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Supply Chain Due Diligence Act compliance is mandatory starting 2023, and we are here to make sure you are ready. 
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The federal government of Germany informs about:
Supply Chain Due Diligence Act

What our customers are saying

"Finally, with relatico we have a compliance database that is affordable and easy to use at the same time. A must-have in times of ever-rising compliance requirements."

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Bernd Neufert

Procurement Manager with Eckes-Granini Group GmbH

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All companies are affected by the Supply Chain Due Diligence Act!

Why?

The big players that are directly affected (see below) started to ask all of their business partners, customers and suppliers alike, for sustainability information.

So if you did not receive this kind of request yet, start preparing now - you will receive them soon.

Directly affected from January 2023

  • If your company has more than 3.000 employees

Directly affected from January 2024

  • If your company has more than 1.000 employees

Supply Chain Due Diligence Act is Coming!

Here is what you need to get ready for 2023

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Document the company's compliance
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Set up a risk management system

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Carry out risk analyses on a regular basis
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Ensure Preventive Measures (own and suppliers)

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Establish Corrective Actions for Legal Violations
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Disclose compliance in an annual report

Supply chain due diligence in the press

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"Ärgerlich ist auch das Lieferkettengesetz, das in den Unternehmen einen Aufwand lostritt, der seinesgleichen sucht."

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"Das Bafa schafft aktuell die inhaltlichen und technischen Voraussetzungen, um ab dem 1. Januar 2023 seinem gesetzlichen Auftrag zur Kontrolle der Einhaltung des Lieferketten-Sorgfaltspflichten-Gesetzes nachkommen zu können."

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Rechtsanwalt Wagner meint: „Unternehmen können diese Aufgaben nicht mehr lange von sich wegschieben.“

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"Denn auch kleinere und mittlere Unternehmen sind als Zulieferer für größere Unternehmen vom Gesetz betroffen. So erwähnt das Lieferkettengesetz ausdrücklich, dass die Unternehmen bei der Auswahl ihrer Zulieferer berücksichtigen sollen, ob davon auszugehen ist, dass diese die menschenrechts- und umweltbezogenen Erwartungen erfüllen werden."

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"Svenja Hahn von der FDP kritisiert, dass das Vorhaben den Unternehmen zu viel Bürokratie auflasten könnte."

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"Für den Experten ist nicht unmittelbar ersichtlich, wie ein mittelständisches Unternehmen in Deutschland tatsächlich dafür Gewähr übernehmen soll, dass beispielsweise in Indien und Afrika faire Arbeits- und Produktionsbedingungen eingehalten werden."

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Over 20,000 companies work with relatico

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Why relatico?

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Collect and manage
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with your stakeholders

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Track file collection
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Use our API to connect
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Contact Sales

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Robert Dittmann
Head of Sales

Tel.: +49 (0) 30 - 555 780 122

M: +49 (0) 151 - 701 468 20

E-Mail: robert.dittmann@ecratum.com

Warschauer Strasse 58A/59A, 10243 Berlin

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Frequently Asked Questions:

Meet our Supply Chain Due Diligence Act Expert:
Christian Alsen

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Christian Alsen
Founder and CEO of relatico

Christian Alsen, married, 2 healthy children, Berliner by choice, hobby gardener and thoroughbred entrepreneur, has been working in the Internet industry since the late 1990s after successfully completing his master's degree. From 1999-2002 he built an offshore software company in Russia. After changing roles in the industry as a product developer as well as in sales and marketing, he realized in the mid-2000s that industrial companies do not digitally map or process their diverse supplier relationships and began in 2006 with ecratum GmbH the topic of web-based supplier management for industrial companies in Germany to introduce.

“In my jobs, I have always had entrepreneurial responsibility. I was always aware of the importance of documentation, but at the same time also the problem of time, manpower, missing software and mountains of paper! I found it exciting to give every entrepreneur the opportunity to concentrate on their business without neglecting the paperwork. It needed a solution…!”

What was initially more of a niche product developed into software that was particularly in demand by global players. relatico was born and quickly grew bigger and bigger.

