ....................................................................................................................................... 3 List of abbreviations ...................................................................................................................................... 9 List of figures ............................................................................................................................................... 11 List of tables ................................................................................................................................................ 11 Introduction ................................................................................................................................................ 13

Chapter 1: Organizational and supply chain structure ............................................................................... 19 1.1 Organizational structure ................................................................................................................... 19 1.2 Supply chain structure....................................................................................................................... 20 1.2.1 Developmental intervention, pull supply chain ......................................................................... 21 1.2.2 Disaster risk management, preparedness supply chain............................................................. 22 1.2.3 Post-disaster emergency intervention, push supply chain ........................................................ 24 1.2.4 Transitional response, 6-months to 1 year onward: call forward supply chain......................... 25 Chapter 2: Supply chain design ................................................................................................................... 27 2.1 Responsiveness and efficiency .......................................................................................................... 27 2.2 Product segmentation ....................................................................................................................... 28 2.3 Other specific characteristics to take into account ........................................................................... 29 Chapter 3: Supply chain performance drivers ............................................................................................ 31 3.1 Inventory ........................................................................................................................................... 32 3.2 Facilities ............................................................................................................................................. 34 3.3 Transport ........................................................................................................................................... 36 3.4 Information ....................................................................................................................................... 37 Chapter 4: Linkages and partnerships ......................................................................................................... 39 Chapter 5: Supply chain performance......................................................................................................... 43

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Annex 1: Humanitarian geographical matrix structures ............................................................................. 45 Annex 2: Humanitarian product segmentation .......................................................................................... 46 Annex 3: Agility in humanitarian supply chains .......................................................................................... 48 Annex 4: Roles of inventory in supply chain performance ......................................................................... 50 Annex 5: Roles of facilities in supply chain performance............................................................................ 53 Annex 6: Warehouse checklist .................................................................................................................... 54 Annex 7: Roles of transport in supply chain performance .......................................................................... 56 Annex 8: Elements and reach of a H-LMIS .................................................................................................. 59 Annex 9: Actors in the humanitarian supply chain ..................................................................................... 60 Annex 10: Supply chain performance indicators ........................................................................................ 61 References................................................................................................................................................... 63

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List of abbreviations
3PL BSC BPA 3rd Party logistics Balanced Scorecard Blanket pre-purchase agreement, interchangeable with FA (FA is used in the European Union, BPA in the United States) CAP CERF CHF DART DRR DRM ERU FA Consolidated Appeal Process Central Emergency Response Fund Common Humanitarian Fund Disaster Assistance Rescue Team Disaster risk reduction Disaster risk management Emergency response unit Framework agreement, interchangeable with BPA (FA is used in the European Union, BPA in the United States) FAFA Financial and Administrative Framework Agreement, ECHO donor agreement with UN agencies and the FAO. FAO FPA Food and Agricultural Organization Framework Partnership Agreement, ECHO donor agreement with NGOs and IOs like ICRC and IFRC H-LMIS ICRC IFRC INGO IO LMIS MoU Humanitarian logistics management information system International Committee of the Red Cross International Federation of the Red Cross International non-governmental organization International Organization, not part of the UN structure Logistics management information system Memorandum of understanding

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NGO NFI OECD PAHO RCRC RLC SOP TOC ToT UNHCR UNICEF UNJLC USAID WASH WFP WHO

Non-governmental organization Non-food item Organisation for Economic Co-operation and Development Pan-American Health Organization Red Cross and Red Crescent Regional logistics centre Standard operating procedure Theory of constraints Training of Trainers United Nations Higher Commissioner for Refugees United Nations International Children's Emergency Fund United Nations Joint Logistics Centre United States Agency for International Development Water, sanitation and hygiene World Food Programme World Health Organization

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List of figures
Figure 1: USAID logistics system design model ........................................................................................... 13 Figure 2: Expanded logistics system design model ..................................................................................... 14 Figure 3: Logistics system design ................................................................................................................ 17 Figure 4: Example of a humanitarian geographical matrix structure ......................................................... 19 Figure 5: Response phases and supply chain types .................................................................................... 20 Figure 6: Developmental intervention: pull supply chain ........................................................................... 21 Figure 7: Disaster risk management intervention: preparedness supply chain ......................................... 23 Figure 8: Emergency response: push supply chain ..................................................................................... 24 Figure 9: Transitional phase: call forward supply chain .............................................................................. 25 Figure 10: Responsiveness vs. efficiency trade-off ..................................................................................... 27 Figure 11: Responsiveness, efficiency and (implied) uncertainty ............................................................... 28 Figure 12: Example of product segmentation ............................................................................................. 29 Figure 13: Drivers of supply chain performance ......................................................................................... 31 Figure 14: Roles of inventory in supply chain performance ....................................................................... 33 Figure 15: Roles of facilities in supply chain performance .......................................................................... 34 Figure 16: Responsiveness vs. total supply chain cost ................................................................................ 35 Figure 17: Roles of transport in supply chain performance ........................................................................ 36 Figure 18: Information roles versus - levels ................................................................................................ 38 Figure 19: Humanitarian supply chain actors.............................................................................................. 40 Figure 20: H-LMIS, partnerships and linkages ............................................................................................. 40 Figure 21: Lead time and material flow time .............................................................................................. 51 Figure 22: Elements and reach of a H-LMIS ................................................................................................ 59

List of tables
Table 1: Supply chain types and critical design decisions ........................................................................... 30 Table 2: Transport modes and their specific criteria .................................................................................. 57

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Introduction
The primary humanitarian objective is to save lives, alleviate suffering, and maintain and restore human dignity, without regard for race, ethnicity, religion or political affiliation (IFRC 2002). Humanitarian action should facilitate the return to normal lives, seeking to lessen the destructive impact of disasters and complex emergencies. The focus of this report will be on logistics system design for humanitarian organizations operating global supply chains with a focus on post-disaster emergency interventions. The operational context is marked by a partial or total breakdown of infrastructure and authority, and emergency response may be compromised by the disaster or conflict, internal and external political objectives, insecurity and other external factors. (PAHO 2001; Cassidy 2003; Beamon 2004; Van Wassenhove 2006; Kovcs and Spens 2007; Ergun et. al. 2009; Agrollo da Costa, Campos and Albergaria de Mello Bandeira 2012)

The text message came in at midnight on 12th January 2010. It simply read ERU info: Haiti: 7.3 EQ off coast. Tsunami alert. You dont know how bad things might be, but you prepare for the worst. It was to become the biggest single country response the Red Cross Movement had ever responded to. Claire Durham, Logistics Manager at International Red Cross1

This report covers the second step of the USAID logistics system design model (Figure 1), being the logistics system design phase (Owens and Warner 2003; USAID 2009):

Pre-design assessment

Logistics system design

Logistics system implementation

LOGISTICS SYSTEM DESIGN STEPS

Figure 1: USAID logistics system design model

The three steps have been adapted into a specific logistics design model visualized in Figure 2 on the next page. The expanded logistics system design model has been informed by an extensive literature

Article and interview available from: http://www.supplychaindigital.com/global_logistics/crossing-the-line

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Pre-design assessment

ASSESS DEMAND Current situation Desired situation

ASSESS CONSTRAINTS IN OPERATIONAL ENVIRONMENT Transport; Infrastructure; Logistical bottlenecks; Security; Access restrictions.

ASSESS CONSTRAINTS IN INFORMATION

ASSESS CONSTRAINTS IN RESOURCES

Nature and use of information; Communication infrastructure; Information environment; Information reliability.

Donors and requirements; 3rd Party logistics (3PL); Suppliers and availability; Human resources.

