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The Responsible Supply Chain Show is a must-hear podcast for insights and strategies on building ethics and sustainability into global supply chains. Each episode delves into the challenges and opportunities businesses face as they strive to create more responsible, transparent, and environmentally friendly supply chains. From innovative sourcing and trade disruptions to reducing carbon footprints and combating modern slavery, we explore the critical issues that define the future of global commerce.
Welcome to the responsible supply chain show where we explore the world of responsible sourcing and resilient supply chains. I'm your host, Justin Dillon. Each episode, we'll dive into real stories from some of the world's best business, government, and thought leaders protecting people, planet, and profits. Let's get it. Alright.
Justin:Episode 21. Good to be here with you all. If you have listened to more than one podcast, can you just raise your hand? I see you. Thank you.
Justin:You in the back. Thank you so much for listening to these podcasts. Today, I speak with doctor Carsten Machholst. He serves as chairman and scientific adviser of the procurement twenty twenty four conference at Boussijs, the German name, and holds the position of professor of supply chain management and strategic procurement at hor ho ho horror horror horror horror You know, I come at this the I'm coming at this from every single angle. Left, right.
Justin:I just can't say it. It's a university in in in Germany. Since 2012, Machol's experience encompasses digitization of global value chains, risk management, corporate social responsibility, and blockchain technology. He also has a doctorate in chemistry from another university I can't pronounce. Today, we are talking about navigating geopolitical risks while focusing on responsible supply chain.
Justin:Spoiler alert. You can solve for both at the same time. You just have to open your eyes and act. That's it. You can leave the podcast now.
Justin:Look at that. I saved you forty minutes. You know what? So much of what gets called breaking news these days is really just a sideshow for our daily lives. I don't know about you, but I'm just I'm kinda done of the breaking news alerts and all the rest of it.
Justin:It's not that I don't care. It's just that most of what's going on around the world doesn't affect me directly. And we've all just kind of gotten this kind of alarmist feeling that anything's gonna change at any moment. A lot of people I know feel distracted and maybe a little bit immobilized in their lives and work. I just I kinda feel like I wanna put my foot down and say this is not how we build a flourishing economy, flourishing life.
Justin:We're a flourishing company. So Carson is here to teach us about how we can manage some of these risks in supply chains. Okay, doctor Rakhos. Good to see you. Thank you so much for coming on the podcast.
Karsten:Yeah. Thank you, Justin, for having me. And I see I'm I'm in a in a line of really great speakers. I have seen many, many friends and people which we think like likewise.
Justin:Well, you're in good company, and I know they feel the same way about you. I I am gonna just call you Carsten. That's that's your name. You gave me permission. Yeah, that's continue fine with me.
Justin:To butcher your last name with my American. Let's jump right into it. You've been a thought leader in this space for a long time, a thought leader and a practitioner in the space of responsible sourcing and in supply chains in general. And I know you've worked across lots of industry and academia. What's one shift you're seeing in supply chains right now that you haven't seen?
Justin:What's a major shift that you're starting to see in supply chain management?
Karsten:Pretty much back in day to day operations, the current news are much more dominant rather than the more maybe long term or midterm things. So if we just have a look at the current World Economic Forum, global risk report, climate change, biodiversity loss, man made climate changes, things like this, are still number one global threats. There are wars. There are geopolitical conflicts and disruptions. And even in Europe, where we were really trying to move the needle forward with the EU Green Deal from the European Union, there are many, many companies or even politicians like in Germany.
Karsten:Our current government is really trying to roll back and really to say, well, why can't we just dilute, I don't know, delay or diminish or me or even erase some of the legal or regulatory frameworks that we just set up a couple of years ago. And so I think most of the supply chains are heavily disrupted. Topical things is risk management. It's to gain sovereignty on your own supply chains, really to make sure that you have control about your your rare earth or your supply chains for military, for technology, for integrated circuits, or for all the and I think in in this overall context, things like sustainability are really going down in the list of priorities. So you can see this if you have a look at the government elections.
