As the May 2014 deadline for publicly traded electronics component manufacturers doing business in the United States to report to the U.S. federal government any use of conflict minerals sourced from Africa, many global companies are still without a concrete plan for compliance, according research firm IHS.
The protocols on conflict minerals took effect in August 2012 under the Dodd-Frank Wall Street Reform and Consumer Protection Act set out by the Securities and Exchange Commission (SEC), with initial reporting legally required by May 2014 of publicly traded U.S. companies.
Conflict minerals are raw materials mainly sourced in the war-ravaged country of the Democratic Republic of Congo in Africa, or from adjoining countries on the continent.
The materials include tin, tantalum, tungsten and gold—all of them widely used in the electronics market in products ranging from cellphones to hearing aids to pacemakers. For example, IHS estimates that $0.15 worth of tantalum was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010. As of 2012, that amounted to $93 million worth of tantalum in smartphones.
While the rules affect publicly traded companies in the United States, electronics manufacturers procure products and materials from all over the globe. As a result, the likelihood is high that one or more supply-chain partners will require information regarding the sourcing of the four conflict minerals.
IHS found that 42% of participating companies in a survey said they were uncertain about what to do, or appear unprepared for the deadline on conflict minerals.
Of the 42% of the respondents, at least 22% said they were “unsure” on how to go about meeting the new regulations on conflict minerals.
Meanwhile, 20% admitted they were just in the process of putting a plan together or “determining that approach now.”
For 30% of the respondents, the biggest concern with the looming deadline revolved around fears relating to noncompliance with U.S. regulations. “Losing clients” followed closely behind at 28%, and “not having responsible supply chains” was third at 20%.
And despite the large number of companies that remain ill-equipped on compliance, 50% of the sample admitted they could use help in collecting conflict minerals information from their suppliers—a revealing statistic that shows how important some form of assistance could be.
Scott Wilson, content solution strategist at IHS advises companies across the electronics supply chain to be prepared to provide compliance information by May 2014. 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. There is existing guidance to assist in the process, Wilson said. These include guidelines already in use issued by the Organization for Economic Cooperation and Development that outline the key aspects of compliance.
Wilson suggested that companies focus internally on four key areas as they develop their compliance strategies:
- Management systems: Most Material Requirements Planning (MRP) and Enterprise Resources Planning (ERP) systems have the capability to track materials, but may not be programmed to do so. Companies need to determine if their systems need additional capabilities.
- Identify and assess risk: Prioritize the suppliers that are most likely to use or source conflict minerals.
- Respond to the risk: If suppliers don’t share information, companies should consider alternative sources.
- Audit smelters: An Electronics Industry Citizenship Coalition (EICC) standard provides the necessary guidance and content.