Logistics system design

Organisational structure

Supply chain structure Inventory Facilities Transport Information

Linkages and partnerships

Drivers of supply chain performance and cost efficiency

Logistics system implementation


tion Informa and ToT Full roll-out

SO Ps

Training l materia

nic Commu plan

ation

Implementation planning

Supply chain design

(Human) resources

(Implementation) budget

Implementation quality control

Figure 2: Expanded logistics system design model


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review on the topic2, combined with and tested during 10+ years of experience of the author in the field of humanitarian logistics, supply chain and emergency pipeline management in post-disaster settings for humanitarian actors like Doctors Without Borders, the Red Cross and Save the Children International. The focus of humanitarian supply chains is on scale-up (or build-up) speed in case of increase of beneficiary demand, i.e. in case of disasters, reflected in the speed of switching between supply chain types to support changes in humanitarian response phase (Figure 5). Post-disaster settings demand close to zero lead times, low response time, high supply chain throughput capacity, proper management of pre-positioned emergency stocks and a high level of flexibility towards last-mile-level logistics. Humanitarian organizations mainly talk about logistics management, defined as the management of the flow of goods, information and other resources, including people, between the point of origin and the point of consumption in order to meet stakeholders requirements, including both beneficiaries and donors. Supply chain management would involve longer-term coordination and integration of logistics management among companies and suppliers (Lysons and Farrington 2006; Van Weele 2010), which is often impossible within humanitarian organizations due to the way the logistics function is financed; The logistics / supply chain function in global humanitarian organizations is seen as a support function towards its main humanitarian activities and often receives its funding as a percentage of donor funding or pledges for the implementation of humanitarian activities. Van Wassenhove (2006) notes that for years humanitarian supply chain management has been struggling for recognition as there has been a lack of understanding of the benefits as well as acknowledgment of the importance. Recent interest in the area is largely practitioner based which has led to calls for greater academic interest and debate on how supply chain management can be applied by humanitarian aid providers. Step 1 of the logistics system design model is further explained in a separate report titled Logistics system design for global humanitarian supply chains, PART A: Pre-design assessment (Bours 2013).

The reference to use for this publication is the following: BOURS, D.P., 2013. BSM523. [Coursework 1] Logistics system design for global humanitarian supply chains, PART B: Logistics system design and node analysis. Supply Chain Management. The Robert Gordon University, MSc Purchasing & Supply Chain Management, Aberdeen Business School.
2

PAHO (2001), Cassidy (2003), Owens and Warner (2003), Thomas (2003), Beamon (2004), Prentice (2004), Russell (2005), Akkihal (2006), Blanco and Goentzel (2006), Kovcs and Spens (2007), Agrawal (2008), Agrawal and Perrin (2008), Ergun et. al. (2009), Kovcs and Spens (2009), USAID (2009), Balcik et. al. (2010), Cassidy (2010), Dos Santos et.al. (2010), Duran, Gutierrez and Keskinocak

(2011), Suarez and Tall (2010A and 2010B), Pedraza-Martinez, Stapleton and van Wassenhove (2011), Srinivasan (2011), HolgunVeras et. al. (2012), Bours (2013).

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PART B: LOGISTICS SYSTEM DESIGN AND NODE ANALYSIS

Logistics system design

Organisational structure

Supply chain structure Inventory Facilities Transport Information

Linkages and partnerships

Drivers of supply chain performance and cost efficiency

Figure 3: Logistics system design The design process will be a systematic and iterative approach linking the different components of the logistics system and performance drivers inventory, facilities, transport, and information through the supply chain structure, linkages and partnerships to ensure the system flows. Boundaries of the system design as indicated during pre-design assessment (Bours 2013) ensure that the logistics system design will be realistic, each supply chain activity is linked and the design phase produces a coherent and feasible system. Designing the logistics and supply chain system is only the beginning of a range of activities. Implementing a logistics system is a dynamic process that requires ongoing training, monitoring, evaluation, and adjustments to ensure the system is functioning within set performance indicators.

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Chapter 1: Organizational and supply chain structure


The humanitarian organizational structure is often developed around regional offices or regional logistics centers (RLCs) with their specific functional specialists, resulting in a geographical matrix structure (Mintzberg 1993; Sy and dAnnunzio 2005) as presented in Figure 4.

1.1 Organizational structure


As is desired in humanitarian operations, there is a high level of sectoral specialization (i.e. food, nonfood, WASH, medical, shelter, education, etc.). Since each country team is in close contact with its area, it can easily identify and adapt readily to changing humanitarian demands in their country. The matrix structure organizes activities along two lines of authority per region; Hierarchical vertical lines with a direct impact on decision making and functional horizontal lines, which have an advisory role.

Figure 4: Example of a humanitarian geographical matrix structure


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Contrary to the corporate matrix structure, individuals only have one boss being the hierarchical line, but often have reporting responsibilities towards functional lines. This structure allows for flexibility if the situation demands a switch in supply chain type from preparedness to push. In post-disaster settings, line management often moves from HQ level down to regional level, to make decisions closer to the operations. The geographical matrix structure is further explained in Annex 1 (Mintzberg 1993; Sy and dAnnunzio 2005; Appelbaum, Nadeau and Cyr 2008A, 2008B and 2009).

1.2 Supply chain structure


The supply chain structure highly depends on the humanitarian response phase and corresponding supply chain type, visualized in Figure 5. Although the focus of this report is on logistics system design for humanitarian organizations operating global supply chains with a focus on post-disaster emergency interventions, other humanitarian response phases need to be taken into account given that organizations may already have a presence in the area with developmental interventions resulting in a need to scale up, and post-disaster supply chain structures need to be designed to be able to scale down into transitional and later developmental interventions.

Figure 5: Response phases and supply chain types Beneficiary needs, beneficiary delivery time, total supply chain responsiveness, available funds and the implied uncertainty of the working environment will impact the supply chain type and structure deemed most appropriate for each humanitarian response phase (Bours 2013). Within each supply chain type the organization strives to work in or close to the zone of strategic fit, hence finding the optimum situation to balance beneficiary needs against supply chain capability and balance programmatic and supply chain
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strategies to one another to guarantee (cost) efficiency (Cohen and Roussel 2005; Sunil and Meindl 2009). Each response phase has its preferred supply chain type and corresponding structure.

1.2.1 Developmental intervention, pull supply chain Humanitarian programmes focusing on capacity development, agriculture, livelihoods, education, improvement of basic healthcare facilities, etc. are seen as developmental interventions. They take place in relatively stable environments with limited uncertainty, reliable information on demand and end users/beneficiaries, and no need for high responsiveness, pictured on the next page in Figure 6 (Paho 2001; Beamon 2004; Blanco and Goentzel 2006; Bourne 2009; Ergun et. al. 2009; Howden 2009; Kovcs and Spens 2009; Scholten, Scott and Fynes 2009; Balcik et. al. 2010).

Figure 6: Developmental intervention: pull supply chain


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Characteristics of the developmental intervention and related supply chain (Figure 6) are as follows: The supply chain is in pull-mode in the sense that humanitarian supplies are only delivered upon request by the end user, often project staff in field locations. Distribution is demand driven International and regional suppliers often deliver directly to the in-country program, but payments go through head office as does order information, specifications and requests Regional offices and RLCs as supply chain nodes mainly support programmes in informing them what items are for sale and developing their (technical) specifications for order requests There is limited inventory and international orders go straight to the head office supply unit With limited (need for) inventory, the number of local warehouse nodes is limited and supply to beneficiaries sometimes comes directly from the country programmes main warehouse Distribution point nodes are limited to food-for-work programmes and distribution is often done directly from local warehouses, given the limited number of distribution locations Operational focus is on the main in-country warehouse(s) and local warehouse nodes, the incountry supply chain structure and formulation of specifications responding to in-country needs.

