Optimizing supply chains
How can companies be supported with digital contract management in the implementation of legal requirements, such as those provided for in the “Supply Chain Act”?
From 2023, the “Corporate Supply Chain Due Diligence Law” or “Supply Chain Law” (LkSG) will apply in Germany. There is already a proposal for a directive at EU level. Both oblige large companies and their suppliers to comply with environmental protection and human rights standards throughout the value chain. Robin Schmeisser, Managing Director of Fabasoft International Services GmbH, explains the levels at which smart contract management software such as Fabasoft Contracts supports the implementation of legal requirements and why Austrian companies also need to start preparing.
Germany already passed the Supply Chain Due Diligence Act in June 2021, which will come into effect in 2023. However, the EU directive introduced in February 2022 is much stricter. What are the main differences?
In essence, the German LkSG and the proposed EU directive are the same: throughout supply and value chains and, of course, in their own business operations, the companies involved are required to demonstrably comply with human rights and due diligence. environment on an ongoing basis. The significant differences between the EU bill and the LkSG are, for example, in the wider group of companies to which the regulation applies. Furthermore – and this is notable – the responsibility clearly formulated in a more concrete way of the management of the company, which must be taken into account in the provisions on non-compliance with national law.
Following approval and acceptance of the EU Supply Chain Directive by member states, there is a two-year implementation period in national legislation. Why should Austrian companies start preparing now?
There are two reasons to deal directly with the requirements of supply chain law: First, it is every company’s responsibility to comply with human rights and environmental protection standards. No customer wants to purchase goods whose manufacturing process does not meet these standards. Secondly, Austrian suppliers to German companies are already affected by the LkSG when it comes into effect on 1 January 2023, i.e. long before the EU directive takes effect as national law in member states.
What steps can companies take immediately to ensure a smooth implementation?
Development is similar to GDPR. The closer the deadline approaches, the more intense the efforts. With regard to identifying risks in supply chains, some companies have already completed their tasks. The focus is now shifting to the design and implementation of the necessary measures. Automation plays an important role in this context, as we are mainly talking about annual recurring activities that must be applied to a large number of suppliers.
What are the specific tasks?
The first step is to draw up complementary contractual agreements and enter into them with suppliers. Smart, digital contract management significantly reduces effort due to the high degree of automation and efficient cooperation between internal and external actors. Owners automatically create contracts with contract templates and a library of digital clauses. After internal approval, these agreements are sent directly to the supplier across company boundaries through pre-defined verification and approval processes. Not only does this eliminate error-prone and insecure system crashes, but all activity – including the integrated digital signature – always remains traceable.
What happens after these one-time tasks? What requirements does the LkSG define for binding due diligence?
The German supply chain law and the EU directive stipulate that compliance with standards must be checked regularly and the results and measures taken must be documented in case of anomalies. To be audit-ready by external auditors, you need an intelligent contract management tool that archives confidential data and processes in an audit-proof manner. It is equally important that appointments stored in the digital file are linked to the calendar of the people involved and that they receive automated reminders.
With Fabasoft Contracts you offer a product for managing digital contracts. How does this contribute to the achievement of LkSG requirements?
Fabasoft Contracts, our standard cloud-based product for all industries, provides the right answers for implementation at all levels mentioned above and is ideal for flexible working on mobile devices. The clear processing of suppliers according to risk parameters, the rapid integration of new partners – including those from outside the company – into the processes and the secure and system-free exchange of documents are particularly useful. Fully automated creation of agreements, ie concrete contractual texts, and documentation of measures that can be traced at any time also significantly contribute to the successful and resource-saving implementation of legal due diligence obligations.
How long does it take for your teams to implement the software?
The existing contract file is digitized within a few days. Our software works intuitively. We also support customers during their introduction with targeted training (Note: Fabasoft Academy) so they can build contract templates and test and release workflows just as easily and quickly.Robin Schmeisser, Managing Director of Fabasoft International Services GmbH (c) NIK_FLEISCHMANN
“Our standard cloud-based product Fabasoft Contracts is ideal for flexible working on mobile devices. Fully automated creation of agreements and understandable documentation of measures significantly contribute to the successful and resource-saving implementation of statutory due diligence obligations.”