Supply Chain Risk Management

What are global supply chains? 

To put it simply, the supply chain describes the entire path of a product or service from the raw material through processing to the end customer. Viewed globally, they describe the economic interdependence of the transnational organization of goods and services. A T-shirt, for example, travels around 18,000 kilometers around the world before it ends up in our shop. Over 450 people are employed in the associated global supply chain. Strictly speaking, however, this is not a chain but rather a network of organizations involved in the value creation process.

The problem with global supply chains: they often involve serious shortcomings. Time and again, people involved in value creation are exposed to human rights violations such as child labor, slavery, and forced labor as well as exploitation, discrimination, lack of labor rights, and environmental destruction. Such violations exacerbate the already often precarious human rights situation in the respective production countries.

• These sectors are particularly dependent on services from other countries:
• Textile and fashion industry
• Electronics industry
• Chemical and pharmaceutical industry
• Food industry
• Automotive industry
• Mechanical engineering 

Supply chain legislation 

There are a long list of national and international laws and guidelines that deal with more firmly anchoring the observance of human rights in the global economy, creating ethical standards for businesses operating in a supply chain. Often, these laws aim to strengthen human rights along the entire supply chain and signal to companies not to weigh human rights against economic interests.

They also aim to encourage companies to prevent human rights violations in their supply chains, or at least to combat them as quickly and effectively as possible if a violation is reported to the company. These efforts are designed to promote increased transparency for consumers and stakeholders.

The following are examples of recently passed legislation and what they mean for global businesses:

German Supply Chain Due Diligence Act  

Germany’s Supply Chain Due Diligence Act went into effect on 1st January 2023. The new law requires large companies operating in Germany to carry out human rights and environmental due diligence on their business and its suppliers.

In detail, the law provides for the following changes to due diligence in international supply chains:

• People 's lives and health must remain intact.
• Slavery and forced labor are to be excluded.
• Children must be protected, and child labor must be prevented.
• People must be protected from torture.
• The nationally applicable occupational health and safety regulations in the respective country must be observed. These include adequate safety standards at work, protective measures against the effects of harmful substances, prevention of excessive physical and mental fatigue and appropriate training and instruction for employees.
• Appropriate remuneration must be paid, and the applicable minimum wage regulations must be observed.
• Employees must be treated equally and must not be subjected to any form of discrimination.
• Land, forests, and bodies of water must not be illegally taken from their owners. 

The act currently applies to companies with at least 3,000 employees, but it will be extended to include companies with at least 1,000 employees as of January 1, 2024. Smaller companies can also be affected: namely when they are part of a supply chain of large companies.

United States Foreign Corrupt Practices Act  

The Federal Corruptions Policy Act was intended to combat corruption and bribery in US business dealings with foreign officials. The act requires all businesses have a process of due diligence to assure corruption and bribery is not happening in any part of its supply chain.

What happens if supply chain legislation is violated?  

If a violation of human rights becomes known, the company must immediately take corrective measures to put an end to the abuse. If the company cannot stop the violation at the supplier in a timely manner, a concrete plan must be drawn up on how the violation can be minimized and avoided. In addition, companies must take preventive measures.

If the company fails to take preventative or corrective action, they could be subject to sanctions that can financially harm the company and its prospects.

Why is supply chain risk management important?  

With increasing supply chain legislation, there is a greater risk for companies to face economic or legal penalties if they don’t comply with regulations. Not only could companies face penalties from governments, but they could also see a backlash of decreased customer support if ethical violations are discovered.

As such, comprehensive supply chain due diligence is necessary to make sure all partners in your supply chain are upholding regulations and meeting ethical standards. Effective due diligence in the modern business environment should also encompass Environmental, Social and Governance (ESG) factors like a company’s human rights record and environmental impact.

By checking across a broad collection of content relevant to due diligence investigations, you reduce the risk of overlooking important information or failing to satisfy the statutory compliance requirements.

How can LexisNexis help with supply chain risk management?

Nexis Diligence+™ combines all the most valuable intelligence and checks you need in a single solution, allowing you improve your supply chain risk management and conduct consistent due diligence searches to ensure your organization is protected against potential threats.

START A FREE TRIAL