In today’s business landscape, social responsibility and sustainability are no longer just buzzwords but essential considerations for companies. With more than 80% of companies now prioritising social responsibility and sustainability, businesses must have a plan to adapt to the evolving landscape.
The COVID-19 pandemic highlighted the risks associated with an over-reliance on a single supplier, a lack of transparency in the supply chain, and inadequate risk management measures. Events like this have prompted reform designed to fortify procurement processes with social responsibility in mind.
Legislation to Support Social Responsibility in Procurement
Governments around the world have responded to the need for social responsibility in procurement processes by introducing legislation. The Lieferkettensorgfaltspflichtengesetz (LkSG), an act passed in Germany in June 2021, is one such legislation that provides a blueprint for the rest of the EU. The act comes with a series of requirements that regulate companies’ social and environmental responsibility. For example, companies must report on the ability of their risk management system to address violations in their supply chain to the German government by April 2024.
The LkSG and similar acts aim to bolster environmental protections, prevent human rights violations, and ultimately create more transparent supply chains. However, complying with these regulations requires preparation. Digitising supply chains is no longer a feature of modern procurement but rather a requirement. With an agile, digital supply chain, companies can quickly adapt to new legal requirements or unexpected crises.
Importance of Ethical Foundations for Companies
The ethical foundation of a company is increasingly important for a number of reasons. First and foremost, supporting sustainability and human rights is no longer just a moral imperative – it has become integral to many companies’ purpose. As consumers become more socially conscious, companies must also prioritise social responsibility to maintain a positive brand image and avoid boycotts or scandals. In fact, consumers are often willing to pay a premium for products or services that align with their values.
Moreover, an evident sustainability and human rights agenda can also play a vital role in attracting talent. As the job market becomes more competitive, job seekers are increasingly looking for companies with a sense of purpose beyond just making a profit. Employees want to work for companies that share their values and contribute to the greater good of global society and the planet. As a result, companies without a clear ethical foundation could face significant challenges in attracting and retaining talent.
In addition to the business benefits, supporting sustainability and human rights is simply the right thing to do. It can have a positive impact on the environment and society, as well as on the company’s reputation and bottom line. Ultimately, the ethical foundation of a company is critical to its long-term success and relevance in a rapidly changing world.
Penalties for Non-Compliance
Beyond the positives of working toward sustainability and ethical partnerships, violations of LkSG and similar acts could result in costly fines and penalties. For example, companies with revenues exceeding €400 million may be required to pay up to two percent of annual revenue if they fail to implement remedial measures to address non-compliant practices. Additionally, non-compliance may result in exclusion from public procurement tenders for up to three years. Violations could also damage the reputation of a business and result in lost revenue and profit.
Creating a Radically Transparent Supply Chain
In an era of near-instant global connectivity, consumers are more attuned than ever to corporate attitudes and actions toward social responsibility. To maintain a positive public image and avoid boycotts or scandals, companies must create a radically transparent supply chain. By following all due diligence laws and collecting required data, companies can build a supply chain that is transparent and accountable.
A single point of truth across the entire supply base can support risk-aware core processes while allowing for real-time data analysis and decision-making. SAP, a global leader in enterprise application software, offers sustainable procurement and supply chain management solutions that enable companies to track and manage their suppliers’ sustainability performance, mitigate risks, and ensure compliance with regulations such as LkSG.
By digitising the supply chain, companies can improve transparency, traceability, and accountability while reducing costs and enhancing operational efficiency. SAP’s technology allows for a more holistic approach to social responsibility that considers both environmental and social impact and ethical and governance aspects.
SAP Ariba Supplier Risk
SAP Ariba Supplier Risk is a trusted solution for companies seeking to establish a strong foundation in supply chain risk management, and ensure compliance with due diligence legislation such as Germany’s LkSG. By leveraging a variety of internal and external data sources, SAP Ariba Supplier Risk enables companies to score supplier risk and identify non-compliant partners.
In addition, SAP Business Network offers standardised self-assessment questionnaires (SAQs) that allow suppliers to easily share their LkSG risk profile with customers, facilitating transparency and accountability. Automated reporting also simplifies the process of sharing required information with BAFA, Germany’s Federal Office of Economics and Export Control, saving time and eliminating manual processes.
SAP is committed to supporting its customers in meeting their compliance requirements and ensuring the success of their businesses. LkSG features are included at no additional cost for SAP Ariba Supplier Risk customers, allowing them to benefit from standardised LkSG supplier SAQs in SAP Business Network for Procurement. Suppliers will have the ability to maintain SAQs and share them with any customer, while pre-packaged deployment content from SAP’s partners will enable an efficient go-live and broad flexibility to configure custom requirements.
By leveraging SAP Ariba Supplier Risk and SAP Business Network, companies can establish a strong foundation for risk management and compliance and proactively mitigate potential supply chain disruptions. This not only ensures compliance with regulatory requirements but also protects the reputation of the business and enhances customer and supplier relationships.
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