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Three parties rolled in to one: third-party logistics for global health and aid

by Michael Keizer on January 9, 2010

"Mailboxes" by Minesweeper @ Wikimedia

Five-party logistics?

I have written several times before about supply chain visibility, and where it will lead us. One of the main reasons why visibility will be such an important issue for the foreseeable future, is because third-party logistics (or 3PL) will become more and more important.

So, I hear you ask, what is this 3PL? And why would it become more important? And, last but not least, why would that imply that supply chain visibility would become more important? I will write about those last two questions in a next post; this post will concentrate on an explanation of 3PL and its advantages (and disadvantages).

To explain this, let’s have a look at a fairly common scenario. Let’s say that you are the logistics manager of an aid organisation that has a central warehouse in the capital, and a couple of projects around the country, and you need to send a shipment from the central warehouse to one of the projects. Basically, you have two choices:

  1. You use your own transport, sending a truck (owned or rented) with the shipment from your central warehouse to the project. As you are the ‘first party’ in the shipment, this is known as first-party logistics or 1PL.
  2. You contract a transport company to ship the goods to the project, based on a contract and a waybill. The transport company (or as loggies like to call them, the carrier) is also known as a ‘second party’, and hence this is an example of second-party logistics or 2PL.

Most likely you now have an idea where this is going, but let’s spell it out anyway. Instead of having your own warehouse and trucks, you could have an external provider organise all this for you. You only need to tell the provider that a shipment made up of so many of this item needs to go to that project, and they take care of the rest (at a price, of course). A provider who offers this sort of multiple, integrated services, is called a third party and (you guessed it) this is an example of 3PL. 3PL providers come in all kinds, some offering a wider array of services than others; some very familiar ones are international couriers and international postal services, and freight forwarders: all three offer to organise your shipment across a variety of carriers and often (but not always) include clearing services.

Needless to say that there is actually an animal called fourth-party logistics (or 4PL), but I will leave that one for another day.

The reason for 3PL to exist at all is threefold:

  1. 3PL providers are specialised in integration of links in the supply chain, and they can levy much more expertise in this field than any aid or global health organisation ever will be able to. They know the markets to the last digit, have extensive knowledge of and experience in integrated supply chains, and have seen the same issues crop up over a variety of organisations – and know of many techniques to overcome these issues.
  2. 3PL providers can leverage economies of scale through combined facilities and shipping at much larger scales than any but the biggest aid and global health organisations, potentially providing better efficiency.
  3. 3PL allows for easier up and down-scaling: as our needs change, we can just use more or less of the provider’s services, instead of having to deal with a restructuring of our organisation (including possibly painful measures like lay-offs, or, conversely, having to go through expedited hiring of new staff, with all kinds of risks attached).
Untitled by PACOM @ Flickr

3PL by the US and Indonesian armies on behalf of USAID.

Of course, there are good reasons why 3PL can be a very bad idea, too – or even impossible:

  1. Aid and global health work often takes place in places and markets in which 3PL providers have no or very little experience, which might mean that their general expertise does not add that much value.
  2. In some contexts in which we work, 3PL providers (and, indeed, 2 PL providers) do not operate because of security constraints.
  3. Specifically for humanitarian aid, it is important to adhere to standards of neutrality and impartiality; it can be difficult to verify that 3PL providers do so, and the added limitations could mean that they are not able to offer any increased efficiency (e.g., it implies some limitations regarding combined cargo).
  4. In case of disaster response, many 3PL providers would have difficulties dealing with the damaged and overburdened infrastructure, which aid organisations have much more expertise in.

Yet, taking all this into account, I still foresee that we will use more and more 3PL services. Stay tuned to read why.

[Images: Mailboxes by by Minesweeper @ Wikipedia (public domain); untitled photo by Pacom Webmaster (some rights reserved).]

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Humourless links for January 3, 2010

by Michael Keizer on January 3, 2010

Big h/t to the humlognews newsletter.

