Supply Chain Act

Doing everything right step by step

The Supply Chain Act will apply from 01.01.2023. Find out in this guide how to fulfill it step by step and what exactly you should pay attention to.

The German government has obliged large German companies with more than 3,000 employees to comply with the newly created Supply Chain Act. However, there is a great deal of uncertainty regarding the actual implementation of this obligation. That is why we have created this little “guide” for you. It is designed to show you what you need to do to become compliant.

Step 1: Find out whether you are affected by the Supply Chain Act!

From 2023, the Supply Chain Act will impact companies with their head office, principal place of business, administrative headquarters or registered office in Germany. The same applies to companies with a branch office in this country.

In both cases, the companies must employ more than 3,000 employees in Germany (including temporary workers and employees posted abroad). In 2024, the limit will fall to 1,000 employees.

Tip

Even if you are not directly affected, as a supplier to large companies you will soon have to deal with supply chain law compliance. Prepare in good time and secure a possible competitive advantage over other suppliers.

Step 2: Take a look inside

The Supply Chain Due Diligence Act requires you to draw up clear policies for your company.

  • These are intended to prevent environmental hazards and violations of human rights. These include child labor, equal treatment and air pollution, etc.).
  • You must also ensure that you collect all information relevant to the Supply Chain Act within the company.
  • You must determine who in your company is responsible for compliance with the Supply Chain Act.
  • And publish a policy statement on respect for human rights.

Tip

Unfortunately, to date there are no ready-made templates or forms. However, it is worth seeking expert advice in good time or working with the right tool. This way you play it safe.

Step 3 – screen your direct suppliers

The aim of this step is to identify potential risks in relation to the Supply Chain Act for direct suppliers. You have to ask yourself:

  • Do your suppliers have appropriate policies in place to prevent environmental hazards and human rights violations?
  • And do you have these policies?
  • Are your suppliers’ industries/business areas high risk – as in the case of rare earths. Or are they low-risk?
  • Are there frequent or rare compliance problems in the suppliers’ countries?
  • In general: What possible violations can you expect from your suppliers?

Tip

You only need to consider indirect suppliers if you have concrete evidence of possible violations of environmental protection or human rights.

Step 4 – determine your risk and the risk of your suppliers

This risk assessment is one of the central, but also one of the most complex, steps. Because:

  • Here you need to record your own situation in the company and that of your suppliers.
  • You need to analyze exactly how you as a company and how your suppliers handle the Supply Chain Act
  • The risk must therefore be clearly assessed (risk determination).
  • The entire system is reviewed once a year in order to adapt it to changes in the legal situation.

Tip

If you cannot or do not want to get involved in all the details of the legal provisions, you should make use of the knowledge of external experts. This saves time and effort.

Step 5 – How to manage risk

Now you need to continue working on the basis of your supply chain risk assessment. That means:

  • You must document for which suppliers everything is in order.
  • For the others, you need to take preventive action or at least reactively.
  • This means that you must quickly identify, prevent, end or at least minimize any human rights and environmental risks.
  • You must also set up a complaints mechanism for this purpose.

Tip

In your own business area, you must immediately initiate corrective measures in the event of violations (in Germany). These must put an end to the injuries. For direct suppliers, you need a concrete plan for minimization and avoidance.

Step 6 – Report publicly

Once you have completed all the previous steps, you must create a report and publish it. It is sufficient if it is publicly accessible on your website.

  • You are also required to report to the authorities. More precisely, to the Federal Office of Economics and Export Control.
  • You must do both once a year.
  • However, the prevention and remedying of any infringements in your supply chain must be carried out on an ongoing basis.
  • You also need to react quickly if new laws or political developments have a negative impact on your risk assessments.

Step 7 – make it easy for yourself

How? With Radix Tree and the know-how of GTS.

  • With our compliance tool RADIX Tree, we can not only support you in recording data in such a way that you save time and money.
  • We can now automate risk analysis – to our knowledge, we are the only company on the market to do so.
  • This makes compliance with the Supply Chain Act radically easier and cheaper.
  • And it offers you more security – because with RADIX Tree you are also protected against errors or gaps in documentation.

How RADIXX Tree can support

User-friendly platform for networking your supply chain

User-friendly platform for networking your supply chain

Automated analysis tools for evaluating your suppliers