Supply Chain Law: Fashion, Textiles and Retail Are Poorly Prepared – Supply Chain Management (SCM), Fashion Logistics | News | LOGISTICS TODAY

Market research institute Sapio Research surveyed 100 SCM decision makers of fashion, lifestyle, textile and retail companies for the purpose of the German Supply Chain Due Diligence Act. Market research conducted on behalf of British software provider K3 in March and April 2022 aimed to find out how companies are preparing for the law to come into effect in phases from January 1, 2023, according to a May 24 statement.

The LKSG sets out clear and enforceable requirements for due diligence of companies with more than 3,000 employees (2023) or 1,000 employees (2024) – from raw material to sales product. The aim is to ensure the protection of human rights and respect for the environment in global supply chains.

Respondents from Sapio Research work in the fields of IT, operations/logistics/supply chain and finance and are responsible for supply chains in the fashion and lifestyle sectors, in the textile industry and in retail trade in Germany. They hold C-level and management positions or are department heads at companies with 1,000 to 4,999 employees (43 percent) and 5,000 to 10,000+ employees (57 percent). Four out of five surveyed companies source products from countries with less stringent standards than the EU (82 percent) and therefore need systems and procedures to ensure compliance with the LkSG.

Not all companies are adequately prepared for LkSG.

Three out of five respondents stated in the survey that they are fully aware of the upcoming LKSG legislation. However, market research by Sapio Research also revealed knowledge deficits: About a third of survey participants (34 percent) have already heard about this legislation, but do not know the details. Of those who are aware of the need to comply with the LkSG, slightly more than half (53 percent) cannot yet act in compliance. 18 percent of them are not sure if they will be able to do this before the LkSG comes into force. The survey shows that this will be a challenge with current systems and processes, the press release said.

Lack of transparency in supply chains

According to the survey, seven out of ten companies (71 percent) receive certification from their direct suppliers to assess and avoid human rights violations and environmental risks in their supply chain. What stands out, however, is that less than half of respondents (47 percent) also asked their suppliers’ suppliers (indirect suppliers) for this – which significantly increases the risks in the supply chain, according to Sapio Research.

Companies use inefficient, non-automated methods.

Twenty-seven percent of respondents said they keep paper certificates in a filing cabinet. Two-thirds of the 94 percent who conduct audits in their supply chain store the results in databases—with 37 percent keeping them on paper, rising to 46 percent for companies with more than 5,000 employees.

About a quarter of smaller companies keep audit results in files on shared drives or even on the personal drives of responsible employees. 19 percent of respondents use a table.

This increases susceptibility to errors and makes it difficult to access, manage and find information, according to the statement. Almost half of respondents (48 percent) do not believe the technology they use today to support supply chain due diligence can fully automatically integrate relevant data and metrics into their financial reporting, according to the survey. In the case of smaller companies, this is even two-thirds of companies. This inevitably leads to inefficiency. In addition, companies affected by the LKSG should be able to report on compliance with the requirements as part of their financial reporting.

“If this information is not integrated into financial reporting systems, compliance with the LkSG is a time-consuming manual task that is prone to errors and inaccuracies and puts companies at high risk,” explains Karsten Kurella, Director of Enterprise Sales in K3. Business Technology Group.

New technologies are required.

According to the survey, 93 percent of the respondents are convinced that they need new technological solutions in order to be able to fully implement and comply with the LKSG law in their company. Only 30 percent of respondents are very confident. They feel that the technology they are currently using to store and record certificates in the supply chain will enable them to be fully compliant with LkSG legislation.

For companies with 1,000 to 4,999 employees, that percentage drops to just 14 percent. In addition, seven out of ten companies stated that their current method of storing and recording certificates in the supply chain automatically sends alerts when certificates expire. Interestingly, larger companies were less likely to say that their current method sends these alerts automatically. However, only 43 percent of companies can automatically identify missing or incorrect certificates.

The implementation of LkSG should be used for marketing.

Almost all survey respondents (98 percent) intend to use the themes of sustainability, reduced environmental impact and protecting the welfare of workers in their supply chains for their marketing.

“It is important to note that companies that want to use these measurements for marketing purposes must also fully comply with all LkSG requirements and ensure that their data is reliable,” adds Karsten Kurella.

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