Using Supply Chains to Create Social Impact in Humanitarian Settings
How field immersions and impact mapping helped BRAC understand the role of distributed manufacturing in building social surplus
Written by Kuldeep Bandhu Aryal, T4D Specialist at BRAC Social Innovation Lab, and Chathuri Weerasinghe, Innovations Coordinator at BRAC Social Innovation Lab
From our last blogs, we wanted to give our readers an idea of how BRAC as an active agent of social innovation is working together with Frontier Technologies in understanding the potential of distributed manufacturing in South Asia. Based on our research, we first identified the need for a resilient manufacturing network in Bangladesh, and then designed a distributed manufacturing experiment around the supply chain of BRAC’s Humanitarian Crisis Management Programme.
BRAC is proud of the fact that we are the first pioneers in South Asia to ever conduct an experiment on distributed manufacturing in the region. Along the way, we are committed to creating knowledge materials and evidence that help us share our experience with global stakeholders who are enthusiastic about using distributed manufacturing as a pathway to leverage the local manufacturers’ capacities.
Following our attempts to provide our readers a guide on how to build a distributed manufacturing experiment involving an institution and local manufacturers, we thought it would be a good time now to engage in conversations around the significance and means of understanding, mapping, and evaluating the impact distributed manufacturing as an innovation can generate along supply chains in humanitarian settings.
Prior to seeing if we could generate evidence of impact, our team scoped out and mapped all possible social, environmental, and economic impacts our proposed distributed manufacturing system can bring on both the host and refugee communities in Cox’s Bazar, Bangladesh. Since our core working style is testing out hypotheses and assumptions in the field, we first translated our field lessons and insights into the potential impacts of distributed manufacturing, and used universal GRI standards as a framework to recognize them under social, economic, and environmental categories. Based on what we saw in the humanitarian setting, we also predicted the nature of these identified impacts, i.e., direct/ indirectness, negative/positiveness etc.
Here is why:
Our intention is to use this impact map as a guide when we implement our upcoming distributed manufacturing experiments in the field. Having a predefined impact guide can be useful in projecting our focus toward specific directions when generating evidence of impact. “Did what we estimated happen in reality?” “How did our assumptions differ from reality?” “Following our real experience, how can we alter the assumptions, ultimately turning them into proof of impact?” are some fundamental questions the predefined impact map will help us address along our experiments on using distributed manufacturing to make supply chains a generator of social, environmental and economic good.
Before we tell you about the interesting findings in our impact mapping, see how our field visits and their subsequent learnings set the ground for us to carefully look at the impacts of innovations along humanitarian supply chains.
How field immersions exposed us to pain points
Before mapping impacts, our field visits helped us understand several problem areas that we clearly saw the potential of getting addressed through local innovation. One such major problem we paid our attention to was the limited engagement and encouragement of both the host and refugee communities in local manufacturing.
The Joint Response Plan (JRP) of 2020 had aimed to raise US$877 Million to respond to the refugee crisis and support both the refugee and the host community. As nearly a billion dollars a year comes into Cox’s Bazar, the location of the refugee response, a large majority of that amount goes out of Cox’s Bazar from the perspective of producers. More than 90% of food items are produced outside Cox’s Bazar by large-scale producers either in Bangladesh or outside of the country, with the host community only involved in supplying some minuscule amount of fresh produce.
The situation is similar in the Non Food Items (NFI) distribution. The primary source of construction, bamboo, is not locally grown in Cox’s Bazar despite the response turning to its 5th year now, and the sector still imports 100% of the tarpaulin that is being used in the shelters. Many institutions, including some UN agencies, claim that they have localized their responses by saying that the majority of the procurement is done locally. However, they cannot in certainty say how much of that is actually manufactured locally, that too in Cox’s Bazar.
As part of our work, we also conducted a supply chain analysis of more than 7000 procurement orders from BRAC HCMP programme. We found out that while some WASH infrastructure is manufactured locally, the recurring WASH items in the hygiene kits or itemized distribution like, hand soap, bath soap, washing soap, buckets, mugs, jerry cans, water jugs, pipes for the handwashing stations, taps, pipes, etc. are manufactured much further away from the source, and that too by only large-scale manufacturing companies.
As a result, Cox’s Bazar and the host community, despite the tremendous amount of financial resources pouring into the region because of the crisis, is still lagging behind in terms of basic necessities as well as improved financial outcomes for its residents.
