© luchschen Analysis | January 21, 2014

Many remain ill-prepared for compliance with US rules on conflict minerals

With just four short months left before publicly traded electronics component manufacturers doing business in the United States must report to the U.S. federal government any use of so-called conflict minerals sourced from Africa, many global companies are still without a concrete plan for compliance.

In a December IHS webinar on the subject, fully 42 percent of participating companies in a survey professed uncertainty on what to do, or appear unprepared for the May 2014 deadline on conflict minerals. Of the 42 percent of the respondents, at least 22 percent said they were “unsure” on how to go about meeting the new regulations on conflict minerals. Meanwhile, 20 percent 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, with the majority of attendees based in the U.S. © 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. Compared to those feeling adrift on conflict-minerals compliance, 23 percent use internal resources to catch up, while 9 percent employed a third-party reference database and 2 percent took advantage of supplier tools. The remaining 24 percent subscribed to a hybrid approach that utilized some combination of determining a workable approach, using internal resources and also referring to third-party reference content. For 30 percent 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 percent, and “not having responsible supply chains” was third at 20 percent. And despite the large number of companies that remain ill-equipped on compliance, 50 percent 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. A loaded path ahead 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. Compliance costs While complying with the SEC rules is time-consuming and costly, the process may not be as complicated as originally projected. Among the key industries involved in processing conflict minerals, smelters are getting involved in and supporting compliance efforts, said Scott Wilson, content solution strategist at IHS. “Smelters are a good control point, and this simplifies how far back in the supply chain companies have to go,” Wilson said in comments made during another webinar on the subject in early 2013. Nevertheless, Wilson 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. Conflict resolution 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.
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