Episode 5 (EN): BusinessShift – We Are All Supply Chain

00:00:00: BusinessShift.

00:00:05: BusinessShift.

00:00:06: The podcast for decision makers and executives who want to deal with the topic of sustainability

00:00:11: in a sustainable way.

00:00:14: Welcome to BusinessShift.

00:00:15: The podcast for decision makers and executives who want to align their business strategies

00:00:20: with the future.

00:00:21: I'm Tobias Kirchhoff, your host from TÜV Rheinland.

00:00:24: Today we are talking about a topic that is not only central to the German economy but

00:00:29: also quite complex, the supply chain issue.

00:00:31: You could call it the central nervous system of the economy or the umbilical cord to or

00:00:36: from the international economy to Germany.

00:00:39: Let's hear how our sustainability expert sees it.

00:00:41: I would like to welcome Dr. Bahar Cat-Krause again today.

00:00:44: A warm welcome to you.

00:00:46: Nice to have you here.

00:00:47: Hi Tobias.

00:00:48: Bahar, supply chain, central nervous system or umbilical cord?

00:00:50: I would rather lean towards the umbilical cord.

00:00:52: Why?

00:00:53: Well, because the supply chain supplies raw materials in order to obtain finished products

00:00:58: in the end, not only products but also services and the supply chain is essential for this.

00:01:03: That's what we're going to talk about today.

00:01:04: I want to know from you sustainability in the supply chain.

00:01:07: What does that involve?

00:01:08: Why is this important?

00:01:10: What am I actually legally obliged to do?

00:01:12: Why is it that Germany in particular is struggling with its supply chain due diligence act?

00:01:17: And how do I deal with these issues as an entrepreneur in the future?

00:01:21: But maybe let's start at the front.

00:01:23: Very basic, the supply chain in 60 seconds.

00:01:26: What is it?

00:01:27: What do we need it for?

00:01:28: And who is part of it?

00:01:29: Yes, the supply chain, as we have just said, is an essential component when it comes to

00:01:33: having a finished product, service or service at the end.

00:01:36: This means that everything we really need, I'll say now from the cradle to the goods

00:01:40: we get from the supply chain.

00:01:42: When we talk about a product, it's our raw material suppliers, for example, to get the

00:01:45: individual components for production.

00:01:47: And in the end, it is the product, then perhaps a raw material again, which may then be recycled.

00:01:52: Here too, you need a certain supply chain to transport the materials, then perhaps recycle

00:01:56: them and then bring them back into the material flows.

00:01:59: This means that we always have the raw material suppliers as components of the supply chain.

00:02:03: We have manufacturers, we have the logistics companies, but we also have intermediaries,

00:02:07: the retailers themselves.

00:02:08: And we as consumers are also part of the supply chain.

00:02:12: So strictly speaking, everyone is actually part of it.

00:02:15: But actually, one could rather name the exceptions.

00:02:17: I think it's faster to perform that.

00:02:19: And when you look back on your many years of experience, when did you realize that sustainability

00:02:24: is essential in supply chain management?

00:02:26: When did I become aware of this?

00:02:28: I think you always become aware of it when you talk about sustainability in companies.

00:02:31: I would say it was a gradual process.

00:02:34: And the realization actually always came at the time when we were faced with the question,

00:02:38: okay, and what do our partners, business partners, our suppliers do?

00:02:43: Because sustainability cannot always be implemented 100% in the company alone because the company

00:02:48: itself its own, the company itself is always only one part of the whole.

00:02:52: And then of course, we have issues such as supply bottlenecks.

00:02:54: In Corona, it may have been some parts for automotive production, so that in some cases,

00:02:59: we didn't get any components at all.

00:03:01: Anyone who wanted to have a new car at that time had to expect quite a few long waiting

00:03:05: times.

00:03:06: And here too, we see that stable supply chains and also resilience in the supply chain are

00:03:09: absolutely essential.

00:03:11: If we now look at sustainability in the supply chain, why sustainability in the supply chain?

