Industry Insights

German Supply Chain Due Diligence Act

Why it is crucial to monitor both direct and indirect supply chains

German Supply Chain Due Diligence Act (Lieferkettengesetz) 2023 and EU Supply Chain Directive 2024

Germany is more intensively integrated into international supply chains than any other industrial nation. Therefore, German companies also bear the responsibility, within their global supply chain operations, for ensuring rights are respected and due diligence obligations are met. They must endeavour to prevent, address, minimise and end any violations.
Some of the main violations relate to:
In May 2024, EU countries adopted the European Supply Chain Directive, which is expected to be incorporated in all member states over the next few years. With this new law, member state obligations will expand to include the so-called value chain (upstream and downstream business relationships).

Who does the German Supply Chain Act apply to?

The act applies to all businesses with their central administration, principal place of business, administrative headquarters, statutory seat or branch office located in Germany. From January 1, 2024, the act extended to all companies in Germany with at least 1,000 employees.
The act also applies to companies importing goods for sale or use in Germany, regardless of where the companies are based.

What do companies have to do to comply with the Supply Chain Act?

Companies must meet their obligations in relation to their field of business and their suppliers.
Most companies are able to efficiently monitor their direct suppliers with a reasonable amount of effort, especially if those suppliers are based in the EU and therefore operate within the same legal framework. On the other hand, monitoring indirect suppliers in Southeast Asia, South America or Africa is much more difficult to accomplish.
These sectors are particularly dependent on services from other non-European countries:
Textile and fashion industry
Electronics industry
Chemical industry
Pharmaceutical industry
Food industry
Mechanical engineering
Automotive industry

Brands take action to ensure that their suppliers are in compliance

A company can only be liable for a violation if the company, itself, contributed to that violation, and if the violation could have been foreseen and avoided through reasonable care. Companies are therefore obliged to analyse and evaluate their supply chain according to identified risk areas, on an ad-hoc basis, or at least once per year.
ApiraSol can assist brands in fulfilling due diligence obligations more effectively:
ApiraSol can help brands by risk ranking of current highest priority suppliers using risk analysis and supply chain intelligence.
Brands can monitor suppliers with ApiraSol on an ongoing basis. This includes ensuring suppliers continue to comply with the law, and do not engage in practices that could jeopardise compliance. One of the easiest ways to stay on top of an identified risk is through constant news monitoring and open source investigations (OSINT), in order to flag potential issues with a supplier or partner.
Companies worldwide rely on external vendors or other third parties to provide goods, materials and services, as well as to manufacture and distribute their (sub-)products. ApiraSol can monitor and conduct risk assessments for these suppliers.
Sometimes brands are not sure if their distributors are purchasing from, or selling to non-compliant companies outside of an authorised supply chain. ApiraSol can detect such illicit supply chains.
The purchasing departments of brands, in particular, are faced with the challenge of having to regularly check new company partners. ApiraSol can support brands with these checks.
The acquisition of companies implies the acquisition and monitoring of new supply chains. ApiraSol provides brands with supply chain intelligence on third-party companies to be acquired, mapping their supply chain to identify potential risks.
For more information on the Supply Chain Act, from the German Bundesamt für Wirtschaft und Ausfuhrkontrolle (Federal Office for Economic Affairs and Export Control), click here.
Disclaimer: ApiraSol does not provide any legal services or legal advice.
The information presented in this article is only meant to discuss the need structured risk-analysis programs. The laws and regulations mentioned here may have changed since the moment this article is published. Consult your lawyer or the Bundesamt für Wirtschaft und Ausfuhrkontrolle to form an opinion about these laws.

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