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The challenge of reverse logistics in global health

by Michael Keizer on January 2, 2010

The Valley of the Drums, a toxic waste dump in northern Bullitt County, Kentucky. This site was one of the reasons the the U.S. Superfund law was enacted.

Have you ever thought about the reverse logistics in your supply chains? Very likely if you are involved in medical logistics, but probably not in those terms: reverse logistics is not something that comes up on a daily basis in discussions in our field.

Reverse logistics is basically what happens when goods need to flow back in the supply chain. The most obvious example is of course when expired drugs need to be sent back for proper disposal, but reverse logistics might actually be more common than you think: disposal of materials and equipment, recalls, returns of overstocks so they can be used somewhere else in the organisation: these are all examples of reverse logistics.

Yet we hardly ever put systems into place that deal with our reverse logistics; possibly because it is seen as an exception instead of the regular occurrence that it actually is in many organisations. The results are predictable: losses and negative side-effects are common. Some examples:

  • Financial losses Most organisations would have tight controls on expensive goods as they travel through the ‘normal’ supply chain. However, I have seen many instances in which these controls were absent or much less stringent when dealing with reverse logistics. In one example, when trying to see what happened with a large generator (value: several tens of thousands of dollars) after it was sent back for repairs, I discovered that nobody had actually followed up after it was sent back and a replacement arrived, and in the end it was untraceable. This was a big and unnecessary loss for the organisation.
  • Negative health effects If expired drugs are taken from the reverse supply chain and used (possibly after having been sold on the local market), they can wreak havoc on the health of the people using them; some drugs become toxic after some time, but even those who do not will probably start losing efficacy and would be as bad as under-strength counterfeit drugs – and that is even apart from the effects of uncontrolled use of e.g. antibiotics on the development of resistant strains.
  • Environmental damage Drugs might be beneficial for us, but they are not always so for our environment. Many drugs are toxic for other animals and plants; and even when they are not, it is not always clear what would be the long-term effects on the environment of uncontrolled dumping of drugs. That alone should be enough to have tight controls on what happens with expired drugs and how they are disposed of. This is even more true of e.g. used engine oil and other toxic waste: do you know what happens after an oil change? Is the oil just burned, or even worse, buried, possibly poisoning ground water for years to come? Or is it properly disposed of in an incinerator that reaches temperatures that are high enough to prevent hazardous fumes to be formed?
  • Legal liability In many countries where we work, there are strict laws surrounding disposal of drugs (especially psychotropic drugs), and ‘losing’ drugs in the reverse supply chain can open us to legal liability. Similar issues arise around environmental damage.
  • Loss of reputation Although there is still not much press attention for aid and global health organisations’ records when it comes to the effects I mentioned above, I don’t think it will be too long before our actions in this area will be put under the microscope as well (as they should be). Do you really want your organisation to be the first of the black sheep that will be singled out for our atrocious reverse logistics practices?

It is clear that we need to start working on our reverse logistics. It should not be too hard: the basic principles and best practices that we use in ‘normal’, forward logistics, can be used in reverse logistics too. The only question is: do we start working on this now or will we wait until it is too late?

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Latest job opportunities (November 21, 2009)

by Michael Keizer on November 21, 2009

[Image: Job opportunities by Coffeechica]

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Humourless links for November 14, 2009

by Michael Keizer on November 14, 2009

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Humourless links for 4 November 2009

by Michael Keizer on November 4, 2009

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A tale with a tail: why logistics should be integrated into your planning

by Michael Keizer on November 1, 2009

Poster for vaccination against smallpox.Logistics is so often an afterthought.

All you programme managers, country directors, and other people managing aid programmes out there: how often do you integrate logistics planning into your planning from day 1 of your design phase? (And if any of you say: “always”, please let me know when you need an experienced logistics manager – I would just so love to work for you. Not that I would believe you, of course, unless you are a logistician by background yourself – and even then I would be sceptical.)

An old post by Diane Bennett on the Aid Watch blog tells a cautionary tale of what happens when you don’t integrate logistics into your planning. It is a seven-year history of how a lack of logistics planning caused thousands of deaths in remote South Sudan; not because the logistics weren’t thought of, but because they weren’t integrated into the programme from the start.

