Understanding the Supply Chain Act reveals its impact on businesses with 1,000 to 3,000 employees, like Biotest, which faces significant compliance costs and challenges. The act has drawn criticism for its bureaucratic demands, prompting calls for simplification while retaining penalties for violations. While monitoring by BAFA has been paused until 2026, companies like Biotest remain committed to compliance. Smaller firms, such as A+E Fischer, also feel the strain from increased paperwork. The mechanical engineering sector awaits clarity on future regulations.
Understanding the Supply Chain Act and Its Implications
For the past year, the Supply Chain Act has extended its reach to companies employing between 1,000 and 3,000 individuals. Despite its intricate name, navigating the provisions of this law proves to be equally challenging for many businesses.
One such company, Biotest, located in Dreieich within the Offenbach district, specializes in the production of medications derived from human blood plasma, primarily utilized in intensive care units. With a workforce of approximately 2,500 employees, Biotest has been subject to the Supply Chain Act since the beginning of 2024, following the inclusion of firms within the 1,000 to 3,000 employee range.
Challenges and Costs Associated with Compliance
The industrial association is advocating for the incoming government to alleviate the financial burden on companies. According to Dirk Neumüller, a spokesperson for Biotest, the company initiated its preparations back in 2022. He estimates that compliance costs have reached the mid-six-figure range over recent years. To meet legal requirements, Biotest even appointed a dedicated human rights officer.
Various departments within Biotest have been actively engaged in fulfilling the law’s stipulations. They developed questionnaires to gather critical information from suppliers regarding their working conditions and created protocols for addressing potential human rights breaches within the supply chain.
The Supply Chain Act has garnered considerable criticism from the business community. However, Development Minister Schulze maintains its effectiveness. Julia Hentschel, a supply chain expert at EBS University in Oestrich-Winkel, acknowledges the significant bureaucratic challenges posed by the German application of the law. She questions whether a simpler approach could have been adopted.
Hentschel suggests retaining the threat of fines for human rights violations while eliminating the burdensome documentation and reporting requirements. She argues that “the fine serves as a substantial economic incentive for companies to ensure compliance,” emphasizing the need for a balanced approach.
Monitoring compliance with the Supply Chain Act falls under the Federal Office for Economic Affairs and Export Control (BAFA), located in Eschborn near Frankfurt. Since the law’s introduction in early 2024, approximately 5,200 companies nationwide are expected to meet various reporting and documentation mandates. However, inspections by BAFA have been paused until early 2026, pending the implementation of a European Supply Chain Act into national legislation.
Despite the temporary suspension of monitoring, Neumüller asserts that Biotest, being a publicly traded entity, must comply with all laws and regulations. He emphasizes that non-compliance is not an option, even in the absence of oversight, creating a challenging scenario for the company.
The Supply Chain Act not only impacts the 5,200 larger firms but also indirectly affects smaller businesses, such as A+E Fischer, a chemical dealer based in Wiesbaden with only 80 employees. As a supplier to major companies like BASF and EVONIK, A+E Fischer is inundated with questionnaires regarding its own suppliers, forcing them to hire additional staff solely to manage this paperwork, a move deemed unproductive by managing director Manuel Fischer-Bothos.
As the German mechanical engineering sector remains a cornerstone of the economy, many companies directly or indirectly governed by the Supply Chain Act are keenly anticipating the federal elections in February. They seek clarity on the future of inspections, the permanence of the law, and potential changes that a European Supply Chain Act might introduce.
This topic was highlighted in a report by Deutschlandfunk on October 22, 2024, at 10:58 PM.