Technical article
Supply Chain Act: A Statement
The Supply Chain Act takes effect on January 1, 2023
The Supply Chain Act is on everyone’s lips and will be implemented at the national level for companies headquartered in Germany with more than 3,000 employees as of January 1, 2023. Implementation for all companies with more than 1,000 employees will follow one year later. As an industrial nation, Germany is particularly dependent on intermediate goods from other countries. According to the Federal Ministry for Economic Cooperation and Development, this figure stands at 29 percent in the automotive industry alone. In the textile industry, it is as high as 63 percent.
Voluntary initiatives and measures have not been sufficient so far
History has shown that purely voluntary initiatives and measures have not been sufficiently implemented to counter human rights violations. The law is certainly a positive step forward. It represents a mandatory step toward a sustainable supply chain with defined requirements for corporate due diligence. Yet this is where the first challenge already becomes apparent.
We are not referring to “the” supply chain in the Supply Chain Act
Due diligence obligations vary depending on the stage in the supply chain and the nature and scope of business activities. Furthermore, a distinction is made between the company’s ability to influence the perpetrator and the severity of the violation that can typically be expected. Thus, the focus is primarily on direct responsibility. However, it would have made more sense to place this focus on broader social responsibility. Even a company that is not directly responsible for a violation has a social responsibility that it must fulfill.
This highlights another challenge posed by the Supply Chain Act, as the concept of the supply chain in the strict sense is lost. Due to the tiered structure, indirect suppliers are only included on a “case-by-case basis.” At the same time, human rights violations occur particularly in the early stages of the supply chain, such as in the extraction of raw materials.
The absence of liability provisions and substantive weaknesses in the law
Another point of criticism is the lack of, or inadequacy in, liability provisions, which undermine the law’s effectiveness. For example, there are no new civil law provisions that would support the law.
In terms of substance, there are also a few shortcomings, for example regarding environmental protection. Other human rights challenges, such as corruption, are also not addressed in the Supply Chain Act.
Conclusion: The Supply Chain Act presents an opportunity to invest in better supply chains now
According to media reports, however, most companies view the law favorably. They see it as an opportunity to improve supply chains. I see this opportunity as well. The Supply Chain Act is a step in the right direction. It can lead to global supply chains that are sustainably successful.
However, Germany could have used this law to establish itself as an “early mover.” But it lacked the necessary courage to really make a difference. Transparency and comprehensiveness must be the goals for the future. Let’s wait and see what a potential EU-wide regulation brings. Hopefully, the right adjustments will be made to develop and implement a comprehensive law.
All in all, now is the time and the opportunity to make the necessary organizational changes. Position your company for the future by moving toward a sustainable supply chain.
I welcome your feedback, opinions, and comments.
