IDC White Paper - Procurement in The Sustainable Supply Chain

IDC White Paper, sponsored by SAP
Procurement in the
Sustainable Supply Chain
RESEARCHERS:
Marco Becker
Consulting Manager
IDC Germany
Lynn-Kristin Thorenz
Associate Vice President Research & Consulting
IDC Germany
October 2022
Procurement in the Sustainable Supply Chain
How to Browse this White Paper

Click the title or page number to access individual sections.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Levering sustainability to increase corporate resilience and tackle the

challenges of the "Act on Corporate Due Diligence Obligations in Supply
Chains" (Supply Chain Due Diligence Act). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The German Supply Chain Due Diligence Act:

Current and future obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Visibility and agility: The prerequisites for implementation of the Supply

Chain Due Diligence Act and resilient procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Holistic database and cloud-based business platforms for real-time insights

into supply chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Supply Chain Due Diligence Act as the basis for collaboration in
enterprises and across ecosystems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conclusion: Taking the German Supply Chain Due Diligence Act as a starting
point for sustainable procurement and supply chain transformation . . . . . . . . . . . 17
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Interview with SAP about Sustainability and the Supply Chain Due
Diligence Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

October 2022 | IDC Central Europe
2
Introduction
The business world is in the throes of multiple disruptions, the brunt of which are also borne by procurement.
Omnipresent shortages, risks due to a lack of supplier diversification, and major price fluctuations have become
part of daily life. In addition to supply security and economic efficiency, topics such as sustainability and
associated legislation are increasingly taking center stage and exacerbating existing tensions between supply
chain efficiency and resilience. These diverse requirements compel enterprises to rethink strategies to maintain
long-term success in this new market environment.
Another trend is towards the globalization of sustainability regulations, breaches of which are sanctioned. In
Germany, the Act on Corporate Due Diligence Obligations in Supply Chains (Supply Chain Due Diligence Act) will
come into effect on January 1, 2023. In its first phase, it obliges only large enterprises to provide due diligence
and reporting with regard to breaches of human rights and environmental regulations in their supply chains.
However, it also has an impact on all the other enterprises that are part of supply chains and must therefore
supply information. In addition, the EU is currently planning even stricter regulations in its draft EU Supply Chain
Due Diligence Act which may come into effect within the next few years. Legal obligations aside, sustainable
value creation is becoming an increasingly crucial attribute for enterprises not only because it is demanded by
customers and investors as well as being urgently required from societal and environmental points of view, but
also because it can improve the resilience of supply chains.
This IDC White Paper is designed to help decision makers in procurement and contiguous departments such as
risk management, legal, IT, and sustainability to grasp the effects of the German Supply Chain Due Diligence Act
on procurement and supply chain processes. It also provides recommendations to engineer efficient and legally
compliant implementation.

Table of contents 3
Leveraging Sustainability to Increase

Corporate Resilience and Tackle the
Challenges of the Supply Chain Due
Diligence Act
Sustainability is currently one of society’s definitive topics and is being adopted as a fundamental and integral
component of all corporate processes by a growing number of organizations. In a current IDC survey in Germany,
Austria, and Switzerland, three out of four enterprises stated that they were pursuing sustainability programs or
strategies. In physically intensive process chains in industry especially, the environmental and social impact has
far-reaching consequences across globalized supply chains. It therefore comes as little surprise that in addition to
saving costs and increasing efficiency, the topic of sustainability currently ranks as one of the top three business
priorities in German industrial enterprises.
73% of German-speaking enterprises already pursue

sustainability programs and strategies.
Source: IDC study “Greening of and by IT," 2022
IDC defines sustainability by the term “ESG”:
Environmental: Environmental factors such as reducing and minimizing waste, greenhouse

gas emissions, and the consumption of energy and raw materials, and a general reduction of the
environmental footprint.
Social: Social aspects such as observing human rights, fair working conditions, diversity, equality,
inclusion, occupational health and safety, data protection, and security.
Governance: Good governance in the sense of complying with legal and reporting regulations,
business ethics, fair competition, and holistic risk management.
Based on the 2011 UN Guiding Principles on Business and Human Rights, these aspects are being regularized
with increasing frequency and rigor around the globe. While in the EU, the draft EU Supply Chain Due Diligence
Act is currently under discussion, in Germany the Supply Chain Due Diligence Act will come into effect on January
1, 2023. It obliges larger enterprises to take into account the three ESG areas across the supply chain by means
of an effective risk management system for human and environmental rights. The law focuses on ecological
and social diligence obligations in the procurement of raw materials and primary products, as well as relevant
reporting.
The promotion of sustainability comes at a cost in terms of both labor and finance and may result in a conflict of
interest with regard to profit maximization. Furthermore, while expenditure on sustainability measures can be
calculated with relative accuracy, the impact and benefits are almost impossible to quantify because they have
not yet been recorded or it is too early to do so. Many investments are therefore difficult to justify at the moment
in terms of profitability. IDC, however, regards sustainability as a valuable opportunity for enterprises because
environmental and social improvements in corporate value creation may sooner or later exercise a positive
influence across the triple bottom line — not only on humankind and the planet, but also on profitability.