When politicians in various countries called for laws for supply chains, the relatico team focused on developing software that was specialized in meeting the requirements of upcoming laws. This issue is global, but each country has different requirements. The aim was to build a universal, globally applicable software as a Saas solution in order to be the market leader in this standard in the future. The niche product relatico has arrived in industry and medium-sized companies.

The motivation of the founder, visionary and entrepreneur Christian Alsen was initially mainly driven by technology. With the focus on supply chains, however, Alsen realized how important the supply chain issue is for a sustainable, balanced world. The documentation reveals weaknesses and forces companies to constantly improve the conditions for workers, the environment and the climate, but also for the end consumer. The vision is to create the possibility of absolute transparency for every user of the relatico software and to present it in an online scoring. relatico is the basis for the first, real and verifiable fair trade seal. relatico has a mission and a vision: let's make it better. This motto and internal battle cry was only the claim to "boring" documentation, now it's about more, about everything, about a better world.

This motivation drives Christian Alsen, even after more than 10 years of leadership, to work and fight every day for an ever-improving product.

What is Supply Chain Due Diligence Act?

What is a supply chain law?

The intention of supply chain laws is to provide a legal framework from the buyer's side that encourages purchasing companies to establish standards in the areas of environmental protection and sustainability as well as social rights and human rights by putting pressure on suppliers and upstream suppliers.

Why are Supply Chain Laws important?

Since increased globalization from the mid-1990s, the issues of sustainability and human rights have attracted increasing attention from the press and the general public, NGOs and organizations such as the United Nations and the OECD. Under the keywords CSR (Corporate Social Responsibility = corporate social responsibility) or ESG (Environmental Social [Corporate] Governance = corporate supervision of environmental and social issues), standards have been developed that are to be gradually implemented worldwide.

The content of the laws include the following:
- Child labour, forced labor and slavery should no longer take place
- Reasonable pay and worker organization must be granted to the labor force
- Harmful influences on the environment (pollution, waste of energy, excessive consumption of resources) should be avoided.

Supply chain laws work to reinforce so-called sustainability from the buy-side. The idea is to gradually strengthen and enforce the standards worldwide by increasing pressure on suppliers. Suppliers should be encouraged and guided and encouraged through cooperation to work more sustainably. Suppliers who do not comply with the standards are to be gradually removed from the supply chain.

What is meant by sustainability in the supply chain?

The concept of sustainability positively includes the strengthening of standards and human rights and negatively the avoidance of harmful behavior. Sustainability in the supply chain means not only improving the behavior of one's own company, but also demanding this from suppliers and sub-suppliers.

Why is it important to ensure supply chain sustainability?

The globalization of the past few decades has been characterized by low freight prices and unregulated growth. Various events have put unrestrained global supply chains under stress.

  • Floods in Thailand 2011: computer/ electronics industry
  • Big fire in Dhaka, Bangladesh 2012: textile industry
  • Rana Plaza building collapse in Dhaka, Bangladesh 2013: textile industry
  • Fire in Kunshan, China 2014: metal processing/ automotive
  • Zero production/Logistics delays and shutdowns due to Covid-19 in China and East Asia: All industries
  • Energy and raw material shortages due to the Ukraine/Russia war and sanctions/counter sanctions: All sectors

If you look at the list of events, you can see that

  • the global supply chains also mean globally distributed risks
  • sooner or later the risks of the suppliers automatically become risks for the buyers
  • some of the problems could have been avoided by pressure to comply with sustainability and safety standards

It therefore makes sense for every company not only to deal with its direct suppliers and their classic qualification, evaluation and re-qualification (creditworthiness, capacity, reliability, quality, delivery reliability, etc.) and to identify and manage risks, but also with the pre- and pre-pre-suppliers, the entire supply chain.

Analyzing the sustainability of its own supply chain should therefore be a normal aspect of risk management for every company in its own interest.

What is the German Supply Chain Due Diligence Act?

