Research

Relief on wheels: Research cuts costs of humanitarian aid

The recent surge of migrants from the war-torn North African coast and the devastating earthquake in Nepal has focused international attention on the needs of refugees and disaster victims. The W. P. Carey School’s Mahyar Eftekhar is helping charities deliver aid more effectively through his research into humanitarian logistics.

2015-04-22

The recent surge of migrants from the war-torn North African coast and the devastating earthquake in Nepal has focused international attention on the challenges humanitarian organizations face meeting the needs of refugees and disaster victims. Transportation is the second largest expense item for groups that deliver aid, notes Assistant Professor of Supply Chain Management Mahyar Eftekhar. Only personnel expense is higher.

That’s why Eftekhar has focused his logistics research on ways humanitarian organization (HOs) could make the most of their funding by reducing transportation costs. His findings demonstrate that humanitarians can save money if they follow simple strategies for fleet procurement and management.

Eftekhar has studied and advised some of the world’s largest international organizations that operate development and relief programs. Development activities provide the long-term support impoverished or war-torn communities need to improve living conditions, foster education and enhance quality of life for the poor. Relief operations are the short-term responses to famine, earthquakes, floods, violent conflict and other catastrophic events. Activity associated with both forms of aid requires wheels.

“If there is no vehicle, there is no humanitarian service delivery,” says Eftekhar, who adds that this is especially true in countries with poor-quality infrastructure. Despite the frequent absence of paved roads and presence of gunfire, international humanitarians always have a clear mission, Eftekhar notes. “The mission is to rapidly distribute aid to beneficiaries to minimize human suffering and death.”

What’s more, HOs must conduct this mission in the face of varying amounts of funding — as their backing generally comes from government donations or public support — plus they face uncertain demand. After all, who can predict when the next massive earthquake or tsunami will hit?

Eftekhar points to one large, well-known organization that spent some $3.8 billion U.S. dollars in aid during 2011, yet still estimated that they could only achieve about 25 percent of goals in terms of demand coverage. Dramatic inflation and other economic conditions strapped budgets and hindered relief capabilities.

“If one of the world’s largest humanitarian organizations cannot always deliver services as planned, you can imagine how financially constrained some of these organizations can be,” Eftekhar says.

Reducing cost inefficiencies can mean the difference between delivering aid or not. It can literally be a matter of life and death. Consequently, Eftekhar looked at transportation as a means of stretching charitable dollars.

Driving costs down

“Fleet management consists of all the decisions regarding purchasing, maintenance, use and disposal of vehicles,” Eftekhar explains. And, there are a number of decisions to be made. “Humanitarians need to think about vehicle pricing and shipment, the optimal number of vehicles to have in each area,” he continues. “Then, once they have vehicles in the field, they need to decide how each vehicle should be used. What missions should it support? When should they replace the vehicle with a new one?”

Often the people making such decisions are in a centralized headquarters organization that buys the vehicles and ships them to individual delegations in the field. Searching for ways to help those decision makers with simple policies to follow, Eftekhar looked at all aspects of the two part fleet management function: sizing and transportation; and management or usage policies, maintenance and vehicle disposal. The first part of fleet management — vehicle sizing and shipment — is almost 50 percent of fleet costs. The second part — use, maintenance and disposal — also is 50 around percent of fleet costs, he says.

A good old-fashioned car chase

For this reason, Eftekhar split his research into two parts: vehicle procurement and vehicle management. To examine the buy side of things, he created a two mathematical models — one based upon the other — to test and validate simple policies HO fleet managers could follow in their buying behavior.

Data for the procurement models came from the International Committee of the Red Cross (ICRC), which shared historic information from development operations in three representative countries: Sudan, Afghanistan, and Ethiopia. The countries were chosen because they were among ICRC’s largest fleets and also operated under conditions humanitarians often face: poor-quality roads and high levels of conflict.

ICRC uses a centralized vehicle procurement policy and, as it turns out, has much better data than many HOs, which often lack good computer systems and record keeping to support logistical decision making. In fact, ICRC is a recognized leader in cost-efficient fleet management approaches.

