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A Framework for Cascading Innovation Upstream the Humanitarian Supply Chain through Procurement Processes
Available online at www.sciencedirect.com
ScienceDirect Procedia Engineering 107 (2015) 140 – 145
Humanitarian Technology: Science, Systems and Global Impact 2015, HumTech2015
A framework for cascading innovation upstream the humanitarian supply chain through procurement processes Ira Haavisto*, Gyöngyi Kovács HUMLOG Institute, Hanken School of Economics, Arkadiagatan 22, Helsinki, 00100, Finland
Abstract Procurement for humanitarian supply chains is often done by agencies that underlie public procurement regulations. These regulations tend to focus on transparency and openness, in other words, tender processes, price and quality. In other words, public procurement can be seen as hindering innovation through its rigidity. At the same time, humanitarian organizations face highly turbulent environments, sudden demand, and disaster- and context-specific requirements on items and technologies. Innovation in humanitarian supply chains needs to be swift but also robust, fitting an environment with disruptions in critical infrastructures such as energy and transportation. In spite of context-specific requirements, innovation does not stand alone but impacts on the supply chain through its requirements on suppliers, use in other echelons, and even, use across various sectors. Innovation thus cascades both upstream the supply chain and across sectors. Such cascades need to be identified, managed, or if detrimental, mitigated in the humanitarian supply chain. This paper therefore develops a framework for cascading innovation in humanitarian supply chains. © by Elsevier Ltd. This an open access ©2015 2015Published The Authors. Published byisElsevier Ltd. article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the Organizing Committee of HumTech2015. Peer-review under responsibility of the Organizing Committee of HumTech2015
Keywords: Innovation; Humanitarian supply chains, Public procurement
1. Introduction Procurement in humanitarian supply chains is often done by agencies that are subject to public procurement regulations at the same time as the humanitarian supply chain should act quickly in disasters. What is more, situations such as the current Ebola crisis require new medicines, technologies, and equipment, in other words,
* Corresponding author. Tel.: +358 (0)40 35 21 392; fax: +358 9 431 33 287. E-mail address: [email protected]
1877-7058 © 2015 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the Organizing Committee of HumTech2015
doi:10.1016/j.proeng.2015.06.067
Ira Haavisto and Gyöngyi Kovács / Procedia Engineering 107 (2015) 140 – 145
141
innovative solutions. Innovation is also needed in supply chain processes in lights of e.g. security considerations as in the situation in Syria and Iraq to date. Public procurement (PP), however, is a highly regulated area, where national and international (e.g. European Union, EU) level Procurement Acts converge. Subsequently, procurement acts are implemented on the various levels of public offices. So far, public procurement has been focusing on the traditional aspects of price and quality of the procured items and services, and on the importance of developing transparent, rigorous and ethical procurement processes [1]. These performance objectives of PP processes have though also led to their rigidity, and are even perceived to constitute an important barrier to innovation [2]. In the EU alone, an astounding 10-30% of EU countries GDP going to PP [3]. PP has an important role to play in fostering innovation, and hence contributing to economic development (EC 2013). Also in the OECD, innovation was already at the heart of the OECD 2009 strategy on “demand-led” innovation. Conceptually, the new public procurement of innovation (PPI) widens the scope from a situation where a public agency places an order for products (goods, services, or systems) that don’t yet exist but that could be developed within a given time frame [4] to fostering new market capabilities beyond the typical case of technology procurement [3] This endeavor follows the footsteps of other trends in procurement that embrace more and more “non-traditional” performance objectives such as sustainability [5], or collaborative aspects [6]. However, while the private sector can foster innovation through its use as a performance objective in purchasing, PP is bound by regulation to rigorous structures and procedures. In industry, innovation has traditionally been linked to agility and flexible procurement practices [7]. Uyarra et al. [2] found that in spite of efforts to integrate innovation objectives in PP, PP continues to be perceived as risk-averse, prescribe