The German Supply Chain Act (LkSG) presents companies with new challenges that increasingly affect mid-market businesses. In a webinar with Schwäbische Werkzeugmaschinen (SW), we examined how the LkSG can be implemented in a practical way, particularly in the industrial mid-market. As a procurement solution, Tacto supports compliance with the legal requirements by managing all risk management processes digitally and documenting them transparently.

Below is a detailed summary of the implementation steps, requirements, and tools for an efficient, legally compliant LkSG implementation in the mid-market.

Fundamental Requirements of the Supply Chain Due Diligence Act in the Mid-Market

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Since 2023, companies with over 3,000 employees are required to observe human rights and environmental due diligence obligations in their supply chains. From 2024, this obligation applies to companies with 1,000 or more employees. The goal of the law is to ensure that human rights are respected and environmental standards are met along the supply chain.

While the German Supply Chain Act (LkSG) initially targets larger companies, mid-market businesses also feel its impact through so-called indirect obligations. Many companies are prompted to comply early on through customer inquiries or direct requirements from major customers.

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The law requires compliance with the following points:
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• Guiding Principles Statement: Companies must publicly declare their commitment to respecting human rights and environmental standards.
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• Risk Analysis and Prevention Measures: Regular analyses of the supply chain, followed by clear prevention measures.
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• Complaint Procedures: Establishment of a publicly accessible complaint channel.
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• Documentation and Reporting Requirements: Verifiable, continuous documentation of all measures and annual reporting to the German Federal Office for Economic Affairs and Export Control (BAFA).

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Practical Implementation at Schwäbische Werkzeugmaschinen (SW) and Tacto

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The collaboration between SW and Tacto shows how a mid-market company implements the LkSG strategically and operationally.

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1. Creating Organizational Foundations

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• Guiding Principles Statement: A publicly accessible statement on human rights and environmental commitments is published on the company website. Tacto supports this with legally sound templates.
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• Complaint Procedures: With the German Whistleblower Protection Act (HinSchG), the complaint procedure for employees and suppliers is already integrated at SW and accessible via the company website.
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• Defining Responsibilities: Responsibility for risk management was clearly assigned to steer the processes in line with the law and with liability aspects in mind.

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2. Conducting the Risk Analysis

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The risk analysis is the core of the due diligence obligations. All suppliers are evaluated using a structured funnel model:
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• Abstract Risk Analysis: Suppliers with high risk potential are identified based on three criteria: share of spend, country risk, and industry risk.
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• Specification of the Analysis: Suppliers that still count as potentially critical after the first analysis undergo a detailed review in which additional information, such as certificates and compliance documents, is requested and verified. One example is the ISO 14001 certificate, which confirms environmental standards.

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3. Measures to Minimize Risk

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If the analysis shows that a supplier poses a risk, preventive measures are initiated. This runs in Tacto as an automated workflow:
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• Preventive Measures: Suppliers receive SW's code of conduct for signature, for example, or must provide additional certificates.
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• Concrete Countermeasures: If a supplier repeatedly fails to meet the requirements, an audit is initiated. In the case of serious violations, such as indications of child labor, SW can end the business relationship.

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4. Preparation of the BAFA Report
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Reporting to BAFA takes place annually and forms the centerpiece of the LkSG documentation. Tacto automatically compiles the recorded information and measures for inclusion in the report. This ensures that SW documents all relevant measures correctly and submits them to BAFA in a legally compliant format.

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Advantages of Digital Implementation with Tacto

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Mapping the entire process in Tacto gives SW several decisive advantages:
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• Central Administration: All supplier data is centrally accessible at any time, which significantly shortens response times to legal requirements.
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• Automated Risk Analysis: Tacto continuously enriches and updates the data basis and runs automated risk analyses built on a broad pool of industry and country data.
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• Documentation and Audit Trail: Central reporting documents and structures all measures, so the company can provide fast, transparent answers in audits or follow-up inquiries.

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Conclusion: Future-Proof LkSG Implementation in the Mid-Market

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SW has consistently integrated the LkSG requirements into its procurement and supplier processes, supported by the procurement solution Tacto, which covers the entire supplier management and compliance process. The partnership shows that mid-market companies can operate efficiently and in line with the rules without losing sight of the operational tasks of procurement. The close collaboration with Tacto also enables SW to respond flexibly to new requirements, whether the European counterpart to the LkSG or other regulatory developments.

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Your Company and the Supply Chain Act
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The LkSG requires companies to manage risk strategically and operationally, in a way that is practical and economically feasible for the mid-market. Digital support through tools like Tacto enables efficient, transparent implementation of these requirements and allows companies to look beyond current obligations to upcoming regulations such as the Carbon Border Adjustment Mechanism (CBAM).

In our webinar "Supply Chain Due Diligence Act in Practice: How Schwäbische Werkzeugmaschinen (SW) Fulfills LkSG Requirements in the Mid-Market" with Matthias Schlotter, Head of Procurement at SW, and Johannes Groll, Managing Director and Head of Product Development at Tacto, you learn how SW implements the German Supply Chain Act (LkSG) pragmatically and in a legally sound way, preparing for upcoming due diligence obligations.