A common justification for this is found in the scale of the response and in that the economies of scale comes into play which allows humanitarian agencies to serve more beneficiaries with the available amount of funding that has been secured. However, no new production factories focused on making humanitarian aid supplies have been set up in the entire Cox’s Bazar district. This means that host communities are not getting into both high and low-value manufacturing jobs. They also receive similar if not lower amounts of support from humanitarian organizations because of their status of being a host community member, which is a cause of ire and tension amongst the refugees and the host community in Cox’s Bazar.
There is also a tremendous opportunity cost that is to be borne by agencies working in the crisis. A response where the host community members are involved in manufacturing and earning a living out of making humanitarian aid supplies for the refugees has a huge potential in resolving conflict between the host community and the refugee population. The sector spends a huge amount on conflict resolution activities, yet, very little investment is made in this activity of shortening the supply chain as well as capitalizing the gains of local production which could have the potential to become a driver for peace and prosperity in the area.
Why should we push for innovations in humanitarian supply chains?
Studies have shown that around 60–70 % of the total budget of humanitarian operations is spent on logistics and supply chain management. Despite clear evidence of opportunity for efficiency and social impact from improving and effectively localizing the procurement, logistics and supply chain divisions of humanitarian agencies, organizations disproportionately allocate their efforts to improving and making other operational units sustainable and impact-focused.
The humanitarian sector is also slowly facing a new reality where philanthropy and investments in the future will focus on achieving a larger Return On Impact (ROI), higher Social Surplus (SS) and their contribution to key metrics around ESG (Environmental, Social and Governance) indicators. In light of this, humanitarian agencies should look closely at bringing new innovations and effective solutions to their supply chain models, because even marginal improvement in the supply chain for the above indicators has the potential to lead to a significant rise in ROI, SS and increase in the ESG indicators of the humanitarian agency. However, till now, improvement in supply chain management is pushed primarily through ERP (Enterprise Resource Planning) systems, which clearly limits the opportunity for system-level improvement in the overall supply chain of humanitarian aid for agencies involved.
New innovations in the humanitarian supply chain could lead to higher gains in social surplus for the sector
The sketched potential impacts from our third Sprint were multitudinal and might not fit into one blog! Hence, we thought of sharing with the readers one interesting social impact of aligning a distributed manufacturing system with humanitarian supply chains as per our mapping exercise: Social Surplus.
Social Surplus is technically termed in economics as the sum of consumer and producer surplus at a given price and quantity in a market. In layman terms, it can also be defined as the total social value that can be created on a marginal unit of purchase for someone who produces a product as well as someone who gets benefited from using the product. For example, if a humanitarian organization buys a soap worth USD 1 for a refugee from a mainstream commercial brand, the consumer, in this case, a refugee, gets benefited from using the soap but the benefit of purchasing the soap from the producer side gets distributed into multiple smaller units; part of it goes to the producers, but the majority of the USD 1 goes to what is termed as rent-seeking parties.
In addition, the social value that is intended to be the primary driving factor for a humanitarian agency is limited because the majority of the profits of the purchase would go to individuals and entities that are well above the poverty level and are nowhere near the source of impact of the humanitarian crisis that led to the need for the product.
Therefore, as humanitarian crises like the Rohingya response protracts, and concepts around rationalization and localization are introduced to the sector in lieu of lack of resources and funding, we need to closely look into the logistics and supply chain sector to gain significant efficiencies in social surplus.
By promoting local manufacturing of both NFIs and FIs alongside encouraging the engagement of local host communities in high-value manufacturing as closer to the source of the crisis as possible, the sector will achieve its goals of securing maximum return on impact and major gains in the overall humanitarian situation of the crisis.
With the potential to create social surplus, distributed manufacturing could be an efficient and innovative way to go about this. The Environment, Social, and Governance (ESG) aspects of this practice not only would contribute to demonstrating good local business practices, but also increase local institutions’ transparency and accountability. Healthy ESG scores can also be a catalyst in terms of opening more pathways for funding as it reflects an institution’s focus toward sustainable development.
As the world shifts from a trickle-down capitalism-focused economy to more stakeholder capitalism-driven systems, organizations will be able to improve and achieve their ESG targets at a much faster and more impactful pace if there is more attention given to improving their procurement and supply chain systems and making them more local. The knock-on effect of this practice will lead to tremendous local impact and economic benefits for the host community in responses like in Cox’s Bazar.
Written by Kuldeep Bandhu Aryal, T4D Specialist at BRAC Social Innovation Lab, and Chathuri Weerasinghe, Innovations Coordinator at BRAC Social Innovation Lab