too many and too rigid specifications in the tender process while not engage with procuring organizations and have low capabilities of procurers themselves. Together, these factors contribute for a lack of demand for innovation. PP is on the other hand key to innovation diffusion and to act as a market where markets fail. Hence, most importantly, in PPI the aim is “not primarily to enhance the development of new products, but to target functions that satisfy human needs or solve societal problems” [4, 1758]. An important area that satisfies human needs and aims to solve societal problems is that of humanitarian supply chains. PPI bears consequences not only for the suppliers that need to develop this product or service and the user demanding this innovation, but also for other suppliers in the humanitarian supply chain, and customers beyond the one procuring the innovation. This is well in line with the catalytic function of the agency to foster this innovation for a market, and to contribute to the diffusion of the innovation [4]. In other words, there is a potential domino effect, or a cascade of the innovation in the humanitarian supply chain, but also across various sectors. Such domino effects have been observed when it comes to “green” purchasing, both in the supply chain, across industries, and across geographical regions [8], whereas cascades have otherwise been studied in the area of disasters themselves [9]. The criticality of infrastructure and production is usually determined for specific sectors, yet in terms of critical resources, there are important intersections to note between these. Hence innovation in one sector impacts also on others. Rogers [10:13] has defined innovation as “an idea perceived as new by the individual”. In practice, innovation can be understood as a positive performance objective, based on the assumption that innovation will lead to better performance. In this paper, this perspective is extended to innovation in the supply chain and to the cascading “domino effects” of innovation throughout the supply chain – whether those are intended beneficial effects, or unintended, undesirable ones [11, 12]. The aim of this paper is therefore to develop a framework for cascading innovation in humanitarian supply chains. Next, we will review innovative public procurement, before turning to the development of this framework. We conclude with a discussion of implications of innovation cascades for humanitarian supply chains.
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2. Innovative public procurement Considerable amounts of funds are spent each year on public procurement. The procurement can be said to be for the good of the population and the expenditure can be said to come from tax payers’ money. The use of taxpayers’ money thus leads to the difference between public and private procurement, namely that public procurement is more heavily regulated. Public procurement overall can be said to follow principles of: x x x
Procurement should be based on value for money Competition should be used to acquire goods and services Clear definition of roles and responsibilities (including segregation of duties). [13: 342]
There is widely held belief that public procurement and decision making is only based on “lowest price” and although this is not true, the procurement is still so heavily regulated that procurement with a long term gain is difficult to execute. Since there should always be a way to prove the exact value for money long term gains, even return of investment in the long run is difficult to prove or prioritize within the current public procurement regulations and guidelines [13]. How can then procurement that potentially adverse risk, for example, be argued for? This sort of procurement is an innovative form of public procurement since the impact in relation to the monetary input cannot be exactly defined in the moment of procurement. Innovative procurement can be understood in multiple ways. A few common themes can be identified in literature where the understandings of innovative procurement are: x x x
Procurement where close collaboration between actors is emphasized [e.g.14] Managing markets (procurement as power/ control for shaping products, services and markets) [e.g.15] Procurement taking in consideration the demand side [e.g. 16]
