Protect people and the environment

January 1, 2024 deadline: How companies can prepare for the Supply Chain Act in six steps

Time is of the essence. In a few weeks, the Supply Chain Act will also apply to companies with 1,000 or more employees. Lufthansa Industry Solutions has therefore identified six key measures that these companies can take to achieve greater transparency in their supply chains and meet their new due diligence obligations.

Norderstedt, October 24, 2023 – Since the beginning of the year, companies with more than 3,000 employees have been required to implement the German Supply Chain Due Diligence Act (Supply Chain Act). As of January 1, 2024, companies with 1,000 or more employees will be required to pay even more attention to human rights and environmental protection along their value chains. Time is of the essence, but many of these large midsize companies are still reluctant to implement. "They underestimate how time-consuming it is to create sustainable transparency in the supply chain," says Ann-Christine Lehmann, supply chain expert at Lufthansa Industry Solutions (LHIND). Companies that fail to meet their legal due diligence and reporting obligations risk reputational damage and heavy fines.

By taking these six steps, companies can still succeed in implementing the requirements of the Supply Chain Act on time:

1. Define responsibilities

Even though the law affects suppliers, purchasing cannot do the job on the side. LHIND consultant Lehmann: "The implementation affects almost all areas of the company. That's why it's important for management to get together with purchasing, HR, finance, IT and, if necessary, the legal department as soon as possible. Appointing a human rights officer establishes accountability within the company.

2. Conduct a risk analysis

For many precursors, companies may not even know the conditions under which they are produced or whether human rights have been violated in the extraction of raw materials. Transparency must be created. Systematic analysis covers not only direct suppliers, but also their subcontractors. Close cooperation with suppliers is essential for risk analysis. Participation in industry initiatives, as well as the use of risk databases (e.g. the raw material monitoring of the German Federal Agency for Raw Materials), can provide further information.

3. Issue a policy statement

Legislation requires every company to issue a policy statement on its human rights strategy to communicate its responsibility both internally and externally. The statement identifies the human rights and environmental risks identified or feared in the analysis, as well as preventive measures. In the event of violations, the company must take remedial action.

4. Establish risk management

The risk analysis must be repeated at least once a year or as needed. It shall cover the risks in the company's own business area and those of its direct suppliers. Employees within the company are responsible for monitoring risk management.

5. Establish a complaint management system

To ensure that human rights are respected at all stages of the supply chain, the company must establish a grievance procedure. This will allow those affected by or with knowledge of possible human rights abuses to report violations or provide information.

6. Documentation of due diligence obligations

Companies are required to transparently document the human rights and environmental impacts of their business activities in an annual report. They must also outline how they intend to address potential risks. Companies may use various reporting standards, such as the German Sustainability Code or the Global Reporting Initiative standard. The report must be submitted to the Federal Office of Economics and Export Control no later than four months after the end of the fiscal year and published on the company's website.

Digital solutions help implement supply chain law

The measures show that many of the requirements of the Supply Chain Act are data-intensive and cannot be managed manually. "There are numerous digital solutions that specialize in due diligence compliance," says supply chain expert Ann-Christine Lehmann. "All the necessary data is collected centrally. This creates transparency. The data can be analyzed and risks can be identified at an early stage. However, medium-sized companies in particular often find it difficult to find exactly the right tool for them.

Dealing with the Supply Chain Act is an opportunity that goes beyond mere compliance.

Moritz Röder
Associate Director Supply Chain Management & Sustainability at Lufthansa Industry Solutions

This is where external consultants can help, for example by holding a workshop to find out which functionalities the company really needs and which tool exactly meets these requirements. Moritz Röder, Associate Director Supply Chain Management & Sustainability at LHIND: "Dealing with the Supply Chain Act is an opportunity that goes beyond mere compliance. Especially in economically challenging times, stable supply chains ensure secure and financially predictable production. In addition, companies that view ESG compliance not as a chore but as an investment in the future will be much more competitive in the highly competitive market for skilled workers and managers."

For more information on how Lufthansa Industry Solutions is helping companies implement the Supply Chain Act, click here.


About Lufthansa Industry Solutions

Lufthansa Industry Solutions is a service provider for IT consulting and system integration. This Lufthansa subsidiary helps its clients with the digital transformation of their companies. Its customer base includes companies both within and outside the Lufthansa Group, as well as more than 300 companies in various lines of business. The company is based in Norderstedt and employs more than 2,400 members of staff at several branch offices in Germany, Albania, Switzerland and the USA.