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Breaking Supply Chain News: Blast Occurrence at BASF Ludwigshafen Chemical Production Complex

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Reports indicated that that an explosion has occurred at the massive BASF chemical production complex in Ludwigshafen Germany.

Initial indications are that two employees have unfortunately lost their lives and two others are currently missing.  Six people are reported as seriously injured as a result of the explosion which reportedly occurred on a supply line connecting a harbor and a tank depot on the Ludwigshafen site at around 1120 local time (0920 GMT).

As many our readers may be aware, BASF is one of the largest global manufacturers of chemicals utilized across multi-industry supply chains.The Ludwigshafen site, which is 50 miles south of Frankfurt, is recognized as world’s largest chemical complex, covering an area of 10 square kilometers (four square miles) and employing 39,000 workers.

Reports we are monitoring indicate that production operations have been suspended at the BASF steamcrackers utilized to convert hydrocarbons into other chemicals. According to a published report from The Wall Street Journal, it is believed that the current suspension will initially suspend the supply of raw material chemicals supporting 20 other plants which are either in the process of shutdown or only partially operating.

According to a published report by Reuters, news of the explosion came less than two hours after BASF ad indicated that four people were injured in a gas explosion at its Lampertheim facility, a plant near Ludwigshafen that makes additives for plastics.

Obviously this is troubling news for many industry supply chains, particularly those residing in the Eurozone, and bears continual monitoring for any ongoing disruption of product supply chains.

 


When a Product Contains What it is Supposed To- A Business Media Expose

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Last week, The Wall Street Journal featured a novel but rather important article (Paid subscription required) reflecting on the importance of knowing your product, your supplier management and oversight practices along with supporting your core product marketing strategies.

The article reflects on actress Jessica Alba’s co-founded company, the Honest Company, whose company has soared to a reported $1.7 billion in private valuation in less than four years. The stated core mission of this consumer goods company is to offer cleaning products that do not knowingly contain harsh chemicals found in mainstream marketed and sold products.

One of the harmful compounds of question is that of sodium lauryl sulfate, referred to as SLS. The Honest Company’s claims to consumers are that its products are free of SLS.  However, in its report, the WSJ indicates that it commissioned two independent testing labs to analyze Honest’s liquid laundry detergent only to determine that it contained significant amounts of the chemical.

Honest naturally disputes such findings. The firm indicated to the WSJ that its manufacturing partners and suppliers have provided assurances that its products do not contain SLS other than trace amounts, and indeed provided a document from the laundry detergent supplier, Earth Friendly Products indicating there was no SLS content in its product. Earth Friendly indicated its document that it relied on its own chemical supplier, Trichromatic West, to test and certify that there was no SLS content. That’s when this story gets interesting since the lower-tiered supply chain chemical supplier told the WSJ that its certificate was not based on any testing and that there was a “misunderstanding” with the detergent maker, its customer. Further indicated was that SLS content was listed as zero because the chemical supplier did not add any SLS to the material it provided.

Honest reportedly claims to utilize an alternative cleanser in its products that is termed sodium coco sulfate or SCS. The WSJ goes further in its research for its report, interviewing a reported dozen scientists on how SCS itself is produced. It turns out the substance is: “made from palm or coconut oil, as a mixture of various cleaning agents that includes a significant amount of SLS.”  The Journal indicates that one of the country’s largest suppliers of SLS and SCS acknowledged that SCS indeed contains SLS.

Our readers can indeed read the entire WSJ report as to the back and forth communications the publication had with the Honest Company regarding the semantics of what is included in its laundry detergent product.

For Supply Chain Matters readers, particularly those of sourcing and procurement roles, the reported incident is yet another reminder of the importance of auditing and monitoring suppliers on a regular basis. It provides a further reminder in the need to have an active two-way relationship with product management and with associated product management teams to insure that the entire value-chain of a product conforms to important specifications.

Your firm can assume that the primary supplier is the sole source of product conformance to specifications and/or purpose. Many procurement teams have since discovered that in today’s complex web of value-chain stops, it is important to insure that all players clearly understand product and manufacturing process specifications, especially when supporting consumer product offerings.


Increased Concern for Cyber Attacks on Industrial Control Systems

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A U.S. government cyber security official has warned that there has been an increase in attacks that penetrate industrial control system networks over this past year and that increased diligence is required.  This warning does not bode well for current B2B focused Internet of Things (IoT) focused technology vendors hoping to capture increased market interest.

Within our Supply Chain Matters 2016 Predictions for Industry and Global Supply Chains (Now available for complimentary downloading in our Research Center), we predicted that IoT initiatives would continue to dive into the realities of line-of-business strategy and deployments. Included in these realities is the current lack of consistent global-wide standards addressing data security concerns.

In a published Reuters report, the Director of the Department of Homeland Security’s Industrial Control Systems Cyber Emergency Response Team (ICS-CERT) indicated: “We see more and more (cyber attacks) that are gaining access to that control system layer.” Overall concerns have been raised from last month’s incident in Ukraine when a power outage occurred from a cyber attack alleged to have originated in Russia, the first known power outage caused by a cyber attack. According to Reuters, security specialists attending the recent S4 conference in Miami Florida indicated that the Ukraine incident has caused U.S. firms to ask whether their systems are vulnerable to similar incidents. At that conference, in an on-stage interview, the ICS-CERT director observed: “I am very dismayed at the accessibility of some of these (industrial) networks…

From our lens, IoT technology vendors should best be directing their 2016 efforts and support in the area of industrial network security safeguards as well as insuring consistent security protocols and standards. Line-of-business and manufacturing teams working on IoT initiatives should obviously have data security weighted high on their initiatives.