This study follows the understanding of “innovative procurement” as: “a way of buying goods and services in a way that stimulates the supply chain to invest in developing better and more innovative solutions to meet the unmet needs of an organization” [17]. Combining Hérnandez Garvayo’s [17] definition of innovative procurement with a supply chain view helps to illustrate the concept of cascading innovation in the humanitarian supply chain. 3. A Framework for cascading innovation upstream the supply chain Cascading events follow a domino effect or the snowball effect, where one thing leads to another [9]. The nature of cascading is explained as one event (or activity) being connected through a causal sequence to the next event (or activity) [18]. Figure 1 portrays a potential path of the cascade, where a public procurement process instigates innovation upstream the supply chain, which triggers further innovations upstream. Due to the interlinkage of various sectors, innovation in one sector bears the potential for cross-sectoral impact, as well as the potential of an impact to other interlinked (e.g. commercial) supply chains. The path of the cascade in the supply chain becomes even the more transparent when analyzing the cascade of innovation through critical resources (denoted in red in Figure 1). Critical resources are such that can be identified as crucial or strategically important [19] for the focal production, supply, or service. A critical resource is for example a rare raw material that is often used/needed in several industries and thus in supplies across sectors. There are three main categories of critical resources: infrastructure, production, and supply. In health care, Spens [20] broadens the definition of criticality to supply chains and defines critical resources as such that need to be managed in order to save lives. An important notion to critical raw materials is that they are used in many different sectors. Importantly, innovation with regards to critical resources typically impacts on several sectors at once, hence the parameters of such innovation need to take many different application areas of the new product/service into account. PPI works on the premise of specifying desired outcomes in tender documents, which suppliers than pitch against, and ultimately, against which specifications suppliers will be selected and also evaluated [3,5]. But, “catalytic” PPI also fulfils the purpose of procuring new products on behalf of other actors [4]. Catalytic procurement presupposes
Ira Haavisto and Gyöngyi Kovács / Procedia Engineering 107 (2015) 140 – 145
not only the societal mandate of the public agency but also, that it is aware of and speaks for other actors. This is not to say that an agency necessarily procures alone; a prime way of co-ordinating the needs of interdependent actors is through purchasing consortia, which have also been used across humanitarian agencies [21]. Purchasing consortia operate in the areas in which several agencies have overlapping interests and can together achieve economies of scale or boost their purchasing power for driving innovation. They do, however, not tackle the issue of overlapping critical resources, where the interests of various sectors may diverge from one another. In this area, it is first essential that such critical resources are identified, before multi-sector co-ordination is even possible in procurement.
Figure 1. Cascading innovation in the humanitarian supply chain and across sectors.
Due to the interdependencies of companies and sectors through supply chains, PPI may lead to cascades in innovation (see Figure 1). Technology innovation, for example, often requires several suppliers to work together, sometimes over several echelons in the supply chain. As with the demands on environmental and social parameters [5,8], there is an expectation that also the demand for innovation will eventually be passed on upstream the supply chain [5].2ltimately, it is through these cascades and not just the very specifications of innovation in the direct buyer-supplier interface that PP contributes to innovation overall. That said, the cascading effects of innovation can both be beneficial as intended, but sometimes, also detrimental [12]. One would therefore expect scholarly literature to pay attention to both types of effects, but the opposite is true: only 0.2% - 0.5% of innovation research articles address consequences of innovation, a pro-innovation bias [22], has not changed since the 1960s [23,10,11]. This means that the net beneficial effect of innovation for society is probably lower than promised by research and lower than policy makers are led to believe. In terms of humanitarian supply chains, for example, high-tech innovations that are beneficial for one sector may hamper disaster relief overall if they cannot operate during disruptions in energy and transportation infrastructure. The emphasis in the area of humanitarian supply chains is on robust (often low-tech) innovations such as vaccines that don’t require cold chains and water-free sanitation solutions, alongside earthquake-resilient infrastructures and autonomous energy sources – innovations that reduce the reliance on other, interdependent sectors.