The new Supply Chain Act or Supply Chain Due Diligence Act (real name “Supply Chain Due Diligence Act”) came into force in June 2021 after years of pressure from human rights organizations.

It states that companies in Germany must examine their suppliers and their sub-suppliers (so-called indirect suppliers) to see whether they are violating human rights, the environment or sustainability. Companies must actively take care of prevention, implement active measures if violations are noticed at suppliers, and document all this and report about it publicly. Regular inspections by state authorities are planned, and complaint systems must also be set up.

Who is affected by the German Supply Chain Act?

From 1.1. In 2023, companies with more than 3,000 employees in Germany must comply with the law, at least show a so-called duty of care during the tests by the Federal Office for Export Control. From January 1st, 2024, companies with more than 1,000 employees will be affected.

What does the law require? (overview)

The law lists a catalog of topics/risks for which all companies should analyze their supply chains:

Violations of the law include:

  • Employment below the respective minimum age
  • Child labor for children under the age of 18
  • Forced labour
  • All forms of slavery
  • Unequal treatment in employment
  • Harmful environmental changes
  • Evictions or expropriations
  • Security forces displaying inhumane behavior
  • Violations of human rights
  • Mercury processing
  • Chemicals according to the Stockholm Agreement
  • Non-environmentally sound waste management
  • Export of hazardous waste

Requirements of the law are:

  • Compliance with occupational safety and health obligations
  • Safety standards when providing and maintaining the workplace, the workplace and the work equipment
  • Protective measures against the effects of chemical, physical or biological substances
  • Measures to prevent excessive physical or mental fatigue
  • Adequate training and instruction of employees
  • Workers must be free to organize or join unions
  • Forming, joining or activity in unions must not result in punishment or retaliation
  • Unions must be allowed to operate freely (right to strike/collective bargaining)
  • Payment of minimum wages

Companies directly affected must set up a risk management system that covers all their own actions and those of their direct and indirect suppliers.

All suppliers in all supply chains should be required to comply with these rules by contract and by means of tests and controls.

What exactly does the law require?
Observe due diligence

Companies must adequately observe human rights and environmental due diligence in their supply chain.

The law specifically names these obligations in Section §3:

  • Establishment of a risk management system
  • Determination of an internal responsibility
  • Carrying out regular risk analyses
  • Submission of a policy statement
  • Anchoring preventive measures in your own business area as well as towards direct suppliers
  • Taking remedial action
  • Establishment of a complaints procedure
  • Implementation of due diligence obligations towards indirect suppliers
  • Documentation and reporting

Implementation of risk management

Risk management in purchasing does not exist in many companies. Risk management in procurement means listing the various possible risks and then rating the suppliers according to the likelihood of the risk occurring and the severity of the event.

This department is required to:

  • subject direct suppliers and their own business areas to a regular risk analysis (§5 of the LKSG)
  • examine indirect suppliers for risks on a case-by-case basis

Determination of internal responsibility

This means that specific people or departments within the company are given responsibility for complying with and monitoring due diligence requirements. This can e.g. the appointment of a sustainability or human rights officer.

Regular risk analysis

First of all, the company's own business area and its immediate suppliers must be analyzed regularly (Section §5 of the law). Indirect suppliers are to be analyzed on a case-by-case basis. In the event of changes in business activity, all areas must be analyzed.

Cause-related means: Just the fact that a supplier is in a country that, for example. according to the assessment of the World Bank, has a high risk profile in the area of human rights, must lead to the supplier being examined more closely. To do this, you need to understand your own supply chain.

Submission of a policy statement

It is imperative to make your company's stance clear and visible when it comes to ensuring that it is visible to stakeholders, showing that you are taking action toward a sustainable supply chain.

This statement needs to be public and visible on your annual report.

Anchoring preventive measures

Measures are to be defined and their execution controlled to reduce the risks for the suppliers. Measures can e.g. be: Supplier training, contractual self-commitments on sustainability issues or documented controls of the sustainability and human rights situation by independent bodies.

In addition, suppliers must ensure that they query, document and ensure the required standards in their own supply chains.

