MTTN45 Humanitarian Logistics Sourcing and Procurement 10 April 2014

1. MTTN45 Humanitarian Logistics Sourcing and Procurement 10 April 2014

2. Module • April 9 and 10 • Introduction to sourcing and procurement in the humanitarian context • Lecture on relevant issues • Case discussion among groups • Relevant topics of the day • Procurement at the UN and the issue of sustainability

3. Module4inthe course Module2:Strategic&TacticalPlanning Module3&9:Accountability,PerformanceMeasurement&Coordination Consolidate, publish Needs Module4: Source Module5:Transport Module7: Stock Module8: Distribution Assessment •NFI •Shelter •Food •Health •Watsan •Cash •Warehousespace •Officespace •Communication/IT •Transport infrastructure •Transportmeans •Equipment •Tools •SOP,standards& plans •Manuals •Contracts&framework agreements •Suppliers,donors Items Facilities&other infrastructure Systemsandrelationships Humanresources •Rostersof logisticiansand othertechnical experts •Trainingcourses 3

4. Content • Introduction to sourcing and procurement in the humanitarian context • Needs assessment • Supplier selection • Contracting • Ordering • Follow up and evaluation

5. Sourcing inthehumanitariancontext • Procurementaccountsforalargeshareoftotalcost(Schulz2008) • 65%procurement(suppliesand equipment)(variesif itisincludedin logisticscostin the organizations) • 15% transportandwarehousing • Howgoodsandservicesarepurchasedhasconsequencesfor effectivenessandefficiencyofanoperation • How e.g. transport,storageanddeliveriescan be setup • How coordinationofactivitiescanbe undertaken • Howrelationshipsbetweenactorsinvolvedin the supplynetwork can/shouldbe developed

6. Some issues with it … • http://wbi.worldbank.org/wbi/multimedia/improvingtransparencyandaccountabilityinpharmaceutical

7. Objectivesofthelecture • How to work with sourcing and procurement process and strategies in the humanitarian context • Some understanding in the links between disaster response and development Preparedness Developmentcan becomparedto Recovery, preparedness and long term response • Suddenonset • Longterm Recovery Response Source:Heigh; Everywhere(2010)

8. Disastertypes • Naturaldisasters arenaturallyoccurringphysicalphenomenacausedeitherby rapidorslowonset eventswhichcan be: • Geophysical(earthquakes,landslides,tsunamisand volcanic activity), • Hydrological(avalanches and floods), • Climatological(extreme temperatures,droughtand wildfires), • Meteorological(cyclonesandstorms/wavesurges)or, • Biological(diseaseepidemicsandinsect/animalplagues). • Man-madedisastersare eventsthatare causedbyhumans andoccurinor close tohuman settlements. • Thiscanincludeenvironmentaldegradation,pollutionandaccidents. Examples are:complexemergencies/conflicts,famine,displaced populations,industrialaccidentsandtransportaccidents. Challenges,suchasclimatechange,unplanned-urbanization, under-development/povertyaswellasthethreatofpandemics,will shapehumanitarianassistanceinthefuture.Thesefactorswillresult inincreasedfrequency,complexityandseverityofdisasters. Source:EM-DatandInternationalFederationof the RedCrossand RedCrescent Societies:www.ifrc.org

9. Agenda • Thepurchasingprocess • Practicingdifferentstagesofthepurchasingprocess inthehumanitariancontext • Whatcangowrong? • Caseexample

10. Purchasing Purchasing Strategy Purchasing Organization Purchasing process Develop ordering process &order Negotiate and contract Expediting and evaluation Follow-up and evaluation Determining specification Selecting supplier Internal customer Supplier (Source:vanWeele,2010,p.9)

11. Purchasingstrategy • Basedonhigherlevelstrategy • Whyarewebuying? • For-profitvs.nonprofit • Disastervs.Development • Responsevs. preparedness • Who'sbuying? • Company:for-profit(differentiation,lean,etc.)http://www.peepoople.com/ • Organization: nonprofit(lowestcost,fastestdeploy,etc.) • Country:developmentvs.disasterrelief!

12. Determiningspecifications • Wronginput escalatesupthepurchasingprocess! • Needsassessment • Technicalpre-specifications(e.g.emergencyitemscatalogue,orWHO specificationsformedicine) benefits? FindingtherightneedClimate Diet Culture andtraditions etc What’s thesituation? What kindofdisaster? What kindofdiseases? Whereto getinformation?

13. Determiningspecifications • Qualityandtechnicalspecifications • Whatquestionstoask? • Expiry date? • Productinlocalclimates? • Cheaperproductsubstitutes? • Quantity specificationandforecasting Therightvehicleforthesetting?