1.2.2 Disaster risk management, preparedness supply chain Disaster risk management (DRM) interventions focus on minimizing vulnerabilities and disaster risks throughout a society, to avoid (prevention) or to limit (mitigation and preparedness) the adverse impacts of hazards, within the broad context of sustainable development. (UNISDR 2004, p.17) For humanitarian organizations the focus is either on hard measures (e.g., dams, flood barriers, tree planting on hillsides), soft measures (awareness raising, preparedness planning with communities, policy development, etc.) or preparedness (a.o., agricultural diversification, new construction techniques and the pre-positioning of emergency items). The focus is on the latter, given the strong role of supply chain management in supply preparedness and pre-positioning of stocks, either at supplier or operational level (Russell 2005; Akkihal 2006; Amin and Goldstein 2008; Cassidy 2010; Balcik et. al. 2010; Duran, Gutierrez and Keskinocak 2011). Characteristics of the DRM intervention and related supply chain (Figure 7) are as follows: Strong focus on the pre-positioning of emergency items, mostly emergency kits (health kits, shelter kits, nutrition kits, etc.) because the post-disaster need is yet unknown Pre-positioning of items either within the organizations supply chain nodes, as part of regional stockpiles of coordinating bodies/donor partners or through blanket pre-purchase agreements (BPAs) at suppliers, to support a first wave of resources after a disaster has struck

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Specifications of emergency kits are internationally standardized (PAHO 2001; IFRC 2009; UNHCR 2012; WHO 2012; UNICEF 2013; USAID 2013) and often regionally stockpiled

Information flows go from head office and RLCs towards the country programs In-country pre-positioning is often limited, unless the area is known for seasonal disasters, or pre-positioning is taking place because of a slow-onset disaster developing (e.g. food shortage)

The operational focus is on the RLCs, HQ and international warehouse nodes and the information and goods flows between them, international and regional suppliers.

Figure 7: Disaster risk management intervention: preparedness supply chain

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1.2.3 Post-disaster emergency intervention, push supply chain There is a partial or total breakdown of infrastructure and authority, and emergency response may be compromised by the disaster or conflict, internal and external political objectives, insecurity and other external factors. Emergency items are pushed into a disaster area from pre-positioned emergency stocks and supplier level BPAs. Distribution point nodes are set up and the number of local warehouse nodes around the disaster area is expanded. Responsiveness is high, but there is also a high level of uncertainty with respect to beneficiary needs. (PAHO 2001; Cassidy 2003; Thomas 2003; Beamon 2004; Van Wassenhove 2006; Kovcs and Spens 2007; Ergun et. al. 2009; Agrollo da Costa, Campos and Albergaria de Mello Bandeira 2012; Holgun-Veras 2012) The supply chain is pictured in Figure 8.

Figure 8: Emergency response: push supply chain


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Characteristics of the emergency response and related supply chain (Figure 8) are as follows: The supply chain is in push-mode. Humanitarian supplies are pushed through the supply chain and nodes from the international warehouse, RLCs and supplier BPAs towards beneficiaries The focus is on speed, on responsiveness, getting the goods to end users as quickly as possible Demand is uncertain and supply focuses on distribution of standardized humanitarian kits Coordination often moves down the chain, towards the RLC and at times even to country level Operational focus is two-fold; on the pre-positioned items and on the delivery. The country warehouse node is often used for transhipment and local warehouse nodes are the central point of activity, though this also depends on the local-level security environment Given the distribution of kits the information flow up focuses on distribution figures and demand for kits, with limited identification at this point of very specific beneficiary needs.

1.2.4 Transitional response, 6-months to 1 year onward: call forward supply chain The emergency response phase moves into a transitional phase after 6 months to a year after a disaster struck, characterized by a call forward supply chain. The needs and the operational environment will be better known bi-directionality of the information flow in the supply chain becomes more important and with a lower level of uncertainty distribution will be matched more to specific needs, limiting the distribution of emergency kits and/or developing kits adapted to the situation. The operational focus moves up from the distribution point nodes to local warehouse nodes, country office and main warehouse(s). The information flow becomes more important and bidirectional in-country. The head office supply unit, international warehouse and RLC nodes only send goods upon request. Changes are mostly

visible in the downstream supply part of the as

chain

visualized in Figure 9, and the in the way movement of goods is initiated, request push. Figure 9: Transitional phase: call forward supply chain i.e. opposed upon to

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Chapter 2: Supply chain design


Each supply chain type has different levels of uncertainty and requires different degrees of responsiveness, i.e. speed at which a supply chain is able to get emergency items to the beneficiaries. Time is generally more critical in humanitarian supply chains, looking at the trade-off between responsiveness and efficiency (Figure 10) (Jacobs, Chase and Qauilano 2008; Chopra and Meindl 2013).

2.1 Responsiveness and efficiency


A key characteristic of humanitarian supply chains is that they must be both responsive and efficient, but will never be able to get the efficiency found in commercial supply chains because of the higher degree of flexibility humanitarian operations require. This doesnt mean theres no trade-off between responsiveness and efficiency; it simply means that the weight of responsiveness is greater than the weight of efficiency.

Figure 10: Responsiveness vs. efficiency trade-off There is a cost to achieving responsiveness and increasing responsiveness results in higher cost and thus lower efficiency. The lower efficiency in itself is not an issue if the resulting increase in responsiveness
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matches the strategic fit, i.e. there is consistency between overall organizational priorities, intervention strategy and supply chain capabilities specified by the supply chain strategy (Donaldson 2006). The second step towards strategic fit is to map the supply chain on the responsiveness spectrum (Figure 11) against the implied level of uncertainty (Fisher 1997; Donaldson 2006; Chopra and Meindl 2013).

Figure 11: Responsiveness, efficiency and (implied) uncertainty

2.2 Product segmentation


Each response phase is marked by different levels of uncertainty, but even within one response phase some programmatic sectors (food, non-food, health, shelter, education, WASH, etc.) and some product groups might have a more certain demand. Product segmentation supports integration across commodity categories and programmatic sectors. Each segment of products is managed differently to accommodate their characteristics, including different maximum and minimum stock levels, different supply chain types in parallel and alternative procedures (Donaldson 2006; USAID 2009). As a result, the supply chain structure designed must be able to cope with various supply chain types within one structure that transform and possibly also overlap in the course of operations. An example of product segmentation is presented on the following page in Figure 12 and humanitarian product segmentation is further explained in Annex 2.

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Figure 12: Example of product segmentation

2.3 Other specific characteristics to take into account


Next to responsiveness, efficiency, the level of uncertainty and product segmentation, there are other critical design decisions to take into account, depending on the specific characteristics of the various supply chain types. And overview of characteristics is given in Table 1 on the following page. For example, in a push supply chain, the implied uncertainty in demand is high and as such buffer stocks are increased. A next question would be whether the available storage space in the system is able to cope with the maximum stock levels. Next to that, lead time estimations are important because if underestimated, the system is at risk of stock-out and if overestimated, it is at risk of wastage.

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Table 1: Supply chain types and critical design decisions The preparedness supply chain in which demand is completely unknown and implied uncertainty is as such infinite has not been taken into account in Table 1. In post-disaster response there is a natural development path that moves the supply chain from preparedness to push to call forward to pull (Figure 5). The preparedness chain is there to create a state of readiness for the initial response to an emergency can be achieved rapidly. The push chain then deploys using the preparedness supply chain as a foundation. (Fisher 1997; Donaldson 2006; USAID 2009)

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Chapter 3: Supply chain performance drivers


The chosen supply chain structure is one of the factors depending on the nature of our operations, the characteristics of our beneficiaries needs, the humanitarian response phase and implementation type. Next to the supply chain structure, the way we operate our supply chain is also depending on the nature of our operations, which was already visible in a sense in Figure 12 on product segmentation. As such, the type of programme and the corresponding supply chain type/mode impact the way we seek to satisfy the specific needs and requirements of the beneficiaries and the way we operate our supply chain. The supply chain type determines the mix of push and pull processes and also the level of uncertainty that needs to be managed together with the degree of responsiveness that is required. The focus of this chapter will be on four drivers of performance within the supply chain, being: Inventory (Logistical driver); Facilities (Logistical driver); Transport (Logistical driver); Information (Cross-functional driver).