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The presented framework suggests a hypothesis where innovation can cascade upstream the supply chain not only vertically but also horizontally, i.e. across sectors. The nodes that link innovation are suggested to be critical supplies and critical raw material that might be used in several different supplies and services in a humanitarian supply chain. The framework indicates that public procurement innovation can cascade both vertically form the first tier supplier to the next but also across industries in the supply network, thus reaching ultimately a variety of service providers and customers. Typical interlinkages in all disasters stem from electricity and fuel consumption, the need for cold chains – and the use of critical infrastructure such as ports, airports, etc. Innovation in any of such nodes or technologies needs to serve several sectors at once, and therefore, needs to take the requirements of all these sectors into account. A few other findings should be highlighted as well. Humanitarian supply chains require robust technologies, i.e. innovation in this area is not necessarily a high-tech one but one that works in environments with disruptions in infrastructure. Particularly important is to overcome a reliance on electricity supplies, fuel, or to understand that these should not be taken for granted, or that any innovation that requires functioning electricity supplies also generates these. What is more, humanitarian supply chains operate in areas where the digital divide typically separates the most vulnerable (i.e. beneficiaries that should be targeted) from the relatively affluent, and it is paramount to remember whom such supply chains serve in the first place. A challenge is the fluctuating demand, that might be amplified or change in a matter of days whilst procurement processes can take months. Further research in this area is needed on grass-root and ad-hoc innovations in disasters, in particular on solutions that are culturally appropriate. Following the cascades, the use of critical raw materials also needs to be highlighted. Further research is needed on the use of scarce raw materials in various sectors, and the identification of interlinkages of sectors in light of these materials. Acknowledgements The authors would like to thank the Academy of Finland for its kind support of the project “Resilience in Disaster Relief and Development Supply Chains”. We would furthermore like to thank all the reviewers of this paper. References [1] Leenders, M.R. and and Fearon,H.E. (2008), “Developing Purchasing’s foundation, Journal of Supply Chain Management, 44 (2): 17-27. [2] Uyarra E, Edler J, Garcia-Estevez J, Georghiou L & Yeouw J (2014), “Barriers to innovation through public procurement: A supplier perspective”, Technovation, 34(10), 631–645. [3] Lember V, Kattel R & Kalvet T (2014), “Introduction”, in: Lember V, Kattel R & Kalvet T (eds.), Public Procurement, Innovation and Policy: International Perspectives, Springer, Heidelberg. [4] Edquist C & Zabala-Iturriagagoitia JM (2012), “Public Procurement for Innovation as mission-oriented innovation policy”, Research Policy, 41(2012), 1757–1769.’ [5] Amman M, Roehrich JK, Eßig M & Harland C (2014), “Driving sustainable supply chain management in the public sector”, Supply Chain Management: An International Journal, 19(3), 351–366. [6] Zeng, J., Knight, L., Harland, C., Humby, S., James, K., (2007) An analysis of research into future of purchasing and supply chain management. Journal of purchasing and Supply Management, 13 (1): 69.83. [7] Fisher, M., (1997), “What is the Right Supply Chain for Your Product?”, Harvard Business Review, March-April, 97205 [8] Kovács G (2008), “Corporate environmental responsibility in the supply chain”, Journal of Cleaner Production, 16(15), 1571-1578. [9] Haavisto, Ira, Banomyong, Ruth, Kovács, Gyöngyi and Spens, Karen (2013): Supply chain co-ordination in cascading disasters. MLB conference 2013, Nagoya, Japan. [10] Rogers, E.M (1962), “Diffusion of Innovation”, New York, Free press. [11] Sveiby K-E, Gripenberg P & Segercrantz B (2012), “The unintended and undesirable consequences: Neglected by innovation research”, In: Sveiby K-E, Gripenberg P & Segercrantz B (eds), Challenging the Innovation Paradigm, Routledge Studies in Technology, Work and Organizations, vol. 9, Routledge, New York, pp. 61-84. [12] Huesemann M & Huesemann J (2011), Techno-Fix: Why Technology Won't Save Us or the Environment, New Society Publishers, Gabriola Island, B.C. [13] Baily, P., Farmer, D., Crocker, B., Jessop, D., and D. Jones, (2005). “Procurement principles and management”, 9th ed, Prentice Hall, London. [14] Hoppe, Eva I., and Patrick W. Schmitz (2013). "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering." The RAND Journal of Economic,s 44.1 (2013): 56-74.
