Navigating the LKSG Act: A Guide for Small and Medium Enterprises

Written by: 
Bernd Neufert

Expert in strategic procurement

March 20, 2024
5 min Read

In an era where sustainability and ethical practices are not just buzzwords but mandates, the legislative landscape governing supply chains is undergoing significant transformation. Germany's Supply Chain Act (Lieferkettengesetz, LkSG) is a testament to this change, designed to hold companies accountable for the human rights and environmental standards within their supply chains. While directly targeting large enterprises, its ripple effects are felt across businesses of all sizes, necessitating a proactive approach from every player in the supply chain.

The Ripple Effect of Compliance

The legislative intent behind the Supply Chain Act is clear: to ensure that all actors within a supply chain adhere to stringent information obligations. This inclusivity implies that companies not directly subjected to the Act must still engage in activities akin to those mandated for larger corporations. As major companies commence inquiries into their suppliers’ risk profiles and those of their suppliers, even smaller enterprises will find themselves entwined in this compliance web. If such inquiries have not yet reached your doorstep, anticipate them by 2024, with increasing vigor.

The underlying message is unambiguous: without the cooperation of every supplier, companies directly affected cannot fulfill their obligations under the Supply Chain Act. This realization underscores the importance for mid-sized companies to prepare, enabling them to respond effectively to customer inquiries. Furthermore, companies well-prepared for the German Supply Chain Act will find themselves at a competitive advantage, especially with looming European regulations and the beneficial overlap with the Corporate Sustainability Reporting Directive (CSRD).

Beyond Compliance: Creating Value

The approach to the Supply Chain Act should transcend compliance. At, we believe in leveraging the Act as an opportunity to optimize supplier and raw material management alongside transparent risk management. This mindset not only meets legal obligations but also adds value, particularly in procurement and quality management.

Legislative Landscape: Opportunities for SMEs

The Supply Chain Act, along with the Corporate Sustainability Due Diligence Directive (CSDDD), the European Union Deforestation Regulation (EUDR), and the Corporate Sustainable Reporting Directive (CSRD), are hot topics in current discourse. These regulations focus on human rights and environmental standards, essential for the economic success and ethical integrity of market participants. The enactment of these regulations by the EU and the German government is a response to previous neglect of these principles, introducing a collective responsibility that can transform into significant competitive advantages for proactive organizations.

Misconceptions and Challenges

There's a prevalent belief that these laws are so vaguely formulated that interpreting their exact requirements is challenging. This complexity is intentional, allowing the regulations to integrate seamlessly into diverse corporate strategies without imposing rigid frameworks that hinder practical implementation. This perceived ambiguity should be viewed as an opportunity, not a hindrance.

It's critical to understand that compliance with these laws is not a one-time achievement but a continuous process. The CSRD, for instance, mandates reporting without specifying the exact content, relying on companies to identify material topics through a double materiality analysis. The approach recommended by relatico involves refining the supplier base to focus on high-risk contacts, necessitating targeted actions and risk management plans in collaboration with suppliers.

Lessons from the Field

Recent reports highlight the repercussions of non-compliance, illustrating the potential for significant reputational and financial damage. Examples include Oxfam's accusations against Rewe for exploitation in banana cultivation and allegations against BMW's cobalt suppliers in Morocco. These cases emphasize the importance of comprehensive compliance across the supply chain, with smaller suppliers also bearing responsibility.

The Verdict: Sustainability as the New Profitability

In conclusion, sustainability and the management of sustainable supply chains are imperative for business longevity. Resource efficiency, a core aspect of sustainability, equates to cost savings. Successful procurement requires in-depth knowledge of suppliers and their supply chains, achieved through strategic supplier management and the utilization of advanced data models and business intelligence tools.

The message is clear: embracing sustainability and compliance with the Supply Chain Act is not just about avoiding penalties but seizing the opportunity to innovate, improve operational efficiency, and secure a competitive edge in an increasingly conscientious market.


Navigating the Supply Chain Act (LkSG) and related European directives offers SMEs a unique opportunity to improve sustainability, operational efficiency, and gain a competitive edge. Proactivity and strategic management are key to turning compliance challenges into opportunities.

About offers practical, value-driven solutions to help businesses navigate the complexities of the LkSG and enhance their sustainability practices. With a focus on documentation automation, audit readiness, and supplier reliability, empowers companies to efficiently manage compliance and digitalize procurement, quality, and regulatory processes. As your strategic partner, ensures your business stays ahead in the ever-evolving market landscape, turning compliance into a competitive advantage.

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Bernd Neufert
Expert in strategic procurement
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Bernd Neufert
Expert in strategic procurement

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Bernd possesses extensive experience in strategic procurement, shaped by his tenure at Eckes-Granini, Symrise and DuPont de Nemours. Currently, he is focused on sustainable sourcing and supply chains, collaborating with the relatico team to develop practical software solutions. Additionally, Bernd runs his own agricultural business and is involved in supply chain projects globally.

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