Table of contents 4
FIGURE 1
The business case for sustainability
Customer welfare Business ethics Transparency and traceability
Material procurement Greenhouse gas emissions Energy management Supply chain management
The purpose, Minimized KPIs are Differentiation Leadership Improved New business
mission, costs and integrated into and new by example: business models
vision, and optimized performance performance social performance, based on
role of the efficiency assessment promises responsibility culture, sustainability
organization processes and and brand initiatives
as a philanthropy leadership
corporate
citizen are
defined
Diversity and inclusion Systemic risk management Waste and efficiency management Compliance reporting
Data protection Data security Occupational health and safety
Triple bottom line
PEOPLE
PLANET PROFIT
Source: Capitalizing on ESG — The Business Case for Sustainability, IDC, 2021
The IDC studies show clearly that enterprises that are ahead of the curve on digitalization and sustainability tend
on average to record higher revenues and profits than organizations with a comparable level of digitalization
but less sustainability. Measures aimed at improving sustainability increase the efficiency of processes, avoid
waste, and reduce energy and raw material consumption, resulting in a significant cost reduction. Sustainability
also makes enterprises more resilient. Especially in purchasing, sustainable procurement processes have a
positive effect on risk profile, compliance, and supplier performance. And not least, sustainability is becoming an
increasingly important purchasing criterion for consumers and enterprises alike and attracts young employees
seeking employers who take on social responsibility. The topic is therefore relevant not only to reputation and
profit, but also to employee satisfaction, retention, and recruitment.

Table of contents 5
66% of respondents state From the perspective of the Supply Chain Due
Diligence Act, supply chains assume an important
that supply chain role in promoting sustainability. Supply chains are
also central to promoting sustainability from an overall
partners are important or even business view. They are drivers for many of the social
critical to the implementation of and environmental effects of value creation, which
are mainly generated upstream at the suppliers and
ESG initiatives. therefore fall within the responsibility of procurement
departments. For a quarter of German-speaking
organizations, sustainability therefore already ranks as
one of the three main sustainability priorities in upstream supply chains. Many enterprises are taking initial steps to
promote sustainability initiatives, increase supply chain transparency, comply with social standards, or to purchase
exclusively from fair and ethical companies.
Buyers therefore have access to a very important source For
38%
of information that is relevant to both their procurement
sustainability strategy and to the sustainability of the
of organizations,
entire value chain. From this perspective, procurement insights into
assumes a key role.
procurement processes rank
However, the comprehensive promotion of sustainability among the top three data
and compliance with legal requirements is no trivial
matter and brings challenges with it. Almost two-thirds categories for implementing
of enterprises expect that incorporating principles of sustainability initiatives.
responsible procurement will significantly impact their
business models. It may be necessary, for instance, to
terminate supplier agreements or avoid specific primary products. Even a lack of communication and cooperation
with suppliers to clarify aspects relating to sustainability can hold up value creation processes and compromise
the customer experience. To implement the Supply Chain Due Diligence Act, enterprises therefore require a
clear, structured concept and appropriate IT support to put the necessary processes firmly in place and handle
procedures efficiently. IDC recommends that enterprises approach the implementation of the Supply Chain Due
Diligence Act as an interdepartmental task, which calls for the involvement of as many stakeholders as possible,
including management, procurement, supply chain management, risk management, legal, ESG officers, financial,
and IT departments.
FIGURE 2
Assessment of the impact on business models of applying responsible
procurement principles in supply chains
61% of organizations anticipate that responsible Only 1 in 10 enterprises anticipates no
procurement will have a significant or at least moderate impact — commonly those that have
impact on their business models. yet to engage actively with the topic of
sustainability.
22% 39% 29% 10%

Significant impact Moderate impact Low impact No impact
Source: IDC study “Sustainability in Germany, Austria, and Switzerland 2022: Greening of and by IT — Creating Sustainable Enterprises with Modern IT," February 2022, n = 350

Table of contents 6
The German Supply Chain Due Diligence

Act: Current and Future Obligations
The Supply Chain Due Diligence Act will apply to enterprises headquartered or with branches in Germany
from January 1, 2023.
Initially applicable to enterprises with 3,000 employees and more in Germany, from January 1, 2024, this threshold
will be lowered to 1,000 employees and more.
However, a much wider group is affected indirectly. Smaller enterprises, while not directly affected by the law in
the beginning, must nevertheless provide their customers with a wide range of information.
There is differentiation between direct and indirect suppliers to assess whether risk assessments are performed
and corresponding measures are commensurate.
Willful or negligent non-observance may be penalized by fines of up to €8 million or 2% of average annual
revenue and exclusion from public calls for tender.
The Supply Chain Due Diligence Act is just the beginning. The EU is already
working on a directive to legislate a European Supply Chain Law. The current draft
clearly indicates that this law will contain much stricter requirements and that a far
larger group of enterprises will be affected, including:
EU enterprises and enterprises from other countries engaged in business in the EU.
Enterprises with 500 employees or more or €150 million total net revenue.
Enterprises with 250 employees or more and €40 million net revenue if half of the revenue comes from
especially critical areas.
A focus on both downstream and upstream FIGURE 3
supply chain areas. Scope will therefore be
extended from cradle-to-gate (raw material Models for product life cycles
extraction to delivery to the end customer) to
cradle-to-cradle (extension to include use, disposal,
CRAD
and recycling). LE-T
O-
CR
CR AD AD
No distinction is made between direct and L E-
TO LE
indirect suppliers. -G
CRA RA
DL
E-T
VE
More social and environmental aspects included O

than in the German Supply Chain Due Diligence
-G
AT
Act and a climate target plan is required.