Ira Haavisto and Gyöngyi Kovács / Procedia Engineering 107 (2015) 140 – 145 [15] Aschhoff, B., and W. Sofka, (2009), "Innovation on demand—Can public procurement drive market success of innovations?." Research Policy 38.8: 1235-1247. [16] Edler, J, and Luke G. (2007), "Public procurement and innovation—Resurrecting the demand side", Research policy 36.7: 949-963. [17] Hérnandez Garvayo, L., (2013) Head of Unit, FECYT, Ministry of Economy, Spain, Presentation in OCED workshop December 5-6th 2013. [18] May, F., (2007), in Butler, Bret W.; Cook, Wayne, comps. 2007. The fire environment—innovations, management, and policy; conference proceedings. 26-30 March 2007; Destin, FL. Proceedings RMRS-P-46CD. Fort Collins, CO: U.S. Department of Agriculture, Forest Service, Rocky Mountain Research Station. 662 p. [19] Kraljic P (1983), "Purchasing must become supply management." Harvard Business Review, 61(5), 109-117. [20] Spens, K. (2001), “Managing critical resources through supply network management- A study of the Finnish blood supply network”, Ekonomi och Samhälle, Swedish school of Economics and Business Administration, Helsinki, Finland. [21] Pazirandeh A & Norrman A (2014), “An interrelation model of power and purchasing strategies: A study of vaccine purchase for developing countries”, Journal of Purchasing & Supply Management, 20(1), 41-53. [22] Downs Jr GW & Mohr LB (1976), “Conceptual issues in the study of innovation”, Administrative Science Quarterly, 21(1976), 700-714. [23] Kimberly JR (1981), “Managerial innovation”, In: Nyström PC & Starbuck WH (eds.), Handbook of Organizational Design, Vol.1, 84–104. Oxford University Press.
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ScienceDirect Procedia Engineering 107 (2015) 140 – 145
Humanitarian Technology: Science, Systems and Global Impact 2015, HumTech2015
A framework for cascading innovation upstream the humanitarian supply chain through procurement processes Ira Haavisto*, Gyöngyi Kovács HUMLOG Institute, Hanken School of Economics, Arkadiagatan 22, Helsinki, 00100, Finland
Abstract Procurement for humanitarian supply chains is often done by agencies that underlie public procurement regulations. These regulations tend to focus on transparency and openness, in other words, tender processes, price and quality. In other words, public procurement can be seen as hindering innovation through its rigidity. At the same time, humanitarian organizations face highly turbulent environments, sudden demand, and disaster- and context-specific requirements on items and technologies. Innovation in humanitarian supply chains needs to be swift but also robust, fitting an environment with disruptions in critical infrastructures such as energy and transportation. In spite of context-specific requirements, innovation does not stand alone but impacts on the supply chain through its requirements on suppliers, use in other echelons, and even, use across various sectors. Innovation thus cascades both upstream the supply chain and across sectors. Such cascades need to be identified, managed, or if detrimental, mitigated in the humanitarian supply chain. This paper therefore develops a framework for cascading innovation in humanitarian supply chains. © by Elsevier Ltd. This an open access ©2015 2015Published The Authors. Published byisElsevier Ltd. article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the Organizing Committee of HumTech2015. Peer-review under responsibility of the Organizing Committee of HumTech2015
Keywords: Innovation; Humanitarian supply chains, Public procurement
1. Introduction Procurement in humanitarian supply chains is often done by agencies that are subject to public procurement regulations at the same time as the humanitarian supply chain should act quickly in disasters. What is more, situations such as the current Ebola crisis require new medicines, technologies, and equipment, in other words,
* Corresponding author. Tel.: +358 (0)40 35 21 392; fax: +358 9 431 33 287. E-mail address: [email protected]
1877-7058 © 2015 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the Organizing Committee of HumTech2015
doi:10.1016/j.proeng.2015.06.067
Ira Haavisto and Gyöngyi Kovács / Procedia Engineering 107 (2015) 140 – 145
141
innovative solutions. Innovation is also needed in supply chain processes in lights of e.g. security considerations as in the situation in Syria and Iraq to date. Public procurement (PP), however, is a highly regulated area, where national and international (e.g. European Union, EU) level Procurement Acts converge. Subsequently, procurement acts are implemented on the various levels of public offices. So far, public procurement has been focusing on the traditional aspects of price and quality of the procured items and services, and on the importance of developing transparent, rigorous and ethical procurement processes [1]. These performance objectives of PP processes have though also led to their rigidity, and are even perceived to constitute an important barrier to innovation [2]. In the EU alone, an astounding 10-30% of EU countries GDP going to PP [3]. PP has an important role to play in fostering innovation, and hence contributing to economic development (EC 2013). Also in the OECD, innovation was already at the heart of the OECD 