Supply Chain Act for SMEs: What do SMEs need to consider?

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Since January 2023, the Supply Chain Due Diligence Act (LkSG) has applied to companies in Germany with 3,000 or more employees. From 2024, it will also be mandatory for companies with 1,000 or more employees to comply with their due diligence obligations along the supply chain. However, not only companies that fall within the scope of the LkSG are affected, but also indirectly affected companies, such as suppliers of any size of the directly affected companies. Indirectly affected companies must therefore also ensure that their own supply chains are free from human rights violations and environmental problems.

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But what does this look like in practice?

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As a supplier to a directly affected company, you are indirectly affected by the LkSG. If, for example, there is a risk of child labor in your production chain, the directly affected company must take measures to remedy this and terminate the business relationship with you as a supplier. In order to be able to maintain your business relationships, you as an indirectly affected company must therefore also ensure that a risk analysis is carried out along your supply chain in order to be able to initiate measures against activities that violate the law.

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Industrial SMEs in particular are faced with a high level of bureaucracy due to supply chain networks and structures. It is important to prepare for the requirements of the LkSG at an early stage, particularly in light of the tightening of EU legislation, which is expected to apply to companies with 250 employees or more.

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Would you like to receive more information?

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Read our white paper to find out what obligations the LkSG and the European directive entail, whether you are affected and how you can use Tacto to easily and intuitively monitor the LkSG within your supply chain and comply with the minimum requirements.

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In addition, the Federal Office of Economics and Export Control (BAFA) has published various handouts, such as on the appropriateness of the LkSG or on risk analysis, which summarizes the main requirements of the law and shows practical implementation options.

Due to the indirect reporting obligation for all companies along the supply chain and the stricter EU directive, SMEs in particular are facing the challenge of preparing for the LkSG coming into force.