14. Determiningspecifications • Disasterrelief (response) • Notknowingwhatand where • 72hourtimeframe • Whataregoodwaysof assessingneeds? • Development (preparedness) • ? • Fairlystable • Forecastingtools • E.g.WHO health initiative • E.g.Purchasingfor Haiti • Epidemiological and demographichistory

15. Whatcangowrong? During theChad Emergency, therewasaneed forsanitary towels to be distributedtowomenrefugeesinthecamp.Discussionsontheappropriate improvisedsanitarytowelwentincirclesforaboutthree months.Duringthis time,womendidnotstopmenstruatingtoallowthemattertoberesolved.The logisticiansinvolveddidnotcomprehendwhatthealternativeoptionswereapart fromthemanufacturedproducttheymayhavebeenfamiliarwithbackinamodernsociety. (Source:WISE, 2009:6)

16. Whatcangowrong? Thesecondwasacasefromthe2004Tsunami.Thiswaswherealogistician receivedapurchaserequesttosupplytheprogrammewithwomensunderweartobedistributedtothoseaffectedinBandaAceh.Thispurchaserforgotthat peoplecomeindifferentsizes.Heplacedanorderforone size andin one color.Eventuallytheone-sizedunderwearhadto be returned.Thiscausedadelayin distributionandadditional costs. (Source:WISE,2009:6)

17. Selectingsuppliers • Market research/ Marketanalysis • RFI,RFQ,RFB • Evaluationandaudits • Supplierselection Criteria(price,quality,lead-time,reliability) Strategies • • • Competitivebiddingandtenders • Spotpurchase • Continuepurchasefromsupplier • Prepositioned • Donations Single vs.multiplesourcing Globalvs.localsourcing(availability)

18. Comparativebidanalysis SUPPLYCHAINDEPARTMENT RequestNo: Specification: Country: ProjectCode: Budget:

19. Whatcangowrong? Globalvs.local Thecaseofmalarianetsandhowbypurchasingthefirst batchglobally from the westerncountrieswithout realizing the unavailabilityoflocal production;bythesecondyearwhenthe netswere wornout,ahugeproblemwasfaced. Competitivebidding Duetopublic procurementregulationsoverarchingall humanitarian organizations, purchaseofstationarywasrecentlysuggestedtobecentralizedinoneoftheorganizations.Thismeansthatsuppliersare invitedtosubmitofferstoapublictendersomewhereinEurope,storedinacentralwarehouse,andthen shippedto thelocaloffices.Asidefrom thepossiblyquiteexpensivecostoftransport,theenvironmental consequences,thepossibleaddedtransactionasopposedtolocalspotpurchaseisnot takenintoaccount.

20. Whatcangowrong? Pushingfor lowerprice(vaccinemarketfailure) Thevaccine market being highlyregulated experiencedbigfailuresinthe beginningofthecentury.Buyerswereonlypushing for lower priceandhencetryingtobuy fromsinglesources.Othersuppliersnothavingthecapacity hadtoexitormerge.As aresultbuyersfaceda monopolymarket withshortageof supplycapacity.

21. Contractingandnegotiation • Longtermorshortterm • Detailedandhard,softandreplacedbytrust and norms • Termsandconditions • Quality requirements • Specificpackaging • Responsibilitiesindelivery,etc.

