How much value are we actually generating out of our residuals, out of our byproducts? And on the other side, how much of our inputs that we have within our company is actually coming from circular resources? Like what percentage of our ingredients that we use actually have a circular background? Good morning, good afternoon, or good evening, wherever you are in the world. This is the Sustainable Supply Chain Podcast, the number one podcast focusing on sustainability and supply chains, and I'm your host, Tom Raftery. Hi everyone. And welcome to episode 45 of the sustainable supply chain podcast. I'm Tom Raftery and I'm excited to share the latest in sustainable supply chains with you. A big, thanks to all this podcasts, amazing supporters. You're the reason we're still here each week. I really appreciate each and every one of you. If you'd like to join this community and help keep the podcast going. It's easy. Support starts at just a few euros or dollars a month, and that's less than the cost of a cup of coffee. You can find the link to support the podcast in the show notes or at tinyurl.com slash S S C pod. Today, I'm delighted to be speaking with Jon Goriup and in the upcoming episodes. I'll be talking to Aaron Lober from CADDI. Kayla Broussard CTO of Kendryl, Jenna Fink principal analyst at Zero100 and Christy narrow gon chief strategy officer at Akeneo. But back to today's show. And as I mentioned, I guest on the show today is Jon. Jon welcome to the podcast. Would you like to introduce yourself? Thank you, Tom. Yeah. So hello everyone. My name is Jon Goriup and I'm one of the co founders and CEO of VCG AI. Previously I was co founder of a couple of startups. The last one before VCG being a supply chain traceability software tool, where we focus mostly on the food industry. And that was sort of the starting point behind our current venture, which is value chain generator or VCG in short that is mostly focused on using advanced AI and data technologies to solve waste problems across supply chains. Ok, nice, And tell me a little bit about VCG AI, the company. So, you know, when did you start? How big are you? Where are you operating? What problems are you solving? For whom? Those kind of things. We began in 2022. We are right now based in Stuttgart in Germany, but we also have an office in Slovenia, in Ljubljana. We are right now a team of 18 people. We just closed our first, bigger funding round of two and a half million euros winning the EIC Accelerator. Right now, if you look into upcycling or valorization of different byproducts and waste in the bio based industries, there are really thousands of possible Combinations of different processes for upcycling different way streams or by products different market applications and evaluating all of that by hand is super time consuming and expensive process. And we are automating that with our AI technologies so that we can understand, what are the most feasible processes and new opportunities for valorization of individual streams. of byproducts and waste, where are the biggest market opportunities for that and understanding it in the very technical aspect. So everything from conversion factors to what sort of conditions will result in highest yields, what sort of pre treatment is needed. So going into very granular. Analysis and evaluation of different techno economic and climate aspects. Is something that is super critical to our work. The other point is that understanding where the supply and demand actually meet is also something that is very critical. And so what we are doing is we are developing this extensive map of resources and material flows across different regions. So for example, in Germany, we already have over a million companies. For which we are evaluating the material flows. So that gives us a very good insight in terms of how the new partners can connect once we know, okay, what sort of valorization process is very suitable for certain type of waste, or how can you reverse engineer? For example, if I'm a personal care brand, I have certain ingredients that they use, how can we start using more circular, more sustainable inputs in that regard? Um, A lot of companies traditionally view waste as just a by product to get rid of, but we're starting to see a shift now Towards seeing waste as a valuable resource in supply chains, what do you think has prompted that change? I think on one side. Like there are, let's say three parts of that first is of course, right now, every company, or at least the larger companies are starting to consider a lot more, the climate impacts, not only in their production process or within their sort of scope one and scope two, but really in their scope three. And when you look into the scope three. The materials we use and choose, as well as how we treat our materials, makes a very big impact on that front. And so that for sure prompted the big change in terms of how we view these residuals that are generated throughout the production chains. The other point is also financial. So companies with, when you start seeing success cases, when some company actually improved their bottom line as a result of implementing more circular processes and supply chains, of course, companies are attracted to better financial results from that. The third one is also, let's say differentiation in the market. So circular stories are very good marketing and PR. And so if you as a company are able to show that, like you can really position yourself as a front runner in this, let's say, innovative climate space that is at the same time, cutting your emissions, cutting your scope, three impacts, but in a profitable way. Nice, nice. And in the context of food production value chains, what typically happens to industrial byproducts and waste and how does this impact both the