04 Aug 2015   

Operational Efficiency and Supply Chain Management

At this year’s AIDF Global Disaster Relief Summit, NRS International will be leading a conference session on Operational Efficiency and Supply Chain Management (10 September, 2pm). In this article we explore some of the themes that will be discussed at the event.

The challenges of the increasing unpredictability of emergencies, the subsequent urgency of relief requirements and the shrinking of available funds all underscore the importance of an efficient and sustainable humanitarian response supply chain. Each year, donors spend an average of US$17-20 billion on humanitarian assistance, and more than 50% of this is spent on logistics and supply chain management, including material and service procurement, transport, storage and distribution activities. With so-called “traditional donors,” such as the OECD Development Assistance Committee (DAC) member states, falling under financial pressure, and with donor fatigue leading to reduced levels of funding, the need for more efficient, sustainable and transparent management of spending could not be over-emphasised.

Supply chain professionals are now confronted with multiple issues which directly impact operational efficiency.  Critical themes, such as building long-term supplier partnerships, effectively monitoring procurement, and incorporating sustainability and corporate social responsibility into the supply chain have become top priorities for the private sector, donors and NGOs alike. Supplier Relationship Management (SRM) is a critical tool to undertake these tasks. Moreover, suppliers, as stakeholders, play a critical role in acting as change agents in operational efficiency and are in the position to transfer lessons learnt and best practices throughout the supply chain. 

Improving supplier relationship management and long term partnerships

A 2014 survey carried out by State of Flux, a leading procurement and supply chain consultancy, revealed that 85% of companies expect SRM to grow in importance over the next year. SRM offers a systematic approach for identifying, developing and managing partnerships. It focuses on joint value creation by creating strategic alliances between the organisation and key members of its supplier network, based on trust and open communication, and not merely concentrated on price negotiation and commercial terms. Translated into reality, such collaborations range from informal communications on a specific project to well-defined, long term partnerships focused on designing and testing an innovative solution or a significant, recurrent material procurement. Humanitarian and aid agencies are becoming increasingly aware that they must integrate and collaborate with suppliers to ensure operational efficiency. Whilst a strong supplier relationship is generally useful, it becomes more essential, when goods and/or services are hi-tech, costly or scarce.  

What is Supplier Relationship Management (SRM)?
SRM is the discipline of strategically planning for, and managing, all interactions with third party organisations that supply goods and/or services to an organisation in order to maximise the value of those interactions.

The benefits of SRM

The benefits of a successful partnership for aid organisations are many. Performance is increased, with improved customer satisfaction, increased responsiveness to emergency situations, improved on-time delivery and better overall quality – all of which are in the best interest of the beneficiaries. Risks are reduced, with supply chain disruption, reputational damage and product scarcity being mitigated. Above all, an efficient SRM can boost motivation and improve access to innovation; aid organisations can offer their expertise and access to beneficiaries’ feedback, whilst the private sector can offer their innovation, financial resources and efficiencies. Creating such a partnership provides suppliers, such as ourselves, with reduced operational costs and an ability to plan ahead, plus a powerful driver to innovate and to offer excellent customer service. This leads to improved strategic alignment with the needs and goals of aid organisations and donors and ultimately fosters an environment for collaboration and partnership beyond the supply chain.

In order for the benefits of SRM to be realised, the shift from a management approach focused on cost-reduction to one focused on value creation needs to continue and accelerate. In this way we will then be able to address the twin challenges of the dramatic increase in the scale and scope of disasters and increasingly shrinking funds. For this to happen, aid organisations need to increase accountability and transparency throughout their supply chain, ensure a fair environment for contract competition, and adopt technology, such as eCommerce platforms, with a long term strategic view. A consultative and open dialogue should be maintained with key suppliers at all times. Simultaneously, suppliers must adhere to and adopt ethical business practices, encourage transparency, invest in Corporate Social Responsibility and refocus their approach onto providing value-for-money rather than taking short term, unsustainable profits.
    
Monitoring and evaluating performance 

A sound supplier performance monitoring and management strategy contributes to effective risk management, strengthens the development of strategic supplier relationships, improves supplier capability, boosts overall performance, and is welcomed by suppliers. Effective procurement planning and monitoring of supplier performance is critical to achieving the benefits promised by SRM. 

The main emphasis on monitoring and managing performance is most clearly relevant during the implementation phase of the contract, which is when the goods purchased are delivered to the agency. The importance of such performance is critical to the humanitarian sector; while a delay in the commercial supply chain could be costly in terms of productivity or customer satisfaction, a delay in the humanitarian supply chain could literally mean the difference between life and death for those most severely impacted by a disaster or crisis.

As a leading manufacturer of core relief items, solar solutions and LLINs, NRS International’s performance is frequently evaluated during the delivery phase, especially in vital post-disaster situations, by the date of dispatch, adherence to delivery date, and the quality and quantity of the supplied goods. However, for maximum effectiveness, performance management approaches should be integrated throughout the entire procurement process, both well before and after the delivery phase.  

Several organisations vet supplier capabilities well before any specific procurement in a pre-qualification process that filters out less qualified suppliers and minimises the time and money spent on evaluation during the high pressure phase of acute disaster response. Before signing a contract, it is important that an organisation has properly analysed its functional and performance requirements and has clearly defined appropriate key performance indicators (KPIs). The procurement process should consider past supplier performance and provide for in-contract evaluations, monitoring procedures and measurement of performance against appropriate KPIs. 

When a contract is concluded, it is important for the agency to provide feedback to suppliers on their performance and motivate suppliers to invest in improving their performance by factoring in track records during procurement. Procurement should be managed as a step of the overall SRM process. 

At NRS International we welcome such initiatives to boost the performance of the entire supply chain from which we continuously learn and incorporate best-practices. However, performance evaluation should not only be a one-way street. In the interests of a strategic and longer term partnership, it is vital that agencies are willing to receive feedback from suppliers about their experiences of doing business with them, which can lay the foundation for more efficient procurement in the future.

Considerations around sustainability, waste reduction and corporate social responsibility

Corporate social responsibility (CSR) and sustainability have the potential to be both the greatest asset and the greatest risk to an effective supply chain operation. An organisation’s corporate image, in terms of economic, environmental and social fingerprint, heavily depends on its supply chain and the sustainability performance of each and every chain link, including suppliers and sub-suppliers. The reputational and financial damage, bad CSR practices can create cannot be overemphasised. The negative publicity generated by the exposure of substandard supply chain practices of well-known clothing manufacturers, or by energy companies following oil spills, serve as powerful reminders.

For organisations that have a complex, interconnected supply chain, it is not enough to merely monitor its sustainability and corporate social responsibility practices from an internal standpoint. It now must also take into consideration the operations of its supply chain members, namely its suppliers. Despite not being legally responsible for their suppliers’ behaviour, organisations should actively improve sustainability standards beyond their own corporate boundaries by creating incentives for external stakeholders to adopt more sustainable and ethical business practices. 

At NRS International, we embed CSR into each part of our business operations, as we believe that sustainable business practices equate to smart business. We underscore our commitment to our employees, environment and communities by participating in some of the major global CSR initiatives such as the UN Global Compact and the UN Women’s Empowerment Principles, and ensure our sub-suppliers adhere to our internal code of conduct. However, for every company with a strong CSR ethos, there are many others who lack such a commitment. For that reason, it is vital that agencies consider sustainability and CSR as an integral part of their procurement process.

NRS International looks forward to meeting you at the AIDF Global Disaster Relief Summit on 10-11 September 2015 in Washington DC.