Tuesday, September 4, 2012

Plumpynut's Supply Chain (+ Peter Drucker)

written by Whitney Coble

Last year, in Professor Zak's Foundations of Social Innovation course, we learned about Plumpynut, the most common RUTF (Ready to Use Therapeutic Food) used by UNICEF to treat children with Severe Acute Malnutrition (SAM).  Plumpynut is an oil-based paste of peanuts, sugar, and milk powder.  It is especially used in the Horn of Africa (i.e., Kenya, Somalia, Ethiopia) where malnutrition is widespread.  The story behind this "magic bullet" is a fascinating one, and you can learn more about Plumpynut from this story Anderson Cooper did on it.  

For the purposes of this week's lesson, I learned about Plumpynut's supply and demand and its supply chain.  

Currently, Nutriset is the single dominant world supplier for Plumpynut.  At the end of 2008, demand for Plumpynut matched Nutriset's capacity to produce.  Worldwide demand is expected to grow by 30% per year, and Nutriset intends to double its production capacity.  However, this is not enough - Plumpynut needs other manufacturers, such as American NGOs or corporations, to meet its demand.  There are a number of obstacles standing in the way: patent protection on Plumpynut's product and production process until 2018, reliance on international sourcing of inputs, logistical difficulties in scaling up production (i.e., raising capital funds, procuring equipment and securing contracts).

Plumpynut's supply chain is currently as follows:
1. The Ministry of Health/NGO partner identifies a specific need for SAM children in the area.
2. Assesses how much Plumpynut is needed and relays information to the UNICEF country office or the Ministry of Health and then UNICEF
3. Emergency orders are shipped via airfreight within a few days.  Non-emergency orders are shipped via sea freight.
4. Most Plumpynut is made in France by Nutriset. Usually, Nutriset delivers Plumpynut within one week of purchase order.  Once Plumpynut is manufactured and packaged, K& N (a global logistics supplier) delivers it to Le Havre for sea freight and Paris for air freight.
5. It is transported from the port of arrival by local logistics suppliers and distributed by implementing partners in the country.  For example, in Kenya:  it is arrives in Mombasa, it will clear customs and be transported by truck to the UNICEF warehouse in Nairobi and will be released to the District Nutrition office or NGO partners.  If it is sent to Somalia: it will be held at bonded in-transit warehouse in Mombasa until a local freight forwarder can move it to Somalia, usually by sea.

Supply chain problems include poor road conditions and security concerns; data not kept or written down with paper and pencil; irregular funding; and variable lead times, causing the cost of transporting from France to Africa to increase.

A team at UNC/Duke, working on behalf of UNICEF, offered the following suggestions in a 2008 report to improve Plumpynut's supply chain: 

Begin producing Plumpynut regionally and in individual countries at risk, thus reducing the cost of delivery and speeding up delivery
• When shipping, ship by sea to avoid higher costs of air delivery
• Locally, provide drivers with cellphones and rapidSMS, a low-cost, easy-to-understand way of reporting delivery and inventory
• Call upon funders to underwrite the depoting of buffer stocks to speed delivery in emergencies and avoid stockouts
• Improve data collection by asking countries to use simple spreadsheets, examine climate forecasts for 

threat of drought, and share data with manufacturers

As a result of their report, the number of suppliers increased from 1 to 14; costs went down thanks to local production; UNICEF increased the volume of its shipments by more than double while bringing 

costs down 10%; and delivery times were shortened.

So what does all of this have to do with our lessons for the week?  The articles we read raised the following questions for me in relation to Plumpynut:

1. Similar to the model IKEA uses, could competition be raised among local trading markets?
2. If a higher purchasing commitment from the U.S. government provided high volume incentives, could cost-saving technology and equipment be added to increase supply chain efficiency?
3. In line with P&G's strategy, can Plumpynut put in place a better system to assess daily demand?


On a completely different note, I wanted to learn a little more about Peter Drucker this week.  The following are three key facts that I learned:
* He won the Presidential Medal of Freedom in 2002.
* His 1954 book The Practice of Management was voted the 3rd most influential management book of the 20th Century.
* Asserted that companies work best when they decentralized.

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