Network for sustainability at BASF

BASF makes a wide range of products which we all use every day, even though the BASF name is not always visible. Plastics, coatings, chemicals, agricultural chemicals, oil and gas – almost all are sold on to other manufacturers before they end up in our hands. All the same, even if its name is usually invisible, the company is important enough to mean that almost everyone has heard of it.

The chemical market is highly fragmented. The industry as a whole is restructuring and, recently, there have been several major acquisitions and divestments that also involve BASF. This year, the company has acquired Degussa’s construction chemicals division, the US catalyst manufacturer Engelhard, water-based resin specialist Johnson Polymer and the Belgian company CropDesign. In recent times, it has also divested its printing systems business, as well as an important polyolefins joint venture with Shell. According to Annemie Diefenthal of Corporate Media Relations at BASF, "Our acquisitions and divestments are aimed at making our portfolio less cyclical, more innovative and more customer-oriented. We also target businesses with above-average growth rates."

BASF not only focuses on external growth but also on organic growth through investments. One part of its strategy is to benefit from the rapid growth of the Asian market. BASF’s major plant in Nanjing, China – a joint venture with the state-owned Sinopec – went on stream last year. "It’s a good basis for ensuring that we keep a leading position in this growing market," says Diefenthal.

Large savings through complete integration

Nanjing is one of BASF’s six ‘Verbund’ sites. Verbund is a German word which implies concepts such as networking or alliances. BASF has decided to leave it un-translated, but the Verbund concept – some people even call it a philosophy – is seen by the company as one of the major sources of its strength.

The six Verbund sites are in Antwerp, Belgium; Freeport, Texas; Geismar, Louisiana; Kuantan, Malaysia; as well as Nanjing, and, of course, the company’s huge manufacturing site at its headquarters in Ludwigshafen, Germany.

It was in Ludwigshafen that BASF first developed the concept: at Verbund sites, all inputs and outputs are integrated so that operations take place with the greatest possible efficiency and with the least possible environmental impact. For example, a waste product from a manufacturing process in a plant at one of the sites can be piped to another plant at the same site where it can be turned into a raw material. Steam produced as waste in one process may be used for heating in another. Waste products for which there is no other sensible usage can be incinerated to provide power and heat for further processes.

This is possible only at truly integrated sites which complement each other. The basic materials of chemical manufacturers are low-price products like ammonia and chlorine, in which logistics are, as Diefenthal puts it, "killer costs" – and BASF calculates that it saves around EUR 300 million a year in transport costs in Ludwigshafen alone by not having to transport products by road or rail to outside sites. Another EUR 150 million is saved by being able to use energy efficiently, as well as a further EUR 50 million through synergies in catering facilities, fire and medical departments, and a wastewater treatment plant.

Impressive improvements

Among the most important benefits of the Verbund concept is the improvement of the environmental balance of chemical production. Diefenthal points out that the challenge at this time of worldwide growth in chemical production is not to lose sight of the target of sustainability. "The Verbund concept is a major instrument in reducing energy consumption and effluent production, even as production rises," she says.

The Verbund has allowed BASF to reduce its fossil fuel consumption at Ludwigshafen by 49% since 1976 while increasing production by 45%. Much of the power needed could be produced from waste heat instead of from fossil fuel but there was improved efficiency even there, with electricity consumption rising by only 24% – thus slower than the rate of production. Throughout BASF, figures for reductions in emissions are impressive. Greenhouse gas emissions, for example, went down from 2004 to 2005 by 9.6% per tonne of production; emissions of nitrogen to water went down by 52%.

But the Verbund concept has a wider application than just the operational efficiency of BASF’s biggest sites. There are also Verbund structures for procurement activities which aim to take advantage of the same synergistic concept. For example, the global Product Verbund Team (PVT) for fabricated equipment has a global strategy based on the Verbund philosophy. "There are global, regional and local suppliers," says Diefenthal. "The global suppliers usually have higher levels of technical know-how and are more up-to-date, but the local suppliers are often faster and have knowledge of local conditions." So the procurement departments at the various sites have to decide which is the best option for each project.

Suppliers adapted to the Verbund concept

The PVT is cross-regional and cross-functional, including representatives from all regions, as well as from the global technical department and, if needed, from specific corporate functions. For example, requirements for equipment are communicated to the PVT, and if several sites require similar equipment at around the same time, a larger deal can be negotiated by the PVT member who has the best leverage.

The idea of sustainability, which is so central to the BASF philosophy, is also central to the procurement Verbund. "The PVT aims at developing a strategic business model with some selected suppliers in order to integrate them into the supply chain. We want to grow with our suppliers," says Diefenthal. It’s no use to BASF if its suppliers offer a rock-bottom deal and then go broke just before the spare parts are needed. "They should be able to support us globally and to work with us on new solutions. We want them to deliver not just a product but value to BASF," adds Diefenthal.

Only a few of BASF’s suppliers are regarded as "preferred" suppliers. This means that they will always get a chance to bid for any equipment in their field, although there’s no guarantee that they will win the sale. BASF hopes that regular round-table meetings with the PVT will help both sides to understand each other better. For a supplier to be able to give BASF what it wants, the supplier has to understand the company and its needs, and it can increase its understanding through the development of the relationship. This understanding  will improve the position of the supplier within the supply chain.

The PVT is the interface between the huge BASF Group and the individual supplier. When a supplier comes with a new technical idea, the PVT will relay that to the research department. When a regional subsidiary finds a problem, the PVT will relay that to the supplier. "The PVT is a catalyst for improvement," says Diefenthal. "We’re trying to get away from the old image of supplier and customer as two separate fronts. We want to create substantial value for both sides."

Match of interest

Alfa Laval has a large number of heat exchangers at BASF plants throughout the world and its supplies to BASF also include separators, pumps and tank-cleaning equipment.

Alfa Laval is cooperating actively with PVT Fabricated Equipment and the company is now a strategic supplier of plate heat exchangers. BASF needed a company which was able to provide local service, quality and innovation at a good price. Alfa Laval fitted the bill. "There was a match of interests," as BASF puts it.

"As a large, international company with broad geographic coverage and strong local presence on our markets, we have the qualities to meet BASF’s needs of high levels of technical know-how as well as knowledge of local conditions," says Carina Resare, Alfa Laval’s global key account manager for BASF. "Our BASF team is cross-regional and cross-functional just like its own PVT team and includes people both from our central organization and from a number of our sales companies in different regions."

Alfa Laval also is well-suited to meet BASF’s rapid growth in Asia, and China in particular. Alfa Laval has several sales offices, manufacturing facilities and service centres in China. The company’s manufacturing in China covers gasket plate heat exchangers, fully-welded plate heat exchangers, fluid handling equipment, tank cleaning equipment and assembly of separators.

"We genuinely appreciate the continuous dialogue we have with BASF. It helps us to fully understand their requirements," concludes Resare.