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Conflict Minerals Disclosure Rule Could Pose Risk to Supply Chain

Companies that fail to meet the reporting requirement of SEC conflict minerals regulations risk losing business

By James Carbone

02/04/2014

Conflict Minerals Disclosure Rule Could Pose Risk to Supply ChainNatural disasters or geopolitical events that shut down production of needed components, longer lead times of crucial parts and the threat of counterfeit semiconductors are some of the risks that supply chain managers deal with on a regular basis.

But another issue that is a front-and-center risk is the Security and Exchange Commission (SEC) disclosure deadline concerning conflict minerals. By the end of May, publicly traded companies must disclose whether their products contain minerals mined from the Democratic Republic of Congo (DRC) or other nearby African countries.

The reporting requirement is part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the law, companies must disclose whether there are conflict minerals in their products and what steps they have taken to ensure that the use of the raw materials do not contribute to human atrocities in the DRC and nearby countries. Rebels in the Congo have used proceeds of conflict minerals illegally mined to finance their war efforts.

Conflict minerals include tantalum, tungsten, tin and gold, all of which are used in electronics equipment ranging from cell phones and computers to hearing aids and pacemakers.

Scott Wilson, content solution strategist at IHS, Englewood, Colo., says companies across the electronics supply chain need to be prepared to provide compliance information by May. Even if a business does not use conflict minerals in its products, it has to demonstrate it has conducted due diligence in making that determination, he says.

Compliance is necessary

A recent survey of electronics companies by IHS said that electronics companies risk losing business if they do not comply with the conflict minerals regulations. “The survey found that 30% of those surveyed said noncompliance was their biggest risk and concern, and 28% were concerned about losing customers,” says Wilson. "They definitely view it as a risk."

Chris Lauer
“A lot of our customers are coming to us because they need to know whether the products that we distribute have conflict minerals in them," says Chris Lauer, Digi-Key’s director of order fulfillment.
However, the survey also found that 42% are uncertain about what to do to be compliant with Dodd-Frank or are unprepared to meet the May deadline on conflict minerals. About 20% admitted they were just in the process of putting a plan together or “determining that approach now.”

The companies surveyed included 162 firms from five global geographical regions, although the majority were based in the United States.

About 50% of those surveyed said they could use help in collecting conflict minerals information from their suppliers. Many OEMs and electronics manufacturing services (EMS) providers are turning to distributors for help in showing compliance to the conflict minerals regulations, although distributors don't make the parts or source the minerals that are used components.

Customers seek help

"A lot of our customers are coming to us because they are publicly traded and they need to know whether the products that we distribute have conflict minerals in them," says Chris Lauer, director of order fulfillment, Digi-Key, Thief River Falls, Minn.

He says over the last 12 to 16 months, Digi-Key has queried its suppliers about documentation on whether their parts contain any of the conflict minerals covered under Dodd-Frank. Lauer says many suppliers have provided "conflict minerals declarations" that state whether the parts they make contain any of the minerals.

“Not all of our suppliers are on board yet, but the majority are," he says. Digi-Key expects to receive more declarations in the coming weeks. “At the end of December, we told suppliers that by Jan. 31, we need to know what they're statuses are on conflict minerals. We are getting feedback from those suppliers now," says Lauer.

He notes that some suppliers provide a “GeSi form." This is a document that declares that minerals contained in parts were processed at certified, conflict-free smelters and contain no conflict minerals.

Global e-sustainability Initiative (GeSI) launched its conflict-free smelter program in 2010 along with the Electronics Industry Citizenship Coalition (EICC). The groups certified smelters that don't use conflict minerals. “The GeSi form is the most trusted document from manufacturers in regards to their products being conflict-free,” says Lauer.

Jim Carbone

Jim Carbone is a freelance writer covering the electronics supply chain.

A veteran journalist, Jim was a writer and editor for Electronics Purchasing and Purchasing magazines for 21 years. He covered electronics distribution, semiconductors, passive components and connectors for the magazines. He also wrote extensively about the strategic purchasing strategies of electronics OEMs and electronics manufacturing services providers.

Jim was a member of an editorial team that was a finalist for a Jesse Neal Award-- considered the Pulitzer Prize of business journalism-- for print and online stories in 2009 about buying during the recession. He also wrote content for Purchasing.com, which was named a Top 10 Great Website by Media Business Magazine.

Before covering the electronics industry, Jim worked as a reporter and editor for United Press International for nine years. He started his career as a newspaper reporter and photographer.

Jim is a graduate of the State University of New York at Albany.