For the protection of people and the environment

Supply Chain Act – digital solutions support companies in ensuring the transparency of their supply chain

With the introduction of the Act on Corporate Due Diligence Obligations in Supply Chains (German abbreviation LkSG; also known as the Supply Chain Act), companies will be obligated to adapt their processes along the entire value chain to the legal requirements in order to protect the environment and human rights. In terms of transparency, the implementation of these requirements is also an important component of a company’s corporate social responsibility (CSR) strategy. More and more consumers expect companies to act carefully and sustainably.

Lufthansa Industry Solutions (LHIND) experts will assist you with the risk analysis, advise you on the selection of suitable software that supports your processes, for example in purchasing, production/manufacturing or along the entire supply chain, and on the integration of the software solution into existing systems.

The Supply Chain Act poses new challenges for companies and requires action

The German Act on Corporate Due Diligence Obligations in Supply Chains – also known as the Supply Chain Act – in force since January 1, 2023. It initially obliges companies based in Germany, and companies with a branch in Germany, (cf. sec. 13d of the German Commercial Code; HGB) that employ more than 3,000 people to improve and document their processes along the entire supply chain. Currently, the Act on Corporate Due Diligence Obligations in Supply Chains affects about 900 companies in Germany. The legal regulations will be extended to companies with more than 1,000 employees from 2024. This would mean that a total of 4,800 German companies would be obligated to comply with the Supply Chain Act. The long-term goal is a European directive for which the German Supply Chain Act shall serve as a blueprint.

Compared to the German Supply Chain Act, thresholds that are even lower are to apply under EU law. For example, EU limited liability companies would be affected if they

  • employ at least 500 people and have a net global turnover of at least EUR 150 million
  • employ at least 250 people, have a net global turnover of at least EUR 40 million, and operate in a resource-intensive industry

A corresponding proposal was adopted by the European Commission in February 2022.
 

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Obtain insights regarding the following topics:

Provisions of the Supply Chain Act

Measures companies can adopt

Current challenges in the supply chain

Free download: Whitepaper on the Act on Corporate Due Diligence Obligations in Supply Chains

Our procedure: LkSG workshop offer

Our Supply Chain Act solutions and services

Benefits of software solutions for the LkSG

Our extended offer to digitalize the entire supply chain

Whitepaper on the Act on Corporate Due Diligence Obligations in Supply Chains

 

Environmental protection and human rights

The aim of the Act on Corporate Due Diligence Obligations in Supply Chains is to enforce compliance with basic human rights standards in global supply chains worldwide. These standards include, for example:

  • The sanctity of life and health
  • The prevention of slavery, forced labor and child labor
  • Fair working conditions
  • Environmental obligations to protect human health

To enforce the Act, companies will be held accountable to ensure transparency throughout their supply chains. They will be responsible for ensuring that suppliers along their entire supply chain adhere to basic human rights standards. To avoid sanctions and damage to their reputations, however, they must not only ensure that their direct suppliers meet the requirements. With the Supply Chain Act, their duty of care concerning social and ecological risks also extends to upstream suppliers.

Clear requirements regarding corporate due diligence obligations

The clear requirements in the new Act on Corporate Due Diligence Obligations in Supply Chains are intended to generate legal security for both companies and the people affected. In this context, the companies’ due diligence obligation extends in graduated requirements to the entire global supply chain, starting with raw materials, through the manufacturing process to the finished product. In its implementation, the Supply Chain Act takes into account that companies cannot always directly influence the perpetrators of violations. However, it does obligate them to take action in the event that violations occur.

Responsibility for the entire supply chain

  • Duty of care – introduction of systematic risk management
  • Reporting obligation – documentation and publication of known violations and corresponding preventive measures

Fines for violations and omissions

The measures adopted include not only adjustments and improvements to purchasing and logistics processes, but also to their careful documentation. Compliance with the regulations is checked by the German Federal Office for Economic Affairs and Export Control (BAFA). In the event of omissions or breaches of their due diligence and documentation obligations, companies risk being fined or excluded from public tenders.

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What measures must companies take to comply with the legal requirements?

Companies that are affected by the introduction of the Act on Corporate Due Diligence Obligations in Supply Chains due to the number of their employees face the challenge of taking measures to comply with their due diligence and reporting obligations. When creating sustainable conditions throughout the supply chain, it is important that the company’s partners are aware of the different tier levels and that information can be shared with them via a platform.