E
Possible fines and sanctions as well as liability

MODELS FOR
under private law. PRODUCT LIFE
CYCLES
N.B. EU directives must be translated into local
legislation, and they provide only the necessary
minimum of measures that may be imposed.
Each country can impose even stricter, more far-
reaching regulations as it sees fit. Furthermore,
non-EU countries may introduce equivalent
supply chain legislation at any time or may have
already done so.
Source: IDC, 2022

Table of contents 7
Visibility and Agility: The Prerequisites for

Implementation of the Supply Chain Due
Diligence Act and Resilient Procurement
Procurement and purchasing decisions in particular have a significant influence on all further stages in a supply
chain. Purchasing can reduce costs through negotiation, and by selecting the right suppliers can achieve quality
improvements and diminish supply risks. Procurement therefore exercises a significant influence on corporate
resilience or the ability to respond to change proactively and effectively.
The sustainability factor adds further requirements. In addition to creating transparency for partners, public
authorities, or investors, these increasingly include specific measures to adhere to fair trading practices across the
supply chain. In principle, the aims of resilient procurement and sustainability go hand in hand.
Environmental Social Risk Profitability

efficiency fairness minimization and reputation
Husbanding resources Fair trading practices Environmental, social, and Striking the optimum
and avoiding waste with with other countries and economic risks across balance between supply
renewable resources and ensuring the health and all value chain stages security and costs, as
closed loops for long-term satisfaction of employees to optimize business well as preventing
supply, ideally in a circular for long-term partnerships, continuity and avoid negative impacts on the
economy. high employee retention, the cost of sanctions or enterprise’s reputation
and productivity. liability damages. and trustworthiness.
All these goals are also inherent to the Supply Chain Due Diligence Act. It focuses on identifying and managing
environmental and social risks, as well as on the measures developed for this purpose. Comprehensive
implementation offers both the perfect toolbox for identifying the economic risks of purchasing, launching suitable
countermeasures, and improving the resilience of procurement processes. This resilience, which forms the exact
counterpart to risk, has two key qualities:
Visibility and agility.
At
23% a lack of transparency across corporate processes and
the resultant lack of overview of ESG potential are the
most common challenges cited in achieving sustainability goals.
Source: IDC FutureScape Worldwide Supply Chain 2021 Predictions

Table of contents 8
The first of these qualities — visibility — is important for identifying, ideally at the earliest possible stage, where
risks, specific problems, or faults already exist. It should cover all value creation processes and suppliers, and
above all those outside the group of direct suppliers. A worldwide IDC supply chain study in 2020 revealed that
85% of enterprises enjoyed a clear picture of their direct suppliers. However, this figure dropped abruptly to just
25% in the case of indirect suppliers. This lack of transparency has negative consequences for business continuity
and profitability. Existing problems are therefore only discovered with a delay of days, weeks, or months by
first-tier suppliers. Valuable time is lost in which action might long have been initiated. At the same time, a lack of
transparency is the main obstacle for 23% of German-speaking enterprises in achieving their sustainability goals
as potential cannot be clearly identified.
By 2025, half of all manufacturers worldwide will enjoy extended

visibility through to tier 3 suppliers. This will enable more flexible
supply chains and reduce the impact of disruptions caused by
suppliers by up to 50%.
Source: IDC FutureScape Worldwide Supply Chain 2021 Predictions
FIGURE 4
Most commonly used measures to minimize supply chain risks
Improve supply chain agility 53%
Improve supply chain visibility

46%
Product diversification at global

37%
level
Collaboration in supply chains to
minimize risk
33%
Preference for local products 32%
Source: IDC Supply Chain Survey, March 2022, n = 1,109 enterprises in North America, Europe, and APAC
The visibility of all direct and indirect suppliers, as well as ongoing risk monitoring, ideally as part of a
comprehensive supplier management system, is therefore all the more important. The latter should provide a
detailed overview of all suppliers and enable both an evaluation and a classification of the enterprise’s supplier
portfolio in terms of reliability, performance, compliance, and risk. All this bundled information also forms the basis
for calculating key figures relating to sustainability such as supply chain miles charting the distance covered by a
product or service across the supply chain and the Supplier Environmental Sustainability Index, which summarizes
a supplier’s environmental sustainability. These offer valuable insights into supply chain sustainability and help in
implementing the sustainability strategy across the entire enterprise.