2009 strategy on “demand-led” innovation. Conceptually, the new public procurement of innovation (PPI) widens the scope from a situation where a public agency places an order for products (goods, services, or systems) that don’t yet exist but that could be developed within a given time frame [4] to fostering new market capabilities beyond the typical case of technology procurement [3] This endeavor follows the footsteps of other trends in procurement that embrace more and more “non-traditional” performance objectives such as sustainability [5], or collaborative aspects [6]. However, while the private sector can foster innovation through its use as a performance objective in purchasing, PP is bound by regulation to rigorous structures and procedures. In industry, innovation has traditionally been linked to agility and flexible procurement practices [7]. Uyarra et al. [2] found that in spite of efforts to integrate innovation objectives in PP, PP continues to be perceived as risk-averse, prescribe too many and too rigid specifications in the tender process while not engage with procuring organizations and have low capabilities of procurers themselves. Together, these factors contribute for a lack of demand for innovation. PP is on the other hand key to innovation diffusion and to act as a market where markets fail. Hence, most importantly, in PPI the aim is “not primarily to enhance the development of new products, but to target functions that satisfy human needs or solve societal problems” [4, 1758]. An important area that satisfies human needs and aims to solve societal problems is that of humanitarian supply chains. PPI bears consequences not only for the suppliers that need to develop this product or service and the user demanding this innovation, but also for other suppliers in the humanitarian supply chain, and customers beyond the one procuring the innovation. This is well in line with the catalytic function of the agency to foster this innovation for a market, and to contribute to the diffusion of the innovation [4]. In other words, there is a potential domino effect, or a cascade of the innovation in the humanitarian supply chain, but also across various sectors. Such domino effects have been observed when it comes to “green” purchasing, both in the supply chain, across industries, and across geographical regions [8], whereas cascades have otherwise been studied in the area of disasters themselves [9]. The criticality of infrastructure and production is usually determined for specific sectors, yet in terms of critical resources, there are important intersections to note between these. Hence innovation in one sector impacts also on others. Rogers [10:13] has defined innovation as “an idea perceived as new by the individual”. In practice, innovation can be understood as a positive performance objective, based on the assumption that innovation will lead to better performance. In this paper, this perspective is extended to innovation in the supply chain and to the cascading “domino effects” of innovation throughout the supply chain – whether those are intended beneficial effects, or unintended, undesirable ones [11, 12]. The aim of this paper is therefore to develop a framework for cascading innovation in humanitarian supply chains. Next, we will review innovative public procurement, before turning to the development of this framework. We conclude with a discussion of implications of innovation cascades for humanitarian supply chains.
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2. Innovative public procurement Considerable amounts of funds are spent each year on public procurement. The procurement can be said to be for the good of the population and the expenditure can be said to come from tax payers’ money. The use of taxpayers’ money thus leads to the difference between public and private procurement, namely that public procurement is more heavily regulated. Public procurement overall can be said to follow principles of: x x x
Procurement should be based on value for money Competition should be used to acquire goods and services Clear definition of roles and responsibilities (including segregation of duties). [13: 342]
There is widely held belief that public procurement and decision making is only based on “lowest price” and although this is not true, the procurement is still so heavily regulated that procurement with a long term gain is difficult to execute. Since there should always be a way to prove the exact value for money long term gains, even return of investment in the long run is difficult to prove or prioritize within the current public procurement regulations and guidelines [13]. How can then procurement that potentially adverse risk, for example, be argued for? This sort of procurement is an innovative form of public procurement since the impact in relation to the monetary input cannot be exactly defined in the moment of procurement. Innovative procurement can be understood in multiple ways. A few common themes can be identified in literature where the understandings of innovative procurement are: x x x
Procurement where close collaboration between actors is emphasized [e.g.14] Managing markets (procurement as power/ control for shaping products, services and markets) [e.g.15] Procurement taking in consideration the demand side [e.g. 16]