The first priority of the implementation of the Act on Corporate Due Diligence Obligations in Supply Chains is for companies that are already affected to adopt a policy statement on their human rights strategy by January 1, 2023. At the same time, they must define who within the company is responsible for implementation and compliance. In the next step, supply chain risk management must be introduced to identify the risks in the company’s own business unit as well as those of direct suppliers. From this, effective measures can be derived to avoid, minimize and remedy human rights violations. Moreover, suitable risk analysis procedures such as supplier audits, the identification of risk raw materials or a comparison with external databases must be firmly embedded in the company.

Supply Chain Act checklist for companies

  • Review legal requirements for your own company
  • Identify and analyze transparency and stakeholders in the supply chain
  • Identify and assess risks
  • Define and document measures to avoid and eliminate risks
  • Define KPIs for measuring success
  • Review, evaluate and re-implement IT systems to support the requirements
Flowchart showing measures for implementing the Supply Chain Due Diligence Act
Act on Corporate Due Diligence Obligations in Supply Chains Regulations – what measures must companies take to ensure they comply with the law?

In the event that the standards set are violated, a complaints management system helps to point this out both to those directly affected and to those who have knowledge of potential or actual violations. Pre-defined performance indicators are used to monitor success. These performance indicators are included in the company’s sustainability report, as are all preventive and remedial measures to ensure compliance with the minimum required social and environmental standards. This CSR report serves both as a review by the authorities and as proof of careful and sustainable corporate action vis-à-vis consumers.

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Current challenge – from the traditional supply chain to the digital supply network

The structures and processes in supply chain management are complex and somewhat unclear. In order to reliably maintain compliance at all levels of the supply chain, IT solutions are needed that transform the traditional supply chain with information silos and lengthy communication channels into a digital supply network characterized by collaboration and networking. For optimal control, shortening of lead times and for the best possible transparency, all partners must work centrally on a common platform, so as to be able to exchange information in real time.

Chart and whitepaper in German only

The traditional supply chain is being replaced by a decentralized digital platform

Auditing all suppliers and vendors along a company's supply chain generates vast amounts of data. Digital solutions help companies to consolidate these huge amounts of data into one system and share it with relevant stakeholders. In the future, a digital supply network will ensure compliance in the supply chain and thus replace the classic supply chain in companies. A step that, according to a recent survey, will not only have a positive impact on social and ecological standards, but also on the economic success of companies in the medium and long term.

Modern technologies such as artificial intelligence (AI) or data analytics make it much easier for employees to comply with the required standards. In our white paper, you will gain insights into how, for example, you can master your data with the help of the cloud platform and the ERP system from SAP, or how you can digitally manage your supply chain with international partners across different levels with supply change management software such as "OSCA CRS". With such approaches, you can improve the performance of your processes while meeting the requirements of the Act on Corporate Due Diligence Obligations in Supply Chains.

Download: Whitepaper "From Act on Corporate Due Diligence Obligations in Supply Chains to supplier management".

In the whitepaper you will learn how IT solutions help you to meet the legal requirements and to use emerging opportunities for your business success. In addition, the white paper contains the results of a survey among 1,075 employees on the connection between employer attractiveness and compliance with human rights and environmental standards.

How does LHIND use digital solutions to support companies in implementing the new Supply Chain Act?

Digital solutions help to meet the requirements of the Act on Corporate Due Diligence Obligations in Supply Chains and to bring all the data and information required for this together in one central system. This allows transparency to be created, data to be analyzed and documented, and risks to be identified at an early stage.

With our many years of experience and suitable IT solutions, we can support you in implementing the requirements of the Act on Corporate Due Diligence Obligations in Supply Chains, from risk analysis to selecting software that is optimally suited to your needs, as well as individual adaptation and integration into existing systems.

When selecting a software solution for compliance with the Act on Corporate Due Diligence Obligations in Supply Chains, it is important for it to optimally meet your company's specific needs, meaning that it matches your processes and your infrastructure. It makes no sense to focus on a specific piece of software if it then means that you have to adapt your company to this solution, as it were.

This is why we first like to offer you an introductory workshop on the LkSG. Based on the findings obtained in the workshop together with our specialists, we subsequently present you with action recommendations and software solutions that are appropriate to your needs.