Table of contents 9
Agility is the second key quality of resilient supply chains and the successful implementation of the Supply
Chain Due Diligence Act. Agility in procurement is aimed at replacing classic sourcing and purchasing decisions
drawn from incomplete information with agile and optimum decisions based on a comprehensive supply chain
assessment. However, various measures need to be implemented to achieve this:
• The creation of rules and processes for communication and collaboration between direct in-house
stakeholders from purchasing, risk management, controlling, and compliance and so forth to quickly deal with
incidents.
• Communication and collaboration with external stakeholders such as suppliers, auditing and information
validation providers, and public authorities that have to be involved to clarify an incident.
• The diversification of suppliers so as to be able to rely on suitable, validated alternatives as quickly as

possible should the need arise.
• Support for the development of new and regular suppliers so that they are better able to satisfy demands for
reliability and compliance through, for instance, advice, training, and certification requirements.
• Digitalization, automation, and intelligence to enable the fast, effective processing of growing volumes of
information. For example, an intelligent supplier management system to provide context-based information
around incidents to create an appreciation of the entire history and the importance of the supplier for an
appropriate response.
It is also important to understand that visibility and agility are interdependent. Being agile does not help if
problems are identified too late or not at all. Visibility is of little use if not flanked by the ability to respond
effectively and agilely to events. Only a combination of the two creates resilience, minimizes risk, and improves
sustainability. These are the core prerequisites for implementing the Supply Chain Due Diligence Act.
Key sustainability performance metrics for supply chains:
Supply Chain Miles Supplier Environmental Sustainability Index
Used by Planned by Used by Planned by
30% 41% 27% 44%

Source: IDC study “Greening of and by IT," 2022 Source: IDC study “Greening of and by IT,” 2022

Table of contents 10
Holistic Database and Cloud-Based Business

Platforms for Real-Time Insights Into Supply
Chains
Carrying out sustainability initiatives in supply chains calls for a high level of cooperation between procurement
and all other stakeholders. In addition, to implement the Supply Chain Due Diligence Act, organizations need
a current and valid information base for all suppliers. This forms the foundation for regular risk evaluations,
consistent risk monitoring, and audit-proof reporting of the risks identified and countermeasures adopted.
FIGURE 5
Most commonly used measures to minimize supply chain risks
Indirect supplier Direct supplier Manufacturer Customer

Possibly also subject to Possibly also subject to subject to the Possibly also subject to
the Supply Chain Due the Supply Chain Due Supply Chain Due the Supply Chain Due
Diligence Act Diligence Act Diligence Act Diligence Act
Over-arching digital support and integration with other business systems for all
processes in order to comply with the Supply Chain Due Diligence Act:
Communication and collaboration

between procurement, suppliers, risk management, ESG teams, finance and controlling, legal, sales, service, etc.
repeated continuously
Collecting Risk evaluation Measures Dashboard and

information from and monitoring reporting
suppliers
External
information on
suppliers
repeated continuously
Source: IDC, 2022

Because the number of suppliers can soon swell to thousands when a holistic view of supply chains is adopted,
effective and, more importantly, error-free implementation can only be achieved digitally in most cases. The same
is true for local and international suppliers that do business with multiple customers subject to the Supply Chain
Due Diligence Act. For them too, responding regularly to all information inquiries is almost impossible manually.
Within this context, enterprises should also remember that even today the Supply Chain Due Diligence Act is but
the minimum standard for sustainable supply chains. The current EU proposal for an EU Supply Chain Directive is
much stricter. In addition, it includes both smaller enterprises and global players that are part of the supply chains
of European enterprises. As soon as the directive is passed, member states will have to legislate local laws within
two years to implement it. As things stand now, theoretically this could happen as early as 2025. At the same time,
other countries and economic areas can pass relevant laws or tighten existing legislation. It is therefore all the
more important to act with foresight and create a comprehensive, adaptable basis.
So it is hardly surprising when discussing digital tools and software for sustainability issues that many enterprises
identify the greatest need for tools to ascertain and assess social aspects and sustainability in supply chains.
Implementing the Supply Chain Due Diligence Act thus requires close coordination with IT departments to map
all purchasing processes digitally and in line with the Supply Chain Due Diligence Act. At the same time, the IT
support furnished for this purpose can be used as the basis for further sustainability measures such as cross-
supply chain carbon accounting.
FIGURE 6
Top 3 sustainability-related topics with the greatest need for
investment in digital tools and software products in the next two
to three years
Evaluation of carbon footprint 42%
Ascertainment/assessment of social
aspects within the enterprise and 30%
across the supply chain
Sustainable supply chain/circular

economy
30%
Source: IDC study “Sustainability in Germany, Austria, and Switzerland 2022: Greening of and by IT — Creating Sustainable Enterprises with Modern IT," February 2022, n = 350
The key element of digital support for Supply Chain Act implementation is a unified database. In principle, this is
true for all digitalization projects. The reliability and currentness of all master data and information in the suppler
information management (SIM) system can only be guaranteed on the basis of a single source of truth. It will enable
the precise sustainability-related risk evaluation required by the Supply Chain Act. IDC recommends ensuring
high data quality and integrity at an early stage. Analytics and automation are being used increasingly in this
area. However, results are only as good as the data on which they are based. Poor data may lead to fast but poor
decisions. Because the Supply Chain Act includes supply chains outside Germany and the EU and the imposition
of an EU Supply Chain Directive is only a matter of time, IDC urgently advises organizations to break down global
and organizational information silos and develop central data platforms.