environment and the bottom line? Sure. So that really depends on where you are located or in what locations you're looking into. If we are talking sort of like central Europe A lot of it is going into feed, for example, so through basic pre processing, it can be adapted to feed the applications. It's going into biogas, a lot is going into that. Some is still going towards incineration which is not really great. But the more you move to some, let's say more Eastern Europe, or if you're looking also outside of Europe, a lot is still going to landfills and that's simply the worst. Our view on this is that feed is great or biogas is great, but there is still a lot of value that is hidden in the resources. So these by products and waste streams are very often very rich in nutrients, very rich in compounds that if extracted the right way can be very valuable to certain products or certain industries. And so there is a lot of opportunity to optimize how we actually use these resources for future value, rather than just looking at them as feedstock for producing basic animal feed or biogas. Can you give me a for example? Sure. something that many people can relate to, for example, in the brewery process, you generate spent yeast and spent grains in huge quantities, like we are talking across Europe, millions of tons a year. And that is right now, spent grains often going into direct feed applications spent yeast often going into biogas, both if processed the right way can actually produce human food level ingredients like proteins that are super valuable in the market or for high value, let's say prebiotics for feed applications. So there is a lot of this, optimization that can be done so that we can extract more value from those feeds from those byproducts and ways that have this huge potential. Okay, if I am, to use your example, a brewer and I am producing these millions of tons of yeast and grain, am I the one who then upcycles it for, or do I find someone else who can do it? How does that work? Sure. So maybe just correction. One brewery will not have millions of tons, but they will have tens of thousands of tons. Nevertheless, it really depends. Certain companies like, for example, what we are seeing in the dairy industry. They are doing it themselves. Somebody that is producing cheese is producing a lot of way and that through certain processes, they extract and produce sort of whey protein concentrates or lactose or similar. However, with other industries, like for example, breweries, based on the material composition of a specific way stream on one specific brewery, we can sort of figure out the optimal processes and business models behind that. We work then with an external network of these processors whose job is to do the processing. So most of the times the brewer itself will not do the further processing of their byproducts, but by collaborating with the right processors. And by collaborating with the right new supply chain partners in this new circular economy, let's say scope, they can actually achieve the benefits. You know, they can achieve that. They can sell their by products and waste at higher value. They can enjoy the scope three impact reduction and so on. cool. Cool. And you're using, I mean, your company name is VCG AI. You're to design optimal circular value chains, can you explain how AI is revolutionizing the way we approach sustainability and supply chains? So every. In our case, it's like, you can imagine that now if I'm the brewery, I have spent his, there are multiple different processes and multiple different market applications that are the most suitable for that can be developed out of it. But what we are doing is that based on hundreds of thousands of research papers, patent filings, case studies technical economic studies, LCA analysis, datasets, we are able to actually. Evaluate all the possible scenarios and based on the quantities, material compositions, your location, and similar factors, we can actually be very efficient in finding the optimal one. So instead of developing projects that may take six, 12 months and cost a lot, we can leverage this AI and data driven approaches so that we can be very efficient in the early stages when we are discussing this circular economy projects for supply chains and spend then more time actually towards implementation. And I think that that is sort of the shift that we are seeing that we are facilitating already is that we are no longer stuck in R and D. We are actually going towards implementation and there is real. Projects, real commercial and sort of economic and climate benefits that are being achieved with the customers that we work with. Nice. Could you share an example of how AI has enabled a successful circular value chain transformation for a company or for a region? Sure. So maybe on a regional scope. Okay. That we also bring in that part. So, as I mentioned, for example, in Germany, 1 million companies. So what this allows us to do is that based on predicted material flows, we don't need to collect data from individual companies to understand where certain byproduct is generated or where a certain demand for a new product actually is required. And so. Based on this, we were able to, in a certain region, figure out the supply chain for valorization of the side streams coming from the local dairy processing industry that is right now going towards implementation of a big investment that will be done to sort of. Aggregate and process from multiple different actors in the industry in a very, let's say optimal way in terms of logistics, in terms of process design, in terms of let's say the whole constitution of the business model behind it in a way that is now. Profitable for everyone involved and drastically reducing the requirements for wastewater treatment plans that