Karsten:So I would say two, three years ago, sustainability, I don't know, CO2 reductions were high on the agenda currently. It's more about migration, and I have seen really many things really going down from sustainability because probably it's more about war, it's more about economics, it's more about AI domination, and it's
Justin:Would you say it's more about sovereignty, it's more about self, it's more about it's populist, it's more okay. And what I'm hearing you say is that what was important a few years ago to climate is not as important now. That's pretty obvious. That doesn't mean it's not important. It's just not a priority.
Justin:And I think sometimes we think of things that are There are priorities and things are important. Sometimes things that are important, they're always important. That doesn't mean they're a priority.
Karsten:Yeah, that's absolutely true. But especially if we talk about global climate, there are, as far as I know, 16 different climate areas which are heavily interconnected, and they all have got their tipping points. And if their tipping point is reached, you cannot go back.
Justin:I get it, but I would say 98% of the people in the world don't understand tipping points, don't understand degrees of Celsius, it's just not on people's mind. And it's very, very hard to have moral suasion, the persuasion of a righteous cause or something that is good. It's very, very hard to get tipping points when people don't understand how it's going to impact their lives. I know that former Vice President Al Gore was, is always at WEF. Years ago, he and I shared a dressing room at some conference and I talked to him about how I thought he was a factivist, not an activist, he brought facts that actually made sense to me.
Justin:In his story, going way back twenty five years ago, where he lost the election by very believe it or not, we've had close elections in America lots of times. Yeah. But, you know, there was he lost the election and he kind of had this hero's journey story where he just packs up his PowerPoint and his suitcase and starts going around the world trying to make people aware of this. I would say that was probably the greatest moments for the climate movement was him as someone who just lost, going around and doing something that matters. I don't think the sustainability movement has an Al Gore right now.
Justin:I think it has a lot of complaints. It's got a lot of feeling like it's unfair. And what it really needs is like an Al Gore, but not Al Gore because he's already done his job, he's done his contribution, it needs someone to make sense because when you say things like biodiversity to most people, they go, I don't know why that matters, I'm trying to pay my mortgage to get my kids through college, That doesn't really matter to me. And you then you lose. So you're you're a professor.
Justin:Your job is to your job is to to tell the stories that people carry into the world. How are you doing this?
Karsten:Yeah. That's that's that's a good good question. There are there are studies from McKinsey and from other strategy consultant companies that companies which are paying attention on sustainability, which are paying attention on ethics and on human rights in their supply chains, are 3.7 times more profitable rather than the others. Because you know what is going on. You can mitigate risk.
Karsten:You can act you can act upfront. And for all those, I would say you do not understand or you you do not want to understand maybe sustainability and how it affects your life, I would say fine. But if it's more profitable, then people will change and then people will act. If I talk one on one with with many c level people, nobody is doing it if if you have to pay more. If it costs more money, nobody will do it.
Justin:No one's gonna pay more. I just that just has to get it. That that just has to be off the table. No one's going to pay more to hit a goal that they won't be around to see. That is led as a lunacy.
Justin:No one does things because they should. I always say, you can't should all over people. Right? Yeah. And no one wants to be should on.
Justin:One thing that everyone wants is to be a part of a story bigger than them, but the one thing no one wants is a story that they don't see themselves in. And that is a lot of what I've seen in this space. Most people just don't see themselves in it. And so the one and part of where I feel like we're going, we've become a bit more individualistic, or at least nationalistic, which is a form And of the problems that we're talking about, whether it's human rights, geopolitics, trade risk, whatever those may be, those are not individual problems, those are collective problems. How are you teaching the next generation of supply chain leaders about, are you teaching them about the power of network effects and making sure that supply chains are working where everyone's benefiting?
Karsten:Yeah. At least I try to. So what what I really do is I try to incorporate daily news into my lectures. What are the current trends in terms of maybe regionalizing your supply chains, finding alternative second sources of supply? For example, especially in Germany, they say, well, we could not we could do not, we cannot save the world.