The Dow Chemical and Dupont Merger Has Obvious Massive Implications

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The biggest news last week and perhaps for all of 2015 was the announcement that long-time rivals Dow Chemical and DuPont‘s intend to merge into a specialty chemicals giant of more than $120 billion.  There are stated plans to split both enterprises into three separate companies providing different specialty chemical based product offerings.

This proposed deal has obvious massive implications.

Saturday’s edition of The Wall Street Journal carried the headline that this deal cements activists’ rise. A profound quote of that article stated:

While they (activists) have become increasingly powerful in recent years, forcing companies to do everything from buying stock to selling assets, their ability to help bring about such a monumental deal represents a new high.

Today, the WSJ further described long-simmering hostilities between Dow CEO Andrew Liveris and activist investor Daniel Loeb which reached a boiling point this weekend after the announcement on Friday. Loeb apparently declared that this deal was too rushed, and called for Liveris’s resignation.

In October, former Dupont CEO Ellen Kullman suddenly resigned after fending off one of the most prominent wave of activist investor assault on a corporate board. Kullman was succeeded on an interim basis by board member Edward Breen while the company searched for a permanent replacement. Breen, whose resume includes being Chairmen and CEO of Tyco International worked with Dow CEO Andrew Liveris to orchestrate this deal.

Our Supply Chain Matters initial perception is that the announced deal provides a significant new and scary watershed as to the degree of influence that activists portend to have on corporate CEO’s. That is qualified, however, as to whether government regulators would allow this deal to go through given the significant implications. Analysts at Piper Jaffrey were quoted as indicating: The global natures of the antitrust hurdles are likely to be significant.”

The National Farmers Union (NFU) has already expressed its frustration for yet another enormous merger. NFU President Roger Johnson declared: “Having just five major players remaining in the marketplace would almost certainly increase the pressure for remaining companies to merge, resulting in even less competition, reduced innovation and likely higher costs for farmers.  This announcement, combined with the on-again-off-again Monsanto/Syngenta merger, is creating a marketplace where farmers will have very few alternatives for purchasing inputs.” The National Corn Growers Association declared it will do all it can to protect farmer interests and preserve an open and competitive marketplace.

Do not be surprised to read of other such declarations.

Since both of these global companies supply materials at the lowest echelons of many different industry supply chains, this proposed merger has significant internal and external implications from many industry value-chain supply dimensions.  These will unfold over the coming days and weeks and will likely take on market, technology and human resource dimensions, since the cost and the scale of this merger is momentous and far-reaching. How long the regulatory approval process actually occurs is likely anyone’s guess.

One thing is certain however, the specialty chemicals industry has reached a watershed moment, one that will likely redefine industry players and their associated supply chains for many years to come.

Bob Ferrari

 


Some Quantification of the Potential Impact of the Tianjin Port Warehouse Explosions

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There has been much reporting within social and business media regarding the potential industry supply chain disruptive effects of the recent massive warehouse explosions that affected the facilities adjacent to the Port of Tianjin.

It is rather important and crucial that industry supply chain and sales and operations team obtain meaningful and insightful information regarding what is happening on the ground as well as the potential short or long-term supply chain impacts, if any.

We at Supply Chain Matters are disappointed to observe that certain technology and service providers are attempting to utilize this tragic incident as a backdrop to product marketing outreach campaigns. Neither should technology providers suddenly become news outlets.

Not good ideas by our lens.

Supply chain technology providers should instead continue to educate on the benefits of the technology they provide and allow industry supply chain teams to receive clear, unfiltered and unbiased insights and information from informed and educated sources.

One of the better Tianjin perspectives Supply Chain Matters has reviewed to-date ia a published white paper: The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis, authored by supply chain risk management provider Resilinc.

While this 24 page white paper does include some product marketing, along with requiring registration, the bulk of the report provides meaningful and insightful information related to potential immediate, near-term, medium and longer term supply chain impacts.

The paper concludes that the less apparent ripple effects of the warehouse explosions will be felt weeks, months and even years to come.

The paper provides meaningful background information regarding this vital logistics and manufacturing hub, which services industry needs of automotive, commercial aerospace, high-tech, petrochemical and general industrial manufacturing supply chains, among others. It further outlines important mapping of industrial manufacturing and supplier concentrations within close proximity of the explosions, based on a mapping of over 30 sites in a 2-10 mile radius of the blast.  Four large industrial zone districts are adjacent to the port, with the port serving as what is described as the largest free trade zone in northern China, and the second largest Vehicle Processing Center for importing and exporting of automobiles.

On the topic of near-term ripple effects, the Resilinc analysis predicts that extensive delays can be expected for most companies and sites moving products through Chinese ports as government agencies deal with the after-effects of a regulatory environment needing extra attention.

There are predictions that Tianjin port operations will only begin to resume normal operations by approximately mid-September, and that any containers now at the port will be inaccessible for the next two months, even if they are intact. Resilinc indicates that for any suppliers located within 2-15 miles of the explosions, companies may presume 12-16 weeks of delays.

Long-term impacts outlined related to the ripple effects of increased regulatory actions impacting certain industry sectors including the location and storage of goods near large population centers.

Regarding potential long-term impacts, the paper cites Chinese media as indicating the economic cost of Tianjin crisis could be as high as $8 billion.

If your organization is dependent on operations, logistics partners, suppliers or service providers in the Tianjin area, we recommend you review this report which can be accessed at the following Resilinc web link. (Some personal registration information required)

Bob Ferrari


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