Strategic Purchasing

Buyers and Conflict Minerals Reporting

Eight years ago, many electronics companies were scrambling to comply with the European Union' s Restriction of Hazardous Substances (RoHS) law that limited the use of lead, cadmium, mercury, and several other substances in electronics equipment.

Now, many of those same companies are struggling to comply with the conflict minerals reporting requirement stipulated by section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.  Under the regulation, by May 2014 companies have to declare whether they use conflict minerals in their products.  Conflict minerals include tantalum, tin, tungsten, and gold mined in the Democratic Republic of Congo (DRC) and adjacent countries. For years, rebels in the Congo have illegally mined those minerals and sold them to fund their war efforts in the DRC.

Even if a company does not use conflict minerals in products, it has to demonstrate it has conducted due diligence in making that determination, according to researcher IHS, which conducted a recent survey of electronics companies concerning conflict minerals.

Forty-two percent of those surveyed said they were either uncertain of how to comply with the law or unprepared to show compliance. Twenty-two said they weren't sure how to go about meeting the new regulation, while 20% said they just started implementing a compliance plan.

The good news for buyers involved in their companies’ efforts to show compliance is that the process may be costly, but it may not be as complicated as many companies feared if they have a compliance process in place.

Scott Wilson, content solution strategist at IHS, offered some suggestions for companies getting started on the compliance process. “One of the first steps that companies need to do is assess which parts are high risk parts and may have one of the four conflict minerals,” he said. “Then they need to do their due diligence by going out and collecting information from their supply base” about where the materials in the parts were sourced, he said.

If suppliers are reluctant to share information, buyers should consider alternative suppliers, said Wilson.

He added that MRP and ERP systems used by most companies can help with compliance because they can be programmed to track materials and may help identify which products or suppliers use conflict minerals.

Companies can also audit smelters where raw materials are processed. An Electronics Industry Citizenship Coalition (EICC) standard provides the necessary guidance and content. The organization has a listed of certified smelters that use conflict-free materials. A company can show compliance if it can provide documentation that proves materials used in its products were processed at a conflict-free smelter.

Distributors can also be helpful in providing data that can help prove compliance.

As with RoHS, conflict minerals compliance can be costly for a company depending on how many parts and suppliers are involved. The cost for a small company with about 100 suppliers will be much lower than the cost for company with 1,000 or more suppliers.

Although it is difficult to determine the exact cost for compliance, the National Association of Manufacturers (NAM) estimates that it will take a company two hours per supplier to determine compliance. The average cost of compliance will be $50 per hour times the number of suppliers, according to NAM. The association estimates that the total cost for all manufacturers to comply with the conflict minerals regulations will be between $9 billion and $16 billion.

 

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