Karsten:We have got 2.4% of the global c o two emissions. If US and if China are not moving, then why why should we do it? Now what we see that China is really is not having some pledges. They are really doing the talk. Yep.
Karsten:And they are really ramping up the the biggest capacity in renewables, and they are really switching their entire, economic and energy energy grid to renewables.
Justin:But they're not doing it based on a on a Paris pledge. This is the this is the whole point. That they're not doing it to be a team player. No. They're doing it for themselves.
Justin:And I think that's what I'm trying to
Karsten:get to. They are they are doing it for themselves. And many, many years ago, the the solar industry was very strong here in Germany. Unfortunately, we had not enough government support. And now, let's say, all the the industry is gone.
Karsten:It has been brought over or, let's say, bought by China. And, of course, they are now, producing solar panels for maybe 10%, 20% of of the German cost. And, of course, they are they are number one doing it for themselves or as an export for the rest of the world, for Africa or for other countries to say, you do not just have, I don't know, a big trading partner, but we but we can really, I don't know, support you with all the infrastructure, with the energy grids. And and and so this is what what they are doing really on a long term strategic thinking rather than going from one election to the next one.
Justin:At our company, we have a few truths that we hold And one of those is in chaos, move. Meaning Mhmm. The world is never gonna get calm for you to implement your plan. Have to move in wild chaos. Doesn't matter what it is, right?
Justin:Whether you're building something or selling something. The other rule that we have is followers follow followers. They don't follow leaders. Most people are bystanders. Most governments are bystanders.
Justin:They follow wherever everybody's going because no one wants to stick their neck out. And to me, when you start to see government, you know, China's obviously in a lot of ways, at least somewhat seems to be leading on this kind of like sovereign, but also very focused on energy reduction because they can read the tea leaves. They know that oil's not gonna work forever. I'm surprised Europe, with all of its challenges with Russia, has not gotten that memo and started working. It just seems like a really good geopolitical move to become less energy dependent on Russia for lots of reasons.
Justin:I think that there are ways in which you can solve for geopolitical and energy problems and also solve for the same problems that people were fighting for at the Paris Accords so many years ago? It just it just looks different. Is there any merit in that?
Karsten:Definite definitely. We have been less dependent on Russia than we wanted to, I don't know, get Russia into the boat in terms of doing business with them to to join forces in order really try to, I don't know, maybe more incorporate them to to this was under the, under the leadership of missus Merkel many, many years ago. So we increased our global footprint or, let's say, our energy dependency on Russia. And then, when when Russia was using it as as a weapon, then we were, let's say, we were running out, and we have these LNG deals here with The US or with Qatar or with Saudi Arabia trying really to get to get our energy reserves or to get some energy from from other sources, which are not always democratic countries. And I really think we have lost the chance after the COVID crisis really to invest lots of money to foster more forward oriented, renewable, modern energy, and it was much more really subsidizing old and existing economy in order just to survive.
Justin:Okay, so what are you focusing on teaching right now and advising on right now? I know you're advising companies as well in teaching. Is it AI, procurement strategy, geopolitics, workforce skills? Like, what what's the most important thing that people that are currently running supply chains and are soon to be running supply chains, what do they need to understand? And please don't say AI.
Karsten:No, would say it's really about the the old question of having transparency and know that many things are connected. It's not just you just turn one screw here and then maybe you have an up and down, but it's really a kind of like a clockwork. And you have got so many interdependencies, and you really need to understand, get transparency, where you got which things from, what are maybe your critical components or critical suppliers, get some alternative strategies, try to increase your sovereignty. Try to increase your backup plan or contingency plans. And I think this is really at right at the heart of of supply chain because or supply chain strategy because in one of my first lectures, let's say, comes really from fighting wars.
Karsten:It is really the Greek term strategy is really how to conquer an enemy, and it's not just to have maybe more soldiers. But the soldiers, they need weapon. They need food. They need water. They need supply, and you need, of course, to maintain this.
