Today’s manufacturing industry has to contend with many different Corporate Social Responsibility (CSR) and compliance related issues but how do supply chain directors enforce their suppliers to adhere to numerous compliance regulations? One of the most significant compliance issues that will shortly impact supply chain directors across the manufacturing sectors is conflict minerals reporting and this will be the main focus area for this particular blog entry.
Raw materials/minerals used in the manufacture of electronic components are typically sourced from many different locations around the world. One country that considered mineral rich is the Democratic Republic of the Congo (DRC) however it is widely known that the trade of minerals in this particular country is helping to fund extreme levels of violence across the region. This conflict has claimed more than 5.4 million lives since it began in the late 1990’s. Raw materials mining is crucial to the DRC economy, however some mines are controlled by militant groups causing serious social and environmental issues in the region. Such issues include serious human rights abuse, theft, extortion, forced child labour, deforestation and high taxation of mineral resources. All of these factors combined have had a negative effect on both the manufacturing industry and the image of the DRC. So what exactly is “DRC Conflict Free”? This is defined as the products that do not contain minerals or their derivatives determined to be directly or indirectly financing or benefit armed groups from the countries highlighted in the map shown above.
So which minerals are affected by this ban? Well there are basically four: Cassiterite (tin ore), Wolframite (tungsten ore), Coltan (tantalum ore) and Gold. Collectively these are known as 3TG (Tin, Tantalum, Tungsten and Gold). The ban on conflict minerals relates directly to minerals sourced from the DRC or any of the adjoining countries listed above. The chart below highlights the percentage of Conflict Minerals sourced from the DRC:
- Tantalum: regarded as the first conflict mineral and became popular on the back of growth across the mobile phone industry. Today it is used in electronic components inside mobile phones, computers, video game consoles, digital cameras and as alloy for making carbide tools and jet engine components.
- Tin: widely regarded as the primary funding source of rebel groups and used in alloys, tin plating, and solders for joining pipes and electronic circuits
- Tungsten: DRC is the 5th largest producer for this mineral and is used in metal wires, electrodes and contacts which are used in a multitude of electrical and electronic devices
- Gold: due to its superior electric conductivity and corrosion resistance it is used in electronic, communications and aerospace equipment
Over the past couple of years a number of organisations have been formed to help define processes for clamping down on conflict minerals sourcing. In December 2010, the International ‘Organisation for Economic Co-Operation and Development’ (OECD) produced a document entitled “Due diligence guidance for responsible supply chains of minerals from conflict affected and high risk areas and the supplement on Tin, Tantalum and Tungsten”. The purpose of this report is to help companies avoid fuelling, facilitating or exacerbating conflict through their sourcing practices or contributing or being associated with serious human rights abuses. The OECD designed a 5 step framework for identifying and removing conflict minerals from a supply chain.
From a high tech industry perspective there are two bodies that have been setup to help high tech companies implement the OECD framework, the Electronic Industry Citizenship Coalition (EICC) and the Global eSustainability Initiative (GeSi). Both of these organisations are committed to improving conditions in the electronics supply chain and all mining activities that fuel conflict are unacceptable. The EICC and GeSI joint working group aims to enable companies to source conflict free minerals through actions including:
- Implementing conflict free smelter and due diligence programs to verify conflict free minerals down the supply chain to the OEMs
- Supporting in region sourcing schemes to enable future legitimate trade from DRC and surrounding countries
- Supporting OECD due diligence guidance and pilot
- Engaging with stakeholders for collaboration and efficiency
- Supporting individual company’s assurance processes through information sharing, standard tools and templates
For the high tech industry, the OECD defines upstream and downstream as follows:
In order to try and remove conflict minerals from global supply chains, the U.S congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which was signed into law on 21st July 2010. Section 1502 of the act is a provision related to sourcing, namely conflict minerals. The intention of this provision is to deter through increased transparency of companies sourcing practices, the extreme violence and human rights violations in the DRC and neighbouring countries funded by the exploitation and trade of certain materials. Section 1502 instructs the U.S Securities and Exchange Commission (SEC), in consultation with the US Department of State, to introduce regulations requiring certain companies to submit annually a description of measures taken to exercise due diligence on the source and chain of custody of conflict minerals.
All companies submitting filings to the SEC must now complete forms to confirm that they are not using conflict minerals across their supply chain and the first submission is 31st May 2014 and then annually by 31st May each year. Any company, and there are estimated to be around 6000, that files Forms 10-K, 20-F or 40-F with the SEC each year will be affected by this new law. The manufacturing industry is the most impacted by Dodd-Frank with aerospace, automotive, high tech, defence and medical devices sectors being particularly badly impacted. According to Deloitte “the complexity of today’s supply chains combined with lack of visibility into sourcing practices will be one of the key challenges of ensuring that Dodd-Frank can be adhered to”.
One such tool that has been developed by EICC is the conflict minerals reporting template shown below which complies with SEC’s due diligence requirements for downstream companies. The Microsoft Excel based reporting template embraces the OECD framework and asks specific questions to ensure that conflict minerals are not used across a supply chain. Having a spreadsheet based reporting tool is far better than a paper based questionnaire that would need to be mailed out to participants across an entire supply chain. The sheer number of supply chain participants is complicated enough but having to distribute the reporting tool to the correct contacts in every company across the downstream supply chain is a big challenge in itself. Given that conflict minerals reporting is now law for North American based SEC filings, it is in a company’s interests to find an efficient way to conduct the reporting process with minimal effort and without disrupting the day to day operation of the companies being asked to complete the survey.
There are two key challenges to ensure successful reporting of conflict minerals, firstly ensuring that you have up to date contact information for every company across your supply chain and secondly ensuring that these companies complete the survey questions in a timely manner so as not to delay an SEC filing. Efficient contact management is therefore critical to the success of this reporting process and hence ensure that a company remains within the law on conflict mineral reporting.
Establishing a community management strategy is never easy, especially given the global nature and diversity of today’s suppliers. One of the simplest ways to engage with a global community of trading partners is through a common platform that is accessible through nothing more than a web browser. One such platform is GXS Active Community, a cloud based community management tool that has been designed from the ground up to support people to people interactions across a supply chain. The platform uses a combination of centralised contact management and mass communication tools to allow a company to reach out to their trading partners anywhere across a supply chain. When using this platform, the EICC reporting tool could either be distributed as an email attachment or it could be replicated within the platform’s built in survey module. Therefore any company that has to comply with the new conflict minerals reporting process will be able to ensure that all their supply chain contacts are up to date but more importantly have full traceability over which suppliers have actually completed their submission. Any trading partner that fails to complete the report for any reason will automatically be sent a reminder email thus allowing you to significantly improve response rates and ensure that a SEC filing is completed on time.
CSR compliance and risk management are high on the agenda of every CEO and a community management platform such as GXS Active Community can help enforce compliance regulations across a trading partner community. In the very near future, GXS will be developing an on-demand webinar to showcase how a community management platform could be used for this particular SEC reporting requirement, but in the meantime if you need further information on GXS Active Community then please CLICK HERE.