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The German Supply Chain Due Diligence Act was passed by the German Federal Government to regulate human and labor rights violations in supply chains. As per the German Supply Chain Law, beginning on January 1, 2023, companies in Germany with 3000 or more workers will have to perform substantial supply chain due diligence by incorporating supplier risk management and compliance mechanisms within their supply chains. From January 1, 2024, businesses with over 1000 employees will also come under the scope of the Supply Chain Act, Germany.
MeRLIN's LkSG solution enables you to implement sustainable sourcing practices across the supplier ecosystem and perform the due diligence required to comply with the German Supply Chain Act. Its comprehensive features allow businesses to meet the obligations of the Act easily.
Maintain risk register to consolidate risks associated with suppliers, track and monitor them
Issue policy statements with supplier invites or publish them in supplier portal and mandate its acceptance for onboarding
Request information from supplier regarding compliance to the law using configurable surveys or questionnaires that can be associated with sourcing
Facilitate audits to supplier sites by a designated person/compliance officer who can answer to audit questions and add observations in the system
Any internal or external party can report human rights violations by anyone in the ecosystem
Analyse and track noncompliance and risk exposure using intuitive dashboards and generate reports on due diligence activities
German Supply Chain Act (Lieferkettensorgfaltspflichtengesetz) – What it Means to SCM & Procurement Professionals
According to the German Supply Chain Due Diligence Act Lieferkettensorgfaltspflichtengesetz (also called LkSG or Lieferkettengesetz), the following firms are subject to the law:
The LkSG (lieferkettensorgfaltspflichtengesetz) not just applies only to German companies, certain foreign companies are also subject to the LkSG, provided that they have a branch office in Germany and employ over 3,000 individuals in the country. Operating and distributing products in Germany alone does not fall under the Act. Although the Act doesn’t offer a specific definition of a branch office, it generally refers to a legally and financially separate business location from the parent company, with a designated area of responsibility, and intended to operate for a significant period. Starting in 2024, the employee threshold will be lowered to 1,000.
Companies that are legally required to adopt LkSG compliance with the law may face financial or trade limitations as a result of noncompliance. The supply chain act Germany presently states that the following consequences may occur:
The Germany Supply Chain Act specifically outlaws the following human rights breaches:
The German supply chain due diligence act lieferkettengesetz prohibits several environmental risks such as:
According to the German Supply Chain Act – LkSG, companies must carry out human rights and environmental due diligence in their supply chains to prevent, reduce, and resolve any risks or actual negative consequences discovered. Risks that businesses must consider include:
MeRLIN’s supply chain due diligence act solution allows you to integrate responsible sourcing practices across the supplier ecosystem to comply with the German supply chain act. It includes extensive capabilities such as making policy statements, conducting supplier surveys, keeping a risk registry, supporting in-person audits, bespoke reports for LkSG compliance, and more, making it simple for enterprises to fulfil the act’s responsibilities.
To know more about how MeRLIN LkSG Solution can help you ensure compliance with the German Supply Chain Act, download factsheet.