00:03:16: Because if I say, okay, I take care of sustainability in my company, in my sphere of influence,

00:03:21: which I may also have directly under control, that's a bit easier and would perhaps be

00:03:25: the first step.

00:03:27: But supply chain always means that I have to think outside the box of my company.

00:03:31: And that doesn't make it any easier.

00:03:33: So why sustainability in the supply chain?

00:03:35: Yes, you actually said it right.

00:03:38: The first step is always your own four walls.

00:03:40: So first of all, put my own house in order and see what I actually want to improve in

00:03:44: my company in my own processes.

00:03:46: But you always quickly come to a point where you realize that yes, I E certainly up to 80%

00:03:50: are also topics that affect the supply chain.

00:03:53: When it comes to raw material production, especially when you talk about energy or energy

00:03:58: expenditure, for example, about greenhouse gas emissions, they usually occur either upstream

00:04:02: in the supply chain or perhaps downstream.

00:04:05: So that means that in order to become better and beyond your own four walls, you have to

00:04:09: talk to your partners and your suppliers.

00:04:11: And sustainability always means collaboration, working together to improve faster.

00:04:15: So the more you share knowledge, take your partners and suppliers with you on your own

00:04:19: sustainability journey, the faster you will reach your goal.

00:04:22: This brings us to the next topic.

00:04:24: Is there a sustainability goal in the supply chain sector that is very close to your heart?

00:04:29: Yes, of course.

00:04:30: So especially when we talk about human rights, it's a very, very emotionally charged topic.

00:04:34: And also for me, well, I myself have children.

00:04:37: And if I imagine that I am wearing a garment that may have had children's hands on it

00:04:41: in the dying plant or in the production facilities, then I don't want that.

00:04:45: That is my declared goal. And that, I think, is a topic that really drives me the most,

00:04:49: namely issues such as forced labor, exploitation of people who may not have the privilege of

00:04:54: becoming so big here in Europe, America, or that we don't exploit them and that we actually

00:04:59: do business fairly.

00:05:00: And that is simply only possible with a more sustainable supply chain.

00:05:04: And that also means perhaps accepting efforts at one point or another, accepting investments,

00:05:08: but then actually improving in the long term.

00:05:10: That is the goal now.

00:05:11: And where do you see the biggest challenge in the field of sustainable supply chain?

00:05:15: I think that the biggest challenge is always the relationship with suppliers.

00:05:19: So you often always have someone who sells something and someone who wants something.

00:05:24: This means that price always plays a very, very important role.

00:05:27: And I think the biggest goal should be to really have a good and fair supplier relationship

00:05:32: at eye level, yes, to put together the challenges because I think the biggest pain is really

00:05:37: to create transparency, especially in very complex and very global supply chains, just

00:05:42: because, for example, you have your net zero zero two target and can only do so if you

00:05:46: have the appropriate data transparency.

00:05:48: In summary, I would say that it is totally important to come to a common level and address

00:05:52: the relevant issues and sometimes perhaps not so nice aspects in order to find common

00:05:57: solutions.

00:05:58: That sounds a bit yes would be nice and so but that's actually the experience I've

00:06:01: had.

00:06:02: The more you get into conversation, the more you talk to each other and also discuss the

00:06:05: topics openly, the easier it becomes for both sides because there are concerns on both

00:06:09: sides.

00:06:10: As an entrepreneur, you're always worried that at some point you may no longer exist

00:06:14: or that you will be uneconomical.

00:06:16: On the other hand, as a supplier or partner, you always have the worry that you will be

00:06:19: replaced for some reason.

00:06:21: And if you manage to tackle a common goal, then I think you have better chances.

00:06:25: And if we come back to the topic of challenges, then of course now the Chris topics, we really

00:06:29: have to implement ecological and social standards at all levels.

00:06:32: This is a process and also a difficult process and also a very, very big challenge not only

00:06:37: for the direct suppliers.

00:06:38: So if we really go into the indirect supply chain, it gets dark and difficult relatively

00:06:42: quickly.

00:06:43: Yes.