Taking remedial actions

Measures should also be agreed and implemented if specific problems are identified at suppliers through their own activities or if the company becomes aware of them in some other way (e.g. press or Internet monitoring). The law does not require you to stop doing business with such suppliers immediately.

Establishment of a complaints procedure

The company must ensure that those affected or organizations about violations of the law can complain to the company. Contact persons and procedures must be set up for this. A direct right of action for those affected is not initially planned, but will probably be introduced in the next few years via EU supply chain laws. The idea is that similar to whistleblower systems, breaches of sustainability can be reported to the company.

Implementation of due diligence obligations towards indirect suppliers

The law speaks here of establishing “due diligence processes” in relation to risks at indirect suppliers (with whom they have no direct contractual relationship) when they receive “substantive knowledge” that human rights are being violated or environmental damage is being caused. This means that if such information is made known directly, e.g. via complaints procedures, but also reported via the press or neutral organizations, the company must take care of it.

Documentation and reporting

The companies affected by the supply chain law must submit an annual report to the Federal Office for Export Control (BAFA), www.bafa.de, which documents the activities in relation to the law.

The liability regulation of the German Supply Chain Act

The companies affected by the law are not liable for violations by their suppliers. However, employees abroad can, for example, sue for damages in German courts if they see their rights violated by a German company. The law of the country where the damage occurred will then normally apply.
One innovation in the Supply Chain Due Diligence Act is that those affected can commission German trade unions and non-governmental organizations (NGOs) to take action for damages. Certain standards are applied to such organizations so that no commercial warning associations are created. However, the risk of such lawsuits is very high because of the extent of the preparations and readiness of the NGO

What do small and medium-sized companies have to do?

The law deliberately aims to put pressure on all companies to comply with the catalog of regulations. So big companies are already approaching all of their business partners and asking for information on the above list.

To ensure that business relationships are not jeopardized, it is important to have this information readily available.

Therefore, all companies should start now to deal with the structure of their own supply chain and to systematically collect, store and update sustainability information.

Where can I find more information?

Website of the Federal Office for Export Control under the menu item "Supply chains"

Website of the Federal Ministry for the Environment

Page “CSR in Germany”

How should I implement the Supply Chain Act in practice?

Step 1:

First, look at your direct suppliers, i.e. all the companies that invoice you. Make a list. This is the so-called Tier-1 (= the first layer of your company's supply chain

Use suppliers from all areas, i.e. regardless of whether they are production-critical or C-parts suppliers.

Prioritize:
Sort the suppliers according to their annual turnover. Start from the top down.
Find out whether you already have sustainability information for suppliers in-house.
Environmental certifications like EMAS or ISO 14001, sustainability programs like SEDEX, ecoVadis, GlobalGap etc are a good start.

Suppliers with certifications pose a lower risk from a risk management perspective than those without.

Step 2:

Now look at the suppliers from whom you have no certifications or evidence of sustainability. How important are these suppliers? Can they be exchanged at all? Talk to key suppliers to see if they are willing to make (verifiable) commitments. There may also be ongoing preparations.
Record the information you receive in the risk column of your list.


Step 3:

You can first subject suppliers without sustainability information to a rough risk assessment in a simple step by noting the country in which the supplier is located in your list. Now put the country risk next to it. The World Bank provides risk figures for this.

You have now created a rough risk assessment for all your direct suppliers (Tier 1).


Step 4:

Next, for key, non-interchangeable suppliers, supplement the information you have with email or online forms or documentation.

Check your supplier self-assessment for completeness. Do questions need to be added? Is it worth asking about sustainability separately?


Step 5:

Determine the upstream suppliers of your Tier 1 suppliers and carry out steps 1-4 again. Here you should group according to material groups in order to avoid duplicate data management.

Step 6:

Take a look at which recommended measures for which areas of the supply chain law are suitable for suppliers who cannot provide certification:

  • Help with certification
  • Contracts/contract adjustments
  • Knowledge building/ training
  • Commitments
  • on-site audits
  • deeper cooperation
  • phasing out of the collaboration

Document these preventive measures and monitor their implementation.

