%201.svg){kind=small}
Latest posts
Download resources
Supply Chain Act: definition & important aspects for buyers
.jpeg)
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
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 supplier management 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.
Supply Chain Act: From reactive compliance to proactive risk management
The Supply Chain Act calls on companies to assume their responsibility along the entire supply chain and to take active measures to comply with human rights and environmental standards. Based on the legal requirements from the law on corporate due diligence in supply chains, there is a practical need to rethink traditional approaches and implement modern strategies. The transformation from reactive to proactive measures is essential to meet the new legal requirements and ensure sustainable business relationships.
Old: Reactive compliance strategies
Traditional approach: In the past, many companies viewed compliance as a compulsory exercise that was mainly aimed at meeting minimum legal requirements. The focus was often on the direct supply chain, without considering lower levels or sub-suppliers. Tools such as sporadic supplier auditsand simple contract clauses were used to ensure basic standards. However, these reactive approaches often led to insufficient transparency and increased risk management, which were only discovered after the fact. Challenges such as a lack of control over working conditions or environmental practices at sub-suppliers remained largely unaddressed, which could lead to reputational damage and legal consequences.
New: Proactive supply chain due diligence
Supply chain due diligence: With the modern approach of proactive risk management, companies rely on comprehensive strategies to comply with due diligence obligations. By implementing advanced technologies such as digital risk management platforms, supply chains are monitored transparently and consistently. Companies carry out detailed risk analysesthat include human rights and environmental factors and establish continuous monitoring processes. Supplier development is strengthened through training and capacity building to achieve common standards. Practical benefits of this approach include reducing compliance risks, improving supplier relationships and increasing competitiveness through sustainable business practices.
Practical example: Implementation at an automotive supplier
A medium-sized automotive supplier has introduced a comprehensive supply chain due diligence program in response to the Supply Chain Act. Using specialized software, all 250 suppliers were evaluated with regard to human rights and environmental risks. Within a year, 95% of suppliers were classified into risk categories and appropriate preventive measures were introduced. Targeted training and development programs improved the compliance rate among suppliers by 30%. In addition, the number of high-risk suppliers was reduced by 50%, which led to a significant minimization of potential liability risks.
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.