00:06:44: And it can really mean effort.

00:06:45: So if, for example, I find out that a supplier may be violating some issues where I say,

00:06:52: I want to do that, but then it can mean that I have to part with him and have to get another

00:06:56: supplier, which I if he is also abroad, maybe even far abroad where I might have real expenses.

00:07:02: And that would probably be a big challenge.

00:07:05: Yes, absolutely.

00:07:06: Of course.

00:07:07: I mean, you have to, or you have to be aware that not everyone may have the content of

00:07:10: the standards and perhaps not the knowledge either.

00:07:12: That's why I say that this takeaway is also so important, as is the development of knowledge

00:07:17: also with suppliers in the supply chain in order to point out precisely such grievances,

00:07:22: which may then prevail.

00:07:24: And to say my goal is to resolve these grievances.

00:07:26: And I have developed measures that I can would like to implement with you.

00:07:30: This also helps you because then you also have the opportunity to continue to be part of

00:07:34: the supply chain and perhaps also to solve the grievances that then arise for you together.

00:07:39: This is also in the interest of the business partner to go along with it.

00:07:42: Yes.

00:07:43: And it can also mean that companies are much more involved in communication and also in

00:07:47: the conflict with each other than has perhaps been the case so far.

00:07:51: While perhaps today this is simply about numbers, data, facts, cheapest offer, etc.

00:07:56: Runs, they would then deal with each other more intensively.

00:07:59: Yes, absolutely.

00:08:00: And also especially the communication of the individual goals that you may be pursuing.

00:08:04: If I am now a manufacturer and have raw materials, which I obtained from abroad, perhaps from

00:08:09: Asia, Africa, then I have certain goals that I pursue and I ask certain things for a certain

00:08:14: reason, namely because I may have measures and want to achieve my goals.

00:08:18: But if I communicate openly and also share my strategy with my suppliers and say that

00:08:21: you are also part of my strategy, it doesn't always work.

00:08:24: We don't make the world rosy, but it's a total must.

00:08:27: We have a podcast from TÜV Rheinland here and we also stand a bit for regulation.

00:08:31: And when I think of the supply chain, we are also very quickly at the German regulation,

00:08:36: namely the Supply Chain Due Diligence Act.

00:08:39: Some hate it, others hype it.

00:08:40: How do you see that?

00:08:41: Which parts of the German Supply Chain Act are you perhaps most proud of?

00:08:45: Where you say, well, there is still a bit of development to be done.

00:08:48: So how would you rate the German Supply Chain Due Diligence Act?

00:08:52: Maybe I'll start with that.

00:08:53: You said some hate it.

00:08:54: I can also understand that some hate this law because it of course means an enormous

00:08:58: effort to look at the supply chain one's own and set up a decent supplier management

00:09:03: system there.

00:09:04: This involves work.

00:09:06: On the other hand, however, the Supply Chain Due Diligence Act is so important to protect

00:09:09: exactly the issues I have just addressed, namely our human rights.

00:09:13: And not only here, but all over the world.

00:09:15: And we are used to consuming products.

00:09:17: We are in a very, very fast-paced society where we may not always be aware of these things.

00:09:22: From the consumer's point of view and from the manufacturer's point of view, as the

00:09:25: managing director of a company, I could not be responsible for the fact that there was

00:09:29: even the chance of a child's hand on a product that I sell.

00:09:33: I just couldn't reconcile that with my conscience.

00:09:35: In this respect, the whole issue really protects against child labor, fair wages, but also environmental

00:09:41: protection.

00:09:42: These are important aspects that we have to push even more, especially if we globalize

00:09:45: more and more.

00:09:46: And it simply has to be fair for all people in the end.

00:09:48: So what I think is particularly good about the law is that you really have to approach

00:09:52: the topic in a structured way.

00:09:54: I'm a big fan of structure.

00:09:55: I say it again and again, but it's also necessary.

00:09:58: So especially when it comes to saying, "Okay, where do I actually have my main risks in

00:10:02: the supply chain?"

