- What does the supply chain act say?
- What does the supply chain act require?
- Who is affected by the supply chain law and when does it come into force?
- What are the penalties?
- How can I protect myself?
What is the Lieferkettengesetz?
The Supply Chain Act is designed to hold companies accountable for human rights violations along your supply chain. It aims to prevent child labour and inhumane working conditions. Companies should take responsibility and comply with standards in their supply chain and introduce processes to verify that they meet their corporate social responsibility criteria.
What does the Supply Chain Act require?
The aim of the law is an important step in the implementation of the decision of the “UN Guiding Principles on Business and Human Rights” of the UN from 2011, which serves the purpose of combating child labour, exploitation and slavery and to anchor more responsibility for the observance of human rights at companies.
On Feb. 12, 2021, the first draft law was passed. The legal requirements see corporate due diligence along the entire supply chain. Supply chain management has an obligation to detect human rights violations at your suppliers.
In essence a function risk management system in the supply chain is needed to comply with the corporate due diligence. Bad business practices along the supply chain have to be prevented. These included but are not limited to environmental damages, exploitations and unfair business practices. Special care needs to be taken with raw materials, determining their sustainability and making sure there are no conflict minerals involved in the supply chain. Last but not least all service providers and logistics partners in the supply chain also need to be monitored and evaluated to prevent sustainability risks from these external factors.
Who does the supply chain law affect? When does the supply chain law go into effect?
The Supply Chain Act comes into force at the beginning of 2023 and affects companies with at least 3000 employees. Global organizations with complex supply chains are therefore affected. From 2024, companies with more than 1000 employees will also be affected.
The fact is that companies today rarely actually know all the links in their supply chain, let alone have the resources to fully assess and monitor these companies. The risk of not complying with the legal obligation is therefore high and it will be the task of management to create the necessary transparency in the supply chain in the next two years.
What penalties can be expected?
The fines for companies who violate the human rights standards set out in the Lieferkettengesetz are between 100.000 and 800.000 EUR, for companies with annual revenue of more than 400 million EUR the fine can go up to 8 million EUR. On top of the fine the offenders will be excluded from public tenders for three years.
How can I protect myself?
The most effective protection is certainly a transparent supply chain, with sufficient depth of information, from the direct supplier to the raw material needed for the components or materials. How little of this information companies actually have today can be seen in the outcry of the free economy in the course of the supply chain discussion. If every company knew all the information about its supply chain and could therefore be sure about the working conditions at its suppliers, there would be nothing to fear. Sustainability is becoming more and more important on the corporate side, even beyond the law, and responsible sourcing is already a management requirement in most companies.
Many companies are already taking measures to increase their sustainability and transparency along the supply chain. Codes of conduct as well as human rights compliance standards are also part of due diligence today and are mostly part of a responsible strategy. However, the risk of non-compliance with policies and codes of conduct along the supply chain is significant, as supply chains often extend beyond a company’s direct sphere of influence.
But how do you get this level of information?
Prewave customers have it easier, of course, because Prewave monitors all of our customers’ suppliers along the supply chain and provides real-time information when human rights violations or problems occur. The risk of unknowingly violating applicable laws is thus much lower and the depth of information thus created provides the right foundation for more sustainability in the supply chain.
In addition, we can check new suppliers against historical data to rule out problems directly in advance.
The Supply Chain Act is coming up in leaps and bounds and responsible supply chain managers will certainly see it as an opportunity to strengthen the protection of human rights and create more transparency along your supply chain.
Should we be able to help you on this path with our solution you can simply book a demo and a conversation with our Prewave specialists here.