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Supply Chain Act: definition & important aspects for buyers
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Supply Chain Act in a nutshell:
The Supply Chain Act obliges companies to comply with human rights and environmental due diligence obligations along their entire supply chain. For purchasing, this means systematically checking and documenting suppliers and implementing risk management processes to prevent violations.
Example: Since 2024, a German company with 3,500 employees has had to prove that its 250 direct suppliers do not use child labor, pay minimum wages and comply with environmental standards, with violations punishable by fines of up to 2% of annual global turnover.
Contents
Introduction to the Supply Chain Act
What is the Supply Chain Act?
The Supply Chain Act, officially known as the Act on Corporate Due Diligence in Supply Chains, is a German federal law that was passed in 2021. It obliges companies to prevent human rights and environmental violations along their entire supply chain. The aim is to strengthen global standards and encourage companies to take responsibility for the impact of their global business activities.
Core components of the Supply Chain Act
Due diligence obligations: Companies must identify and assess risks in their supply chain and take appropriate measures.
Significance for purchasing
The Supply Chain Act has significant implications for purchasing. Buyers must ensure that suppliers and subcontractors comply with the legal requirements. This requires more intensive supplier selection and monitoring as well as the integration of sustainability criteria into procurement processes. Through proactive risk management, procurement can help to minimize legal risks and protect the company's reputation.
Sustainable procurement: integration of social and environmental standards in purchasing guidelines.
Strategy for implementing the Supply Chain Act in purchasing
Introduction of comprehensive risk management to identify and monitor human rights and environmental risks in the supply chain in order to comply with statutory due diligence obligations.
Case study: Implementation of a supplier risk assessment tool
A company uses a digital tool to assess its suppliers with regard to human rights and environmental risks:
- Data collection: Collection of information about suppliers, such as location, industry and production processes.
- Risk assessment: The tool analyzes data and assigns a risk profile to each supplier.
- Derivation of measures: Audits and improvement plans are initiated for high-risk suppliers.
- Continuous monitoring: Regular updating of data and adjustment of measures in the event of changes.
By using the tool, the purchasing department can effectively fulfil its due diligence obligations, identify risks at an early stage and implement targeted measures to minimize risks.
Evaluation and strategic findings on the Supply Chain Act
✓ Critical success factors
→ Digitalization: Implementation of powerful IT systems for automated risk identification and assessment
→ Supplier integration: establishing transparent communication structures and collaborative partnerships
→ Process integration: anchoring due diligence obligations in existing procurement processes
⚠ Central challenges
→ Data availability: Difficult to obtain reliable information from upstream supply chains
→ Resource expenditure: High personnel and financial expenditure for implementation and monitoring
→ Complexity management: coordination of different stakeholders and different jurisdictions
Future trends and implications:
"The transformation to sustainable supply chains is becoming a strategic competitive advantage"
→ Blockchain-based traceability
→ AI-supported early warning systems for risks
→ Standardized auditing processes
→ Cross-industry collaboration for supplier qualification
◆ Strategic recommendations for action
→ Establishment of a central compliance management system
→ Development of preventive risk management strategies
→ Investment in employee qualification and training programs
Conclusion on supplier evaluation
The Supply Chain Act presents companies with complex challenges, but also offers opportunities for more sustainable business development. Successful implementation depends largely on digital solutions, transparent processes and close cooperation with suppliers. Companies that act proactively and see the legal requirements as a strategic opportunity can not only minimize legal risks, but also strengthen their market position and make a valuable contribution to sustainable global supply chains.