have previously had to deal with that side stream and reducing, let's say, the climate impact for everyone living in that region. So it's not only, you know, for the companies themselves, but it's a general climate and environmental benefit for a region of where a few million people live. So that is something that is, let's say, a good case showing how we can leverage these technologies and data analytics to move things on a larger scale, not just on a smaller side streams of one particular company, but on a regional level moving hundreds of thousands of tons a year into more productive purposes. Nice, nice, nice. And for companies who are looking to do these kind of things, what key challenges do they face when transitioning to circular economy models and how can they overcome those obstacles? Sure. So for like, there are a couple that I think are very critical. One is. If I'm a brewery, my core business is producing beer and selling beer. And so this circular economy topics are a bit outside the scope of the day to day operations. Having a super efficient way to start dealing with this let's say non core business functions and evaluating the different scenarios and different business models that are relevant is something that is now with the introduction of AI and data technologies doable. Before companies really had to commit to larger projects regarding these topics, the other point is, of course, regulations. Every country, at least in Europe, has their own sort of set of regulations, how certain byproducts or waste streams can be processed, what is allowed, what is not. There is a lot of gray areas. A lot of uncertainty in that part, and that's sort of what we are introducing now in the next, six months is also the functionalities in regards to regulatory review so that we can actually evaluate, you know, not just what is technically feasible and what would be economically and climate benefit, but also is this compliant with the local regulations. And so speeding up that review process of the regulatory environment is something that is a big step. That companies need to do, but it's also, you know, on the other side, a big factor that the policymakers need to start addressing and the realizing that the same way that companies realize that waste is no longer just something to get rid of, but it's something that is a resource. The regulations need to address that as well. Okay. And start pushing companies into realizing that it's a resource. Yeah, same. It's a bi directional, effect that will come to a real, let's say large scale change. Sure. And in your view, how crucial are supply chains and value chains in driving circular economy transformation on a global scale? Yeah. I mean, like everything is a supply chain. In some cases that we are working on, the resource can be reused within the same production process. With a certain type of processing involved, you, a company can reuse some of their by products for a different, let's say input material. But in most cases, it's a cross sectoral collaboration that needs to happen where you have a new supply chain. Understanding that part in terms of who and how to work with. is super critical. The other point on supply chains is that, for example, we have cases where we are working on companies that have very extensive supply networks. So for example, a retailer who we are right now onboarding is like 500 different producers of food and beverage in their supply network. Such companies can drive the transition, not only for themselves, but really initiate. The process that this type of circular economy thinking and business models can actually be established on a super big scale. That is how I see that supply chains are relevant. Strong supply networks that are already established. Have a lot of power because they produce a lot of materials. The more of these materials that are in these existing supply networks, the more really great opportunities can be developed in terms of circular economy topics and business models. Okay, great. And what steps can industries and governments take to accelerate the adoption of circular value chains? Yeah. Like for me, what we are seeing is that on the governmental level very little understanding of material flows because this has had to be done by hand. You had to develop huge projects on data collection and analysis. So that overall understanding is something that lacks, in the decision making process. As well as like to understand in what direction also these processes are moving, like where are the technologies really making advancements? Where are the new conversion processes actually implementable today or maybe in five years. That sort of thing needs to be brought both in terms of industrial strategies, but also in terms of policies. So that's for me, the biggest sort of trends that are right now stopping it or factors that are prohibiting, large scale deployment, but that we are at the same time trying to solve on our side with our approaches and technologies. Okay. You've worked with entities like City of Munich and companies like Heineken. Can you share some success stories where optimizing waste led to significant economic and environmental benefits? So for example, we have cases where we are able to, based on the new matches and new valorization processes, let's say we had a case where we went from about five euros per ton or six euros per ton. Of a certain by product that was achieved by the company previously to figure out the way how they can get around 25 euros per ton. And so that is a really big, let's say almost times five in terms of economic value. And at the same time, when you multiply that by tens of thousands of tons, you are going into a quite significant revenue stream for the company. So those type of jumps in value are absolutely