A medical NGO who wants to support a vaccination will have to take into account how to get the vaccines on the spot – and finding out much later that “… vaccines were available … at a regional distribution center, a $5000 air charter flight away” is too late. If UNICEF and WHO want to ensure vaccination on the spot, they will also need to ensure transportation to it, and possibly refrigeration there. All these should be planned from the start, because this tale clearly demonstrates how taking logistics on at a later stage will only lead to disaster.

But possibly the biggest issue here is that none of the three organisations involved really did their homework. Measles vaccines are fairly heat tolerant. If they would have been transported to the site in a cold box, and then used within a couple of days or even weeks (depending on the ambient temperature), no refrigeration at all would have been necessary. This technique, known as the ‘fast chain’, has been in use for some time and is endorsed by WHO; but apparently nobody managed include this in the planning.

The tale shows only one thing: include logistics and logisticians in your planning from the start, and you will sleep a lot better at night. And don’t we all want that?

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Supply chain risk management

by Michael Keizer on May 25, 2009

A lot has been written about how to deal with logistics disasters, or how to avoid specific types of mishaps. Much less attention is given to the process of managing those risks.

Risk management for the supply chain is not really different from generic risk management. Like all risk management processes, you start by making an inventory of possible risks, based on your environment, the programmes that you try to support, possible future scenarios, etcetera. This inventory includes the nature of the risk, its likelihood of occurrence, as well as its possible and likely impact. The result should be an overview of the possible extent of risk for each of the risks that you list. Some examples:

  • If a meteorite would hit your main logistics hub, you would be in dire straits indeed. However, the likelihood of this happening is vanishingly small. As a result, the extent of your risk is still very low.
  • If one of your 15 drivers would fall ill, it would probably not pose much of a problem; however, the likelihood of this happening in any given year approaches certainty. Still, because of its low impact, the extent of the risk would be low.
  • Having your one and only purchaser fall seriously ill would not be a big problem in a well set up system, in which everything is well documented. The likelihood of this happening is also quite small, so the extent of the risk here is very low.
  • However, if documentation is sketchy and most of the knowledge about markets and suppliers is locked up inside the head of your purchaser, the impact of this happening would be a lot bigger. Suddenly, the extent of your risk is now medium or possibly even high.

This last example points to the importance of the risk environment when performing your risk analysis. (It also points towards a possible way of dealing with it, about which more later.)

The next step is to design a strategy to deal with the risks. All risk strategies can be divided into four basic categories: avoid, reduce, transfer, and retain. In our example, this would mean:

  • Avoid: an avoidance strategy could take the form of not doing any local purchasing, or perhaps withdrawing from the programme. This illustrates that avoidance strategies are rarely feasible in the environments in which we work, but nevertheless they should be considered.
  • Reduce: ways in which we could reduce the extent of the risk include hiring a second purchaser (reducing the likelihood of being marooned without a purchaser) or ensuring good systematic registration and documentation (reducing the impact of the purchaser falling ill).
  • Transfer: we could outsource our purchasing to an external company, using service level agreements to ensure that they deliver what we we need, when we need it. This is not a very likely scenario for most of us, but it is something that we often do with e.g. air transport: we transfer the (very real) risks linked to these operations to e.g. a charter company.
  • Retain: we could decided that the extent of the risk is so small (e.g. because we hardly do any local purchasing anyway), that we take no action and leave things as they are. In other words: grit your teeth and suck it up.

A risk management plan basically consists of the risk analysis, with the appropriate strategy for each of these risks. Risk management plans for multinationals often comprise whole volumes (or, more and more often, many Gigabytes of documentation, code, and data), but for most field operations there is no need to go to that length: two to five pages would normally be enough. On an organisational level, it will obviously depend on how big your organisation is as well as its nature: the risk management plan for a two-project, one-country educational organisation will probably be not much more than the one-page result of a day’s hard work, but WFP’s risk management plan will more likely resemble that of a big multinational company.

