Optimal Pricing Policies and Contracts of Outsourcing Humanitarian Logistics Activities

The objective of the proposed research project is to determine which logistics activities of humanitarian disaster relief organizations could be outsourced to commercial logistics providers and which contract designs and pricing policies can make sure that these outsourcing activities are beneficial for humanitarian aid agencies as well as commercial logistics providers. The activities that can be outsourced, as well as optimal pricing policies and contract designs will be determined contingent on the type of the disaster, the characteristics of the humanitarian organization, and the disaster phase. The proposed research project follows a two-step research approach, which combines empirical case study analysis and quantitative modeling. In the first step, case studies with both humanitarian organizations and commercial logistics providers will be used to investigate which logistics activities have the potential to be outsourced. Based on the results of the first step of the research project, non-cooperative game theoretic models under information asymmetry will be developed in the second step to determine optimal pricing policies and contract designs for outsourcing of logistics activities in the humanitarian sector. This research will further advance research in the area of humanitarian logistics by adapting concepts from the for- profit sector and by developing game-theoretic models that consider the special characteristics of disaster relief situations and non-profit organizations. The proposed research project will provide a foundation for future applications of game-theoretic models in the humanitarian sector.

The number and complexity of global disasters are increasing but funds for disaster relief are limited. Hence, efficient and effective humanitarian supply chain management is necessary. Outsourcing of logistics services to commercial logistics providers is a potential facilitator of improved disaster relief. Aid agencies spend several billion USD every year on outsourcing logistics services. This practice can provide considerable benefits to aid agencies but also causes serious challenges in the humanitarian environment. The research project Optimal Pricing Policies and Contracts of Outsourcing Humanitarian Logistics Activities explored how humanitarian organizations can best leverage the potential of outsourcing while limiting its inherent drawbacks. The project shows why and how humanitarian organizations decide to outsource logistics activities, which logistics activities of humanitarian organizations can be outsourced to commercial logistics providers throughout the different disaster phases and which contract designs and pricing policies can make sure that these outsourcing activities are beneficial for humanitarian aid agencies as well as commercial providers. Through a Delphi study and a complementary full-day focus group with humanitarian experts, the project team identified twelve best practices of outsourcing humanitarian logistics services and a catalogue of more than 100 activities for putting these practices into action. Furthermore, the project provided insights with respect to coordination mechanisms of outsourcing logistics activities to other humanitarian organizations, challenges and bottlenecks in outsourcing to financial service providers in the context of cash-transfer programs and the influence of framework agreements between humanitarian organizations and logistics service providers on relief allocation and distribution decisions. Insights for this research project can provide guidance to commercial logistics service providers and humanitarian organizations in building strategic outsourcing relationships. It can, therefore, facilitate improved disaster relief activities.