When lists of the best supply chains in the world come out, one multinational is too rarely discussed. That company is BASF. BASF, the world’s largest chemical company, has a cleverly constructed supply chain where the byproducts of one operation get converted into starting materials of another product. BASF, a company headquartered in Germany with 2017 revenues of $65 billion, calls this “Verbund.” In English this means to “combine” or to “cooperate.” I call it excellence in supply chain design.
Verbund at BASF
Verbund is defined as the intelligent interlinking of production plants, energy flows and infrastructure. BASF has six Verbund sites that create efficient value chains that extend from basic chemicals basic chemicals to high-value-added products such as coatings and crop protection agents. When by-products of one plant can be used as the starting materials for another, chemical processes consume less energy, produce higher product yields and conserve resources.
The Ludwigshafen site, encompassing ten square kilometers, is the largest chemical complex in the world. At this site, 110 production facilities and 200 production plants are interconnected. Byproducts and products flow through 2850 kilometers of pipes, 230 kilometers of rail, and over 100 kilometers of road. An astounding 39,000 employees work at this site. Talk about a company town!
The Verbund Concept Largely Explains How BASF Created One of the World’s Best Supply Chains
Verbund saves the company money. The company believes they save over one billion euros annually through this concept.
But Verbund is also a sustainability play. BASF saves on raw materials and energy, lowers emissions and cuts logistics costs because the synergistic production operations are near each other. In logistics, having plants near each other allows for 280,000 fewer truckloads per year.
In energy, waste heat from production processes is captured to be used as energy in other production plants. In 2016 this allowed the company to save around 19.0 million megawatts per year. That reduces CO2 emissions by 3.8 million metric tons annually.
BASF Embraces Digitalization
This highly integrated value chain generates unbelievable quantities of data. BASF seeks to better capitalize on this data by investing in digital technologies. The company’s smart manufacturing initiative is working on predictive maintenance, the use of augmented reality, and even greater savings in electricity and steam generation.
Improved savings in electricity is particularly interesting. Ludwigshafen needs about 20 million metric tons of steam per year. This is generated by the production plants and the site’s three power plants. The power plants produce the majority of electricity needed at the site. But they sometimes generate more power than is required. That electricity can be fed into the public grid.
On the BASF digitalization website, they describe their digitization effort in this area this way:
However, electricity is a complex business as market prices fluctuate every 15 minutes. Computer programs help to buy and sell at the best times. For this, however, a precise forecast is required as to how much steam and waste heat the production plants supply at the site, how much steam the power plants have to contribute and how much electricity is needed. This also fluctuates depending on the time of year, the weather and the economic conditions.
To date, the total requirements have been determined manually combined individual forecasts of the plants. A new statistical model, based on large amounts of data, now provides even more precise calculations: The software takes into account, among other things, historical and up-to-date information on production shutdowns, weather data and economic indices. The program searches for relationships and establishes connections with the energy demand.
This has been very successful: The forecast for steam demand has already improved by up to 60 percent. The former procedure will now be gradually replaced and applied to other areas. The new program supports us also in electricity trading to make better price forecasts.
BASF also has a smart supply chain program that has created some of the world’s largest automatic guided vehicles (AGVs). These AGVs allow the company to supply their production plants faster and at lower cost. They project that it will soon take one hour from order to delivery of raw materials in huge tanks. Historically, this took twenty-four hours.
When you look at lists of companies with the best supply chains, you rarely see chemical companies mentioned. BASF shows there is a lot more going on in this sector than most supply chain executives understand.