Inventory

Facilities

Transport

Information

Linkages and partnerships

Drivers of supply chain performance and cost efficiency

Figure 13: Drivers of supply chain performance Inventory is all the goods and materials held available in stock and in the pipeline within a supply chain, and an important supply chain driver because changing inventory policies can dramatically alter the supply chains responsiveness and efficiency. Facilities are places in the network where inventory is stored or assembled. Decisions regarding location, capacity and flexibility of facilities have significant impact on supply chain performance. Transport is the movement of goods from point to point, using a combination of modes and routes, and having a significant impact on a supply chains responsiveness and efficiency. Information consists of data and analysis regarding inventory, transportation, facilities, beneficiaries and other stakeholders throughout the supply chain. Information is potentially one of the biggest drivers of performance in the supply chain as it directly affects each of the other drivers and it is cross-functional. (Donaldson 2006; USAID 2009; Chopra and Meindl 2013)
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These four drivers of performance will be discussed in depth in the subsequent paragraphs and referenced annexes. The focus will be on four roles of the drivers of performance, being the supply chain role, strategic role, decision components and trade-off. Sourcing has not been discussed as supply chain driver, given the sourcing choices to be made are very much dictated by the funding flows, donor partners and their specific sourcing requirements.

3.1 Inventory
There are three basic reasons for keeping inventory: Lowering lead time through cycle stock Coping with uncertainty through buffers Economies of scale in procurement, movement and storage.

All three reasons indicate that inventories are about managing risks, resulting in global pre-positioning of relief supplies as an expansion of warehousing strategies seen in humanitarian emergency responses, which have by definition unpredictable demand patterns. Inventory allows responding quickly to disasters with relief supplies from strategically stocked RLCs or BPAs throughout the world (Russell 2005; Beamon and Kotleba 2006; Bourne 2009; Cassidy 2010; Balcik et. al. 2010; Duran, Gutierrez and Keskinocak 2011). Oloruntoba and Grey (2006) did a first investigation into whether agility is or could be part of humanitarian supply chains and their inventory management, which is further discussed in Annex 3 and it is through BPAs and shared inventories with humanitarian partners that agility is achieved. The various roles of inventory are presented in Figure 14 on the next page, summarized below and further elaborated on in Annex 4.

1. Supply chain role of inventory: Inventory exists to overcome the mismatch between supply and demand, i.e. to cope with the implied uncertainty and have emergency items available as soon as (disaster) situations demand. A low implied uncertainty as in developmental programmes will result in less inventory and programmes with high implied uncertainty result in higher levels of inventory. Pre-positioning also depends on the product segmentation (Annex 2) and the use of BPAs can be seen as holding inventory in a more generic form as part of agility (Annex 3).

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SUPPLY CHAIN ROLE Balance supply & demand Material flow time

TRADE-OFF Inventory vs. out of stock Availability vs. cost Inventory driver

STRATEGIC ROLE More inventory responsive Less inventory - efficient

DECISION COMPONENTS Cycle inventory Safety stock Seasonal inventory

Figure 14: Roles of inventory in supply chain performance

2. Strategic role of inventory and 3. Decision components: Inventory is used to achieve a high level of responsiveness by locating large amounts of inventory close to possible future needs. Most strategic is the use of a three-tier approach, reserving stocks at suppliers through BPAs and partner organizations through MoUs, pre-positioning stocks in the RLCs and pre-positioning stocks in the field where emergencies are seasonal or expected and security permits pre-positioning. Safety stocks should only be kept in the shape of standardized emergency kits at RLC level. Other items identified in the product segmentation as emergency stocks should either be kept at the supplier through BPAs, at partner organizations or limited amounts at country level if security allows.

4. Trade-off in inventory: The general trade-off managers must make is between responsiveness and efficiency (Figure 11). Increasing inventory generally makes the supply chain more responsive, but at the cost of decreasing efficiency and bounded by the financial impact of the pre-positioning of items, as discussed in Bours (2013). Pre-positioning at suppliers through BPAs, at partner organizations and through sharing capacity and inventories between humanitarian organizations will take the pressure off the private funding base for support cost (Russell 2005; Akkihal 2006; Cassidy 2010).

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3.2 Facilities
Decisions on the location of facilities have a significant impact on the supply chain performance because they determine the supply chain configuration and set constraints within which other performance drivers can be used to either decrease supply chain cost or to increase responsiveness. If already operating in an area, some warehouses are already established and shutting down a facility or moving it to a different location has its price. The focus in existing programmes would be more towards the management of current facilities. The roles of inventory are presented in Figure 15, shortly discussed below and further elaborated on in Annex 5.

SUPPLY CHAIN ROLE Transformation Storage

TRADE-OFF Number, location and types vs. responsiveness Facilities driver

STRATEGIC ROLE Locating for responsiveness Centralising for efficiency

DECISION COMPONENTS Location Capacity Operating methodology

Figure 15: Roles of facilities in supply chain performance

1. Supply chain role of facilities: Facilities are the locations to which or from which inventory is transported and stored before being shipped to the next stage in the supply chain. All warehouses should be inspected with the use of a checklist (Annex 6) including key identifiers on warehouse appropriateness, ranging from the layout of the facility to the skills of the warehouse staff.

2. Strategic role of facilities and 3. Decision components: Country main warehouses are often used to hold emergency goods for seasonal emergencies and support stocks like vehicle parts. They are also
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used to hold inventory en route (overnight parking of trucks, trailers) and for cross-docking and transhipment if space and layout allows. A choice could be to share the use of facilities between humanitarian actors. Locating facilities close to beneficiaries increases the number of facilities needed and reduces efficiency, but increases responsiveness. Choices made in this respect depend on the response phase, product segmentation, expected future changes in that respect and local security situations. Factors to take into account are, among others, the availability of a local market for humanitarian goods, the existence and location of international logistical decoupling points, the security situation, the level of uncertainty towards possible in-country disasters, the availability of appropriate premises, skilled staff and staff cost, the size of existing programmes, the in-country infrastructure and the needs of our beneficiaries.

4. Trade-off in facilities: The overall trade-off in is between the cost of the number, location and type of facilities and the level of responsiveness that these facilities provide the organisation as portrayed in Figure 16. At each operational level an analysis should be made on the balance needed between efficiency and responsiveness in relation to the number of warehouses (Chopra and Meindl 2009).
-Logistics / supply chain costs

Total supply chain costs

RESPONSIVENESS

Facility costs

Inventory costs Transportation costs

++
1 2 3 4 5 6 7 8 9 10 11 12

RESPONSIVENESS Number of facilities

Figure 16: Responsiveness vs. total supply chain cost

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3.3 Transport
Transportation plays a key role in the responsiveness and efficiency of a supply chain because it moves product between the different levels of and facilities in the supply chain, but also responsiveness in transport comes at a price.

SUPPLY CHAIN ROLE Movement between nodes Time reduction

TRADE-OFF Transport driver Cost vs. Speed

STRATEGIC ROLE Responsiveness Efficiency

DECISION COMPONENTS Mode of transport Route and network selection Use of 3PL

Figure 17: Roles of transport in supply chain performance

1. Supply chain role of transport: Faster modes of transport and smaller batches generally more cost than slower bulk transport. There is a clear trade-off here in cost vs. speed. An overview of criteria for various modes of transport is visible in Annex 7, Table 2. 3PL providers have extensive knowledge and experience in integrated supply chains, can leverage economies of scale through combined facilities and shipping at much larger scales than any but the biggest humanitarian organizations and donor partners. And last, the use of 3PL providers allows for easier up and down-scaling (not having to deal with possibly painful measures like lay-offs, or, conversely, having to go through expedited hiring of new staff). It is recommended to outsource the routine logistics work and focus the organizations supply chain capacity on specialized humanitarian logistics and supply chain tasks and last-mile-logistics (Amin and Goldstein 2008; Bourne 2008; Bours 2013).
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2. Strategic role of transport and 3. Decision components: Transportation as a strategic driver in the supply chain is seen as a choice between responsiveness with the associated cost increase, or lower transport cost at the expense of responsiveness. But the trade-off is not limited to cost versus responsiveness. Humanitarian organizations should start incorporating supply chain cost in the bid analysis for bigger orders of humanitarian goods, in the BPAs with suppliers and MoUs with humanitarian actors to make sure transport cost efficiency is achieved without giving up on responsiveness, and at the same time increasing flexibility (Ak etl al. 2007). Choice on transport modes and networks should be made on a case by case basis, taking into account the availability of goods at certain points in the network, transport availability, security constraints, absorption capacity of programme teams and the ability to track goods to the beneficiary (Bours 2013). 4. Trade-off: The overall trade-off for transportation is between the cost of transporting a given product (efficiency), the speed with which that product is transported (responsiveness), and the flexibility and reliability of the specific mode of transport. An overview of different transport modes and criteria to take into account is presented in Table 2 in Annex 7.

