Raw materials are in the headlines again, and it's not for rising costs this time. Instead, electronic companies are scrambling to meet the January 31 Securities & Exchange Commission deadline for reporting on "conflict minerals" -- gold, tin, tantalum, and tungsten -- that have entered the supply chain.
It isn't as simple as filling out a quick form and forgetting about it; most companies lack the information, processes, and technology needed to adhere to the new SEC reporting standard. Compliance won't be easy or cheap. According to Deloitte, "The SEC has estimated it will cost U.S. businesses between $3 billion and $4 billion to implement processes to comply with "the rule."
Right now, affected companies are asking suppliers these seemingly basic questions:
Do you provide our company with any products manufactured with tin, tantalum, tungsten, gold, or any other conflict minerals?
If so, do you source any raw materials from the Democratic Republic of the Congo or surrounding regions?
Yet, the answers are nearly impossible to find. At the heart of the problem is supplier relationship management 101. Companies have relied, for too long, on incomplete supplier data that is scattered throughout various ERP and SRM tools -- or worse, hidden away in filing cabinets. Coupled with Tier-1 and Tier-2 suppliers thousands of miles away, the biggest tech companies are disconnected from what's really going on throughout the supply chain.
My hope is that there is a silver lining to this new level of reporting: Companies should be compelled to gain this level of visibility into the supply chain for every raw material, facility, and product, reducing costs and risks.
Paul, The data is almost here and what's I've heard from the industry each time a new deadline comes up is that everyone is ready. They may be right but regulators have the final say. Is the industry really ready or is there a grace period?
@Bolaji: I think the companies would never be ready. It's in their interest to delay it as much as possible. I think if the regulations are imposed and a fine is imposed along side, that will serve to motivate the companies more to take quick actions.
Yes, but we have exhausted the 'grace period', the rule went into effect on 1 Jan and companies had until 31 Jan to conduct a review of their suppliers.
The first reporting period will be from January 1, 2013 to December 31, 2013, and the first disclosure report must be filed on or before May 31, 2014. With 'out of supply network' conflict minerals exempted prior to Jan 31, 2013.
Bolaji: All companies that sell to the United States are similarly impacted.
Sparky: Correction - Only PUBLICLY TRADED companies that sell to the United States are similary impacted.
At this writing I am not aware of the SEC having any authority over privately held companies in the U.S., much less globally. Please advise if you find otherwise.
Sparky, The SEC doesn't need authority over private companies to impact them here. The companies that use the conflict minerals are the ones who will be doing most of the monitoring -- of their supply base. These companies need to confirm that their suppliers are not in violation of the law. It wouldn't matter whether your company is private or public; if you sell components to any of the companies overseen by the SEC you will be impacted.
Of course, you are right. The SEC does not have authority over private companies but it's a myth to think the SEC still doesn't get involved in their business. If they are big enough to get involved in any financial transactions managed by companies over which the SEC has authority then they get indirectly supervised.
"China is not ready to enforce that regulation,...."
It was just that possibility that made me wonder how effective this will be, although I understand and support the reason behind regulating conflict minerals (presuming that the display of justice is not intended to hide another motive underneath).
The EU is leading efforts to exclude conflict minerals from the supply chain. The rest of the world are following (including the U.S., by the way.) I am not aware of similar legislation in China (doubt it) but two other big players in the electronics supply chain (Japan and South Korea) are probably involved.
TaimoorZ, Some of the costs will be borne by companies and some by consumers if manufacturers are able to pass these on to their clients. It's not easy to tabulate the cost of compliance, though.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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