The European market for supply chain management applications will

grow annually by 4% to $3.6 billion by 2025. With annual growth
of 17%, the increase in demand for cloud-based SCM applications is
particularly high.
Source: IDC Worldwide Supply Chain Management Application Forecast, 2021–2025
With a central unified database, digital communication and collaboration processes can be set up to support
those responsible to request information relevant to the Supply Chain Due Diligence Act from all suppliers,
monitor response deadlines, and capture and validate all incoming information. Seamless digital processing
prevents media breakdowns and reduces faults when answering questions and transferring the answers to IT
systems. Manipulations can thus also be prevented and auditing and reporting facilitated. In IDC’s view, direct
automated integration for data sharing is the most efficient method of continuously communicating relevant data.
As an analysis of the German-speaking market shows, only a quarter of organizations have implemented such
full integration for sustainability-relevant data. Another quarter already share relevant data with comprehensive
software-aided, but not yet automated, support. Worldwide, the potential for software-supported automated data
sharing is still significant.
FIGURE 7
Current and future planned data sharing with partners and supply chains for
the assessment of sustainability
57%
49%
31%
24% 25% 26%
23%
19%
14%
8% 10%
6%
Current In two years
Full integration Comprehensive data sharing Partial data sharing

Occasional data sharing Minimum data sharing
Source: IDC study “Sustainability in Germany, Austria, and Switzerland 2022: Greening of and by IT — Creating Sustainable Enterprises with Modern IT," February 2022, n = 350;
Survey on scale of one to five from “Full integration” to “Minimum data sharing," remainder 100% “Don’t know”
It is also important to include as many external data sources as possible via suitable interfaces to access
comprehensive context information about suppliers in addition to the information they furnish themselves.
Organizations should work towards automated real-time integration of these data sources. This will enable direct
adjustment of risk assessment and alerting as soon as external sources indicate a problem, thus maximizing

the chance of preventively deflecting potential damage. Various data sources and information networks lend
themselves to integration:
• In-house IT systems, such as merchandise planning and control or enterprise resource planning (ERP), supply
chain management (SCM), supplier relationship management (SRM), risk management systems, and so on.
• Networks and associations, auditors, and external service providers to validate sustainability information
such as EcoVadis or Catena-X. Frequently, the latter already offer extensive databases or corporate profiles
including information relating to sustainability with a focus on individual sectors or regions that can be
integrated into a unified information base via a central platform.
• External information sources in which news, reports, and information are published and which are relevant to
risk assessment such as financial and business news, portals for ad hoc news, and the press portals of public
bodies and rating agencies.
A standard language is also essential for the communication and processing of Supply Chain Due Diligence Act
and sustainability-relevant requirements and data. Organizations can thus ensure that data, risk evaluations, and
measures for existing and new suppliers are both transparent and comparable. Standardized auditing standards
and frameworks for collecting, validating, processing, and reporting supplier information are essential and take
the load off the parties involved:
Suppliers can furnish and share Organizations subject to the Public bodies can
information on request by means Supply Chain Due Diligence use standardized
of standardized questionnaire Act can easily evaluate and process reporting to verify
formats or data integration via a information about all suppliers that legal compliance
centralized, standardized procedure. has been collected in a standardized faster and more easily,
Intelligent algorithms can also manner, as well as draft comparable thus avoiding time-
be used to consolidate existing risk profiles, comprehensive monitoring consuming manual
information from various IT systems, dashboards, and standardized reports. inquiries for detailed
avoid redundancies, and ease the The prospect of advanced predictive information.
burden on suppliers with shorter analysis to enable faster reactions and
questionnaires. better decisions is also unlocked.
Most enterprises will presumably organize their IT support to implement the Supply Chain Due Diligence Act
through their supply chain risk management (SCRM) or the more general SCM system. However, IDC would like
to point out that no one solution or technology can cover all worldwide risks and requirements. A holistic SCM
solution should be regarded more in the light of an expandable and adaptable platform consisting of individual
special solutions or modules. The focus is on close integration and the avoidance of silos. IDC recommends
cloud-based IT architectures for all central platforms and portals set up for the purpose of enterprisewide data
processing, communication, and collaboration. They enable buyers to effectively share data even given a large
number of suppliers and they can be easily scaled, adapted, and extended. This makes sourcing, supply chain,
and compliance processes not only transparent and legally compliant, but also preserves their agility.