00:10:03: Then you have to take a look at the high-risk countries in which I might produce.

00:10:06: And you have to set up a solid risk analysis that you repeat over and over again.

00:10:10: You have to establish it once, but I think once it's up and running, it's an extremely

00:10:13: valuable tool, and which you can certainly use for other areas as well.

00:10:17: And I think that's pretty good because the whole topic of complaint procedures, i.e.,

00:10:21: that really everyone in the company, but also external ones, have the opportunity to report

00:10:25: violations.

00:10:26: This simply brings in much more transparency, and these violations are usually or always

00:10:30: can be reported anonymously, which of course also brings a certain security.

00:10:35: For those who may not dare to point out grievances, I also find that particularly important.

00:10:39: And I think the most positive effect is simply really that the law gives people in the supply

00:10:43: chain who do not have the privilege of benefiting from occupational health and safety laws and

00:10:48: standards a voice, and that hidden problems or grievances can be uncovered.

00:10:54: That sounds very, very nice.

00:10:55: Does this also happen in reality?

00:10:57: Are you aware of a case where it was perhaps uncovered abroad?

00:11:00: Yes, it just doesn't work properly and changes have been brought about?

00:11:04: There certainly are, yes.

00:11:06: So of course we talk about.

00:11:07: So when we talk about forced labor about child labor, then these are very very serious violations

00:11:11: But we also talk about the fact that trade unions can be formed

00:11:14: That employees have a way to contact an organization in the company without fear of losing their jobs

00:11:19: These are things that will certainly be reported again rather than really a violation of child labor

00:11:24: So I am not aware of this in my circle now, but it will certainly work

00:11:27: Let's get back to Germany. Why are German companies in particular having such a hard time with the supply chain due diligence act?

00:11:33: There are polls that claim that the law is a complete failure because of missing the targets companies would not deal with it at all

00:11:40: Because the law was actually supposed to lead to the fact that only suppliers

00:11:45: Attach great importance to environmental protection or social standards, but it doesn't work that way yet. Why not?

00:11:53: Yes

00:11:53: I think we are having such a hard time because we are the first to really have to implement such a law now and it comes to the fact that we have

00:12:00: Very very complex and globally branched supply chains that simply do not always make comprehensive monitoring possible

00:12:06: That has to be said. It's not always possible to bring in light everywhere and see what's actually going on with my suppliers

00:12:12: Especially when it comes to indirect suppliers, this means that German companies have a very very great

00:12:17: Responsibility here and have gained an increase in responsibility over these difficult complex supply chains

00:12:23: Which are simply challenging. So you just have to say that then as I have just mentioned

00:12:28: We are talking about risk analysis. We are talking about new structures in the company

00:12:32: We are also talking about new responsibilities a human rights officer, for example

00:12:37: Who is supposed to monitor something like this closely? These are all costs

00:12:40: They are expenses in resources in audits in the implementation of such tools that hurts at first

00:12:45: That's why I can understand it

00:12:47: Well that there are also companies in Germany that say what's the point of all this then we have the whole issue of lack of

00:12:52: Transparency especially when I request data as I have just said the willingness to share data is not always there

00:12:56: This is also a challenge and it has to be learned first and then of course the lack of experience with such a law

00:13:02: You are also setting up new processes. They have to establish themselves

00:13:05: They have to be integrated into perhaps existing processes and a law always resonates with the concern of sanctions here, too

00:13:12: You have to look at how surveillance is actually carried out here even then at the German level

00:13:16: What should we expect and I think these are all fears that resonate with companies so they are completely understandable

00:13:22: However, it can already be said that companies have already anchored sustainability in their strategy and pay much more attention to non

00:13:29: financial key figures in their suppliers and of course they will certainly get through more easily through such a change to new requirements

00:13:35: So less a pipe cracker than a starter. Yes. Yes. So a bit of a push

00:13:39: So it's always I always say it's actually stupid when you somehow have to say with a raised index finger

00:13:44: So now you have to but sometimes sometimes there is also a certain push. I understood that but ultimately it just means more bureaucracy

00:13:51: Which means you have to fill out more forms. You have to report more and so on and how does it fit together that we say in Germany?