Karsten:Otherwise, you can have maybe the best soldiers in the world, but probably they will not defeat their enemy if all their supply is disrupted somehow. And this is today. We have this in global trade. We have this in military perspectives. Of course, we have this in this big power play between US and China.
Karsten:And I think what what really goes even sometimes more down the drain rather than sustainability is more the things that that that you are very strong at. It's really about ethics. It's about human rights. It's about, I don't know, forced labor, slave labor, child labor, because these things are, I would say, more soft, not really so good, measurable, or visible.
Justin:No. Yeah. I've I've been down you've been down that road for a while. I I would say that that the the the human rights abuse is a is a second order effect of just It's irresponsibly managed supply not visibility that is the challenge. It's the internal will to act on that intelligence.
Justin:It is if chief procurement officers and CFOs make it a priority to act on the risks that they're seeing, supply chains will not only improve for people and planet, but will improve for the business. But I think most CFOs and chief procurement officers are running scared and playing defense, and they're not playing offense, and they're definitely playing defense after everything that we've been through. But the real leaders, in my opinion, are gonna be the ones that go, Hold on. We're doing full visibility. Know your enemy.
Justin:We're going to know our supply chain better than our competitors, and we're gonna get ahead of this. Any thoughts on that?
Karsten:Definite definitely. So so I was just trying to imitate the three monkeys, so not looking, not speaking, not hearing. In Europe, we have the EU restriction for for electromobility, so we have to have a battery passport. So you really have to track down where the mining took place for for getting maybe the cobalt or the lithium for for manufacturing your batteries. And so you there, you have full transparency, sometimes maybe because you want it or maybe sometimes because most of the time it's a compliance issue because you have to.
Karsten:But if you have it, you have transparency and you can really turn this into financial benefit. And then all of those deniers, they can say, well, if we invest this, we have things better under control, maybe not always and not 100% of the time. And I think now I can pop in the AI thing Probably when it comes to risk management, there are some great providers out there who are delivering some AI supported solutions so that you have maybe some early signals so that you can already steer your tanker maybe around the cliff or around the rocks before you hit it.
Justin:Yeah. Proverbial and real rocks and cliffs, I'm sure. Yes. Well, yeah, I think AI is obviously is certainly going to speed up, but it's in a lot of ways, what I'm seeing in supply chains is sometimes AI is a hammer looking for a nail. Yeah.
Justin:And you really need to understand the nail that you're hitting before you build a really great AI hammer. And I'm seeing a lot of hammers out there swinging without any nails in sight. Yeah. So but that'll that'll change over time. That's just that's
Karsten:That doesn't doesn't this remind you a couple of years back, we had this big hype for blockchain, and I I was really a big fan of block chain. So we have, I don't know, it's immutable, and we have full transparency, and I was really a big enthusiast. But I think many of the discussions I see today with AI and agentic AI or gen AI, I would say probably more agentic, is is pretty much resembles on the blockchain thing, so we have now the ultimate solution, and now we just see, we are looking for problems to solve with it.
Justin:What we have is more buzzwords, and we trade in our buzzwords when they they wear out and we go from blockchain to Web3 to AI to now it's, no one's going to say AI, it's all agentic. Once we
Karsten:wear off the
Justin:agentic term, it's going to be a whole nothin'. And that's fine. But that's mostly because followers follow followers and people are talking about things that everyone's talking about so that they can stay in the conversation and that's because that makes us safe. You are training the world's next leaders. We don't need more followers.
Justin:We need leaders. So tell me, how are you teaching your students about responsible supply chains?
Karsten:That's that's a tough question. I think I should I should really in in incorporate this in my in my class whether or not there is a good definition for this. We are we are doing a sustainability course, and we we are really talking about current regulations, different supply chains, what are the effects, and what is maybe earth overshoot day, what are planetary boundaries, and what is biodiversity, how does it affect us, and really to to make people more aware in day to day products.
