Fleet management policies for humanitarian organizations: Beyond the utilization–residual value trade‐off

• Author: Luk N. Van Wassenhove,Mahyar Eftekhar
• Published date: 01 May 2016
• Date: 01 May 2016
• DOI: http://doi.org/10.1016/j.jom.2016.03.008

Fleet management policies for humanitarian organizations: Beyond

the utilizationeresidual value trade-off

Mahyar Eftekhar

a

, Luk N. Van Wassenhove

b

,

*

a

Supply Chain Management, W.P. Carey School of Business, ASU,PO Box 874706, Tempe, AZ 85287-4706, USA

b

Technology and Operations Management, INSEAD, Boulevard de Constance, Fontainebleau, 77305, France

article info

Article history:

Received 20 September 2013

Received in revised form

3 February 2016

Accepted 17 March 2016

Available online 24 May 2016

Keywords:

Fleet management

Humanitarian development programs

Empirical analysis

Trade-off

abstract

Four-wheel drive vehicles play a pivotal role in securing the last-mile distribution of goods and services

in humanitarian development programs. To optimize the use of their fleets, humanitarian organizations

recommend policies aimed at enhancing the utilization of vehicles while preserving residual value.

Although these decisions have a significant impact on cost, there is limited empirical evidence to show

that the recommended policies are actually implemented and that they produce the expected benefits.

This paper theoretically and empirically examines the complex and inter-related effects of vehicle-to-

mission allocation decisions and of alternative vehicle usage patterns on vehicle utilization and resid-

ual value in humanitarian development programs. The results suggest that humanitarian organizations

could break the utilizationeresidual value trade-off by adopting different policies than the ones currently

in place. They also reveal that organizations need to realize that what seems logica l from the head-

quarters' perspective may be illogical or inconvenient for the field, and as a result, the field may do the

opposite of what is recommended or even instr ucted. Therefore, they either need better data and

analysis combined with audits or they need to improve mechanisms that incentivize field delegations to

follow standards recommended by the headquarters.

©2016 Elsevier B.V. All rights reserved.

1. Introduction

In humanitarian development programs, the delivery of hu-

manitarian services to beneficiaries, known as last-mile distribu-

tion (LMD), is one of the most critical operations (Balcik et al.,

2008). The centerpiece of LMD is the vehicle, which is used to

transport food, materials, and humanitarian workers. LMD typically

requires large and expensive fleets (Apte, 2009) whose manage-

ment presents several operational challenges: Purchasing the right

quantity of vehicles with features appropriate to the typically

substandard road networks, allocating them to different types of

missions, and reselling used vehicles before they become too old

are all important decisions that affect both LMD performance and

cost.

These challenges are further amplified by the difficult environ-

mental conditions in which humanitarian organizations (HOs)

operate and by their distinct decision-making processes. In most

HOs, fleet management policies are set centrally by the

headquarters (HQ) but are implemented locally by sub-delegations

(i.e., operating units located close to beneficiaries that are directly

confronted by local problems such as civil conflicts, rugged terrain,

or a lack of infrastructure). Because HQs often have limited visibility

related to local operations, policies and vehicle allocation rules are

often set with little understanding of field issues, and may not be

followed in practice. Therefore, information asymmetries and

incentive misalignment problems induce sub-delegations to

deviate from the HQ's recommendations and policies.

HOs have an obvious interest in utilizing their vehicles as much

as possible to maximize demand coverage and the number of

missions they perform. However, as HOs resell vehicles at the end

of their operational life, overutilizing these vehicles may reduce

their recovery value and consequently reduce the budget available

for future operations, thereby indirectly affecting future service

levels. Therefore, the trade-off between utilization and residual

value is clear. The following three decisions at the core of any fleet

management policy affect the utilizationeresidual value trade-off:

(1) how to assign vehicles to different types of missions, (2) how to

modify a vehicle's utilization over its operational life (i.e., how to

identify a vehicle's optimal usage trend), and (3) when to replace a

used vehicle with a new one.

*Corresponding author.

E-mail addresses: eftekhar@asu.edu (M. Eftekhar), luk.van-wassenhove@insead.

edu (L.N. Van Wassenhove).

Contents lists available at ScienceDirect

Journal of Operations Management

journal homepage: www.elsevier.com/locate/jom

http://dx.doi.org/10.1016/j.jom.2016.03.008

0272-6963/©2016 Elsevier B.V. All rights reserved.

Journal of Operations Management 44 (2016) 1e12