Supply Chain Act: Logistics focuses on working conditions

Bastian Späth, CEO/Vorstand EIKONA AG
Mother and daughter sewing a dress at a sewing table.

LkSG, Supply Chain Act, Due Diligence Act – what is behind it? Almost half a year has passed since the Supply Chain Due Diligence Act (LkSG) came into force. The main principle behind all these names is that companies should adhere to the principles of social responsibility in all their activities. This applies to both human rights and ecological aspects. In the future, all steps along the supply chain should meet the requirement of upholding human rights and environmental protection standards. Transport and logistics are directly involved in this responsibility – after all, they are an elementary part of the supply chain.


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Read here what the LkSG actually means for you and how software can support you in implementing various measures. We have compiled a clear questionnaire on the LkSG’s areas of application, the persons responsible, possible measures and the opportunities that the law brings for optimizing your supply chain.

What measures does the Supply Chain Act cover?

The stated goal of the LkSG is the following: fairness and environmental protection for all those who are part of a product’s supply chain. This includes respect for human rights and protection against forced labor and discrimination, as well as protection under labor law, the right to fair pay and the topics of occupational health and safety.

Companies earn money from the products that are produced and transported around the world. With the new law, they are being urged to assume global responsibility as well and not just to “sweep on their own doorstep”. Fair wages and safety at work are the top priorities. In addition, human rights violations such as child labor or further work under undignified conditions are to be prevented and the environment is to be burdened as little as possible by the productions.

Who is covered by the Supply Chain Act?

Initially, the Supply Chain Act will apply to companies with more than 3,000 employees. Next year, however, this limit will drop to 1,000 employees, and an EU-wide extension is currently being considered: the European Supply Chain Act is also to include companies with 500 employees or more from 2025.

Ultimately, everyone involved along the supply chain benefits from the law: the people who work there, the companies, but also the consumers after all, they can now be a bit more certain that the large companies in Germany in particular will now have to focus more on fair conditions in manufacturing.

What are the consequences of the Supply Chain Act?

The requirements imposed on companies by the LkSG are based on the United Nations Guiding Principles and thus provide a framework that is clearly defined, proportionate and reasonable. All companies, suppliers and individuals are required to comply with due diligence obligations in processes and services that are part of the supply chain and are encouraged to take action against human rights violations and environmental as well as labor abuses. Companies must now appoint a person responsible for compliance with the LkSG, set up a risk management system and conduct risk analyses that highlight any grievances along the supply chain. They then explain the measures they intend to take in policy statements.

Fair pay, environmental protection, labor rights protection, no child labor/human rights, no forced labor, proper employment, health protection and equal rights symbolized with white icons on blue squares.

Who implements the law in practice?

The German Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle: BAFA) implements the Supply Chain Due Diligence Act and checks whether the companies concerned comply with the legal due diligence requirements. They have produced extensive documents with detailed explanations, questions and answers on the Supply Chain Act. They also provide guides and practical examples for better orientation.

How is compliance with the Supply Chain Act verified?

The law does not include a duty to succeed. This means that companies are required to identify and take action against social or ecological grievances, but it is sufficient to take action against these grievances – thus, from a legal point of view, there is an obligation to make an effort and not an obligation to succeed.

Furthermore, the Federal Office of Economics and Export Control (BAFA) does not monitor how companies manage their supply chains – only the report that they have to write once a year on the fulfilment of their due diligence obligations is checked. In the event of violations, there is a risk of fines. If it is found that a company is not fulfilling its obligations, the companies can also be excluded from public tenders.

What do I have to do as a company?

Especially companies that fall under the category of “SME” (small and medium-sized enterprises) may not be required to comply with the LkSG until the next few years. In preparation, here comes the checklist with the most important steps:

  1. Accept the responsibility and set up a risk management system: in the course of this, the risks along one’s own supply chain are identified, assessed according to their strength and prioritized in terms of urgency.
  2. Plan actions: companies publish a policy statement that includes plans and actions they will take to address the risks.
  3. Commitment to good communication with all stakeholders: information and communication are essential for the successful implementation of measures in accordance with the LkSG.
  4. Make documentation a priority: issue, record and archive all evidence transparently. Software can significantly facilitate document management.
  5. Establish complaint channels: It is important to provide a way to complain about wrongdoing and to provide assistance when a breach of due diligence becomes known. Software helps with due diligence compliance

Software helps with due diligence compliance

The requirements for companies’ compliance and risk management have increased significantly with the Supply Chain Act. Software is invaluable, especially when it comes to documentation and reporting requirements, but also for transparent communication along the entire supply chain. Among other things, tools take care of the digital archiving of all relevant documents, and document management ensures that all necessary forms and papers proving flawless transport are available in real time for all parties involved along the supply chain – so you exemplify correct behavior.

Software-supported task management helps to structure processes and keeps the answer ready for unforeseen situations, such as a case of damage. Workflows can be freely configured, and task management can also be linked to common driver apps: drivers’ rest periods, etc. can thus be considered and compliance with them logged.

Here’s how software can help you comply with due diligence:

  • Track and trace: A large number of suppliers are part of the supply chain and must now provide evidence that they are implementing general due diligence requirements. Thanks to tracking and tracing, the path of goods along the entire supply chain can be followed more transparently.
  • Task management: With IT-supported task management, workflows that ensure work is carried out with due regard for health and safety can be configured and put into practice.
  • Data Integration: To further improve collaboration along the supply chain, it is important to be able to understand and use all data. A data integration module translates all partner systems into the appropriate language.
  • Document management: Documentation and archiving go hand in hand with the obligation to provide proof. Tools for document management and digital archiving facilitate the handling enormously and ensure that all important data and files are available at all times – also for reporting.

Conclusion

Supply Chain Act: assuming global responsibility

The law promises to take global trade into account and expand the companies’ scope of responsibility accordingly. We all reap the benefits of global trade every day – so it’s only fair that companies now have to look at their entire supply chain. Increased transparency on environmental as well as human rights due diligence will now become everyone’s responsibility. Ultimately, this will benefit everyone involved along the supply chain – after all, products will be produced and distributed more fairly, and the environment and labor aspects will come more to the fore. For companies, the Supply Chain Act is now an opportunity to make their supply chain sustainable, fair and future-proof – so they can not only score points with employees and customers, but also gain a long-term competitive advantage. Software makes an enormous contribution here and can also be implemented quickly.


Bastian Späth
Bastian Späth
CEO

As a college-educated computer scientist, Bastian Späth understands how IT solutions are developed from the ground up. For more than 15 years, he has spent every workday collecting requirements, finding ideas, developing designs, setting up projects and getting them safely across the finish line.


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