The Supply Chain Due Diligence Act as a

Basis for Collaboration in Enterprises and
Across Ecosystems
Data sharing, collaboration, and holistic risk management both enable successful Supply Chain Due Diligence Act
implementation and other sustainability initiatives and are a potential source of sustainable innovation and new
business. New opportunities to create synergies between these areas are thus unlocked.
Internally, they can improve procurement methods. For instance, many manufacturers no longer produce
their own products, but are specialized in orchestrating contract manufacturers, in final assembly, or even only
in marketing. In this scenario, supply chains become even more essential not only for the enterprise’s own
sustainability goals, but also for product and service quality, the customer experience, innovation, and product
optimization. Traditional price-focused procurement focusing mainly or almost exclusively on fixed, direct suppliers
will not suffice in the long term. Only the transparency achieved through digital data sharing across all stages of
the supply chain reveals the potential impact of raw material and primary product shortages on all ensuing steps
in the supply chain. Procurement therefore acquires
a multilayered basis for decision making to optimize
supply chain planning and improve purchasing resilience.
Incorporating data and transparency-based factors such
as availability, reliability, or procurement risks helps
43% of respondents have
already defined their
goal of cooperating with suppliers/
enterprises to effectively select alternative suppliers,
harmonize product specifications, and build up the partners that share mutual
necessary reserves for business continuity. Sustainability sustainability goals. A further 29%
performance can also be taken as a selection criterion,
for instance if a customer insists that an end product plan to do so.
should not exceed a specified value of carbon dioxide Source: IDC study “Greening of and by IT," 2022
equivalents.
Data transparency also increases the possibilities for machine learning and artificial intelligence. Solutions based
on the latter, such as intelligent supplier management and procurement analytics, can help purchasing teams to
automate processes and identify problems in advance, enabling them not only to react to faults, but to proactively
avoid disruptions or minimize their impact. Suppliers also benefit from transparency because in addition to
price, they can offer other competencies such as continuity, quality, punctuality, and sustainability as part of their
service. Supply chain transparency thus improves mutual trust in the supply chain with regard to breaches of
environmental and human rights and helps to increase the agility of the entire procurement process in compliance
with the law.
At Founded on modern, data-based procurement

processes, this newly created agility can also be used
30% the risk involved in

making business
models sustainable is the most
by buyers to consolidate their strategic importance
in the organization. With their knowledge of the
availability or shortage of primary products and
raw materials, they can influence the optimization,
common challenge encountered expansion, and development of value creation
processes and business models. For instance,
by European enterprises in collaboration with product development, production,
sales, service, and support may give rise to new
achieving their sustainability goals. products or services thanks to the innovation and
Source: IDC Future Enterprise Resilience Survey, 2022 capacities of the suppliers. Collaboration with
corporate sustainability officers also unlocks significant

potential to implement holistic sustainability strategies. In this case too, sustainability-based business models
can arise if procurement takes its key role in supplier co-innovation initiatives and, for example, offers options
for sustainable sourcing as part of a sustainable product life cycle design or efficiently implements the relevant
sustainability requirements of the engineers. Purchasing therefore exercises a significant influence on the linking
of sustainability and business strategy, as well as on minimizing the accompanying risks. Both aspects are key
prerequisites for successful sustainability.
The most far-reaching changes can be effected in the For

long term through participation in industry ecosystems.
These ecosystems group together enterprises from
the same or various sectors that cooperate with one
another in their value creation and supply chains. They
do so by combining their individual products, services,
64% of organizations,
sustainable
ecosystems are important or
data, applications, and production capacities. Because even crucial to implementing ESG
modern challenges like sustainability are often too
complex and far-reaching to be solved by one enterprise initiatives.
alone, industry ecosystems provide an opportunity to Source: IDC study “Greening of and by IT," 2022
tackle them jointly, to generate innovation and create
new business models.
The German automotive industry’s Catena-X serves as a good example of a data ecosystem. Traditional
partnerships are generally of a long-term nature, closely integrated, and consequently inflexible. Industry
ecosystems can increase their agility considerably. Depending on the market challenge or how long a trend lasts,
they can operate in the short, medium, or long term. The prerequisite for participating in industry ecosystems
is the use of a flexible collaboration platform that can be easily and reliably connected via interfaces to other
organizations in the ecosystem. In keeping with the Supply Chain Due Diligence Act, visibility, transparency,
and risk management naturally enjoy continued importance because collaboration with each new partner in the
ecosystem subjects them and their supply chains to the obligation of due diligence. Add to this new potential risks
for the enterprise’s own business continuity and reputation perceived by partners and customers. Enterprises that
are able to integrate new partners and their supply chains flexibly, efficiently, and in compliance with the Supply
Chain Due Diligence Act therefore enjoy a significant advantage in terms of agility through their participation in
industry ecosystems, irrespective of whether they use their own systems and processes for validation and risk
evaluation or existing third-party systems, networks, and databases.
… almost a third of all G2000

enterprise revenue is accounted
2026 for by shared data, applications,
and operative initiatives in industry
ecosystems.
Source: IDC FutureScape Worldwide Future of Industry Ecosystems 2022

Conclusion: Taking the German

Supply Chain Due Diligence
Act as a Starting Point for
Sustainable Procurement and
Supply Chain Transformation
Growing problems in supply chains leave no doubt as to why sustainability will
become a core procurement competence in the future. If practiced effectively
and in earnest, sustainability improves resilience and tackles risk management,
compliance, and business cases in a single thrust, making it vital to an organization’s
environmental, social, and financial success.
For organizations that have so far paid scant attention to sustainability, the Supply
Chain Due Diligence Act provides the ideal starting point. Because in addition to
the urgently necessary legal compliance, implementation provides both a basis
for targeted sustainability initiatives and for continuity, collaboration, innovation,
competitiveness, and the opportunity of new, sustainable business.
Decision makers in procurement who seize the initiative now can pave the way
towards resilient purchasing in the future and co-determine procedure for the
implementation of the Supply Chain Due Diligence Act and other sustainable
initiatives and reporting methods.