Justin:At WEF this year, we heard a lot from the EU and from Canada telling The United States that they're gonna go elsewhere. Yep. That really isn't possible in the near term, it does represent a signal. I'm here in America, so I have a very American mindset. I can't help it.
Justin:This is where I'm from. You're in Europe. How serious is this? You know, I know the EU struck up a fast track to deal with India, and then The US just came right back and tried to seal it back. We're going to The US is gonna renegotiate our USMCA, formerly NAFTA agreement with Canada.
Justin:There's going be fireworks there. I think The US has taken the position, it's like, who cares? We're still your biggest trading partner. You can do whatever you want. That's The US.
Justin:You tell me what it feels like in Europe.
Karsten:I would say really living in Europe. I know the European Union has got 27 states, and they all have to a 100% agree on something until something is done. So this is really one of the of the big Achilles heels in in our legislation. We always have got people like Victor Orban or other or other East European countries who just say no, and then you do not have any consensus. And sometimes there is a big difference between what people say and what people do.
Karsten:But what I see is now the the big trade agreement with India. India, of course, biggest democracy in the world, Probably one one of the top five global economies growing market. And I think this really is great. And on the midterm or on the long term, I think China's position is a little bit okay. If US, as if I'm not 100% wrong, is is about 15% of the global GDP, yes, you are number one, your biggest economy, the military force, biggest technological force, but, of course, they want to take over.
Karsten:And now the rest of the world is really trying to have a look what what about the other 85% of the global GDP. So can we find other alliances in order to safeguard our economies? But I think the the big thing here in Europe is really the erosion of trust because we have we have built up, let's say, here, the world trade. We have built up the NATO. We have built up so many other alliances.
Karsten:And all of a sudden, all this trust, which has been built over decades, is now really gone. And so if if you have a partner who is not loyal and who is not trustful, then, of course, everybody has to do his homework. And I think we were in a very cozy situation, especially after the fall of Berlin Wall. So there was no not this, I don't know, the the the enemy or Russia. And then we we were really living in a very peaceful world, and the economy was growing.
Karsten:And now probably we're back in a kind of a war economy. And and it's and and Interesting. And and, really, I think the biggest thing is really the total erosion of trust. So US was using oil and gas as a weapon. Now maybe US, this is European fear, could use, I don't know, the big five tech companies for weaponizing the cloud access.
Karsten:So if you do not do this, then we will switch out your access to Internet and blah blah blah. China can do the same things with global trade, with access to markets, with exits to raw material, critical earth, and and and and probably, I do not know about the rest of the European Union, but especially in Germany, we do not have any resources. So of course, I would say we really cannot compete in terms of power. Of course, Mrs. Funderlein and others are proclaiming that we have one of the biggest internal markets with, I don't know, three fifty million people have that amount of GDP.
Karsten:So I would say if we are united, we are one of the dominating forces in the world, but we have got 27 individual governments. And if you just have simple math, it's always very, very unlikely that everybody is blowing exactly in the same horn.
Justin:No. We we I always say America is an experiment, but so is the EU. Yeah. You're an experiment. Right?
Justin:You're still trying to figure out and what is the experiment? Can we come together, consolidate our interests and trust each other? It sounds like whoever you're teaching supply chains to today, you might as well be back in 1990 and teaching supply chains because anyone post the wall falling, post Cold War had had a globalized market, the markets opened up for thirty years and the world has had unprecedented growth. Not the entire world, but a lot in the West is. And now we're entering into a new stage.
Justin:It's really important to separate signal from noise. The US is, you know, we're basically a reality show right now and we're creating a lot of noise. And there's some good stuff happening. It's actually, it's almost impossible to see some good stuff happening when you see, when the noise dominates everything, which is strategic. But I think that it's important, it's very easy to react to the noise and not react to the signal, and looking at what's really happening.