3.4 Information
Information is the most important supply chain driver, especially towards the linkages between all elements of the supply chain design. The roles of information have already been discussed in Bours (2013). The various levels of information were also discussed with the use of the information pyramid. Within each information role you will find all information levels and Figure 18 on the next page shows an example of which people are specifically interested in certain information role-level combinations. It shows that certain positions are in need of certain information. A warehouse officer needs to have detailed inventory overviews. The field logistician wants a broad scope on information, but still with a certain level of detail. The logistics coordinator also wants a broad scope, but at a higher level, focusing on totals, timelines, final overviews, monthly reports. With the matrix in Figure 18 the following can be identified: Operational level; The supply chain role and strategic role is the most important Knowledge level; The information on supply chain role and strategic role level is combined with decision components, but mainly with an informational purpose

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Management level; The supply chain role of information becomes of lesser importance and decision components and trade-off gains in importance Strategic level: Strategic and decision components and trade-off are most important.

INFORMATION LEVELS

Strategic level

Logistics director Head of RLC

Knowledge level

Management level

Logistics coordinator Warehouse officer

Operational level

Field logistician
Supply chain role Strategic role Decision components Trade-off INFORMATION ROLES

Figure 18: Information roles versus - levels A conclusion can be that logistics and supply chain information is needed on all levels of the organization. Figure 18 only looks at supply chain-related positions, but logistics and supply related information is also important for various programmatic positions and actors outside of the organization. Donors are often seen as customers, in the sense that they fund the operations and as such they need to be informed on whether supplies have met the needs of the beneficiaries. The humanitarian supply chain cannot be built solely by increasing the capacity or responsibility of individuals, but the role of supply chain information is formed by the creation of stronger linkages between people and units within the supply chain. Information also empowers programme staff to become more engaged consumers of logistic services.
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Chapter 4: Linkages and partnerships


Linkages and partnerships have already been discussed in Bours (2013) and this chapter will focus on the use of Humanitarian Logistics Management Information Systems (H-LMIS) as a tool to link various stakeholders in the humanitarian supply chain. H-LMIS improves the flow of information between people and departments, within the organization and with external actors, improving the effectiveness of the supply chain and facilitating the switching between supply chain types. H-LMIS software generally looks at the coordination function, commodity tracking and inventory control on all supply chain levels and reports on data that can be used on all levels of the information pyramid (Bours 2013). Other H-LMIS functions are to: - Ensure that field staff know what supplies are available for beneficiaries, either in local warehouses, pre-positioned emergency stocks or from local and international markets - Share lists of supplies available in local and international markets including prices and lead times to assist program staff in better planning their (procurement) activities - Keep program staff informed about the progress of procurement activities - Provide the budget holder more accurate financial information regarding funds committed within the procurement process, to avoid the over- or under-spending of budgets - Provide improved visibility of current inventory and generate warehouse inventory reports to program staff to allow them to take more responsibility for their supplies - Share information on the distribution of supplies to allow program staff to better monitor and evaluate activities and avoid the duplication in record keeping between logistics and programs - Allow the organization to place paperless purchase orders with key suppliers, making transactions more efficient and accurate, decreasing lead time to get products to beneficiaries - More accurately divide logistics overhead costs such as warehouse rental, transportation and logistic staff wages into program budgets according to the activities logistics is supporting - Add increased analytical decision support to supply chain management. An overview of H-LMIS components is presented in Annex 8. In humanitarian logistics and supply chains there are many actors (Figure 19 on the next page and Annex 9) who are not necessarily linked to the humanitarian ideology. Suppliers have different motivations for participating and customers are not generating a voluntary demand and will hopefully not create a repeat purchase. An important difference with commercial supply chains is in the fact that the customer actually has no choice. (Beamon 2004; Donaldson 2006; USAID 2005B; Howden 2009; Cassidy 2010)

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Transporters, 3PL providers

Donors

Aid agencies

Military Humanitarian supply chain Non-state actors

Suppliers

Other (I)NGOs

Civil society

Beneficiaries

Governments

Figure 19: Humanitarian supply chain actors But which actors should feed into, or have partial or complete direct access to the H-LMIS? This depends strongly on the role of the actor/partner towards the supply chain and the level of collaboration between the humanitarian organization and the actor, which is linked to the likely need to switch supply chain types and scale-up or scale down over time. Operational partners like 3PL providers should have access to the H-LMIS. The same accounts for key suppliers with whom the organization has BPAs. Stock overviews at the side of the supplier should be visible for both the humanitarian organization and the 3PL provider who is requested to arrange transport towards facilities. There are situations in which other aid agencies, humanitarian organizations and even governments will have access to the system. For example if aid agencies and humanitarian organizations work together within a consortium or as implementing partners.

Figure 20: H-LMIS, partnerships and linkages

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In other circumstances, the system will be used to generate needed documents, overviews and reports to keep actors and partners informed about supply chain capacity and performance. The exchange of information between operational partners through H-LMIS will have a positive impact on the strategic role of information towards supply chain performance and cost efficiency. H-LMIS are not specifically developed for performance and/or cost efficiency evaluations, but the data within the system can be used to generate performance and cost efficiency reports, depending on the indicators chosen for supply chain performance and cost efficiency.

The real difficulty of any information system lies in anchoring the system in the organizational context, supported by relevant and effective operating procedures, agreed terminology and data labelling and a shared awareness of the benefits of proper handling of information. Any H-LMIS must be supported by accepted rules, procedures, linkages and partnerships that encourage, facilitate, and guide the compiling, sharing, analysis and use of data to manage the supply chain. Next to organizational and procedural aspects, the H-LMIS needs to be supported by appropriate information and communication technology, including the related training and capacity building of staff making use of the system. (Donaldson 2006; Amin and Goldstein 2008; Howden 2009)

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Chapter 5: Supply chain performance


To design a successful supply chain performance measurement system we should first determine what elements of performance are most important to the humanitarian organization and the closest stakeholders, and define the metrics supporting these priorities. Organizational and stakeholders goals should determine what metrics are put into place. Financial efficiency and responding to the requests of donors are of importance towards donors whereas the effectiveness of actual and timely response to beneficiaries is most important towards the humanitarian organization. The balanced scorecard (BSC) is an often used strategic performance management tool, but according to Ray Archer3, Vice President of DAO Operations at Dell Inc., BSC is best used to track how well an organization is meeting its goals for change management. BSC is not necessarily the best method to measure ongoing supply chain performance, but can be used for implementation quality control.

Based on the work of Anne Leslie Davidson (2006) and the USAID Logistics Indicators Assessment Tool (2005B), supply chain performance can be analyzed by means of a supply chain performance indicator framework. Related indicators are presented in Annex 10, but their applicability will need to be reviewed during the supply chain implementation phase.