Recommendations for Successful Supply

Chain Due Diligence Act Implementation
1 Define a concept and goals

Implementing transparent, legally compliant, and universally valid supply chain structures is not a trivial
matter. Define a universally valid concept that takes into account all legal requirements and set out clear
goals to ensure that you have implemented all measures by the time the law comes into effect.
2 Take suppliers’ point of view into account

The Supply Chain Due Diligence Act is not only a task for those enterprises subject to it, but also for all
suppliers and service providers in the supply chain that are obliged to provide information to their many
customers. Focus as far as possible on standardization and user friendliness to make it easier for them to
comply and to optimize your reporting.
3 Create transparency and agility for a resilient supply chain

Core prerequisites for implementing the Supply Chain Due Diligence Act are knowledge of potential
risks and the ability to respond swiftly and appropriately to these risks. End-to-end visibility for maximum
transparency and coherent rules and mechanisms for risk evaluation and management are the basis for
agile reactions.
4 Focus on appropriate IT support and use external help

The Supply Chain Due Diligence Act requires the continuous collection and processing of information.
Digitize your supply chains to ensure that you can efficiently handle the large number of processes
and data. Focus now on data quality to enjoy the benefit of intelligent risk analysis and assessment
algorithms in the future. Consider using external sources of information and business networks to access
standardized, validated information about suppliers as easily as possible.
5 Develop ideas to implement your sustainability business case

The potential unlocked by the processes, data, and information created to implement the Supply
Chain Due Diligence Act goes far beyond mere legal compliance. Use it as a source of information for
enterprisewide sustainability initiatives, an opportunity for sustainable innovation and business models,
and as a basis for digital collaboration with other enterprises.

Interview
with Timm Hemmert, Director, Product Success for
Procurement, SAP
IDC: Sustainability is one of the defining topics of the • Select suitable software solutions to introduce
decade. What significance does it have for SAP — both risk transparency to core processes, to serve as a
internally and in terms of collaboration with customers? complete information base, and to enable digital
collaboration. The effects are obvious:
Timm Hemmert: Together, we can shape the world so
that profitability and sustainability are both achievable. • All internal and external data can be evaluated
SAP has long been committed to sustainability and it in a structured manner to gain a complete risk
is the focal point of its corporate and product strategy. evaluation profile for all suppliers.
The number of innovations in the field of sustainability • Your organization will take into account current
is growing steadily in order to observe human rights, risk evaluations of suppliers within your source
reduce emissions, and promote a circular economy. to pay process so suppliers with a favorable risk
SAP enables all its customers to achieve their profile will be primarily considered for awards
sustainability goals. In addition to established corporate and orders.
goals, they are becoming increasingly relevant. The • Any risks detected will be reduced in close
core processes of our customers are aligned with them, cooperation with suppliers and business
in close cooperation with their value network partners. partners while being documented with a
IDC: Procurement in particular assumes a key function transparent audit trail.
for the German Supply Chain Due Diligence Act and Comparable measures of this nature help companies
must be able to cooperate with the entire supply chain. be all geared up. They will be able to analyze the risks
What course should enterprises set to achieve Supply of their suppliers in accordance with the Supply Chain
Chain Due Diligence Act compliance by the time it Due Diligence Act and address them with effective
comes into effect on January 1, 2023? measures.
Hemmert: We recommend that procurement IDC: The German Supply Chain Due Diligence Act
departments focus on the following steps in the coming is just the beginning, because in a few years EU
months: Supply Chain Due Diligence Act legislation and other
• Put together a multidisciplinary task force with stricter regulations will come into effect. What specific
people from HR, IT, and legal/compliance. measures do you recommend to procurement and
supply chain management executives to optimally
• Extend existing supplier risk management systems
prepare for the future?
based on the existing ESG strategy of the company
to include Supply Chain Act requirements. Hemmert: In the future, sustainability will be
• Draft templates for codes of conduct and supplier enshrined in the DNA of every successful enterprise.
agreements. Development will be driven in equal measure
by growing customer interest and stricter legal
• Identify and categorize risks, for instance in requirements including the EU Supply Chain Directive,
countries, merchandise groups, and the relevant EUR Taxonomy, Plastic Tax, the Whistleblower Directive,
data sources. and the Carbon Border Adjustment Mechanism. The
• Classify subsidiaries and direct suppliers according Supply Chain Due Diligence Act is therefore the
to their risk potential. practical first step of a transformation journey heading
towards sustainable, and — if enterprises act smartly —
• Draft a Supply Chain Due Diligence Act policy more resilient value creation networks.
statement.