Still, after balancing demand against vehicle usage, Eftekhar found that they could save money through one counter-intuitive approach to vehicle procurement. Instead of buying vehicles on an ad hoc basis when it looked like demand might rise and selling them when it looked like demand might drop, HOs could save money and still meet demand by keeping a steady number of vehicles in their fleets.

“The model shows that most of the time, humanitarians can have a stable number of vehicles in their fleet to meet demand,” Eftekhar says. “They don’t need to purchase and sell vehicles to chase the demand. Most of the time, they just need to keep a certain number of vehicles — an average of demand — with that average they can fill demand effectively.”

The savings are significant. Over the period of his analysis, using the optimal procurement policy Eftekhar uncovered would have reduced costs for ICRC by 7.9 percent in Afghanistan, 19.2 percent in Sudan and 26.2 percent in Ethiopia. Cumulative savings would have exceeded $3.7 million Swiss francs or some $3.8 million U.S. dollars.

Use it or lose it?

What about the cost of operating and, eventually, selling those vehicles? Can humanitarians save money on that, too? According to Eftekhar’s research, they could be saving plenty.

After studying data on vehicle usage, disposal policies and expenses for a large international humanitarian organization, he discovered several ways this organization — and others — could maximize usage and minimize expense. One of these is simply following policies outlined by headquarters staff.

According the Eftekhar study, the organization studied was spending about $4,000 more than the price for normal vehicles on vehicles beefed up with stronger suspension and bumpers. HQ’s intent and policy was that field personnel should use those heavier-duty vehicles for heavier-duty missions. When the heavy duties reached a certain age, they were supposed to be reassigned to light-duty missions.

But, delegations weren’t following these policies. Light-duty vehicles were going out on heavy-duty missions, and none of the vehicles were being reassigned to different mission types after they hit a certain age or mileage.

Eftekhar found that simply following the headquarters’ recommendation would have allowed the organization to increase the mileage of each vehicle by some 24,000 kilometers, which would increase utilization and save the organization $3,400 per vehicle, or 11 percent of the purchase price.

On the other hand, he also found one HQ recommendation on vehicle usage that didn’t pan out. Field delegations were supposed to use vehicles intensively when new, then relegate them to short trips once the vehicle reached the hoary ages of two or three years old. The reasoning behind such policy is to protect workers from vehicle breakdowns that might put relief teams at risk.

Eftekhar says his calculations show age has a larger weight on residual value than mileage alone, the measure by which many organizations decide when to sell the used vehicle. Humanitarians usually keep vehicles a long time, but they use it sparingly after it reaches a certain age. Consequently, they need to sell at a lower price, he maintains.

He suggests humanitarians use their vehicles intensively over three or four years and sell the vehicles soon after that milestone is reached. Following this policy could garner an estimated $8,000 of savings per vehicle, or some 26 percent of the purchase price for the organization Eftekhar studied.

While this research was conducted for one humanitarian organization, Eftekhar shares it with any that ask. In fact, he is now helping to plan a research center at the W. P. Carey School of Business that would support HOs of all kinds.

Ultimately, Eftekhar envisions the W. P. Carey School creating case studies for other educational organizations to use teaching humanitarian logistics. He also anticipates that the school will increase its own research in the area and offer some no-cost consulting to organizations in need. After all, even humanitarians can benefit from professional aid.

Bottom line

• Aside from personnel costs, transportation is the biggest expense line item that large, international humanitarian organizations (HOs) face.
• Many of these organizations have centralized purchasing groups that make buying decisions with very little data to inform them.
• Mahyar Eftekhar, an assistant professor of Supply Chain Management at the W. P. Carey School, has conducted research to help HOs cut fleet management costs.
• He finds that most HOs could meet demand by maintaining a stable, average number of vehicles rather than buying and selling vehicles to chase demand.

Eftekhar also finds that HOs should use vehicles intensively for three or four years, then sell them. This strategy would optimize usage and resale value, thereby saving HOs significantly over traditional usage trends.

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Photo courtesy of Feed My Starving Children

Logistics Supply Chain