MTTN45 Humanitarian Logistics Sourcing and Procurement Nonprofit Organizations shaping the Market of Supplies 12 April 2013

Content Purchasing power in the humanitarian sector Impact of purchasing power on purchasing strategies The case of vaccine procurement Nonprofit organizations shaping their supply market

Who has the power to shape the market?

Nonprofit-for profit relationship The disdain history The mutual need of collaboration More relationships, collaboration, and dependencies

Distribution of Power: Resource Dependency Theory Resource dependency theory (RDT) Focus on core competencies outsourcing Exchange relationships dependence Power as relative dependence more influence All organizations strive to maximize their power through reformulating these dependencies.

Issue of power dominance in procurement 1.Understand its power position 2.Move toward more favorable position Buyer power attributes relative to supplier Supplier power attributes relative to buyer Buyer dominance Supplier dominance Interdependence Independence (Cox et al. 2000: 18)

What are drivers of purchasing power? Substitutability Interconnections Demand share Information symmetry Reputation

Humanitarian logistics –Added stakeholders with conflicting incentives –Shared management and need for collaboration –Lack of funding –Lack of infrastructure and local capacities Based on OECD (2011) data Based on WEF(2010) data Based on pre-study data What does the humanitarian sector look like?

The disdain nature of nonprofit (NPO)-for profit relationship Scarcity of supplies The products may not always be commercially attractive, nor the market transparent. Manufacturers are often not aware of the needs, or may consider the risks associated with entering the market too high. (UNICEF, 2008) The essentiality of supplies The limited buying power

Purchasing powers impact on purchasing How do you think low purchasing power impacts purchasing decisions and strategies? Accept the situation and be weak –Few suppliers with high prices in country X. Gather funds and buy from Accept the situation and safeguard –Few suppliers with high prices in country X. Have a detailed and strict contract so terms are set for a longer time Understand the situation and try to change it –Few suppliers with high prices in country X. Insource, invest in developing more suppliers maybe local

THE CASE OF VACCINE PROCUREMENT IN THE SECTOR

Delivery of health in humanitarian aid supply chains Global health SCM –Health a reflection of development and poverty reduction (UN, 2011) –Nature of disease: geographical, weather, culture, social, educational, economic –The public good nature of the related products –Higher weight of quality –High donor dependency (viewed as a global good) –Different purchase profiles among countries Based on WEF(2010) data

Overview of vaccine SCs for developing countries Subset of global health SCs Willingness of governments to pay Epidemiological justifications Under valued by governments and market Some differences between industrial and emerging Concentrated supply market Emerging economy producers increasing Procurement being considered a main issue in shortage

A schematic view of the positioning of different actors along the vaccine chain in humanitarian networks

So power is shifted to the suppliers What are different ways buyers (e.g. different governments and organizations) can buy vaccines the best way in this situation?

Cases based on their sample group and purchase strategy Sample group Developing countriesHumanitarian orgs Industrial country CasesIranLatvia Oman (GCC) ZambiaUNICEFIFRC Skane region (Sweden) Purchasing strategies Self- purchasin g with local production Self- purchasing without local production Cooperative purchasing Purchasing through humanitarian organization Humanitarian organization focusing on vaccine purchase Humanitarian organization not focusing on vaccine purchase Self- purchasing Outside of the context sample Based on WEF (2010) data

SEVERAL COUNTRIES WHICH HAVE COMPLETELY OUTSOURCED THEIR PURCHASE TO HUMANITARIAN ORGANIZATIONS (PROCESS AND FUNDING)

Initiator NPO/NPOsInitiativeInitiative objectiveResult in the market 1PAHO & UNICEF Aggregating demand in high volume purchase Achieving noticeable discounts Lower prices Development of product in the market 2GAVISecuring long term fundingIncrease production capacityNew suppliers to the market 3 GAVI UNIVEF & PAHO Aggregating demand Economies of scale Attract new suppliers Increase production capacity New suppliers Build up competition Reduce prices 4WHO, GAVI, UNICEF Enabling manufacturers from developing countries Securing supply Enabling developing countries Better availability Lower prices 5WHONational strategies for all Deeper relationships and collaboration between all players including NGOs and business sector Developed industry incentives Healthier markets 6WHOProviding better forecastImprove corporate image and industry incentivesHealthier markets 7GAVICollaboration with business sectorBringing a fresh view to the board Increase production Better availability 8IAVI International collaboration between public private sector Share risks, cost, and benefits Develop research and product development New resources in the market 9UNICEFLong term arrangements with current & potential suppliers Introduce and develop new suppliers in the market New suppliers Better availability Lower prices Higher quality products GAVIs consolidation of demand for vaccines secure supply (Gavi, 2009: 16) Price drop of Pentavalent (GAVI, 2009: 16) NPO initiatives in shaping the market of supplies

QUESTIONS? Thank you!