possible. Once you start thinking of the by product is not only something that, okay, with the easiest possible. solution. Let's go get rid of it and not think about it. When you start thinking about it as a real resource that your company has. Very good. And you were recognized by the European Innovation Council as one of the top innovators being awarded two and a half million euros. Why do you think that was? You know, what sets your approach apart? I think that this is a nascent industry or a nascent sort of topic. That a lot of people are approaching in a very manual way. And what we have seen, with these climate actions is that we don't really have much time. If we want to do some positive impact in the next five, 10 years, we really need to move. And we are leveraging the right technologies and the right approaches that can make it scalable. Our solution can work for tens of thousands of companies at the same time without needing a hundred people or thousand people team to deal with it. We can be super efficient in supporting this circular economy transition and climate impact realization, not just to stay on the analysis stage, but. How can we realize it? How can we reduce in the next 10 years? 100 million tons of CO2. Through the circular business models that are facilitated through BCG. How can we go ahead and valorize 100 million tons of byproducts and waste? It's going to be very difficult to do if we are approaching it from a case by case manual way. That was, one of the biggest reasons why I believe we were selected among, I think it was this year, 50 companies from over 4, 000 companies that applied. And that's really, I think made a stand out. The other point is that we are really, let's say our team is bridging, the real domain expertise. So we have our team of, biotech and biochemical engineers. As well as a team of data scientists that are basically collaborating. Very closely together so that we can ensure that whatever we are doing in terms of our data science and AI part, that actual has expert validation that it's not like a GPT provided answer, but that it really has some scientific value and some, very technically, validated parameters that we are evaluating. Nice. I don't know if you are familiar, I'm sure you are, familiar with the movie The Matrix and how Neo sees the code behind the reality. Does AI allow us to see the code behind waste revealing opportunities we couldn't perceive before? So it's unfortunate that today I cannot show some nice graphics, but we have, you know, in our database, this enormous graph of how different resources and processes connect into new, different possibilities. There are thousands of nodes. We currently cover over 250 different by products and waste streams over 150 different conversion processes. And market applications. You can just compound that. What we're building is this huge data space and knowledge base that is covering every possible scenario in terms of ways, valorization. And that's how we see, you know, it's the DNA of the circular economy that we are putting together. And I think that's quite exciting. great, great. And how do you see it, proceeding, you know, how do you see the intersection of AI and sustainable supply chains evolving over the next decade? You know, are there any exciting developments we should anticipate? Yeah. So maybe like one is more, let's say, direct integration into the existing supply chains and supply networks. Because that will actually be the mandatory or let's say step so that we can actually implement it. The other one is On the level of something that we call like, let's not use the buzzwords. Like whenever we have a case that has been done or validated with a certain company, it provides a feedback loop back into our system. And so in the next 10 years, It's not only going to be data that we process. It's not only going to be data extracted from scientific literature or patent filing and so on, but there is going to be a lot more of reinforced learning back into the system. From the validated set data set of working directly on specific waste streams on specific opportunities with individual companies. And I think that that part of the AI will definitely evolve over the next 10 years and make the systems. A hundred times more powerful than they are today. Fantastic. And for companies who are hesitant to adopt AI driven solutions and their sustainability efforts, what advice would you offer to help them take their first steps? I wouldn't think of it as a using AI. I would think of it as like taking the smart way to, or let's say taking the efficient way of dealing with a certain problem, and figuring out the most optimal way of dealing with a certain byproduct and utilizing that as a resource. The AI is there as a supporting technology. Like the AI is there so that we can do our work in a couple of days instead of months. And that is, I think the fear should not be that the AI will take over anybody's job or the AI will infiltrate your supply chain data and so on. It's more about like, how can you introduce efficiency into these new processes? And how can you introduce, better innovation and better spending of innovation money within your company so that you get better results. What metrics or KPIs should companies focus on to measure the success of their sustainability initiatives and supply chain and how can they ensure continuous improvement? Yeah, like we don't cover all topics of sustainability, we cover the circularity topics and like for us, it's like how much of our byproducts are actually getting valorized. How much value are we deriving from this? How much avoided emissions? Are we generating because if I am all of a sudden producing proteins for human food out of my particular byproduct, I am enabling that the consumer on the consumer