Evaluating the most appropriate Procurement Operational Design for the Supply of Medical goods by Humanitarian Organizations.
by Catherine O'Shea
Being humanitarian in nature is no longer sufficient justification against poor optimization of an organizations logistics activities and processes. Increasing calls to achieve value for money and the professionalization of humanitarian organizations have contributed to calls to adopt standard commercial practices and apply them to the humanitarian setting.
This research centers on one international humanitarian organization, “White’s” logistics departments endeavor to achieve the best possible customer service levels while remaining simultaneously cost-effective and true to its organization's core prerequisites, and whether redesigning its current procurement operational design will contribute to accomplishing this goal. As different humanitarian interventions may call for different mechanisms of response, this research focused on the procurement of medical goods.
Searches for literature on the Procurement Operational Designs (POD) for humanitarian organizations returned mainly research carried out on tendering mechanisms and emergency responses, yet nothing on the optimal structure of a humanitarian procurement design.
Therefore following the calls for humanitarian logistics to adopt practices from the commercial sector, a literature review was carried out based on the procurement operations designs from that sector.
Thanks to globalization, an organization may use a number of different designs to manage its procurement operations. Among these are centralized, decentralized, offshore or hybrid designs, or a mix of more than one design. Each design offers opportunities for gain as well as a potential for loss. This research was designed to fulfill three research questions:
R1: What are the existing Procurement operational designs in place in Humanitarian organizations dealing with Medical goods?
R2: What are the opportunities and challenges of these operational designs?
R3: Do the other Procurement operational designs existing offer opportunities to White to better meet the requirements of their internal and external stakeholders?
The research begins with an exploration of the White organization. This exploration reveals that White operates across a broad range of humanitarian interventions and that it holds independent self-determined emergency response and providing assistance of an acceptable level as an integral part of its organizational identity. Subsequently, an assessment of Whites Logistical services, their evolution over the last 10 years and the consequent impact of this evolution on internal customer satisfaction levels.
This is followed by an evaluation of the current “as-is” situation of its medical procurement and logistics services using the Supply Chain Operations Reference model (SCOR). The aim of applying the SCOR model is two-fold: to provide objective data against which to understand the subjective internal customer satisfaction data collected and to gain an understanding of White’s individual characteristics and constraints. This “as-is” data analysis shows suboptimal achievement rates for both suppliers to White and for White as a supplier to its internal customers. It also shows high staff costs for it's headquartered operations versus staff costs in its Kenya operations. This may be offset by higher market quality assurance and security of supply through proximity to a large stringent regulated market (SRM) of its headquarters operations than at its Kenya operations.
The research then proceeds to benchmark White against other organizations operating in the similar sphere of providing Health-related assistance across multiple regions globally and responding to both regular program needs and emergencies. This benchmarking was qualitative in design utilizing an interview guide and semi-structured interviews with senior procurement or logistics personnel within White and 4 other organizations.
The aim of this benchmarking is to explore the types of procurement operation designs in use in humanitarian organizations, and in each case the experienced challenges and opportunities they present to the humanitarian organization. The main findings are summarized below.
Centralization with each program requisition order filled individually retains control of the procurement function yet leads to a high administrative burden. Decentralization shortens the supply chain between the supplier and the customers but does seem to exhibit the negative symptom associated with decentralized functions as seen in the literature review of loss of strategic significance to the organization. The two decentralized organizations both make use of offshore procurement support entities. Of these organizations, one’s experiences with offshoring were overall negative while the other, who had two employees interviewed for the research, had little knowledge of the offshore entity. Portfolio management (hybrid procurement) is carried out in White and one other organization, both having implemented it in different ways. Both advantages and disadvantages exist in each organization examined, with only one of the decentralized organizations giving a predominantly negative overview of their own organization’s services.
Certain common findings were found. These included the impact that donor drove exigence’s influence the procurement design. Most of the organizations were unable to hold contingency stocks to respond to emergencies as their funding was earmarked, thus program specific and not available to move between programs as emergencies may require. Of these four organizations, only one has supplier guarantees of stock availability in cases of sudden requirements negotiated. The others appear to rely on the UN cluster system and other organizations to bridge the gap in their medical emergency responses, this in spite of all organizations including emergency response as one of their areas of intervention.
A point which emerged during the research is the difficulty in decomposing the POD from the sourcing and quality assurance functions with regard to medical goods. The research found a wide variation between the participating organizations on quality control requirements. Two organizations, of which White is one, observe similar quality assurance standards, while for the other three, though the quality of goods provided is a stated priority for the organizations, the practices followed do not reflect this. Quality control in these organizations is in the hands of or under the influence of program managers, creating an inevitable conflict of interests as to accept goods over which doubt exists or impact program success.
During the benchmarking, it was revealed that two of the participating organizations rely heavily on the same select pool of specialized distributors. These distributors source a broad range of items from multiple sources, consolidate the goods and also provide the shipping services directly to the program. Over-reliance on a select number of these type distributors is a risk to the security of the supply of goods when needed and to a certain degree places the control over Whites supply chain and consequently its operational success into the hands of a third party. Further, holding perishable neutral inventory (i.e. stock which is not tied to a particular program at a time of procurement, is available to serve demands for all programs) is unique to White, and the POD’s of the other organizations do not facilitate the management of perishable inventory. As this is essential to the emergency responses capacities of White, any new POD considered must accommodate it.
Owing to these combined findings, it was determined that no single design revealed in the research can be directly adopted by White. The POD allowing the best “fit” to characteristics integral to White’s core identity is to continue with portfolio management but to alter and align its implementation more to the classical design as implemented by the second organization using it, with modifications to maintain White’s more stringent quality assurance requirements and accommodate the management of holding neutral inventory. In order to reconcile to Whites requirements, the main deviation from the POD in place at the second organization using portfolio management, is that in place of devolving the transactional requirement of the procurement function to the program level, White creates support positions based in an existing Eastern European support center who take on these transactional tasks under the supervision of the lead buyer. The justification for this is the following:
- Allows an increase in the capacities of the POD with minimal cost to White.
- Lead buyers capacities for supplier management are increased
- Whites emergency responses remain self-determined and independent
- Continues with consolidation of program requirements to maximize economies of scale and process
- Facilitates holding contingency stocks of perishable goods and rotating these stocks within the neutral stocks held for regular program response.
- Existing quality assurance levels maintained.
- Program workloads are not increased or disrupted.
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