Supply Chain Expenditure & Preparedness Investment Opportunities in the Humanitarian Context

Recognized as a leader in the fight against malnutrition, ACF is committed to save lives of malnourished children while providing communities with access to safe water and sustainable solutions to hunger. With an annual budget of € 307.6 M (budget of 2016) the organisation is currently active in 50 countries assisting around 15 million beneficiaries (Figure A).
In the past 15 years, the organisation has been playing a very active role in international relief operations and responded to most major disasters around the globe. Aiming at working efficiently with minimal fundraising and administrative costs, it strives to commit $ 0.93 of every dollar directly to its field programs. Despite this lean and cost efficient approach, the organisation cannot escape the growing gap between available funding and actual financial requirements to meet the world humanitarian needs. On a global scale, 40% of US$ 19.7 billion appeals coordinated through the UN remain unmet (UNOCHA 2017).

To tackle the complex challenges in the sector and to address major issues such as the growing funding gap, the international community gathered in May 2016 at the World Humanitarian Summit (WHS) in Istanbul. A new Agenda for Humanity was shared with the purpose of achieving “better, safer and more efficient aid”. In preparation for the summit, the Global Logistics Cluster together with the Kuehne Logistics University (KLU), HELP Logistics and numerous INGOs published a paper “Delivering in a Moving World” (Guerrero-Garcia et al., 2016), putting strong focus on the importance of logistics and supply chain management for efficient (cost saving) and effective (time saving) humanitarian operations. The paper discussed current challenges in the humanitarian supply chain and provided recommendations toward overcoming them. ACF contributed very actively to the paper and strongly supports the key message that the supply chain, as a backbone of humanitarian operations, bears tremendous potential to make aid more efficient and effective. Subsequently, in the aftermath of the summit ACF showed strong interest to push the recommendations further and to refine its supply chain strategy accordingly.

In a very first step ACF envisaged to have an evidence based test on the significance of supply chain management within their organisation. In regards to the widely-spread assumption that supply chain represents between 60 to 80% of the humanitarian expenditures (Van Wassenhove, 2006), the organisation wanted to know whether this percentage also applies in their context. To independently assess data and to avoid bias, ACF entered into a third party partnership with the Kuehne Logistics University and HELP Logistics. The extensive research took place from June 2016 to September 2017 and consisted of analysing ACF’s costs in six major relief operations of all types (natural disaster, complex emergency and epidemic) in the past 15 years. The supply chain expenses of the operations examined, namely Tsunami in Indonesia (2005), Conflict in Central African Republic (2009-2015), Earthquake in Haiti (2010), Cholera outbreak in Haiti (2010), Ebola crisis
Figure B: Trend of the humanitarian funding requirements (UNOCHA, 2017)
Growing Humanitarian Funding Gap
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in Liberia and Sierra Leone (2013) and Earthquake in Nepal (2015) ranged from 62 to 79%, with an overall average of 69%. The methodology and a detailed breakdown of the major cost components are provided in the first section of this report.
While it was then proven that supply chain expenditures account for the greater part of ACF’s previous relief operations, the question remained how this knowledge can be used to save money, reduce lead times and, enhance service quality for future operations.
While traditionally most humanitarian funding is provided after the disaster has happened, the summit paper highlighted investments in supply chain preparedness measures as a powerful lever for improvements. A study from UNDP (UNDP 2012)1, which analysed the resilience of disaster prone countries, found that every dollar invested in fighting people’s vulnerability prior to the disaster can save seven dollars in economic losses afterwards. ACF wanted to find out whether the 1:7 ratio can also be reached within the scope of their emergency operations. ACF decided to extend its collaboration with KLU and HELP Logistics to conduct a Return on Investment (RoI) study on the delivery of Non-Food-Items (NFI) kits in context of the relief responses to the earthquakes in Haiti and Nepal. Major objective of the study was to get a better understanding of potential areas of preparedness investments and identify the most beneficial ones. The RoI study also aimed to support ACF’s International Strategic Plan 2016-2020 and to help the organisation to meet the target of developing emergency preparedness and response plans in all country offices. Based on a pre-defined Disaster Preparedness Framework, KLU and HELP Logistics developed an analysis tool to compare scenarios with and without investments in the areas of Personnel, IT/Processes, Prepositioning, Supplier Management and, Local Actors/Community. To accommodate both one-off investments and flexible running costs and to consider the fact that investments take time until they fully unfold, the analysis tool contains dynamic calculation methods. Subsequently, the RoI is significantly determined by the time that passes between investment made and disaster to happen. In the case of Haiti earthquake, the model demonstrated that an amount of € 115k invested about a year and two months (439 days) before the catastrophe happened could have led to total savings of € 938k (equal to 42% of total expenses). Likewise, in the case of Nepal earthquake, with € 39k invested two months (71 days) beforehand, savings of € 341k (equal to 39% of total expenses) would have been possible. Thus, in both situations the 1:7 ratio occurs at a certain point in time. In addition to the cost savings, the study showed that significant lead time reductions of 21 days (28 days lead time without investment in comparison to 7 days lead time with investment) can be achieved. The framework and the model are outlined in more detail in Section 3.

The Supply Chain Cost Analysis and the Return on Investment Study have manifested the key messages of the World Humanitarian Summit report. The results emphasise that humanitarian agencies, donors, governments (and indeed commercial partners) should recognise and further exploit that supply chain and logistics is the critical business component of an efficient and effective response. By examining the significant potential these findings suggest, the humanitarian community should take into consideration that chasing for more money is not the only way to close the funding gap. In fact, investing earlier and smarter could ultimately reduce the requirements and help the whole community of humanitarian actors to do more with less.