Supply Chain Management - a Basf Case Study

Journal of Supply Chain management and other Business issues

BASF Case Study - Challenges in Supply Chain Management

Thomas Schuster, Daan Cramer, Niek Nigg, Bart van Gorp, Myrthe Jansen, Alla Lashmanova, under the supervision of Dr. Peter Bollen

University College Maastricht Business Press, Universiteit Maastricht

Zwingelput 4, 6220 MD Maastricht

Abstract. This paper primarily discusses and analyzes theories and implications of supply chain management. A case study of the German chemical company BASF is going to illustrate main concerns regarding the topic of logistics and especially outlines the challenges and problems companies face when expanding in other geographical areas. BASF failed to realize the importance of an efficient supply chain management, and the related implications for successful implementations of strategies in all layers of the command chain.

Key Words: BASF, Supply Chain Management, Logistics, South East Asia, Strategy

1 Introduction

The Asian economies, especially its South Eastern regions, recorded extraordinarily high growth rates in the last decades. This development triggered vast changes in these market structures and also had an influence on the local people's consuming behavior. Western corporations immediately realized lucrative business opportunities and started to expand into those regions. On the other hand, running a multinational or international corporation, which is active in multiple geographical regions, requires sophisticated information technology and an efficient supply chain management. However, only the past two decades showed vast advances in information technology.

Similarly to other multinational companies, the German chemical company BASF at first failed to realize increasing impact of an efficient supply chain management on the overall business strategy. These implementations caused new logistical challenges, however. Still, BASF made due to a lack of expertise in this field and other challenges wrong decisions that restricted the prospected benefits. Later implementation of a specialized supply chain management department brought the expected advances.

The main purpose of the essay is to analyze BASF's process of expanding its operations to South and Eastern Asian regions by following the problem statement:

What logistical challenges did BASF encounter in their Asian Expansion?

This essay is going to be build up as follows. First, the BASF case is going to be introduced. This part concerns the company's background, the organizational structure as well as a special focus on the companies South and Eastern Asian operations. Further, the applied logistical system is also going to be illustrated in order to build the foundation for the following analytical part. Here, conception and theories of supply chain management are going to be introduced and applied to the BASF case study. This section includes a general introduction, changes, as well as strategic implications of supply chain management. Finally, recommendations and a conclusion will be given.

2 BASF Case Study

2.1 Company Background

BASF is one of the largest chemical companies in the world. The German company was founded in 1865 and has grown into a multinational corporation. The company is engaged in the entire value chain in the oil and chemistry industry ranging from the production of general crude oil to heavily refined products. [1]

In the beginning of the company, BASF only produced coal-tar-based dyestuff but constantly broadened its business portfolio. Currently, BASF engages in chemicals, plastics, performance products of chemical nature, agricultural products, nutrition, as well as in the production of oil and gas. (Appendix I) The production range consists of 22 major product categories counting a total number of over 8000 different products. Furthermore, it serves customers in more than 170 countries and runs production facilities in 41 countries. BASF's headquarter is located in Ludwigshafen in the north of Germany were the company was founded, and where the first production sites were established. [5] The sixties of the last century brought a change in BASF's strategy. In this decade, production sites were progressively created or acquired abroad in order to increase market share and start an expansion abroad without investing enormous amount of financial resource as well as time. International relations were already established as early as in the beginning of the nineteenth century, however. At that time the company strongly extended its scope of manufacturing as well as marketing, and progressively created production facilities in certain geographical regions in order to focus on customer proximity. The main growth centers of this international approach were North America, Australia, and South-East Asia as the most important region. [1]

2.2 Company Structure

Every product category at BASF is governed by a separate operating division such as Engineering plastics, industrial chemicals, coatings & colorants, etc. Additional support is ascertained with functional division. These divisions handle accounting, finance, planning & controlling tasks, human resources, and many other supplementary tasks. Later parts of this paper are especially going to focus on the logistical challenges, which were mostly apparent in the South Eastern Asian regions. Further, the expansions in various geographical regions lead to the creation of regional departments or regional divisions. In total, there are 14 subdivisions that handle individual group companies. The individual group companies operate with own responsibilities for parts of or the entire product line of BASF. Group companies are governed as separate legal entity, which means that most of them were only structured for either specific or limited services. Whereas some have been set up to produce and distribute parts of a product category, there were other groups where this has not been the case. They where mostly structured to provide service function or logistical tasks such as information management or shipping. Multiple product categories are distributed from a regional group company. On the other hand, operating divisions are created within the company. In addition, functional departments also needed to be put into operation in order to present the wider company environment.