1-day introductory workshop, 2 LHIND experts on site or remote (according to customer request) + results presentation: €3,500

After the workshop, you will know:

  • Exactly what the Act means for your company
  • Where your company stands and which gaps need to be closed
  • Which software solutions meet your needs
  • What your roadmap looks like and which steps are required next

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  • Goals and (sustainability) strategy
  • Available IT architecture & infrastructure in order to build on existing structures
  • Existing data sources
  • Risks, pain points & processes
  • Responsibilities & stakeholders

  • Analysis of LkSG requirements applicable to you according to 12 focal topics: E.g., transparency in the supply chain, risk management system, risk analysis, reporting:
    What does the Act provide for companies such as yours? What form do best practices take? Which (additional) requirements do your specialist departments have? Etc.
  • Definition of requirements with your specialist departments (typically with Purchasing, Finance, IT, CSR, and Legal departments)

  • Requirement weighting
  • Prioritization of focal topics
  • Action recommendations & best practices from our experienced consultants

  • Development of implementation options based on your requirements and prioritizations
  • Benchmarking of selected tools

  • Selection of IT tools that meet your needs
  • Make or buy assessment
  • Presentation of the assessed implementation options incl. proposal for the further procedure

  • Detailed data collection
  • Implementation (agile / cascade)
  • Implementation of the relevant interfaces
  • Integration test & cut-over
  • Transfer to IT operations

Software solutions and modular platforms for the Act on Corporate Due Diligence Obligations in Supply Chains for companies

What can you expect from software solutions for the Act on Corporate Due Diligence Obligations in Supply Chains and what can they cover? The following shows a selection of possible functions and aspects:

However, feel free to contact us, and we will take a look at what you really need and in which combination.

In many IT solutions for the LkSG, companies can store their customer-specific requirements along their supply chains. For example, special specifications can be created for auditing suppliers, automated processes can be defined and individual questionnaires can be stored, which are then completed by the supply chain partners and monitored continuously by the system. It is also possible to create individual codes of conduct and to demand previously clearly defined corrective actions from suppliers and to track them. Inspections, audits, and their results, further information on suppliers and production sites can usually be managed centrally, etc.:

Integration of new suppliers and partners with special workflows. Automated provision and receipt of documents and information via software or on a platform, automated tracking of receipt or regular updates, coordination and documentation of checks and approval by the company, and sending of feedback to the supplier.

Easy and quick creation of individual survey templates to request specific information required from partners and suppliers.

Share your own company's policies and codes of conduct with your partners via software/a platform and have them countersigned there easily and in a manner sufficient for audits.

Map a diverse risk management system across all stages of your supply chain with the support of comprehensive and configurable assessment and monitoring systems.

Audit-compliant management of all of your audit documents, have an overview of the audit status of your supply chain partners displayed, alert functions for updates, etc. Various solutions can provide you with timely notifications regarding expiring certificates, validity periods or renewed audits and you can initiate new audit cycles via the systems. Various providers also offer the central retrieval and control of results, necessary corrective actions, and follow-ups.

To fulfill your due diligence obligation, various platforms offer dedicated workflows for tracking and managing deficiencies and corrective actions discovered and to be implemented at your partners.

Easy success monitoring and facilitated reporting obligations thanks to evaluation options, dashboards, and partly preconfigured reports.

Some solutions offer you a central overview of your CSR measures and supply information for regular reporting and evaluations.

Clear dashboards show you all critical and incomplete issues, risks, and to-dos in a well-structured form and in real time wherever possible.

In many systems, suppliers and their preliminary stages including production sites and the origin of raw materials can be recorded and monitored for comprehensive management of all tier levels.

Advantages of software solutions for Act on Corporate Due Diligence Obligations in Supply Chains implementation

The Supply Chain Act creates a binding framework that supports companies in fulfilling their responsibility to protect human rights and the environment along their supply chain. A corresponding software solution reduces the burden and helps you to fulfill your due diligence obligations effectively.

