‘Earthquake’ supply chain law hits suppliers to Germany

Supply Chain Management

Companies that supply large German businesses are being questioned about their own supply chains in greater detail than ever after a new law took effect on January 1.

The law requires German businesses with more than 3,000 employees to assess their supply chains for environmental, social or governance issues and then address them, or face fines of up to 2 percent of their global turnover and exclusion from public contracts for up to three years. From next January, smaller German companies will also be included in the requirements.

The law is broader than the UK’s 2015 modern slavery legislation, and it covers seven other areas, including union rights and environmental degradation. It also requires British suppliers to German companies to prove their own suppliers are compliant, said Thibault Lecat, UK managing director of supply chain specialist Inverto, which is part of the Boston Consulting Group. He said questions would include: “Do they employ minors? How do they dispose of waste?”

Lecat described the reporting requirements as an “earthquake” for smaller UK suppliers, many of which were not set up to provide such detailed information. While German companies would want to help their suppliers to comply, he added, in the long term they would take their business elsewhere.

The Times Enterprise Network has seen a number of questions sent to UK automotive, healthcare and logistics suppliers under the scheme. They include:

“Are you aware of conditions within your supply chain?”
“Do you employ workers who have migrated from another country?”
“Have there been any human rights violations in your company in the last 3 years (internally or within your supply chains)?”
“Have there been any negative impacts such as publications, demonstrations or accusations by non-governmental organisations, affecting your company’s reputation in relation to environmental and social issues in the last 12 months?”

“Answering these questions can be very hard. Not answering them could mean losing the business altogether,” Lecat said.

He advised companies to work closely with their customers on compliance to show that they were onside, and update their contracts and codes of conduct with their own suppliers to reflect what is now expected. They also need to invest in software that collects, analyses and reports the information and to visit suppliers to check that they are doing what they are saying.

A draft EU directive expected to become law in the next few years will extend similar supply chain reporting to all companies operating in the EU with more than 500 staff.

The piece was first published by Richard Tyler here: https://www.thetimes.co.uk/article/earthquake-supply-chain-law-hits-suppliers-to-germany-w597tnjgc