00:13:58: Hey, we have to reduce bureaucracy and now with the supply chain due diligence act

00:14:03: We have more to do again

00:14:05: So can anything be reduced in bureaucracy at all or do we have to say well?

00:14:09: It's gonna be a bit more on top now. Yes, I think in the beginning there is always a shovel more as I have just said

00:14:15: You have to adapt you have to see where do I stand you have to set up new processes and structures

00:14:20: But ultimately when we talk about reducing bureaucracy and documentation and reporting obligations

00:14:25: There are also various tools that can be used. So I always say sustainability and digitization go hand in hand

00:14:31: This means that if I know what I have to query then I can really make use of these digital tools

00:14:36: Which can also be used with the help of artificial intelligence, etc

00:14:40: Of course, it also makes it easier to collect standardized data in the supply chain in my opinion

00:14:45: There must be clearer guidelines because otherwise we will have no comparability now

00:14:49: I'm jumping a bit into the topic but when we talk about standardized risk analysis when we talk about information that needs to be

00:14:54: Reported frameworks help they suggest more bureaucracy at the beginning

00:14:57: But then we move more and more in the direction of standardization standardized queries so that we

00:15:02: Automatically get into a process that will certainly survive this bureaucratic jumble at some point

00:15:07: So when we talk about risk analysis, we can certainly do it tool-based at some point

00:15:10: But when we talk about reporting sustainability reporting obligations, there are also digital solutions that can be used here

00:15:17: Do you think that the consumer who is already aware of this has a certain power to persuade producers to pay more attention to this?

00:15:25: Yes, for sure

00:15:26: So I think raising awareness in society plays a very very important role because we are all

00:15:31: Increasingly reflecting the whole issue of ethical responsibility in our purchasing behavior. I'll put the question on the back burner

00:15:38: Do you pay attention to that? Yes, definitely

00:15:40: And yes, we always take a very close look at what we buy on the basis of labels and of course

00:15:46: Certifications of course, we don't know what's really behind the labels and certifications

00:15:51: especially for consumers and I always try to make sure that the products have the two for island seal on them

00:15:57: because I know that we only work to the highest standards and

00:16:00: Certify according to international standards and that we can assume that when it comes to the supply chain

00:16:07: For example that our colleagues around the world already keep an eye on everything that is done properly

00:16:13: Yes, and that's exactly what it is, especially when it comes to the topic of one's own ethical responsibility

00:16:17: I've just said it. I don't want to buy a product where children's hands were on it

00:16:22: I just don't want to and as you say I can't always judge that that's why in my opinion the responsibility is simply placed correctly

00:16:28: With the manufacturing companies that sell these products because they also have a certain

00:16:32: I'll say now reach that we can't grasp at all. You say it labels standards, of course they exist

00:16:37: But as a consumer I often can't understand what is actually behind it and from I'll say now from a company's point of view

00:16:43: It simply has to be a goal to really respect the environment and also the people we work with with whom we live

00:16:49: What do you think the ideal supply chain of the future looks like?

00:16:52: Yes, in my opinion the ideal supply chain is definitely crisis-proof and this can only be crisis-proof if we have full transparency

00:16:58: Ie if we can trace exactly where what comes from we were just talking about digital technologies for example through blockchain

00:17:06: This means making data available in the supply chain and making it usable

00:17:10: Then of course we have the whole issue of fair working conditions

00:17:13: We have already talked about it if people are really no longer exploited and we can say that we have an ethical

00:17:18: Responsibility that we also implement and that we can achieve together with our suppliers through fair partnerships

00:17:24: For example with a focus perhaps on possible regional partnerships

00:17:28: It is not always possible to support local suppliers in short term to have transport routes and simply to make supply chains a little less complex

00:17:36: You just mentioned blockchain and you just said that new technologies such as AI also help with documentation for example

00:17:42: I find that very very exciting

00:17:44: I think this is also called the twin transition where they say we combine sustainability with digitalization

00:17:51: Do you have an example of innovative approaches to sustainable supply chain management?