Statement made during a 2012 meeting between Mr. Archer and the author. Page 43 of 68

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Annex 1: Humanitarian geographical matrix structures


A geographical matrix structure (Figure 4) has both functional and geographic structures implemented simultaneously and resources are shared between the two. In commercial matrix structures the geographic (or product) managers and the functional managers have equal authority within the organization, and employees report to both of them. In humanitarian geographical matrix structures, vertical hierarchical lines on a global level are amalgamated with horizontal functional lines within each region that have an advisory role and as such have no direct influence on individual decision making. The structure works well in highly complex and uncertain environments, given the environment creates and requires a high level of interdependence between actors and parts of the organization. This structure allows for flexibility if situations demand a switch in supply chain type from preparedness to push. In post-disaster settings, the line management often moves from HQ level down to RLC level, to make sure lines are shorter and closer to the needs and regional coordination.

Advantages: Shared and flexible use of resources across geography and functions Supports flexibility when switching between supply chain phases Coordination in support of complex and uncertain operating environments Enhances communication and commonality of purpose among managers Facilitates complex decision making between functions and sectors Facilitates learning through the shared resources and functional lines.

Disadvantages: Can create conflicts of interest, given multiple lines Multiple lines might result in too many reporting requirements Multiple lines can result in confusion on who either the functional manager or the country or program manager should be responsible for an individual in the organization Shared resources can get overworked easily if multiple events happen at the same time Requires a collegial (rather than hierarchical) culture, which is often in place in humanitarian organizations Can be difficult to implement from scratch. (Mintzberg 1993; Sy and dAnnunzio 2005; Appelbaum, Nadeau and Cyr 2008A, 2008B and 2009)
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Annex 2: Humanitarian product segmentation


The level of uncertainty is one of the factors influencing the type of supply chain and uncertainty correlates strongly with the type of programmes and this type of products in the supply chain. Various programme demand different products with a differing level of implied uncertainty. Product segmentation is the process of dividing products into groups for the purpose of supply chain management. Products are categorized by characteristics that affect how and where they are managed in the supply chain. Examples of product segmentation categories for logistics system design include: Emergency response vs. predictable demand, i.e. Push vs. pull supply chain strategy Products whose demand differs geographically, i.e. food supplies need to be adapted to local customs. Some areas eat rice, other areas maize or grain. Another example is the type of shelter, which depends on climatic conditions in the area, i.e. where some tents are designed to keep heat out, other tents are designed to keep heat in for cold climates Slow moving or fast moving: This refers to how often the stock is resupplied; for example, a slow-moving product may not need to be ordered at every resupply interval Short or long shelf life: A product with a short shelf life is one that is likely to expire if it proceeds down the normal pipeline Full supply vs. non-full supply: This refers to prioritizing which products will always be kept in full supply to prioritize limited resources and ensure a minimal set of services It is important not to have too many segments and often a combination of the categories mentioned above are put into the same segment because their characteristics allow them to be managed in similar ways. For example, one segment could include products that have a long shelf life, are fast moving, and have predictable demand. (Donaldson 2006; USAID 2009)

Product segmentation supports integration across commodity categories and programmatic sectors. Each segment of products is managed differently to accommodate their characteristics, including different maximum and minimum stock levels, different supply chain types in parallel and alternative procedures. As a result, the supply chain structure designed must be able to cope with various supply chain types within one structure that transform and possibly also overlap in the course of operations and as such the supply chain structure needs to be able to be successful for different pipelines within one system. An example of product segmentation is presented in Figure 12.

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The highest response is needed in post-disaster situations in which communicable diseases break out and emergency vaccination campaigns are among those interventions with the highest level of demand uncertainty, given a lack of reliable health data and post-disaster migration. Emergency food distributions and medical emergency interventions in the immediate aftermath of a disaster will be a close second when ot comes to high responsiveness and uncertainty of demand (and context). After that emergency shelter and the pre-positioning of shelter and non-food items (NFIs) can be seen as a product segment. Going further down the zone of strategic fit, demand becomes more certain and the supply chain can be less responsive and more efficient.

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Annex 3: Agility in humanitarian supply chains


Agility refers to the ability to achieve strategic fit through partnering with supply chain stages that change over time. When applying agility to humanitarian aid supply chains it is often suggested to hold inventory in a generic form instead of using prepositioned stock. Aid goods can then be distributed according to the evolving needs of the end user, the concept of postponement, resulting in the use of more accurate data and reliability of information about recipients immediate needs while saving costs, overcoming security risks and speeding response and flexibility (Oloruntoba and Gray 2006; Scholten, Scott and Fynes 2010).

The information driven supply chain: Agility is dependent on the information from local people regarding the complexity of operations as well as changing needs as an agile supply chain is information driven. A reduction in forecasting errors as such would result in a reduction in cost and waste. Continuous developments in early warning science and technology now presents us with some level of anticipation of future disasters, but hurricane Katrina (2005) in the United States, the 2005 famine in Niger, cyclone Nargis in Myanmar (2008), the 2009 earthquake in Italy, the 2011 Thoku earthquake and tsunami in Japan and the 2011 earthquake in New Zealand show that the predictability of natural hazards in itself does not guarantee correct predictions, or the use of predictions resulting in informed humanitarian supply chain management and decision making. As Jessica Boesl (2012, p. 2) of START puts it: Regrettably, scientific outputs do not always constitute a basis for peoples choices. Part of the problem is that the optimal output signal of an impending threat, from the perspective of scientists, is a set of complex data about objective physical variables (maps, numeric tables or technical statements that are often incomprehensible for non-specialists); whereas the optimal input signal from the humanitarian perspective is a simple instruction (i.e. "evacuate" versus "do nothing").

A number of approaches to inform humanitarian decision making have been developed over time (Agrawal and Perrin 2008; Agrawal, Kononen and Perrin 2009; Suarez 2009; Suarez, Ribot and Patt 2009; Suarez and Tall 2010A and 2010B), but demand forecasting in humanitarian supply chains currently focuses mainly on seasonality of events, taking into account local geographical and climatic contexts, which does mainly inform medical humanitarian supply chains in their preparation for seasonal diseases. (Tall et. al. 2012)
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Companies must be able to become part of new supply chains while ensuring strategic fit. This level of agility becomes more important as the competitive environment becomes more dynamic (Chopra and Meindl 2013), which is not really the case in humanitarian organizations and supply chains. The agility concept adds needed flexibility between and within all partners in the chain, including external partners (suppliers, carriers, 3PL providers), but there is a limit to the agility in humanitarian supply chains due to the unpredictability of the need and if the need is known, there is the problem of the relative unstable nature of it. The use of BPAs can be seen as holding inventory in a more generic form as part of agility. It reduces material flow time, lowers the amount of RLC inventory needed and should be considered as a way to be responsive and at the same time keep the supply chain more agile. Another source of pre-positioning in a generic way could be to either pre-register as implementing partner through MoUs with humanitarian partners and to share RLC warehouse capacity with humanitarian partners with respect to the prepositioning of emergency goods.

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Annex 4: Roles of inventory in supply chain performance


There are three basic reasons for keeping inventory: Time: The time lags present in the supply chain, from supplier to the beneficiary at every stage, requires that a certain amount of inventory, cycle stock, is being used during this "lead time"; Uncertainty: Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. When inventory is available the organisation has some protection from unanticipated or unplanned events; Economies of scale: Economies of scale due to bulk procurement, movement and storage.

All three reasons above indicate that inventories are about managing risks, resulting in global prepositioning of relief supplies as an expansion of warehousing strategies seen in humanitarian emergency responses, which have by definition unpredictable demand patterns. Inventory allows responding quickly to disasters with relief supplies from strategically stocked RLCs or BPAs throughout the world (Russell 2005; Beamon and Kotleba 2006; Cassidy 2010; Balcik et. al. 2010; Duran, Gutierrez and Keskinocak 2011).

1. Supply chain role of inventory: Inventory exists in the supply chain to overcome the mismatch between supply and demand, i.e. to cope with the implied uncertainty of humanitarian emergency operations and have emergency items available as soon as possible when beneficiaries need them. A low implied uncertainty will result in less inventory as in development related programmes and programmes with a high implied uncertainty result in higher levels of inventory.

