Few U.S. companies surveyed say they are prepared to meet new government regulations for reporting their use of so-called conflict minerals, according to an early April poll by industry analyst IHS. The new regulations, which took effect in August 2012 with initial reporting to begin in May 2014, are part of the Security and Exchange Commission’s Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
IHS polled 134 electronics industry managers and found that just 7.5% said they were well prepared to meet compliance rules. More than 35% of respondents said they haven’t started developing compliance plans, and the remainder of respondents were somewhere in the middle.
The new conflict minerals requirements apply to publicly traded companies but will have far-reaching implications for the electronics supply chain. Because manufacturers procure products and materials from all over the world, it’s likely that one or more supply-chain partners will require information regarding the sourcing of conflict minerals, IHS explains.
Conflict minerals are raw materials mainly sourced in the Democratic Republic of Congo, where their trade fuels criminal networks and is perpetuating violence in the region. The materials—tantalum, tungsten, gold and tin—are widely used in the electronics market, in everything from cell phones to pacemakers. IHS estimates that 15 cents worth of tantalum was contained in every smart phone shipped when Dodd-Frank was originally signed in 2010, for example. In 2012, this would amount to $93 million worth of tantalum in smart phones, IHS says.
In an interview with Global Purchasing last fall, Newark element14’s Ken Manchen, director of safety, health and environmental affairs for the electronic components distributor, explained that the conflict minerals rule will affect distributors and suppliers small and large as they must report back to customers on the presence and origin of conflict minerals in the components they supply.
“This requirement will apply to both private and foreign suppliers, even if not regulated by the SEC,” Manchen explained. “A manufacturer will not be able to prepare a report without gathering reports from their suppliers.”
Compliance is costly and time-consuming, but IHS points to industry efforts to help support the process. IHS’ content solution strategist Scott Wilson points to the smelting industry in particular.
“Smelters are a good control point, and this simplifies how far back in the supply chain companies have to go,” Wilson told an IHS webinar audience earlier this month.
Wilson also pointed to resources such as the Organization for Economic Cooperation and Development, which has issued guidelines that outline the key aspects of compliance. He also said companies should focus internally on four key areas as they develop 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.