How well do you know your supply chain? Does your supply chain have Conflict Minerals?

These are the questions manufacturers around the globe are being forced to answer as part of the Conflict Minerals legislation.

The aim of the law is to dissuade companies from engaging in trade that supports regional conflicts and human rights abuses.

A worthy cause, but many electronics companies – even global giants like Apple and Intel – are discovering that complying is no easy matter.

Under Section 1502 of the 2010 Dodd-Frank Act, companies filing with the Securities and Exchange Commission (SEC) are required to determine whether their products contain conflict minerals (tin, tantalum, tungsten and gold) that are necessary to the functionality of the product.

If so, they must determine whether the minerals originated from the legislation’s Covered Countries, like the Democratic Republic of the Congo, known to have associations with terrorist groups.

And unless the materials are from a recycled or scrap source, companies must also conduct due diligence on the origin and chain of custody.

The Cost of Compliance

The time, resources and capital necessary to identify the origin of these raw minerals has been challenging for companies, if not impossible.

According to a recent WSJ article:

 “90% of the 1,262 companies that filed conflict-mineral reports with U.S. securities regulators last year said they couldn’t determine whether their products are conflict-free.”

As commodities, a good portion of these minerals are bought on the open market, making the paper trail for some raw materials almost untraceable.

So what’s a company to do?

At Creation, we’ve seen many of our OEM customers face this challenge head on by outsourcing this process to leaders in the compliance reporting field.  These providers, like Creation partner GreenSoft Technology, help by gathering intelligence and maintaining product and component data.

We’ve even seen some OEMs adopt a very proactive Design for Environment / Design for Supply Chain strategy in order to describe their products as “DRC conflict-free.”

Evolving Requirements

Despite all of the challenges and the approach a company takes, most organizations are on side with the legislation.  After all, it’s intended to eradicate the exploitation of people, terrorist-funded operations, and human rights abuses.

The business challenge remains how to navigate the reporting requirements as the legislation continues to evolve.

A few weeks ago, the U.S. Court of Appeals reaffirmed its previous ruling that requiring companies to declare a Conflict Minerals compliance status is “compelled free speech” and violates the First Amendment. But that doesn’t let companies off the hook as the rest of the legislation remains in effect.

As GreenSoft said in a recent blog post:

Although Affected companies will still be required to report or disclose their conflict mineral data, the provision requiring companies to state whether their products are “DRC conflict free,” “not been found to be DRC conflict free” or “DRC conflict undeterminable” has been struck down.

Making Smart Supply Chain Decisions

While the debate continues, and the legislation and the guidelines evolve, the fact is that companies are still struggling to comply. The IPC association has recently published a white paper that is designed to help guide companies through the process.

OEMs, (especially those filing with the SEC directly), rely heavily on their partners to help them navigate the changes, collect the necessary information, and stay informed.

At Creation, we will continue to help our customers make smart Design for Environment decisions, as we work with our supply chain partners to make the data collection and reporting process easier.

We believe the key is partnering with the right suppliers.  Suppliers that are responsive, ethical, credible, and educated about how they impact product compliance in the end-to-end supply chain.

 

How do you feel about the recent U.S court of Appeals Decision? Will it affect your current strategy to comply with Conflict Minerals legislation?