Optimizing the Food Aid Supply Chain from Procurement to Distribution June 28, 2018 Food Assistance for Nutrition Evidence Summit Washington D.C. Chaired by Stephen A. Vosti, U.C. Davis 1
2 Please cite this presentation as: Bonde H, Ergun O, Ibaale C, Lankas R, Levis J, Olsen G, Peters K, Safari B. Optimizing the Food Aid Supply Chain from Procurement to Distribution . PowerPoint slides presented at the Food Assistance for Nutrition Evidence Summit, Washington, District of Columbia, USA. June 27-28, 2018.
Introduction Gregory Olson, Program Operations Division Director, Office of Food For Peace 3
Panel Overview Panel Part 1: Optimizing the food Panel Part 2: Challenges and Opportunities in the Last Mile aid supply chain for improved cost- – Benjamin Safari, CRS effectiveness – Richard Lankas, World Vision – Koen Peters, WFP International – Ozlem Ergun, Northeastern U. – Charles Ibaale, WFP – Hemant Bonde, Capgemini – Jack Levis, UPS Q&A Session 4
Panel Part 1: Optimizing the food aid supply chain for improved cost-effectiveness We asked: • What is the biggest challenge in international supply chains? • What role does cost-effectiveness plays in the making of supply chain/logistics decisions? How is it measured, what tools are used? • What are the biggest research or information gaps that prevent you from making informed, cost-effective decisions? What should be the next research priority? 5
Panel Part 1: Optimizing the food aid supply chain for improved cost-effectiveness Koen Peters, Project Manager, Supply Chain Planning Unit 6
Panel Part 1: Optimizing the food aid supply chain for improved cost-effectiveness Ozlem Ergun, Professor, Mechanical and Industrial Engineering 7
Optimizing the Food Aid Supply Chain: From procurement to distribution - Supply Chain Optimization Tool [6/28/2018] Food Assistance for Nutrition Evidence Summit Washington D.C. Ozlem Ergun Weijia Jing Keziban Rukiye Tasci Stephen Vosti 8
Panel questions 1. In one word (or phrase), please tell us what you consider the biggest challenge in international supply chains. 2. Can you explain what role cost effectiveness plays in the making of supply chain/logistics decisions? How do you measure it, what tools do you use? 3. Based on your experience, what do you think the biggest research or information gaps are that prevent you from making informed, cost- effective decisions? What should be the next research priority? 9
Agenda • Data analysis and basic findings • Tool framework • Outputs from the scenarios 10
Procurement cost + Storage cost + Procurement cost transportation cost to next point Handling Cost International International CASH&VOUCHER Prepo US Supplier Warehouse Supplier LOCAL MARKET Handling Cost EXTENDED FINAL USA LOADING DISCHARGE DELIVERY DELIVERY PORT PORT POINT POINT Handling Cost Storage cost + Storage cost + Handling Cost Handling Cost FFP Supply Chain – US Prepo Warehouse Interacting Pull System = Inland transportation cost USAID/USDA Decisions PVO Decisions Storage cost + = Ocean transportation cost Handling Cost
Supply Chain Cost Effectiveness Objective – Deliver the right commodity with the right volume to the right place at the right time in a cost-effective way by identifying the right transfer modality ratios and prepositioning options for all operations. Supply chain optimization tool – The tool identifies the optimal choices in transfer modality, prepositioning levels, procurement, ocean transportation and inland transportation, for satisfying pre- determined demand. Data Sources – USAID – USDA – USAID partners’ data (WFP and CRS) 12
Preliminary Insights – Analyses of ocean freight cost and capacity variability over time and location A systematic optimization of service level choice decisions in ocean transportation might decrease total • operational cost without violating US flag rules. – Analyses of commodity procurement cost and capacity variability over time and lead times Advance purchasing of a select set of commodities that are used heavily within Title II operations may • reduce procurement costs and delivery times. – Supply chain planning with longer than 2-3 month lead times are necessary for effective operations – Prepositioning/advanced purchasing with good forecasts will help with both timely delivery and cost effectiveness even when actual demand information arrives late Expected impact is higher for sudden-on-set emergencies • – Accurate data tracking and visibility of procurement, transportation, and warehouse flows are essential for continuous system improvement 13
