LKSG - WHAT YOU NEED TO KNOW AS AN SAP CUSTOMER FOR STRESS-FREE IMPLEMENTATION OF THE NEW SUPPLY CHAIN ACT
What is the supply chain act?
The Supply Chain Act (LkSG for short) requires companies to comply with and ensure certain minimum standards within their supply chain. There are very specific measures that must be observed and implemented in order to comply with the law. The aim of the act (LkSG) is to ensure that German - and in future also European - companies no longer work with suppliers who, for example, violate human rights or environmental protection directives.
When does it (LkSG) come into force and to whom does the law apply?
The LkSG comes into force from 01.01. 2023 and applies to companies that employ more than 3,000 people. From 01.01.2024, the law will also apply to companies that employ more than 1,000 employees. However, it should be noted that another law has already been passed by the EU Commission that provides for similar measures for companies with 250 employees or more (as of March 2022).
Article: Supply Chain and Human Rights
What framework do companies need to comply with for the LkSG?
Companies must identify and screen their suppliers, conduct risk analyses and proactively follow up on potential law violations.
Don't worry, you don't have to have analyze all your suppliers in detail by 01.01.2023. The key is to have an overview of potential risks from specific suppliers as of that date.
However, the first report must be provided no later than 4 months after the end of fiscal year 2023, e.g., 04.30.2024.
The law assumes that there is a higher risk probability in certain regions and product groups than in others. And especially there, it is important to conduct an early review. For example, the law says that raw material suppliers from African countries have a higher risk than a service supplier from Benelux. Other high-risk commodity groups include textiles and food. All other companies that are not assigned to these regions or the commodity groups do not have to be directly assigned a specific risk profile.
Article: Supply Chain and Human Rights
Potential due diligence obligations along the supply chain
As a company, you must comply with and proactively address certain due diligence obligations within your direct suppliers. Here, we are talking about human rights violations as well as labor law, occupational health and safety, environmental protection, bribery, corruption, minimum wages and other aspects that must be subject to a certain standard.
To ensure that your suppliers comply with these laws, there are certifications that they can demand. If it is not possible for suppliers to perform these certifications (e.g. due to cost), specific forms need to be filled out to be stored in the database. Auditing bodies in the respective countries can then audit the suppliers on site and confirm the information.
How can companies best comply with your new due diligence requirements?
As a company, you do not have to carry out all these risk analyses yourself, but can outsource them to specialized companies. Based on certain questions and criteria that the supplier must complete, the service provider then analyzes the level of risk. Often, these providers also have databases that you can link to your systems so that you have direct access to these checks and can link them to your suppliers.
LkSG and SAP: What can you do?
We, the apsolut Group, are currently working with SAP to co-design a solution that creates a link between your suppliers and external risk analyses within your SAP system. The aim is to enable you to view your suppliers and their risk analyses, including measures, in a customizable dashboard and to create LkSG-compliant reports directly from them. The release by SAP is currently planned for Q4 2022.
SAP dashboard for your supplier overview.
SAP Ariba SLP and SAP Ariba Risk already cover the LkSG guidelines in parts. There is also a connector here that can be used to pull data from third parties and link it to your suppliers. You do not have SAP Ariba in use, but only use an ECC or S/4 system? If so, SAP's dashboard is for you.
Here we are talking about a cost-effective and fast solution that provides you with a much automated process to really be able to cover all the obligations that the LkSG entails. We connect your existing data, such as commodity groups and supply regions, with the new solution and integrate with risk data providers.
A fixed component here is our partner IntegrityNext. But of course you can also connect other 3rd party providers and use their data.
Special features of the dashboard With this midmarket solution, we connect multiple data views. We connect your existing SAP data world (suppliers, commodity groups, regions, etc.) with an external data view for risk profiles.
You can then derive measures directly from your system and track all communication electronically. Of course, there will also be practical filter functions and a clear dashboard , so that you can evaluate your data in a very concrete way.