00:17:55: Well, I actually have an example from food production. I don't know if that's interesting

00:17:59: So AI was used to really use the materials in production or to produce as much as is actually consumed

00:18:05: That means consumption data comes in I have just said before we consumers as part of the supply chain

00:18:10: How much meat do we consume per year for example?

00:18:13: So that production processes can really be adapted to these conditions with pinpoint accuracy

00:18:17: That means in the production process when a certain quantity is reached then to say okay

00:18:21: It's going to stop at this point because otherwise 60% of our products would be thrown away

00:18:25: So you can also actively avoid over production

00:18:29: I can see that too for example

00:18:30: We talked about it the other day in 3d printing that I then only produce what I actually need

00:18:35: And then I no longer have any storage problems

00:18:38: But then really combine innovation also with the sustainability topic

00:18:42: Exactly and that's what it is there

00:18:44: We are again on the subject of costs the less I have to store the less costs I have the easier it will actually be to

00:18:50: Improve here, but of course that contradicts our mass production

00:18:54: Which we of course know and have also learned in the in recent years IEA profitability

00:18:59: We have been able to produce more than we might need so that sales remain high and sales remain good

00:19:03: Dear Bahar, what would you recommend to a company that wants to make its supply chain more sustainable now?

00:19:09: What do you think are the first steps?

00:19:11: So the analysis of the current situation the status quo analysis always comes first

00:19:15: I think I've said it again and again in some episodes so far

00:19:18: You really have to paint a picture

00:19:19: So you have to look at what the picture should look like and how much of the picture I might already have in it

00:19:24: When we talk about the whole topic of risk then of course I also have to identify my risks

00:19:29: This means having an overview of the entire supply chain and also create them in order to identify these

00:19:34: Ecological and social risks that we have been talking about that means setting priorities from time to time

00:19:39: Proper healthy supplier management does not always mean having a direct overview of a hundred percent

00:19:44: But maybe also to say these are my top five products

00:19:46: These are my top 50 suppliers and I start with them. I screen them. I take them with me

00:19:50: I really try to implement these measures

00:19:52: Of course, this has to be reflected by law of course by legal requirement across the entire supply chain

00:19:57: But I have to start somewhere then of course to see okay

00:20:00: Are there perhaps sustainability standards that I can also implement at my suppliers?

00:20:04: Is it perhaps certain social standards?

00:20:07: Are they environmental standards that I may also include in my contracts which I stipulate where I say okay

00:20:13: They have to be implemented so that we can enter into this partnership

00:20:15: And if these can't be implemented for example, if it's a top supplier then sit down with them and say okay

00:20:20: But how can I support you? What do you need for this? And then of course? Yes surveillance even if it's not always nice

00:20:26: It is always important to have an overview and to keep it that means repeating all these risk

00:20:31: Analysis that I do annually and looking again and again. Okay. Do I perhaps also have a need for training?

00:20:36: Internally with partners, how can I train them?

00:20:38: How can I take them with me on my journey in order to then ultimately incorporate everything into a I'll say reporting so that you

00:20:45: Simply have full transparency for yourself. Dear Bahar. Thank you for this deep insight into the supply chain

00:20:50: Mind learning whether consumer large or small company. We are all somehow dependent on the supply chain and we must all have an

00:20:58: increased interest in making it work and making it more sustainable and it is just as important that companies get the support

00:21:05: They need to meet their obligations in the first place. Dear listeners. Thank you very much for being there

00:21:09: I assume that you can also take something with you for your everyday business life

00:21:13: And if you want to learn more about sustainability in business, just stay tuned

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00:21:47: And as always you can find all the information under our show notes

00:21:50: And don't forget change even in business always starts with ourselves

00:21:56: So until next time your BusinessShift, BusinessShift the podcast for decision makers and executives who want to deal with the topic of

00:22:06: sustainability in a sustainable way

00:22:08: Stay curious, bye bye

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