Supply Chain Act

Is there a smart solution for your supply chain compliance management?

The Supply Chain Act has been under discussion for years and came into force on January 1, 2023. What is it all about?

This Act ensures that companies comply with environmental, human and children’s rights throughout their entire supply chain. If affected companies do not comply with this regulation, they face high fines – and sometimes also claims for damages from competitors. What can you do to prevent this? And how do you comply with the new supply chain law? Read on to find out.

What is the Supply Chain Act?

The Supply Chain Act (also known as the Supply Chain Due Diligence Act) is a law passed by the German Federal Government that focuses on the commercial due diligence obligations of companies. It is important to understand when the Supply Chain Act applies, what consequences it has – and for whom.

Who is affected by the Supply Chain Act?

Not every company has to comply with the Supply Chain Act, at least not formally. The Act clearly defines the companies directly affected. The list follows:

  • In the first step, it will apply in 2023 to companies that have their head office, principal place of business, administrative headquarters or registered office in Germany.
  • In addition, they must employ 3,000 or more employees in Germany. Temporary workers are included here. Just like workers posted abroad.
  • From 2024, this limit will fall to 1,000 employees.
  • It also applies to companies that have a branch in Germany and employ 3,000 (1,000 from 2024) employees in Germany.

You are not under any obligation? Indirectly, perhaps!

Smaller companies are not directly affected by the Supply Chain Act. But it still makes sense for them to get to grips with the issue. But it still makes sense for them to get to grips with the issue. This is because the law regulates responsibility for the entire supply chain, from the raw material to the final product. So the Supply Chain Act also has an impact on small businesses. Finally, it concerns:

  • The activities of the company itself
  • Direct suppliers
  • Indirect suppliers (suppliers of direct suppliers, for example)

What are the penalties for non-compliance?

In its current form, the law, which will come into force in 2023, makes fines of varying levels possible. These range from 100,000 euros to 2% of the average annual turnover (for companies with an annual turnover of more than 400 million euros).

In the event of serious violations, companies can also be excluded from public tenders for 3 years.

Do you have questions about the Supply Chain Act? We are happy to share our knowledge!

If you are affected by the obligation and are looking for a smart solution to fulfill your requirements, you are in good hands with us. With RADIX Tree, we offer you a lean and practical tool for this. Simply arrange a demo. You will be amazed!

What due diligence obligations must companies fulfill?

Due diligence

Companies are obliged to comply with the human rights and environmental due diligence obligations set out in this section to avoid or minimise compliance failure risks. The due diligence obligations include:

  • the establishment of a risk management system (§ 4, paragraph 1),
  • the definition of an internal company responsibility (§ 4, paragraph 3),
  • the performance of regular risk analyses (§ 5),
  • the submission of a declaration of principles (§ 6, paragraph 2),
  • the establishment of prevention measures in the company’s own business area (§ 6, paragraph 1 and 3) and vis-à-vis direct suppliers (§ 6, paragraph 4),
  • taking remedial measures (§ 7, paragraph 1 to 3),
  • the establishment of a complaints procedure (§ 8),
  • the implementation of due diligence obligations with regard to risks at indirect suppliers (§ 9) and
  • documentation (§ 10, paragraph 1) and reporting (§ 10, paragraph 2).

What do you have to do specifically?

Basically, you need to introduce an appropriate and effective compliance risk management system in your company – with a focus on ethical rights (child labour, modern slavery, working conditions) and environmental impacts (air and water pollution, water consumption). It is worth proceeding step by step, but with a structured timeline, as such processes cannot be planned and integrated from one day to the next.

You can proceed as follows:

  • Develop and implement a policy on human rights compliance/prevention of environmental hazards.
  • Carry out a risk assessment. You can do this by implementing processes to identify human rights violations/environmental risks.
  • Use your risk management to prevent potential negative effects in relation to human rights and environmental risks.
  • Set up a complaints procedure in the company.
  • Implement a transparent and publicly accessible reporting system.
  • Create routines that allow you to take immediate corrective action when violations are identified.
  • Also integrate preventive measures.

We make legal compliance in your supply chain easy – with our expertise and our digital platform.

If you have read between the lines, you will have noticed that the requirements of the new Supply Chain Act can also be met in paper form. But only in principle, because if you want to work more efficiently, there’s no getting around a digital solution. And this is exactly where we come in.

With RADIX Tree, we have decades of experience in the field of supply chain management – based on the timber trade. You can now take advantage of this. On top of that, our tool enables you to put your supply chain compliance on a professional and secure footing simply and cost-effectively.

RADIX Tree – the leading platform, intelligent and flexible

  • RADIX Tree enables you to easily collaborate with your suppliers on supply chain compliance and supply chain law.
  • All compliance requirements are always integrated and up to date.
  • With this digital solution, you can automatically and securely collect the essential information related to sustainability.
  • You can monitor your suppliers’ responses with automatic verification.

Questions and answers on the Supply Chain Act

We have compiled the most frequently asked questions and answers about the Supply Chain Act.

Yes and no, because Germany is a pioneer here. But there are also corresponding regulations on supply chain compliance in other countries. The EU has also expressed the clear aim of adopting a regulation that will apply throughout the entire Union.

The Supply Chain Act defines various standards and values. These are for example:

  • Physical integrity and health
  • No slavery or forced labor
  • Protection of children and no child labor
  • Freedom of association and the right to collective bargaining
  • Protection from torture
  • Fair working conditions (occupational safety, breaks)
  • Environmental regulations to protect health
  • Water pollution
  • Air pollution
  • Excessive water consumption
  • Noise pollution
  • Mercury
  • Hazardous residues

The Due Diligence Act or Supply Chain Act is one that politicians have been struggling with for a long time. However, the focus is not on penalties under the Supply Chain Act, but on benefits. This is because politicians want to actively address human rights violations and unnecessarily accepted environmental hazards. Hubertus Heil, Federal Minister of Labor and Social Affairs of the Federal Republic of Germany, put it this way:

“The Supply Chain Act is the strongest law in Europe to date in the fight for human rights and against exploitation.”