Regardless of your position on government mandates for corporate social responsibility, one thing is certain. The U.S. Securities and Exchange Commission’s conflict minerals rule, and related regulations pending around the world, are going to be a massive headache as manufacturers try to understand what is required to stay out of trouble with regulators, activist organizations and customers.
Even after the SEC rule has been promulgated, and parallel regulations are being put forward in the European Union, portions of the rule are already being torn down through court challenge.
I mean, let’s get our heads around what this rule requires, on a holistic level. Manufacturers whose products contain certain minerals must prove that these minerals were not mined by specific people in specific places — regardless of how far back in the supply chain the raw materials originated from. Regardless of the fact that suppliers may by misrepresentation, error or omission fail to provide data on the true origins of minerals that comprise their products. This means manufacturers are more accountable than ever before for the actions of their supply chains. Under the initial rule, publicly-traded companies are affected, but that means companies selling parts, subassemblies or materials to them will be required to provide data on the origin of the minerals that constitute each order.
What form should information on the lineage and origin of these minerals take? What degree of due diligence must a manufacturer go through in order to absolve themselves of liability if a supplier misrepresents the origin of tin contained in some parts or subassembly the manufacturer purchases from them?
Well, that is kind of undefined. Which when you think about it, is pretty unsettling.
One challenge in drafting regulation is to ensure that it is clear what is required of the individual, company or industry being regulated. Of course in reality, confusing or contradictory regulations are par for the course, and therefore many of us probably have mixed emotions about this particular regulation. On the one hand, it is almost certainly a good thing to avoid using minerals that are originally mined by armed insurgencies who use forced labor and otherwise violate human rights, in violation of the U.N. Global Compact. On the other hand, nobody is quite sure how far you need to go in order prove you are doing all that is practical to avoid this. Manufacturers ranging from Apple to the World Gold Council are undergoing a number of interventions, including third party auditing of suppliers. What level of due diligence is required? And what does this mean for companies selling products, parts and subassemblies to these companies?
Right now, again, we really don’t know.
In the face of this uncertainty, it is important to err on the side of having too much information about the contents of products and the trustworthiness of supply chain partners than too little. So the role of enterprise resource planning (ERP) software with robust traceability features, supplier scorecards and other quality management functionality becomes apparent.
One of the better sources of practical advice for how to use ERP for conflict minerals compliance may be IFS’ own Bill Leedale. As an APICS certified super-guru with more than a few initials after his name, and an author of the APICS body of knowledge, Leedale understands manufacturing and supply chain management better than most people. He also handles knowledge transfer for the manufacturing functionality within IFS Applications. Leedale explores the conflict minerals challenge in a new whitepaper, Three Conflict Minerals Concepts Manufacturers Need to Understand.
In the whitepaper and this related podcast, Leedale stresses that because the rule has implications deep into the supply chain, there are limits to what ERP can do when it comes to this regulation. But there are a number of ways existing software functionality you may already be running can serve as an underpinning for an overall conflict minerals effort. A number of the major consulting companies like PwC and Ernst and Young, fully aware that conflict minerals regulation means a lot of manufacturers will need a lot of help, are posting some solid thought leadership.
Good luck getting your head around what is required of manufacturers handling affected minerals. Feel free to append any comments here as at this point, we all need to share as many insights as we can!