Justin:And I'm hoping that our trading partners, whatever is the most outrageous, whatever is the most craziest, but really if you walk it back to the signal, and the signal being what's really happening, what's really moving, I think that's the thing to focus on. And I see the same thing in businesses. If we just listen to noise, it's likely the trust is going to break down. And I think for us, it's really important that buyers and suppliers, which is essentially what we're talking about here, those that make goods, those that buy those goods or services, need to make sure that they can trust each other as well. And it seems like visibility is a big part of that.
Justin:The ability to understand each other, understand what they need, and trade across that. You've stopped on a really important idea that I think I'd like to end the show with, which is trust. It seems like trust is under a lot of stress right now. How are you teaching this next generation about trust?
Karsten:I would say at the end of the day, it's really a human business, and especially procurement supply chain. It's it's it's it's it's a people to people business. Yes. Come on. We have we have been raised from the Neanderthal, from the dinosaurs to today, and, really, the people you can trust.
Karsten:So you have the mimic. You have the the the human to human connection, and you build up trust. And, of course, over the years and at the end of the day, people are doing the deals. People are signing the contracts and people are are doing all these contracts. And I think this is really the most important thing.
Karsten:And even even if we have bots or today, agentic, you can say, go through all these numbers and details and clauses. But at the end of the day, I look you in the eye, and I I'm just asking you, can I trust you? And you you will do the same question. We have to work together in a global community really to to get things done, and we cannot just, I don't know, put our trash back to the global south, or we could not, I don't know, exploit their their resources or their cheap labor and just, I don't know, say we are in the first world, we do not see this. So we can only solve these things if we work together.
Justin:Thank you so much for coming on the show. We really appreciate your expertise here, and I hope you'll come back sometime.
Karsten:Yeah. Looking looking forward to to catching up soon, and maybe you can help me to teach a little bit more sustainability and ethics and human rights and supply chains. Would appreciate That'd be great.
Justin:Thank you so much for coming on. Cheers. This is the one thing, the part of our show where we dig into one idea from our interview. Most of my social feeds are filled with experts teaching me how to optimize. Optimize sales, optimize marketing, optimize supply chains, optimize fitness, optimize nutrition, sleep, optimize my optimizing.
Justin:I'm kinda optimized now. Now I understand that there is a place in the world where optimization is incredibly important. I've been watching maybe like some of you, some of the Olympic events, some of these downhill skiing races or the long jumps where, you know, optimizing the thread on your suit in certain areas is thought to be helpful or optimizing the way that you work out. Your success is measured in fractions of seconds, optimization, obviously is the thing that you're focusing on the most. Like millions of people, I listen to doctor Andrew Kuberman, the Stanford neuroscientist and very, very popular podcaster.
Justin:He's a brilliant guy who can explain very difficult ideas regarding health in very simple ways. He and others like him have obviously helped a lot of people. But again, I just I just need to raise my hand here and say, how much optimization do I really need? Optimization experts are popular because we all have a basic need to want to find life hacks or job hacks. If I just do this optimization, then I'm gonna be able to do it faster or better or I'm gonna be able to get what I want.
Justin:We want optimizations, but we miss out on basic organizations of building healthy life of sleep, no alcohol, and whole foods. Sometimes I think we're more addicted to optimizations because we don't want to do the very basic organization of our daily and our work lives. I get get way too distracted with trying to find optimizations when really I just need to sit down and do the work. Carsten and I talked a lot about finding ways to optimize and to improve supply chains, but the message that comes out of this interview for me more than anything is, if you want to compete in this marketplace, you actually need to do the very basic work of organizing, building visibility into your supply chains and acting on it. There's no hacks to that.
Justin:There's no special AI agent that's going to do that. It is just a commitment to doing the hard things first and not falling for the tricks of optimization that you're going to hear in every podcast and every conference that you go to. Don't worry about optimizing. Organize first, and I think you'll start to find that your work will become more meaningful, and you'll start to see the flourishing that we're all chasing as human beings and as companies. Thank you so much for listening.
Justin:Thank you for so much for getting this far in the podcast. Come back next time and be sure to bring some other best friends and hit that subscribe button. Thank you.