Circularity in Health Supply Chains: Inspiration from ‘Verbund’ Methodology

BASF is the world’s largest chemical company with a massive global footprint. They are the only chemical company to make it to the Gartner 2019 supply chain rankings, where they stood at #22. BASF has a unique agrochemical supply chain with a demand lead time of 48-72 hours (i.e., time taken for the product to reach the farmer), and a supply lead time of around 18 months (time taken to manufacture and stock agrochemicals). This is the result of complex and interconnected processes, made simple by BASF using a methodology called Verbund. Verbund is the integration of production and technologies to efficiently use resources and leverage expertise. It is grounded in the concept of circularity. All this is done to ensure that the farmer receives the right crop protection solution when required.

Verbund in German simply means combine or connection. This concept is used by BASF to consider a system view of its business, operate it in an integrated manner, and make efficient use of resources, while integrating their production plants, energy flows, material flows, logistics and infrastructure. The integration framework is unique because the system focuses not only on product, information and financial flow, as is typical, but on everything that flows in the value chain, for example, by-products, waste, energy, technology, etc. This creates value throughout the supply chain for BASF’s partners, suppliers, distributors, and consumers.

More on BASF’s smart supply chain can be found in these articles:

BASF’s agrochemical supply chain and its environment have a lot in common with public health supply chains. In both cases, the consumer must receive the product in time (i.e., if the farmer doesn’t receive her ordered crop protection solution just before the rains, the yield will be drastically affected, and similarly, a patient’s condition may get worse if he doesn’t receive the required medication in time).

So, what can public health supply chains learn from BASF’s ‘Verbund’ concept?

  1. A centralised supply chain team or department is vital for harmonising and connecting various health programs and partner led systems across geographies in low- and middle-income countries
  2. Supply chains must be re-strategised with customer service as the central idea, while creating value at each step of the process
  3. Demand planning / forecasting  must be emphasised since it drives all the other supply chain processes. Moreover, it needs to be a ground-up activity starting from the service delivery points (not from the distribution centres), and connecting all stakeholders involved
  4. Pharmaceutical manufacturers / suppliers should be a key part of the value chain. Joint forums can be constituted where supply challenges and solutions are discussed openly
  5. Public health supply chains must invest in minimising redundancies while preparing for untoward emergencies (e.g., BASF developed a pandemic preparedness plan long before COVID-19 hit the world). However, certain redundancies are always good, such as:
    • Extra storage sites in hard-to-reach areas as part of an optimised distribution network
    • Multiple framework agreements with suppliers for vital and high value items
    • Spare transport for fast-moving medication apart from consolidation techniques (milk run) and reverse logistics to reduce transport costs.
  6. Factoring climate change, supply chains in health must use fuel for transport judiciously and invest in environment-friendly disposal methods
  7. Countries where Revolving Drug Funds finance health supply chains must re-strategise order-to-cash cycles, linking them back to their inventory and purchasing models
  8. Countries with free medicines scheme must likewise link the order-to-service cycle with inventory and purchasing models
  9. A holistic and tiered performance management framework must be introduced which integrates staff performance with supply chain performance and health outcomes
  10. Finally, public health supply chains must integrate scalable and sustainable technologies within its various processes

BASF’s supply chain did not become smart overnight. It took them a long time to put all the pieces together to contribute to a sustainable future. What set them apart was a vision of a responsible supply chain.

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Sanjay Saha

Sanjay Saha

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