To avoid losing sight of their objective in the pursuit The industry ecosystem should form the digital nervous
of individual measures, decision makers should system of such a value network. Among other things:
develop a clear vision in which the Supply Chain Due
Diligence Act forms the first mosaic stone. Optimally, • It provides the golden supplier master data records
the vision should consist of the following topics, which (i.e. leveraging self-souvereign identities)
enterprises should focus on systematically:
• It ensures seamless, efficient, and secure
• Multitier supply chains upstream and downstream information exchange
• Consideration of emission information (carbon and • It untaps potential to better collaboration and
water in particular) circular business models
• Proactive supply chain risk management (based on At SAP, we look forward to help you to shape your
ongoing analysis of business impact and realtime respective corporate visions with our process and
supply chain information) IT expertise. We will also be happy to chart your
evolutionary transformation journey with you to help
• Closer alignment with adjacent functions such as you to achieve your business goals. Please contact us.
research and development, finance, supply chain
planning, and logistics
More information about the Supply Chain Due Diligence Act and how SAP can help is available here:
Implementation of Supply Chain Due Diligence Act with SAP
More general information about SAP can be found at www.sap.com

ABOUT IDC
IDC is the world’s leading provider of market information, consultancy services and events in the information
technology and telecommunications field. IDC analyzes and forecasts technological and industry-related trends and
potentials, thus providing clients with a basis for judicious planning of the business strategies and IT purchasing.
Drawing on its network of more than 1,100 analysts in 110 or so countries with global, regional and local experience, IDC
can offer clients comprehensive research findings on various segments of the IT, TC and consumer markets. Business
managers and IT professionals have been placing their trust in IDC for decision-making for more than 50 years.
You can find more information on our websites at www.idc.com and www.idc.de.
COPYRIGHT NOTICE
External publication of IDC information and data, including all IDC data and statements used for advertising purposes,
press releases or other publications, requires prior written approval from the appropriate IDC Vice President, country
manager or managing director. A draft of the text for publication should accompany any such request. IDC reserves
the right to deny approval of external publication for any reason.
For more information on this publication please contact:

Lynn-Kristin Thorenz, Associate Vice President, Research & Consulting, IDC • eMail: lthorenz@idc.com
@idc @idc idc.com
© IDC, 2022.
Privacy Policy | CCPA

IDC White Paper - Procurement in The Sustainable Supply Chain

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IDC White Paper - Procurement in The Sustainable Supply Chain

Uploaded by

Copyright:

Available Formats

IDC White Paper, sponsored by SAP

How to Browse this White Paper

Levering sustainability to increase corporate resilience and tackle the

The German Supply Chain Due Diligence Act:

Visibility and agility: The prerequisites for implementation of the Supply

Holistic database and cloud-based business platforms for real-time insights

IDC White Paper, sponsored by SAP

IDC White Paper, sponsored by SAP

Leveraging Sustainability to Increase

73% of German-speaking enterprises already pursue

IDC defines sustainability by the term “ESG”:

Environmental: Environmental factors such as reducing and minimizing waste, greenhouse

IDC White Paper, sponsored by SAP

Customer welfare Business ethics Transparency and traceability

Data protection Data security Occupational health and safety

Triple bottom line

IDC White Paper, sponsored by SAP

Buyers therefore have access to a very important source For

22% 39% 29% 10%

IDC White Paper, sponsored by SAP

The German Supply Chain Due Diligence

More social and environmental aspects included O

Act and a climate target plan is required.

Possible fines and sanctions as well as liability

IDC White Paper, sponsored by SAP

Visibility and Agility: The Prerequisites for

Environmental Social Risk Profitability

IDC White Paper, sponsored by SAP

By 2025, half of all manufacturers worldwide will enjoy extended

Improve supply chain agility 53%

Improve supply chain visibility

Product diversification at global

Preference for local products 32%

IDC White Paper, sponsored by SAP

• The diversification of suppliers so as to be able to rely on suitable, validated alternatives as quickly as

Key sustainability performance metrics for supply chains:

Supply Chain Miles Supplier Environmental Sustainability Index

Used by Planned by Used by Planned by

30% 41% 27% 44%

IDC White Paper, sponsored by SAP

Holistic Database and Cloud-Based Business

Indirect supplier Direct supplier Manufacturer Customer

Communication and collaboration

Collecting Risk evaluation Measures Dashboard and

Source: IDC, 2022

IDC White Paper, sponsored by SAP

Evaluation of carbon footprint 42%

Sustainable supply chain/circular

IDC White Paper, sponsored by SAP

The European market for supply chain management applications will

Current In two years

Full integration Comprehensive data sharing Partial data sharing

IDC White Paper, sponsored by SAP

IDC White Paper, sponsored by SAP

The Supply Chain Due Diligence Act as a

At Founded on modern, data-based procurement

30% the risk involved in

IDC White Paper, sponsored by SAP

The most far-reaching changes can be effected in the For

… almost a third of all G2000

IDC White Paper, sponsored by SAP

Conclusion: Taking the German

IDC White Paper, sponsored by SAP