Lead time is the time from the moment a beneficiary need is identified to the moment it is satisfied. Lead time is low for pre-positioned goods and should generally be kept low. Material flow time is the time that elapses between materials entering the supply chain and the point at which they exit. Material flow times are higher for goods that need to be pre-positioned in order to cope with uncertainty in demand and guarantee high responsiveness. Lead time from different points of material stocks and material flow time are visualized in Figure 21 on the following page.

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Figure 21: Lead time and material flow time The pre-positioning also depends on the product segmentation (Annex 2), eg. items with a short shelf life will probably not be pre-positioned by the organization, but if needed in emergency situations the items could be pre-positioned at the side of the supplier through a BPA. The use of BPAs can be seen as holding inventory in a more generic form as part of agility (Annex 3). Another source of pre-positioning in a generic way could be to either pre-register as implementing partner through MoUs with humanitarian partners and to share RLC warehouse capacity with humanitarian partners with respect to the pre-positioning of emergency goods.

2. Strategic role of inventory and 3. decision components: Inventory is used to achieve a very high level of responsiveness by locating large amounts of inventory close to possible future needs. Most strategic is the use of a three-tier approach, reserving stocks at suppliers through BPAs and partner organizations through MoUs, pre-positioning stocks in the RLCs and pre-positioning stocks in the fields where emergencies are seasonal or expected and security permits pre-positioning. Safety stocks should only be kept in the shape of standardized emergency kits at RLC level. Other items identified in the product segmentation as emergency stocks should either be kept at the supplier through BPAs, at partner organizations or limited amounts at country level if security allows.

Increasingly humanitarian organizations look to replace inventory with cash grants or vouchers to enable beneficiaries to be able to determine for themselves what they wish to purchase. Cash grants only work if after a disaster there is a local market left for buying goods to satisfy basic needs and security allows the moving around of cash. Next to that, cash grants should be a coordinated effort between all organizations working on an emergency in order to be effective (Harvey 2007).
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For example; cash grants did not work in Aceh after the Tsunami because people would not use the money to rebuild their homes, since there were other organizations rebuilding homes. Why rebuild your home and not buy a motorbike when other organizations are still identifying beneficiaries? Cash grants are as such very context specific and often have limited impact on longer term needs (Tennant and Troeger 2008A and 2008B).

4. Trade-off in inventory: The general trade-off that managers must make is between responsiveness and efficiency. Increasing inventory will generally make the supply chain more responsive, but at the cost of decreasing efficiency. The choices to be made have already been discussed with respect to decision components. The trade-off between responsiveness and efficiency is also bounded by the financial impact of the pre-positioning of items, as discussed in Bours (2013). Pre-positioning at suppliers through BPAs and at partner organizations will take the pressure off the private funding base for support cost (Russell 2005; Akkihal 2006; Cassidy 2010). Next to that, RLC capacity can be shared with partner organizations that do not have regional warehouse capacity and inventories can be bought in bulk, including combined orders with other humanitarian organizations to create economies of scale taking care of the division of responsibilities through MoUs and standardizing emergency response kits between organizations.

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Annex 5: Roles of facilities in supply chain performance


1. Supply chain role of facilities: Facilities are the locations to which or from which inventory is transported and stored before being shipped to the next stage in the supply chain. In an existing programme the focus will be on the efficiency of the warehouses. All warehouses existing ones and new ones should be inspected with the use of a checklist including key identifiers on the warehouse appropriateness, ranging from the layout of the facility to the skills of the warehouse staff. The checklist is presented in Annex 6.

2. Strategic role of facilities and 3. Decision components: Country main warehouses are often used to hold emergency goods for seasonal emergencies and support stocks like vehicle parts. They are also used to hold inventory en route (overnight parking of trucks, trailers) and for cross-docking and transhipment if space and layout allows. Project locations have their running stocks and local warehouse facilities. A choice could be to share the use of facilities between humanitarian actors. Locating facilities close to beneficiaries increases the number of facilities needed and reduces efficiency, but increases responsiveness. Choices made in this respect depend on the response phase, product segmentation, expected future changes in that respect and local security situations. Factors to take into account are, among others, the availability of a local market for humanitarian goods, the existence and location of international logistical decoupling points, the security situation, the level of uncertainty towards possible in-country disasters, the availability of appropriate premises, skilled staff and staff cost, the size of existing programmes, the in-country infrastructure and the needs of our beneficiaries.

4. Trade-off in facilities: The overall trade-off in is between the cost of the number, location and type of facilities and the level of responsiveness that these facilities provide the organisation as portrayed in Figure 16. At each operational level regional, national and local an analysis needs to be made on the balance needed between efficiency and responsiveness in relation to the number of warehouses (Chopra and Meindl 2009). The setup of capital and field warehouses depended on a variety of factors as discussed earlier, resulting in a mix of centralized warehouses and decentralized close to beneficiaries, distribution points and possible future distribution locations if applicable.

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Annex 6: Warehouse checklist


Layout of the facility: 1. Height of building and product stacking. Allow space between the top of the load and the lowest obstruction. This includes space for ventilation, sprinklers, and forklift load backrest; 2. Obstructions to the building. Consider the placement of roof support columns and their impact on rack configuration, warehouse access and other warehouse operations; 3. Type of floor. Will the floor material support the rack system, product, and material handling equipment? Has the foundation been inspected for caverns, unstable soils, etc? 4. Does the floor material and entire structure meet any applicable seismic considerations? 5. Temperature and moisture variation. The temperature difference (outside versus inside) and high moisture content determines the type of ventilation needed and de-humidifiers needed. If this equipment cannot be powered in the location, racks and other material handling equipment should be galvanized or coated to reduce rusting and corrosion; 6. Building entering and exit locations. What type and size of dock doors are in place, how many will be needed and how are they configured? What are the dimensions of other doorways that equipment and loads will pass through? Are there sufficient emergency exits? Is there a need to add doors or adjust the current doors? 7. Fast moving items should be stored near to loading doors to minimise handling time and ensure optimum use of space. 8. Define the space required for packing, palletizing, repack operations, return operations, quarantine areas, high-value secure areas, maintenance areas, etc. 9. Dangerous goods. Are dangerous goods and chemicals clearly marked, are handling instructions included, are they stored separately? Are flammable goods stored outside, 10 metres from the main building, with fire extinguishers, sand and blankets nearby? 10. Evacuation. Is there an emergency and evacuation plan?

Load Sizes and Equipment: 1. Determine load sizes. Calculate load dimensions for each product line (height, length, and weight) to define whether the current rack configuration is effective. 2. Determine the type of handling equipment that will be used for rack storage in the warehouse. Top load levels of racks should be compatible with lift height. 3. Storage rack dimensions: The basis for the warehouse layout.
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Warehouse Staff: 1. Determine the skill level required of warehouse personnel. What staff training will be needed (warehouse equipment, computer, management, security, etc.)? 2. Determine training and HR needs. 3. Determine if language translation will be needed? Will warehouse materials need to be translated into local language? Do computer systems need to adapt to bi-lingual setup? 4. Security personnel. Are the security plan, the setup with respect to security personnel and their skills appropriate? (Davis and Lambert 2002; USAID 2005A; Bourne 2009)

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Annex 7: Roles of transport in supply chain performance