This study follows the understanding of “innovative procurement” as: “a way of buying goods and services in a way that stimulates the supply chain to invest in developing better and more innovative solutions to meet the unmet needs of an organization” [17]. Combining Hérnandez Garvayo’s [17] definition of innovative procurement with a supply chain view helps to illustrate the concept of cascading innovation in the humanitarian supply chain. 3. A Framework for cascading innovation upstream the supply chain Cascading events follow a domino effect or the snowball effect, where one thing leads to another [9]. The nature of cascading is explained as one event (or activity) being connected through a causal sequence to the next event (or activity) [18]. Figure 1 portrays a potential path of the cascade, where a public procurement process instigates innovation upstream the supply chain, which triggers further innovations upstream. Due to the interlinkage of various sectors, innovation in one sector bears the potential for cross-sectoral impact, as well as the potential of an impact to other interlinked (e.g. commercial) supply chains. The path of the cascade in the supply chain becomes even the more transparent when analyzing the cascade of innovation through critical resources (denoted in red in Figure 1). Critical resources are such that can be identified as crucial or strategically important [19] for the focal production, supply, or service. A critical resource is for example a rare raw material that is often used/needed in several industries and thus in supplies across sectors. There are three main categories of critical resources: infrastructure, production, and supply. In health care, Spens [20] broadens the definition of criticality to supply chains and defines critical resources as such that need to be managed in order to save lives. An important notion to critical raw materials is that they are used in many different sectors. Importantly, innovation with regards to critical resources typically impacts on several sectors at once, hence the parameters of such innovation need to take many different application areas of the new product/service into account. PPI works on the premise of specifying desired outcomes in tender documents, which suppliers than pitch against, and ultimately, against which specifications suppliers will be selected and also evaluated [3,5]. But, “catalytic” PPI also fulfils the purpose of procuring new products on behalf of other actors [4]. Catalytic procurement presupposes
Ira Haavisto and Gyöngyi Kovács / Procedia Engineering 107 (2015) 140 – 145
not only the societal mandate of the public agency but also, that it is aware of and speaks for other actors. This is not to say that an agency necessarily procures alone; a prime way of co-ordinating the needs of interdependent actors is through purchasing consortia, which have also been used across humanitarian agencies [21]. Purchasing consortia operate in the areas in which several agencies have overlapping interests and can together achieve economies of scale or boost their purchasing power for driving innovation. They do, however, not tackle the issue of overlapping critical resources, where the interests of various sectors may diverge from one another. In this area, it is first essential that such critical resources are identified, before multi-sector co-ordination is even possible in procurement.
Figure 1. Cascading innovation in the humanitarian supply chain and across sectors.
Due to the interdependencies of companies and sectors through supply chains, PPI may lead to cascades in innovation (see Figure 1). Technology innovation, for example, often requires several suppliers to work together, sometimes over several echelons in the supply chain. As with the demands on environmental and social parameters [5,8], there is an expectation that also the demand for innovation will eventually be passed on upstream the supply chain [5].2ltimately, it is through these cascades and not just the very specifications of innovation in the direct buyer-supplier interface that PP contributes to innovation overall. That said, the cascading effects of innovation can both be beneficial as intended, but sometimes, also detrimental [12]. One would therefore expect scholarly literature to pay attention to both types of effects, but the opposite is true: only 0.2% - 0.5% of innovation research articles address consequences of innovation, a pro-innovation bias [22], has not changed since the 1960s [23,10,11]. This means that the net beneficial effect of innovation for society is probably lower than promised by research and lower than policy makers are led to believe. In terms of humanitarian supply chains, for example, high-tech innovations that are beneficial for one sector may hamper disaster relief overall if they cannot operate during disruptions in energy and transportation infrastructure. The emphasis in the area of humanitarian supply chains is on robust (often low-tech) innovations such as vaccines that don’t require cold chains and water-free sanitation solutions, alongside earthquake-resilient infrastructures and autonomous energy sources – innovations that reduce the reliance on other, interdependent sectors.