level, they are requesting or requiring less animal based protein. Or they are requiring less plant based proteins like what we are seeing with this enormous soybean plantations. So a lot of avoided emissions can be generated through these new circular supply chains and business models. And that should definitely be on the priority list of KPIs to track. The other one, of course, is economics. Like no company will do something green just because it's green. There has to be some sort of economic value derived from our circular economy initiatives. And so those are very critical to factor in as well. How much value are we actually generating out of our residuals, out of our byproducts And on the other side, how much of our inputs that we have within our company is actually coming from circular resources? Like how much what percentage of our ingredients that we use actually have a circular background. I think that is also a very critical, important factor in the industry, Not just food and beverage, also in chemical industry, for example, or pharmaceutical industry and similar. Okay. What in the two and a bit years you've been with VCG working on circular economy, what have you come across that has surprised you the most? I think the surprising factor is how big the gap is between the current setup of this valorization of different byproducts and waste is compared to the optimal, and how little effort companies have historically put into it. Because there are such clear ways that companies can. Earn more and decrease their, climate input in very simple ways that simply have not been touched because their byproducts and waste were not thought of as an actual resource. I think that this gap was the most surprising. It's changing now. With more time that passes and more of this circular innovation and supply chain business models being deployed, that gap is closing. Well, hopefully we are part of that support mechanisms, you know, that can help companies achieve that. But that was really like a big surprise, even though we knew that it's quite big. Left field question. If you could have any celebrity or fictional character alive or dead as circularity, who would it be and why? That's, that's a tricky one. So maybe I don't know the exact name or the, I don't have the right, the persona in mind, but somebody that is really on the cusp of innovation and somebody that is pushing things to happen, like we, as a company, we pride ourselves on being very pragmatic. We pride ourselves on being very result driven and that in the end Implementation is what matters, and I think that the spokesperson should resemble that or should embody it in their activities, in their persona. Great. We're coming towards the end of the podcast now, Jon. Is there any question I haven't asked that you wish I had, or any aspect of this we haven't touched on that you think it's important for people to think about? Yeah. So maybe in regards to sort of our vision moving forward, why we started in the bio based space, one is that there is still a big gap between current practices and what's really possible. The other point is that. In this biobased space, there is a lot of technical innovation that has been developed across Europe and the world in the last 10 years on new processes and new advancements for valorization of these byproducts and waste streams. And so it's the first market where we see that we can implement and build the biggest impact. In the next couple of years, however, moving down the line our processes and our core technology is not fixed on that. So we are able to transition also to other fields, like, for example, textiles in the, upcycling or recycling of textile, there is still a lot of R and D that is being done. Big efforts, big advancements in terms of technologies, but they are simply not at the level of actually being ready for industrial application. And so we are constantly monitoring in various different fields, like from textile construction and so on. The, progress and that sort of our vision, you know, is not only to develop the biggest data lake and sort of the knowledge base and the AI systems for organics, but also to focus in the future on broader topics that are all contributing to us reaching the climate targets as a planet altogether. Great. John, if people would like to know more about yourself, or any of the things we discussed on the podcast today, where would you have me direct them? Sure. So you can always find us on our website, very simple URL. vcg. ai, five, five characters. I'm also on LinkedIn. You can find me at Jon Goriup the name in the description. Or maybe Tom can even add my URL to LinkedIn there. So you can always reach out. I'm happy to jump on a call or exchange some emails and messages give you a bit more information about our work, our company and potentially how we can work together on advancing this circular economy in the coming years. Sure. Yeah. No worries. I'll put those links in the show notes. If anyone wants them, they just find them there. Cool. John, that's been great. Thanks a million for coming on the podcast today. Absolutely. Thanks a lot and have a good day. Okay. Thank you all for tuning into this episode of the Sustainable Supply Chain Podcast with me, Tom Raftery. Each week, thousands of supply chain professionals listen to this show. If you or your organization want to connect with this dedicated audience, consider becoming a sponsor. You can opt for exclusive episode branding where you choose the guests or a personalized 30 second ad roll. It's a unique opportunity to reach industry experts and influencers. For more details, hit me up on Twitter or LinkedIn, or drop me an email to tomraftery at outlook. com. Together, let's shape the future of sustainable supply chains. Thanks. Catch you all next time.