1. Supply chain role of transport: Transportation plays a key role in the responsiveness and efficiency of a supply chain because it moves product between the different levels of and facilities in the supply chain, but also responsiveness in transport comes at a price. Faster modes of transport and smaller batches generally more cost than slower bulk transport. There is a clear trade-off here in cost vs. speed. An overview of criteria for various modes of transport is visible in Table 2 on the next page. Over the past years there have been some lessons-learned cases when it comes to integrating procurement, warehousing and transport. In each of these cases, it indicated the need for stronger ties with your business partner, being suppliers, transporters and 3PL providers. 1. Procurement + Transport: Research taking place within the Pan American Health Organization (PAHO) showed that transport accounted for 5.6% of the total supply chain cost incorporated in a product. Despite the millions spent, transport was not part of the bid awarding process. Based on historical shipping cost per product, a scalar was developed to value the transport cost of each supplier-product combination towards each project country. This data was used in the bid awarding process and compared against bundles of products in separate orders, resulting in better transport cost efficiency (Ak et. al. 2007). 2. Procurement + Warehousing + Transport: Some items are so frequently needed in disaster response that BPAs and strong relationships with suppliers are the best way to tackle the pre-positioning and transport of these items, or develop MoUs with other humanitarian organizations to partner with and donor partners like UNJLC who also transport (Kaatrud, Samii and Van Wassenhove, 2003). 3. Warehousing + Transport: 3PL providers have extensive knowledge and experience in integrated supply chains, and have seen the same issues crop up over a variety of organisations and know the techniques to overcome these issues. They can also leverage economies of scale through combined facilities and shipping at much larger scales than any but the biggest humanitarian organizations and donor partners. And last, the use of 3PL providers allows for easier up and down-scaling (not having to deal with possibly painful measures like lay-offs, or, conversely, having to go through expedited hiring of new staff). It is recommended to outsource the routine logistics work and focus the organizations supply chain capacity on specialized humanitarian logistics and supply chain tasks and last-mile-logistics (Amin and Goldstein 2008; Bourne 2008 and 2009; Bours 2013).

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Table 2: Transport modes and their specific criteria4

Source: http://log.logcluster.org/response/transport/

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Why would 3PL providers necessarily be from outside the aid world? Why wouldnt some of the larger aid organisations with strong logistics capacities act as 3PL providers for smaller organisations? The Logistics Cluster and WFP are good examples, but it might be possible that other organizations like MSF or Oxfam, or perhaps even some governmental health logistics units would start delivering 3PL services to other aid organisations. After all, they know better than most generic 3PL providers how to operate in the settings where we work, and hence can provide even better (and probably cheaper) services (Ak etl al. 2007; Amin and Goldstein 2008).

2. Strategic role of transport and 3. Decision components: Transportation as a strategic driver in the supply chain is seen as a choice between responsiveness with the associated cost increase, or lower transport cost at the expense of responsiveness. But the trade-off is not limited to cost versus responsiveness. Humanitarian organizations should start incorporating supply chain cost in the bid analysis for bigger orders of humanitarian goods, in the BPAs with suppliers and MoUs with humanitarian actors to make sure transport cost efficiency is achieved without giving up on responsiveness, and at the same time increasing flexibility. Choice on transport modes and networks should be made on a case by case basis, taking into account the availability of goods at certain points in the network, transport availability, security constraints, absorption capacity of programme teams and the ability to track goods to the beneficiary.

4. Trade-off: The overall trade-off for transportation is between the cost of transporting a given product (efficiency), the speed with which that product is transported (responsiveness), and the flexibility and reliability of the specific mode of transport. An overview of different transport modes and criteria to take into account is presented in Table 2 on the previous page.

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Annex 8: Elements and reach of a H-LMIS

Figure 22: Elements and reach of a H-LMIS


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Annex 9: Actors in the humanitarian supply chain


The actors in the humanitarian supply chain are visualized in Figure 19, in Chapter 4, and further discussed below.

Demand is assessed by humanitarian organizations ((I)NGOs in short) and aid agencies, which can be viewed as the primary actors through which governments channel aid. The largest agencies are global actors, but there are also many small regional and country-specific aid agencies. Both aid agencies and (I)NGOs can take the role of being an implementing partner or a donor towards another implementing partner. Donors are important actors as they provide the bulk funding for major relief activities. Other actors include the military (national military, UN Peacekeepers, DART, PRT, etc.), civil society, nonstate actors (linked to the (inter)national civil society, but with the power to enforce change), beneficiaries, (host) governments and logistics service and transport providers. In some crises, rebel forces, freedom fighters or terrorists might be seen as non-state actors impacting the delivery of humanitarian supplies, and in some cases partnering in the delivery of humanitarian aid in rebel-held areas. Despite the fact that many of the actors in the network will have their own political agenda, its important to depoliticize the delivery of humanitarian aid in order to guarantee a certain level of independence and neutrality and as such improve security for the operation. Host governments are important actors as they control assets such as warehouses or fuel depots. Incountry logistics or regional logistics service providers are another important set of actors that can either facilitate or constrain the operational effectiveness of our logistics operations. In bigger international relief efforts, extra-regional logistics service providers like DHL and the military are also important in the supply process. (Kovacs and Spens 2007; Howden 2009; Scholten, Scott and Fynes 2009)

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Annex 10: Supply chain performance indicators


Based on USAIDs Logistics Indicators Assessment Tool (2005B) and the work of Davidson (2006).

General supply chain indicators: 1. INDICATOR: Accuracy of logistics data for inventory management RELATED INDICATOR: Percentage of facilities that keep accurate logistics data for inventory management, Helios data compared to monthly sample stock taking RELATED INDICATOR: Percentage of facilities that complete and submit an H-LMIS report on time for the most recent reporting period as set out in the H-LMIS. 2. INDICATOR: Percentage of Facilities that maintain acceptable storage conditions, being the Percentage of Facilities meeting a desired level of the storage conditions as set out in Annex 6 and re-evaluated every 6 months 3. INDICATOR: Percentage of facilities that experienced a stock-out at any point during the last reporting period RELATED INDICATOR: Percentage of facilities stocked out of any product on day of last sample stock taking RELATED INDICATOR: Percentage of facilities fully stocked (all products) on day of last sample stock taking RELATED INDICATOR: Mean duration of stock-outs RELATED INDICATOR: Mean number of products stocked out/in stock on day of last sample stock taking RELATED INDICATOR: Percentage of products stocked out/not stocked out at any time during past 6 months RELATED INDICATOR: Mean number of times products were stocked out in the past 6 months.

Indicators for measuring transport and distribution performance: 1. INDICATOR: Percentage of facilities that receive the quantity of products ordered RELATED INDICATOR: Average duration of time between the dates an order was placed and when it was received RELATED INDICATOR: Percentage of facilities that received their last four orders according to schedule. 2. INDICATOR: Percentage difference between the quantity of products ordered and the quantity of products received
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RELATED INDICATOR: Percentage of unusable stock received, due to expiration RELATED INDICATOR: Percentage of unusable stock received, due to damage RELATED INDICATOR: Percentage of stock missing due to theft during transport RELATED INDICATOR: Value of unusable and missing stock as a percentage of total item purchases.

3.

INDICATOR: Average delivery time.

Indicators for measuring warehouse and inventory performance: 1. 2. INDICATOR: Percentage of warehouse orders placed that are filled out correctly INDICATOR: Accuracy of sample stock taking for inventory management, based on the percentage of discrepancy between stock sample balance and the physical inventory (by product) 3. INDICATOR: Percentage of stock wasted due to expiration, damage or theft RELATED INDICATOR: Percentage of unusable stock due to expiration RELATED INDICATOR: Percentage of unusable stock due to damage RELATED INDICATOR: Percentage of stock missing due to theft RELATED INDICATOR: Value of unusable and missing stock as a percentage of total item purchases. 4. 5. INDICATOR: Order turnaround time INDICATOR: Inventory turnover rate.

Supply chain cost efficiency: 1. INDICATOR: Donor budget coverage, being the percentage of the total budget covered by external funding, opposed to private funding 2. RELATED INDICATOR: Percentage of logistics related budget lines covered by donor budgets RELATED INDICATOR: Percentage of supply chain related budget lines covered by donor budgets RELATED INDICATOR: Percentage of logistics overhead cost covered by donor budgets. INDICATOR: Logistics budget consumption, actual money spent on logistics and supply chain related budget lines as percentage of the total programme budget 3. 4. 5. INDICATOR: Percentage of over- and under-spending on logistics and supply chain budget lines INDICATOR: Transportation cost as a percentage of total product cost INDICATOR: Import clearance cost as a percentage of total product cost.

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