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The presented framework suggests a hypothesis where innovation can cascade upstream the supply chain not only vertically but also horizontally, i.e. across sectors. The nodes that link innovation are suggested to be critical supplies and critical raw material that might be used in several different supplies and services in a humanitarian supply chain. The framework indicates that public procurement innovation can cascade both vertically form the first tier supplier to the next but also across industries in the supply network, thus reaching ultimately a variety of service providers and customers. Typical interlinkages in all disasters stem from electricity and fuel consumption, the need for cold chains – and the use of critical infrastructure such as ports, airports, etc. Innovation in any of such nodes or technologies needs to serve several sectors at once, and therefore, needs to take the requirements of all these sectors into account. A few other findings should be highlighted as well. Humanitarian supply chains require robust technologies, i.e. innovation in this area is not necessarily a high-tech one but one that works in environments with disruptions in infrastructure. Particularly important is to overcome a reliance on electricity supplies, fuel, or to understand that these should not be taken for granted, or that any innovation that requires functioning electricity supplies also generates these. What is more, humanitarian supply chains operate in areas where the digital divide typically separates the most vulnerable (i.e. beneficiaries that should be targeted) from the relatively affluent, and it is paramount to remember whom such supply chains serve in the first place. A challenge is the fluctuating demand, that might be amplified or change in a matter of days whilst procurement processes can take months. Further research in this area is needed on grass-root and ad-hoc innovations in disasters, in particular on solutions that are culturally appropriate. Following the cascades, the use of critical raw materials also needs to be highlighted. Further research is needed on the use of scarce raw materials in various sectors, and the identification of interlinkages of sectors in light of these materials. Acknowledgements The authors would like to thank the Academy of Finland for its kind support of the project “Resilience in Disaster Relief and Development Supply Chains”. We would furthermore like to thank all the reviewers of this paper. References [1] Leenders, M.R. and and Fearon,H.E. (2008), “Developing Purchasing’s foundation, Journal of Supply Chain Management, 44 (2): 17-27. [2] Uyarra E, Edler J, Garcia-Estevez J, Georghiou L & Yeouw J (2014), “Barriers to innovation through public procurement: A supplier perspective”, Technovation, 34(10), 631–645. [3] Lember V, Kattel R & Kalvet T (2014), “Introduction”, in: Lember V, Kattel R & Kalvet T (eds.), Public Procurement, Innovation and Policy: International Perspectives, Springer, Heidelberg. [4] Edquist C & Zabala-Iturriagagoitia JM (2012), “Public Procurement for Innovation as mission-oriented innovation policy”, Research Policy, 41(2012), 1757–1769.’ [5] Amman M, Roehrich JK, Eßig M & Harland C (2014), “Driving sustainable supply chain management in the public sector”, Supply Chain Management: An International Journal, 19(3), 351–366. [6] Zeng, J., Knight, L., Harland, C., Humby, S., James, K., (2007) An analysis of research into future of purchasing and supply chain management. Journal of purchasing and Supply Management, 13 (1): 69.83. [7] Fisher, M., (1997), “What is the Right Supply Chain for Your Product?”, Harvard Business Review, March-April, 97205 [8] Kovács G (2008), “Corporate environmental responsibility in the supply chain”, Journal of Cleaner Production, 16(15), 1571-1578. [9] Haavisto, Ira, Banomyong, Ruth, Kovács, Gyöngyi and Spens, Karen (2013): Supply chain co-ordination in cascading disasters. MLB conference 2013, Nagoya, Japan. [10] Rogers, E.M (1962), “Diffusion of Innovation”, New York, Free press. [11] Sveiby K-E, Gripenberg P & Segercrantz B (2012), “The unintended and undesirable consequences: Neglected by innovation research”, In: Sveiby K-E, Gripenberg P & Segercrantz B (eds), Challenging the Innovation Paradigm, Routledge Studies in Technology, Work and Organizations, vol. 9, Routledge, New York, pp. 61-84. [12] Huesemann M & Huesemann J (2011), Techno-Fix: Why Technology Won't Save Us or the Environment, New Society Publishers, Gabriola Island, B.C. [13] Baily, P., Farmer, D., Crocker, B., Jessop, D., and D. Jones, (2005). “Procurement principles and management”, 9th ed, Prentice Hall, London. [14] Hoppe, Eva I., and Patrick W. Schmitz (2013). "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering." The RAND Journal of Economic,s 44.1 (2013): 56-74.
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