The German Federal Government wants to make the EU-wide introduction of a supply chain law a priority of its EU Council Presidency from summer 2020. But what does the Supply Chain Act stand for? Many German and European companies have a lot of catching up to do when it comes to providing consistent proof of compliance with human rights in their international procurement and supply chain networks. This is the conclusion of a study by the international human rights organization Business & Human Rights Resource Centre and the Zurich University of Applied Sciences (ZHAW School of Management and Law).

Mandatory transparency through the supply chain law at EU level will come

For years now, Germany has been discussing a law on the consistent observance of human rights at every station of global supply chains. Now, with the approval of the EU Commission, it is also to be introduced at EU level in the short term. The aim is for companies to be legally obliged to comply with human rights and environmental standards within their international supply chain. In particular, the prevention of child labor, which unfortunately is still far too often part of global supply chains, would be greatly strengthened by this. Furthermore, there are additional efforts to hold them liable for such damages in the context that could have been avoided with reasonable care.

A look abroad shows that in many countries (including the USA, France, Great Britain and the Netherlands) there are already laws in place regarding the observance of transparent supply chains and thus against child labor, modern slavery and for the respect of human rights. The probability is therefore high that a legal framework will also be created in Germany and throughout the EU.

Supply Chain Act – Legal requirements as a competitive advantage

In the past, industry and employer associations feared – depending on the structure of the legal requirements – considerable losses in competitiveness, exorbitant effort and thus enormous costs. In the meantime, however, there is a growing number of voices from this corner who are positively disposed towards an introduction if it is uniformly designed in the EU.

In our view, this topic, if approached proactively, will rather present a great opportunity for companies that already act responsibly and are methodically well positioned in procurement and the supply chain. A legal obligation would give a further competitive advantage over unfairly operating companies. All market participants would then be legally obliged to comply with human rights and environmental standards, not only in Germany but also in the international context and especially in their purchasing behavior, and to maintain appropriate documentation.

In times of intense debate and growing sensitivity to social responsibility, companies that already have a proven commitment to human rights and the environment in their purchasing behavior can also derive additional economic benefits. It may be easier for them to attract investors, to be included in so-called „fair funds“ or to recruit qualified employees who consciously choose an employer with whose set of values they can identify themselves. Above all, such a commitment also ensures greater confidence on the consumer side.

Modern procurement and supply chain managers have the necessary methodology on board – in various toolboxes

For modern procurement and supply chain managers, the topic is not really new. Already today, they have to deal with existing requirements imposed by international compliance standards and regulations, such as international anti-corruption laws, anti-money laundering guidelines, anti-terrorism laws or regulations on conflict minerals or the reliability and accuracy of published financial data. So here there is already an existing toolbox – or several different toolboxes within the framework of supplier management.

Prevention through integrated, qualified supplier management

It is necessary to consolidate these toolboxes, to transfer them systematically and above all in a targeted manner into qualified supplier management routines (guidelines, competencies, survey methods, due diligence procedures, contracts, correction mechanisms, etc.).

In order to avoid the feared additional work and high process costs, a number of service and solution providers can be found who, with smart solutions, are able to reduce the management effort and document the procedure in an audit-proof and transparent manner.

Are your toolboxes sorted?

As ADCONIA, we advise our customers with the experience of more than 300 projects from more than 25 years – in questions concerning the supply chain and the digitalization of processes. Our goal is always to increase the contribution to earnings made by procurement through cost reduction, process automation or the qualification of the procurement team. An early implementation of the upcoming changes by a supply chain law can drastically reduce costs and efforts. At the same time, the competitive advantage is increasing over those who will only deal with this issue in a forced manner „under legal pressure“.

We would also be happy to advise you on the development, implementation and digitalization of the management process for the transparency of your supply chains.

 

Gregor van Ackeren

General Manager, ADCONIA GmbH

Tim Rohweder

Partner, ADCONIA GmbH