Why is the supply chain law more than just a “compliance issue”?

If you compare the topic "Implementation of the Supply Chain Act" with other so-called compliance topics such as the Money Laundering Act or the implementation of the General Data Protection Regulation, the Supply Chain Act has a practical benefit for you and your company:

In our experience, 95% of all companies in Germany are not sufficiently digitized in the areas of purchasing, quality management and supplier management. Data is not available or is being processed manually/on demand.

There has been little investment in these areas of business over the past few decades. The implementation of the supply chain law therefore offers an opportunity to make the work of these departments more efficient.

The supply chain act and digitization of data in purchasing

Cooperation, both internally and within the team, as well as with the suppliers, mostly takes place via email. Important data is not accessible (cannot be found), not up-to-date and incomplete. Even today, many industries still work with paper, folders on the shelf and fax. At relatico, we take the supply chain law as an opportunity to get companies in shape when digitizing their documentation and purchasing processes.

What distinguishes the relatico approach from that of other providers?

Some software providers have dealt with the implementation of the supply chain law. In principle, the implementation of the German supply chain law with the steps described above can of course be implemented in a number of software platforms and tools.

The key points are:

  • Setting up a risk management system or carrying out a risk analysis on the extended supply chains of your own company (including upstream suppliers)
  • the implementation of measures
  • the documentation of what was found out about the risks at each supplier.

The challenge with every approach is to collect a large number of documents and information so that there is a basis for the risk assessment at all.

  • Tier 1 suppliers can be found in merchandise management, but no sustainability information. Merchandise management cannot even determine the pre-suppliers. For the systematic compilation of sustainability information (documents, online questionnaires, notes, e-mails) as a basis for the risk analysis, merchandise management systems are only suitable after extensive. lengthy and expensive adjustments. Compared to specialized software, user-friendliness will always lag behind.

  • Office tools such as Excel and Sharepoint can basically be used for any purpose, but are no longer efficient and very error-prone with larger amounts of data. From the experience of our customers who initially tried this, we know that analyzing 100 Tier 1 suppliers in one area of ​​the company quickly turned into 700-1,000 participants in the supply chain and office tools stopped working.

  • Software/databases for risk analysis and risk assessment are exactly suitable for this, but they need data as a basis - and this is exactly where the problem lies: These bases have to be laboriously determined and fed outside of the databases. This is where the real effort is. Carrying out the risk analyzes on the basis of clean data is then relatively easy. This point is usually underestimated when purchasing such software and afterwards it is often found that one should have bought it a few years too early or not at all.

  • Supply chain risk software provides quick results in the form of scores, reports and graphs. There are two problems here: 1. Which suppliers are part of my supply chains and need to be analyzed must be determined externally. 2. These tools mostly don't provide a way to access the underlying data on which the ratings are based. However, the supply chain law wants to make precisely these basics visible. So the users quickly get to the point that additional tools have to be used in addition to the software.

  • Some QM software contains modules or parts for risk assessment. QM software is usually only used by a few users in the company and is not designed for information procurement and systematization. Since this is where most of the work lies, QM software is not suitable for covering the supply chain law.

In summary:

  • The basic data from the suppliers for the risk analysis must be compiled for each approach.
  • This homework must always be done. This is where the real workload lies. Here, the data of each supplier must be collected.
  • The use of risk management software without doing your homework will not meet the requirements of the supply chain law in the long term.

relatico also has offers for:

  • companies not directly affected (less than 1,000 employees) a toolbox for determining sustainability information with optimal support for procurement and evaluation, so that customer inquiries can be answered quickly and easily,
  • directly affected companies (over 1,000/ 3,000 employees) additionally the profiling of all companies in their own supply chains as well as the visual depiction with various evaluation options and the risk analysis based on this plus a depiction of the preventive and remedial measures, reporting and documentation obligations and complaint management, an easy-to-use, sustainable solution for supply chain law coverage in one platform at affordable prices.

    In addition, relatico can be used for many other tasks in supplier management and documentation.
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