From 1st Jan 2023, the Supply Chain Act will come into force. Learn how to comply with it step-by-step and what you should pay close 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 lot of uncertainty about the implementation of this obligation. Therefore, we have created this small “guide” for you. It is intended 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 affect companies with a head office, main branch, administrative headquarters or registered office in Germany. Likewise, companies with a branch office in Germany.
In both cases, the companies must employ more than 3,000 workers in Germany (including contract workers and workers posted abroad). In 2024, the limit will drop to 1,000 employees.
Tip: Even if you are not directly affected, you will soon have to deal with Supply Chain Act compliance as a supplier to large companies. Prepare yourself in good time and secure a possible competitive advantage over other suppliers.
Need more info? Our complete guide to the Lieferkettengesetz >>
Step 2: Look at your own company policies
The Supply Chain Duty of Care Act requires you to develop clear policies for your company.
- These policies should prevent environmental hazards and human rights violations. This includes child labour, equal treatment, air pollution, etc.).
- You must also ensure that you collect all information relevant to the Supply Chain Act in your 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, there are no ready-made samples or forms to date. However, it is worthwhile to seek expert advice in good time or to work with the right tool. That way you play it safe.
Step 3 – Screen your direct suppliers
The aim of this step is to identify potential supply chain law risks with direct suppliers. To do this, you need to ask yourself:
- Do your suppliers have policies in place to prevent environmental hazards and human rights abuses?
- And do you have these policies in place?
- Are your suppliers’ industries/businesses high risk – as in the case of rare earths. Or are they low risk?
- Are compliance issues frequent or rare in your suppliers’ countries?
- In general: what possible violations can you expect from your suppliers?
Tip: you only need to look at indirect suppliers if you have concrete indications of possible violations of environmental protection or human rights.
Step 4 – Identify your risk and the risk of your suppliers
This risk assessment is one of the central steps, but also one of the most complex. Because:
- Here you have to assess your own situation in the company and that of your suppliers.
- You have to analyse how you as a company and how your suppliers handle the supply chain law.
- The risk must therefore be clearly assessed (risk determination).
- The whole thing is subject to a review once a year in order to adapt to changes in the law.
Tip: If you cannot or do not want to go into all the details of the legal provisions here, you should use the knowledge of external experts. This saves time and effort.
Step 5 – Managing risk, this is how it works
Now you need to continue working on the basis of your supply chain risk assessment. This means:
- You need to document for which suppliers everything is in order.
- For the others, you need to take preventive action or at least be reactive.
- This means that you must quickly identify, prevent, end or at least minimise any human rights and environmental risks.
- You also need to set up a grievance mechanism for this.
Tip: In your own business area, you must immediately initiate remedial measures in the event of violations (domestically). These must put an end to the violations. For direct suppliers, you need a concrete plan for minimisation and prevention.
Step 6 – Report publicly
Once you have completed all the previous steps, you need to create a report and publish it. It is sufficient if it is publicly available on your website.
- You also have to report to the authorities. More precisely, to the Federal Office of Economics and Export Control.
- You must do both once a year.
- However, prevention and remediation of any breaches in your supply chain must be ongoing.
- Likewise, you must react quickly if new legislation or political developments negatively affect your risk assessments.
Step 7 – make it simple
How? With RADIX Tree and the know-how of GTS.
- Because with our compliance tool RADIX Tree, we can not only support you in recording in a way that saves you time and money.
- To our knowledge, we are the only company in the market that can automate risk analysis.
- This makes compliance with the Supply Chain Act even radically easier and cheaper.
- And it offers you more security – because with RADIX Tree you are also protected from errors or documentation gaps in terms of content.
User friendly platform to connect your supply chain
Expert designed templates to comply with the new law
Automated analysis tools to rate your suppliers