Bringing Stability to a Giant Complex

Bomber pilots flying over southwest Germany during World War II prayed for moonlight. The light gleaming off the water displayed the "vee" that was formed where the Neckar River flowed into the Rhine. That confluence marked a strategic target: One of the largest sites of Germany's IG Farben chemicals combine.

Sixty years later, that site in Ludwigshafen remains a strategic location. But now, its importance is much broader, as the site has been built by BASF--one of the companies that emerged from the ashes of IG Farben--into the largest chemicals complex in the world.

The complex has not been immune to the competitiveness issues that have swept through the chemical industry in the Western world. Employment levels, productivity, process costs, and a shift in industry growth to Asia all have had their impact on the complex. Those pressures inspired a two-year project by BASF and its workforce to reassess the needs of Ludwigshafen to maintain its competitiveness--and thus its survival--well into this century.

The main results from Site Project Ludwigshafen were the determination of the optimal level of staffing that will be needed at the complex into the next decade and the commitment by BASF to maintain investments in manufacturing and research at the complex. BASF has identified $450 million in savings at the plant so far, on its way to a target of $580 million in costs eliminated by the middle of this year.

According to an agreement announced late last year, the number of BASF employees at the site will decline to 32,000 by the end of 2007, from 35,300 at the beginning of 2004; in 1998, there were nearly 44,000 employees on-site. BASF has pledged to maintain the 2007 level subsequently, with no layoffs, until 2010. Moreover, BASF plans to invest a total of $7.8 billion in capital expenditure, modernization, and maintenance at Ludwigshafen between now and 2009--nearly $1.6 billion per year (C&EN, Nov. 29, 2004, page 10). Another $900 million will be spent on research and development of modern processes and innovative products.

Perhaps most remarkably, the results have been accepted with satisfaction by management and workers, although the two sides acknowledge the difficulties both in reaching this agreement and in implementing it.

ECONOMIC GROWTH in Germany will be a fundamental prerequisite for maintaining employment levels, so that "the site is not impacted by economic factors or negative circumstances that endanger BASF's competitiveness to such an extent that we have to respond with specific structural measures," said Eggert Voscherau, vice chairman of BASF's board of executive directors, at a press conference in late November.

Robert Oswald, chairman of BASF's works council in Ludwigshafen, said he is satisfied with what has been achieved. "We are pursuing a responsible policy, and--like the board of executive directors--we are helping to safeguard the jobs of tomorrow and beyond," he said.

"We have struggled hard to achieve the results" of the agreement, Oswald said. "During the past weeks, I often thought that we would not find a solution to the points that were important to us. But after many days of wrestling with these issues, the outcome is truly impressive. It represents the fruits of some of the toughest negotiations I can ever remember. It's not surprising that the negotiations were so tough, since what is and remains at stake is truly of the utmost importance."

Hence, the two sides' pride in the document, "Agreement on Harnessing Change to Achieve Stability," for the Ludwigshafen site, signed on Nov. 23, 2004.

According to Oswald, the roots of the project go back to 2001, when employee representatives called for a "site concept" for Ludwigshafen.

"In 2002, working with site head Eggert Voscherau, we launched a project that continues to be highly significant. Instead of generating lots of empty rhetoric or grand-sounding pronouncements," Oswald explained, "we employee representatives also acted responsibly. We vigorously and tenaciously helped to implement the project. We have already accomplished much of what we set out to do."

Among the accomplishments he cited were investment in a new cogeneration power plant, a new plant for the aroma chemical citral, and expanded training and professional development activities.

Oswald added: "This is an agreement that can only be properly assessed by looking at agreements from other industries and reading the fine print in them. We are aware that this process will place heavy demands on employees."

But enhancing competitiveness in an increasingly fierce global marketplace is the only way, the site project recognizes, that companies in Europe can compete against those in low-wage countries. Moreover, there are "homegrown" problems, according to BASF: Necessary reforms in Europe have been postponed for many years, and numerous European Union regulations hinder the industry's ability to lead in research and engineering.

To strengthen the site and BASF's Verbund--or total integration--structure, a site-marketing unit was established in 2003 to open up the Verbund to suitable partners and to market the site's infrastructure and services to third parties--a departure from traditional BASF philosophy.

Also, beginning in April 2003, data have been collected for a benchmarking project that is analyzing BASF sites worldwide. The aim of the project is to compare Ludwigshafen with other sites according to objective criteria, resulting in a framework for discussions and improvement.

ANOTHER CHANGE is that production units are now directly responsible for the maintenance of their individual plants at the site, rather than more centralized maintenance workers doing the job. The goal is to reduce the cost of maintenance by 10-15%, starting in 2005.

Yet another goal of the site project, BASF reported, is to increase efficiency in individual production units. The firm is taking five main approaches of optimizing processes, improving operational logistics, tailoring analytical services, scrutinizing purchasing specifications, and optimizing work shifts.

Measures initiated to date have already permanently reduced costs by more than $450 million per year. The targeted cost reduction of $580 million per year will be achieved once the project is completed in mid-2005, Voscherau said. About 1,200 individual steps are being processed in parallel as part of the site project, he said. To date, more than half of all plants at the site have been scrutinized with regard to efficiency.

"For the first time since we have been in the workforce reduction phase, we are returning to normalcy or, expressed better, to stability," Oswald observed. "Nevertheless, in the future we will also demonstrate that we are prepared for changes--since this is what distinguishes us from others. And this is the only way we can reach our goal of guaranteeing the existence of this site in the long term. For the workforce, this agreement is what we have needed for a long time: a truly visible light at the end of the tunnel."

BRANDING
BASF Chairman Hambrecht Stands Behind Chemicals

Arriving at the New York Stock Exchange recently to ring the exchange's opening bell, BASF Chairman Jürgen Hambrecht was pleased when a security guard recognized his company as the one that makes "a lot of the products you buy better." That's not enough for Hambrecht, however. He wants security guards--and everyone else--to recognize BASF as a chemical company.

This desire is behind the company's year-old campaign to brand itself as "The Chemical Company." The phrase is part of BASF's new corporate logo and is included in the firm's image-oriented advertising.

Indeed, Hambrecht was in New York City to help raise the company's image among U.S. investors, who own almost 15% of BASF's shares, up from less than 10% in 2000 when BASF started trading on the New York Stock Exchange.

Hambrecht is well positioned to promote the company these days, given its strong financial performance in the third quarter and the success of internal revamping efforts such as Site Project Ludwigshafen. He said the company will earn a "handsome premium" on its cost of capital in 2004, for the first time since 1997.

Seeking to be widely recognized as a chemical maker is a risky goal, given the public's generally poor perception of the industry. Hambrecht said as much at a press conference before the bell ringing. Although sustainable development of the company and the industry is one of BASF's four strategic guidelines, he acknowledged that a big chemical accident could overshadow this effort and cause the image campaign to backfire.

But Hambrecht isn't cowed by such doomsday scenarios. "You have to stand for what you are doing," he said. "If we are not committed to chemicals, who else will be?"--MICHAEL MCCOY