Supply Chain Optimization Tool Framework Supplier Selection Vessel Company Service Level Selection Selection Inland Transportation US Lead Time Flag Foreig Available Commodity n Flag Amount in MT Mix Available Freight Flag Loading Port Demand Request Transportation Unit Capacity in MT -Commodity Cost ($/MT) Minimum Contract description Amount in MT Transportation Lead -Final Delivery Point Transportation -Final Delivery Time Time Capacity In MT Commodity Unit Cost in Available Handling $/MT Capacity Minimum Contract Amount in MT Discharge Port Handling Unit Cost ($/MT) Lead Time Commodity Freight Unit Cost in $/MT Available Handling Capacity Final Delivery Extended Point Delivery Point Handling Unit Cost ($/MT) Inland Transportation Available Handling Lead Time Available Handling Capacity in MT Capacity Transportation Unit Handling Unit Cost Handling Unit Cost Inland Transportation Cost ($/MT) ($/MT) ($/MT) Lead Time Available Storage Available Storage Transportation Transportation Unit Capacity in MT Capacity in MT Capacity in MT Cost ($/MT) Storage Unit Cost Storage Unit Cost Transportation ($/MT) ($/MT) Capacity In MT
Outputs of the Supply Chain Optimization Tool for Each Time Period Transfer Modality Ratios Discharge Ports Suppliers Total Amount Of Calories In Delivered Extended Delivery Points Commodities Minimized Total Cost To Loading Ports Satisfy All Demand Total Amount Of Nutritional Components Prepositioned Commodity In Delivered Level Changes At Each Commodities Warehouse Vessels Amount Of Each Commodity Locally Or Regionally Supplied Service Levels Of Vessels
T otal Operational Cost Calculation in Supply Chain Optimization T ool MTs Of Commodit MTs Of y In This Commodit Level y In This Level Transportation Unit Cost ($/MT) Commodity Freight Handling Unit Cost Unit Cost In $/MT ($/MT) Commodity Unit Cost In MTs Of $/MT Commodit Handling Unit Cost ($/MT) y In This Level MTs Of Commodit MTs Of y In This Commodit Level y In This Level MTs Of Commodit y In This Level Total MTs Of Other Operational Costs Total Operational Cost Commodities Of Food Delivery Modality Transportation Unit Cost Supplied By $/MT ($/MT) Food Delivery Modality MTs Of MTs Of Commodit Handling Unit Cost Handling Unit Cost Transportation Unit Commodit Total MTs Of y In This ($/MT) ($/MT) Cost ($/MT) y In This Commodities Level Other Operational Costs Level Supplied By Of Cash And Voucher Cash& Modality $/MT Voucher Modality MTs Of MTs Of MTs Of Storage Unit Cost Commodit Commodit Commodit Storage Unit Cost ($/MT) y In This y In This ($/MT) y In This Level Level Level
Ethiopia Case Study: Impact of Advanced Planning 17
Ethiopia Case Study: Impact of Advanced Planning 18
Ethiopia Case Study: Impact of Advanced Planning 19
Final Thoughts • Potential improvement in on-time and cost-effective delivery is high with – Advanced planning • Up to 25% improvement in cost-effectiveness with increased foresight from 3 to 6 months – Effective pre-positioning – Optimal procurement and transportation decisions • Requirements – Demand foresight or advanced purchasing with good forecasts – Large scale data tracking and analysis – Supply chain optimization tools are necessary for system wide and overtime effective decision making 20
21 Thank you!
Panel Part 1: Optimizing the food aid supply chain for improved cost-effectiveness Hemant Bonde, Supply Chain Practice Area Lead 22
Panel Part 1: Optimizing the food aid supply chain for improved cost-effectiveness Jack Levis, Senior Director of Process Management 23
The Road to Optimization Jack Levis – Senior Director of Process Management May, 2018 @jacklevis
1) Little Things Matter 1 mile is worth 1 minute is worth 1 minute of idle time $50M* $14.6M* is worth $515K** Big savings come from attention to detail Note: Figures are per driver per day across the US for a year * Small Package P/U and Delivery drivers ** Small Package P/U and Delivery, Freight and Tractor / Trailer drivers
2) Don’t Accept OR OR AND Operations Technology and Analytics has been key in turning OR à AND 26
3) Invest in Data, Analytics, and Operations Technology Insight that doesn’t lead to a better decision is Trivia 27
4) Understand and Mitigate Complexity 28
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