22. Goodsmustbepro,perfypackedtoIJJreventclama_geofanykindandPadlistmust aa:ompanythespmentto"ndicatecontentsofeadh.shipment.Pacta,g.esshouldbeproperlylabeledtoindicateSr'sname,ConsigneeandPurchaseOr-derNumber. 6.PaymentTenns PUIRCHASEAGREEMENT lli)ate_ (STATEW1M:EOFORGANIMTION)willpaydiepun:ih:asepJic:eIlia e,g.bankwiretransfertoSeller'slb<ulkaccountindicatedbelow.Bank wirefeesareforSeller'.s.acc:olDL Paymentwillbemadeinfullonreceiptofconfirmationfrom(STATENAME 6.1 IPURClHIASECONTRACTlfORTHESUPPL"ii'OF 62 OFORGANJSATION) All·rwoicesandothernecessary doomnent5.shallbesenttotheattentionof thefolICM1ing{STATENAMEOfORGANISATlON)representative:; 63 IBETWEEN: {StiltenilllleofOrga.ni5ation)((STATEl\Wvl.EOFORGAMSATION'l"JINameofCountryOfficeifapplicable) AND 'Jl:fSupplierIHer·ebyknownasseller) 7.Duties,.Taxes.Customs Sellerisresponsibleforallap,plicablesates,exportandimport dutiesandtaxes, whetherincol.Dtryoforiginaranytransitcountry,andensurin,gthatallnessarylicensesorcustomsclearances.areobtained. 1.GoodsPurchased 11 (STATEl\Wvl.EOFORGANliSATION)a_1,7,feestoIJJUrcha!Se,andSelleraueesto sell,tihefollolhingitem 8.Termination8.1 12\/a1TC1nty:Oneyear ItemtobeofgoodqualityandCD11formtoindustrystandardsforfik.eitems.(STATE 1'Wv1EOFORGANISATIONIr'esE!f'.'estherighttorejectanyGoods whidha!"edefectiveinmaterialorworkmanship,andmay,inadcfitiontoanyotherlegalremed2s.,ratumsudhGooostoSetlerat Seller'seic;penseorotherwisecispaseofsud!Goodsina mmmercialy!"easonablemanner. (STATENAfvtEOFORGANlSATION)mayterminathisContractatanytime :Should theanticipatedfundingforthisprojectfromit5dooor(s)beeliminated,arforany otihe.. reason.Inthe!!WiitofsudratE!f"minatian, SellerwillbeIPiiidaccordi11gtothepaymenttE!lilllSspecifiedhereinforanyGoodsac:.tuallyshippedpriortothet.ermin:ationdatethatconformtotlhiisContract. ThisCo:ntll"a.ctmaybeterminatedimmediately by eitherpartyintheeventaf abreachoftheprovisions he..einbo,itileotherparty,inadditiontoWhatever ramediesordamagesareprovidedunderthegovemin,g·law. ThisContractma,ybet:erminatedbyeitherpartyintlhe eventofany interveningll'forcemajE!lmG(naliural<ftSaSter,war,etc.)recogniczedunder thegoverninglaw. 8_2 2. Price 'Priceiooudesfreiqtrtandinsurrmcefo,.deliveryto(STA1iErtAMfOFORGAMSAROM 83 3.Shipment.andDeiveryTerms 3,1 SellerwillarrangeforshipmentoftheGoods,atSeller'seic;pense,to{State name ofOrpnisation)operationsin at the OF 91.Miscellaneous foUowingdeliveryaddress:(STATENAMEORGANISATIOl\li__ SellershallnCJtassignit:sri,gntsorobligationswulerthisContf'ilct,inwholeorin part,norenterintoanysubrontractt.operformanyportianaftlhisContract,withoutthewrittenconsentaf{STA1ENAMEOFORGANlSATIOl\I)_ThisContractS11persedManyandaICJtheragreements,oralorwritten, !between(STA1ENAMEOfORGANliSAllOO)andSellerwithrespecttothesubjectmatterhereof,andooagreement,statement,orIJJKlflliserelatingtothe5Ubjectmatterof thisContractotherthanllhatwhichiscontainedhereinShallbebindingpcmtheparties.lhisContractmaynotbeamendedtbo,iwrittenagreementofbothparties. SellerreestoindemnifyandlhoJdharmless{STATENAMEOFORGANISATION)fromanyand alldairnsotrlrablUtiesinc:ur!"edby(STA1ENAMEOFORGANlSATIOlll)as aresultofSeller'sactionsoramissiansinperfonningtlhisContract. Sellerwarrants1hatit:s1performanc:eofthisContract,andtheGxldssup,plied1underthisCo:ntract:,willcomplywitlhalapplicablelawsand ragulatiDns. ThisC:Ontract.shallbego'lemedbythelawsoftheStateof (ornameco11ntry)_unlessotherwiseaueedlbythe p;ilties hereto,anycontroverrsyordaimari:singoutoforrelatingtothisContractwhidlremainsl!nresolvedafte..negotiationshallbesettiledbo,i bindingarbitrationbeforetheStateArbitratiDnAssociationac:amlin,g:toit:s 9.1 Shipmentwill bevila1_ Sellerw·Ii:rovldeappropriatenotific::atronto{STATENAMEOF OF 32 33 92 ORGANISATIOl\I)priortosh"pmenttoenable(STATENAMEORGANISATION),orathi:rdpartyiioncompanyoffStatenameof Organisation)dioice,toinspeotthegoodspriortoshipment.HrequiredSellerwillarraqgeforinsur:aneeontheg.oods,atSEiierseic;pense,uptothe pointofdeli:ver,ito{STATE.NAMEOFORGANISATION.I,usingadulylicensedand!"eputable·nsurancecompany. Sellerwilll"etaintitleto,andrisikoflossfor,theGo<idsuntiltheyare 3.4 93 3..5 delivered to (STATENAMEOfORGAMSATIONIin 9.4 4. Delivery schedule 4.1TiirneisoftheessenceinperfonningthisContract,,andSellerwillensure thattheGooclSaredelill'eredtothedeliveryaddressnolatertl\anthe 9..5 42Apenaltyof l:'.16willbeohargedforeveryweekdelayed

