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The new supply chain due diligence law has been in force in Germany since January 1. For companies, this means even more documentation and complex compliance.
E-3 Magazine
May 17, 2023
This text has been automatically translated from German to English.

New supply chain law: How a DMS helps with compliance

Since the beginning of this year, the new supply chain due diligence law has been in force in Germany for companies with more than 3000 employees. From the beginning of 2024, it will also become mandatory for companies with more than 1000 employees. Companies must now comply with a comprehensive catalog of prohibitions, including forced labor, child labor, and disregard for health protection.

The important innovation here is that companies are not only responsible for their own plants or subsidiaries, but for their entire supply chain. The corporate duty of care therefore also extends to the activities of contractual partners and suppliers. The law provides for comprehensive documentation and record-keeping obligations, which can result in severe penalties if violated. Up to eight million euros or two percent of global annual sales can be imposed.

Fast and central

Enormous amounts of data can be generated in large companies. Nevertheless, those responsible need fast and central access to all relevant information. Document management systems help them to ensure all of this. The supply chain structure as well as any violations of specifications and measures must be documented continuously and completely. Accumulating documents should ensure the transparency of production processes as well as supplier relationships and must be kept for seven years. Without appropriate solutions that lend structure to digital filing, chaos can quickly ensue. In order to get a grip on the resulting complexity, companies should rely on a document management system that archives the documents relevant to the Supply Chain Act in digital supplier files in a transparent and quickly accessible manner and thus ensures the required location-independent retention obligation.

By switching to the contract management system, supplier contracts can be retrieved quickly and practically, processed together and deadlines met automatically. These contract documents play an important role in ensuring transparency in production processes. Digital management of these documents ensures that they can be accessed from anywhere, deadlines are always kept in view, and contracts can be more easily amended and even collaboratively edited as needed. 

Supplier contracts

The law also requires potential risks to be recorded in supplier contracts in order to be able to make statements about the probability of adjustments within a supply chain. This can be implemented, for example, via lists within the supplier contract, where certain risks, for example for the environment or human rights violations, are recorded and their severity quantified. A modern contract management system is also an enormous help for the administration and adaptation of such complex documents. 

Companies must also set up complaints procedures as part of the Supply Chain Act. These are aimed both at those directly affected and at employees in the company who have knowledge of violations. Companies are therefore faced with the challenge of establishing a system to which all stakeholders along the supply chain have access. To this end, those responsible should first seek an exchange with employees and suppliers in order to analyze the individual circumstances. Then, all complaints must be recorded and transparently documented for reporting purposes. Measures must also be described as to how violations in the supply chain can be prevented in the future. At this point at the latest, digital solutions should be used to facilitate the management of input.

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