  • Transparent and reliable compliance with the legal requirements of the Act on Corporate Due Diligence Obligations in Supply Chains
  • One central piece of software or system for a complete overview and transparency of the sustainable supply chain
  • Centrally managed compliance with your due diligence obligations and documentation of efforts as well as the company’s own codes of conduct for proactive action
  • Access (usually cloud-based) to all procurement-related documents, audit data and reports on all supply chain partners
  • Early warning of non-compliance or milestones using AI and data analytics
  • Simple and efficient control of your database without media breaks and manual work steps, significantly fewer e-mails, completely transparent audits and production conditions
  • Integration into existing system landscapes, linking and takeover of relevant data from your other systems, such as supplier master data from ERP systems, product data management (PDM) tools or quality management platforms, analysis tools, risk management and compliance systems, etc.
  • Protection against lasting reputation damage and monetary compliance penalties

For whom are LHIND’s services and Due Diligence software relevant?

  • Companies in all sectors in Germany
  • Companies with national and international suppliers and partners along their supply chain
  • Companies with 3,000 or more employees (Act on Corporate Due Diligence Obligations in Supply Chains since January 2023)
  • Companies with 1,000 or more employees (Act on Corporate Due Diligence Obligations in Supply Chains as of 2024)

These thresholds may change again when the EU Directive is introduced.

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Our extended service

LHIND is your first port of call, not only when it comes to the Supply Chain Act, but also when it comes to the digitalization of your entire supply chain. We can support you with:

  • Analysis and optimization of the entire supply chain by analyzing data concerning networks, planning, sales, purchasing, logistics and production
  • Identification of potential improvements and realization using suitable IT solutions
  • Linking information flows and technical processes
  • Creation of end-to-end data transparency by integrating appropriate software and analysis tools
  • Automation of data-based processes
  • Interfaces to ERP systems (e.g. for the integration of supplier master data)
  • Integration into analysis tools (e.g. existing reporting tools)
  • Further risk management beyond the Act on Corporate Due Diligence Obligations in Supply Chains

Good reasons to choose LHIND

As a service provider for IT consulting and system integration, we can support you with our expertise and digital solutions to meet the legal requirements of the Act on Corporate Due Diligence Obligations in Supply Chains, to prevent sanctions and damage to your reputation.

  • Our team of IT consultants, developers and IT security specialists has years of operational and strategic expertise in logistics along the entire supply chain.
  • We develop and implement suitable IT solutions to comply with the Act on Corporate Due Diligence Obligations in Supply Chains, and its challenges for your company.
  • We support our customers from strategy and conception to end-to-end system integration and are always consistently geared to their needs.
  • When realizing IT projects, we rely on classic or agile project management as well as hybrid variants – depending on what is best suited to the project at hand.
  • We work for medium-sized organizations and large corporations.

Do you need advice or support in implementing the Act on Corporate Due Diligence Obligations in Supply Chains in your company? Feel free to contact us!

We’d be delighted to learn more about your upcoming challenges and support you in facing them.

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German Act on Corporate Due Diligence Obligations in Supply Chains FAQs

The Act on Corporate Due Diligence Obligations in Supply Chains will come into force in Germany on January 1, 2023.

The German Act on Corporate Due Diligence Obligations in Supply Chains, also known as the Supply Chain Act, obliges companies to adapt their processes along the entire supply chain to the legal requirements in order to protect the environment and safeguard human rights. Initially, the law applies to companies with 3,000 employees or more. From 2024, it will also apply to companies with 1,000 or more employees.

The aim of the Act on Corporate Due Diligence Obligations in Supply Chains is to enforce compliance with basic human rights standards in global supply chains worldwide.

Companies are obliged to adopt a policy statement. As part of their due diligence, they must also introduce systematic risk management, conduct risk analyses and embed all risks and preventive measures, document them and make them publicly accessible (for example in the CSR report). In addition, companies must establish a complaints procedure.

In Germany, there are currently about 900 companies (with more than 3,000 employees) that will be affected by the Act on Corporate Due Diligence Obligations in Supply Chains, as of January 2023. From 2024, a total of 4,800 companies (with 1,000 employees or more) are expected to be affected.

If the law is violated, companies must expect sanctions and damage to their reputations. Depending on the severity of the offense, fines of EUR 100,000, EUR 500,000 or even EUR 800,000 are imposed (source: Federal Law Gazette, as of July 22, 2021). In certain cases, companies that generate a turnover of more than EUR 400 million in a year must expect a fine of up to 2% of their average annual turnover. In addition, exclusion from public procurement for a period of up to three years is also possible.

Companies are obligated to ensure transparency in their entire supply chain in the future. They must guarantee that their own business unit, as well as all suppliers and upstream suppliers, comply with social and ecological standards in order to avoid sanctions and damage to their reputations.