23. Whatcangowrong? Poor packagingspecifications Not givingspecificspecificationsandrequirementsof packaging,resultedinboxesandpackagesthatcouldnotbestored properly.(seepicture)

24. Contractingandnegotiation • Whodrivesthenegotiation? • Whatsafeguards? • Measurestoincreaseleverageinnegotiations • Grouppurchasing • Increased shareof information • Futurecontracts • Diversification

25. Ordering • Spot purchaseor orderfromcontractedsuppliers • Trustindelivery • Howmuchtoorderandwhentoorder

26. ORGANISATIONSNAMEANDLOGO ORGANISATIONSADDRESS To: Attention: Date: FaxNo. OurFileRef. CC:Country office: RegionalOffice: ForInformation: Purchaseordersample Total No.ofpages Teldirect.: Email: Faxdirect: From: Re:PURCHASEORDER GOODS– DESTINATION Youroffer, Our Ref. Reg. No……………… DearSir/Madam, Thankyou foryourabove mentionedoffer.We are pleasedto confirmour orderasfollows:- Seller SupplierNameSuppliersAddress Name ofbuyingOrganisation + Address Buyer Goods Describegoods Describegoods Transported by…………………………. Transport Time ofDelivery:ETD(Estimatedtimeof departure+place) ETA(Estimatedtimeof arrival +place) Packing Descriptionoftypeof packingdesired(Strongexport Packing suitablefor transportationmethodand roughHandlingup to finaldestination

27. LOCAL PURCHASEORDER DELEGATIONADDRESS NO:prenumbered TOBEQUOTEDINALLCORRESPONDENCE (arappelerdanstoute correspondance) Purchaseordersample DATE THISPURCHASEORDERISONLYVALID DULYAUTHORISEDSIGNATUREandSTAMP CEBONDE COMMANDE N'ESTVALABLEqu'AVECUNESIGNATURE etUNTAMPONAUTORISES

28. Ordering • Development • Partofanongoing contract? • Predetermined terms • Specifictime frame • Disasterrelief • One-timeorderorcontracts? • E.g.Frameworkagreements • Whatwouldthetermslook like? • Timeandplacenotclear

29. Whatcangowrong? Delayedordering Oneofthe top reasonsof stock-out. CountryX,Y, andZ,"late" order placementwithNGO January December Time Supplier deliveryto countries Countriesorder placementwith NGOaccording tocontract NGOorder placement with supplier accordingto contract

30. Expedition,follow up and evaluation • Supplierevaluation?Basedonwhatcriteria?Howto measure?Wheretogetinformation? • Qualitycontrol(medicine,nets,blankets,food) • Localsupplierdevelopments(why?)

31. :sG1un'.e:Tearfund SupplierRatingTool SupplierName:Product/Service Provided: ReasonForRating: AnnualReview: YES /NO ProblemfServiceIssue: YES/NO New Supplier: YES/NO Otfler•: YES/NO • (Otfler)PteaseSpecify: Fixedfortheperiodof thecontract PricingPolicy: Fixedperiod Annualreview Variable -"- ) PricingPolicyReviewDate: DateofLastReview: --0 NextReview Date: AnnualSpend(NewSuppli.erShowAsAnEstimate): TearFundfSupplier ContractTermsand Conditions: TotalRatin,g:Total score,, NumberofAssessedMeasures Status: VeryGood(4.5+")/Good(3.J-4.4)/Average1f3.&-2.9)/Poor(2.8-2.1) /VeryPoor(W(2.0-0.0) PreferredSupplier{Tender)1PreferredSuppli.er(Quotation)F°IXedQuantityContract Non-CompetitiveArrangement ContractualStatus: PerformanceImprovementActions:----------------- • DeleteasAppropriate Rating:·completedby(Name):------------------- RatingKey: Signed:Date:_ 1=Poor 2=Fair 3=Acceptable 4=Good -Notacceptable - Notconsistent,needsimproving -Someinconsistency -Reliable&consistent

32. Whatcangowrong? Supplierevaluation Notthatcommoninthepurchaseprocessinthe humanitariansector. WHOpre-qualifiedlistofmedicineandvaccinesuppliers.

33. Purchasing Purchasing Strategy Purchasing Organization Purchasing process Develop ordering process &order Negotiate and contract Expediting and evaluation Follow-up and evaluation Determining specification Selecting supplier Internal customer Supplier (Source:vanWeele,2005p 13[2010,p.9])

34. Case discussion • Your task: Set up an action plan for sourcing and procurement • Answer the following questions for each stage of the purchasing process: • What kind of information do you need? • Where do you need to find the information from? • What strategies and practices should you carry out? Develop ordering process &order Negotiate and contract Expediting and evaluation Follow-up and evaluation Determining specification Selecting supplier