However, whatever the size or nature of your organisation: you cannot afford to go without some form of risk management; organisations that think they can tend to be unpleasantly surprised at some stage.

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Go and be enlightened![1]

by Michael Keizer on May 18, 2009

"Coca-Cola Morocco" by 'ciukes' @ Flickr I am going to do something that I will not do too often: I am going to tell you to read a post about health supply chains on another blog, and not add anything to it. Over at the global health blog at change.org, Bryn Mawr student Mara Gordon just wrote an absolutely fabulous post on Coca-Cola and public health, explaining how it is around the corner from anywhere and what we can learn from that in public health. She is not the first to make the comparison, but it definitely is one of the most tasteful and refreshing ones I have read: good till the last drop.

(Image: Coca-Cola in Morocco by ciukes @ Flickr)

Footnote

[1] If you like a little puzzle: how many Coca-Cola slogans have I used in this posting? No prize, but an honourable mention for the first to post the right answer. But only after you have read Gordon’s post.

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On ya bike![1]

by Michael Keizer on May 8, 2009

In some ways, this post wants you to consider the opposite of my previous post (on the use of airships in aid logistics). Don’t ever let it be said that I am not a fence-sitter.

Airships are great at integrating what was a multimodal[2] (part of a) supply chain into a monomodal one: instead of using various transport means, they could in many cases deliver from origin to destination in one go where before we would have to use several transport means.

However, the use airships for aid is still some time away, and even when it finally arrives there will still be destinations that will be very hard for airships to reach. The most apparent of these are dense urban settings: a large airship, although it needs less landing space than a wide-body plane, still needs considerably more space than e.g. a helicopter. As a large part of aid work takes place in these dense urban settings, we will need to look at other solutions for the last mile. This is all the more true for health logistics: as populations urbanise, more and more of the health effort will need to be concentrated in the cities and towns – and in most developing and middle-income countries these are very densely built up.

The easy solution is of course the tried and true combination of truck and car. However, for various reasons this is actually not appropriate in many settings:

  • Cars and trucks are relatively expensive means of transport: not so much in purchase cost (although those are not negligible), but especially in running costs and maintenance.
  • Maintenance might not always be possible: especially in developing countries it is at times difficult to find the necessary spare parts or the skills to maintain cars[3].
  • Trucks and cars add significantly to air pollution, which is already a problem in many cities in developing and (especially) middle-income countries.
  • In the most densely built-up areas, even cars can be impossible to manoeuvre.

So what solutions can we look at?

By far the oldest one is the use of raw manpower: human porters that carry goods wherever they are needed. Obviously, they can get anywhere where people can go, and where labour is cheap this is often the most economical way of transport. However, unless managed very well, porting can be punishing for the people involved, and lead to serious long-term health problems.

A much better solution is the lowly bike[4]. Like porters, it can get almost anywhere  where there are people; if not by riding it, then at least by pushing. It can bear much larger loads (more about that later) but with negligible stress on the body of the biker. And finally, bikes can be repaired by almost any technician worth their salt[5].

New developments in bike design mean that they can be used for much heavier and bulkier loads. A good example is the Big Boda load-carrying bicycle, a design from Worldbike. Bikes like this can successfully compete with cars and trucks in many settings, and should be considered seriously when designing logistics systems for health or aid.

(Images by Kees van Mansom and Worldbike.)

Footnotes

[1] If you wonder what I am talking about: have a look at this list of Australian English vocabulary.

[2] Multi-modal transport in this sense refers to transport using more than one means, e.g. train and truck, or ship-train-truck, etcetera. Strictly speaking, the term is reserved for when we have only a single transport contract, but I will use it in a slightly looser sense here.

[3] This is becoming a serious issue as cars are ‘computerised’ and more and more models cannot be maintained without expensive diagnostic machinery and specialised skills and knowledge.

[4] Yes, I am originally Dutch. Why do you ask?

[5] Obviously, I am not talking about your Bernard Hinault Special.

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