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Avoid Conflict: Comply With Dodd-Frank

The proposed SEC disclosure rules for the conflict minerals provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act have caused concern to mount among OEMs about the legislation’s impact on the electronics supply chain. Will it result in higher component costs? Will foundry production be disrupted? How can I possibly be expected to map out my entire supply chain from finished product down to sources of the most basic mineral content?

There is no doubt that the effects of this legislation will ripple throughout all layers of the electronics supply chain. How deep and wide these ripples will spread is still open for debate. What we do know, however, is the electronics supply chain is no stranger to the challenges imposed by such regulations. Remember RoHS and WEEE? We also know that when faced with these challenges, cooperation, communication, and commitment are our best defense.

The Dodd-Frank legislation does not ban the use of the minerals in question — columbite-tantalite (coltan and tantalum), cassiterite (tin), gold, wolframite (tungsten). It does, however, require companies to disclose whether their products contain materials mined from the Democratic Republic of Congo, a region plagued by violence.

It's still early in the game, but you can bet that those companies that are among the first to label their products “conflict free” are going to enjoy a significant competitive edge. So, if you haven't already, I encourage you to conduct internal procurement reviews and engage with suppliers and/or distributors to identify potential conflict metals within their supply chains.

Establishing a clear chain of custody from mines to finished products is no small task, but distributors like {complink 577|Avnet Inc.} can be particularly helpful in this effort. Traceability is an essential feature of Avnet's overall sustainable supply chain strategy. We are keenly aware of our responsibility to maintain as socially and environmentally responsible a supply chain as possible — whether we are talking about environmental protection, counterfeit components, or raw materials sourced from the violence-ridden territories.

As the requirements for this initiative are further defined, Avnet will continue to work with customers and suppliers to develop the tools and strategies necessary to ease the compliance burden.

This initiative is going to be complicated and drawn-out, but there is so much more at stake than just compliance to a law. Violence in the eastern Congo has resulted in the death of nearly 7 million people and untold human atrocities over the last 12 years, according to The Enough Project, an organization committed to the prevention of genocide and crimes against humanity.

The trade in conflict minerals provides rebels and criminal networks within the region with hundreds of millions of dollars a year. The electronics industry is in the unique position to significantly diminish the resources available to these brutal and corrupt forces.

One more thing to keep in mind; it is estimated that going “conflict free” would cost companies just one penny per product. Even if this estimate is grossly understated, can we put a price on human life?

9 comments on “Avoid Conflict: Comply With Dodd-Frank

  1. Nemos
    May 3, 2011

    First of all, I want to give you congratulations for this amazing passage and to the Avnet for being such a responsible company and doesn't  care only for profit.

    I hope a lot of companies in electronic industry will follow your example, in conclusion I want to notice again the following sentence “We are keenly aware of our responsibility to maintain as socially and environmentally responsible a supply chain as possible”


  2. Kevin Jackson
    May 3, 2011

    So, I'm free to use conflict minerals as long as I disclose the source?

  3. Gerry Fay
    May 3, 2011

    Nemos,

    Thanks for the feedback. I believe profits and social responsibility can go hand in hand and some times can lead to greater profits!

    Regards,
    Gerry

  4. Gerry Fay
    May 3, 2011

    Kevin,

    I think if you read the next paragraph, the paragraph you reference will be more clear.

    Regards,
    Gerry

  5. Anand
    May 4, 2011

    “but you can bet that those companies that are among the first to label their products “conflict free” are going to enjoy a significant competitive edge.”

    @Gerry,

     Thanks for the  article. Let's first congratulate Avnet for taking the lead in developing the tools and strategies to tackle this menace. Why can't government put extra tax on the  non-“conflict free” products and distribute this extra tax collected to the people who are affected by mineral conflict ?

  6. Gerry Fay
    May 4, 2011

    Anandvy,

    I guess I am more of a market driven person and that doing the right thing eventually gets recognized in the marketplace.

    But I like the way you think!

  7. TonyHilvers
    May 6, 2011

    I am concerned that the article “Avoid Conflict: Comply With Dodd-Frank” by Gerry Fay, Senior Vice President, Supply Chain Solutions, Avnet Electronics Marketing is unduly optimistic about the electronics industry’s ability to immediately solve a long-standing social conflict that has resisted efforts by the International Conference on the Great Lakes Region (ICGLR), the U.S. State Department and the United Nations.

    In his article, Fay writes: “The trade in conflict minerals provides rebels and criminal networks within the region with hundreds of millions of dollars a year. The electronics industry is in the unique position to significantly diminish the resources available to these brutal and corrupt forces.”

    IPC has been working on this issue for the last two years and initially I thought the same thing. Just don’t buy minerals (metals) from the Democratic Republic of the Congo (DRC) and put the rebel mines out of business. Unfortunately, social responsibility issues are complex no matter how much we like to think or fervently wish there is a simple solution.

    Yes, I will address the significant financial toll to the electronics industry on this issue. But here’s the dirty little secret — there’s a human toll to pay in “boycotting” the mines in the DRC. Consider the DRC’s tin mines. The DRC’s tin mines account for roughly four percent of the global market for tin. And it’s estimated that about two percent of tin from the DRC has been identified as coming from conflict mines. Where does the other two percent of tin come from? The tin comes from many artisanal mines – mom and pop operations – whose wages support tens of thousands of people.

    It’s tough, dirty work in these artisanal mines but it does provide a wage. Shut down these artisanal mines and what happens? Tens of thousands of miners in the DRC lose their jobs and most likely their only source of income.  Starvation will probably follow. And make no mistake about it; the artisanal mines will be shut down.  

    There’s also a better than average chance that other countries surrounding the DRC will experience the flight from African minerals by the global business community.  And then, these African countries, like Rwanda, will suffer greatly too.

    So what’s causing this law of unintended consequences? Dodd-Frank legislation, passed this year as part of the Wall Street Reform and Consumer Protection Act, requires publicly traded companies to report to the U.S. Security and Exchange Commission (SEC) on their source of tantalum, tin, tungsten and gold.  Though the SEC is still working on the rules, even now requirements are flowing down through the entire supply chain and across all U.S. industry segments — from automotive manufacturers to construction equipment to electronics.

    The enormity of this supply chain review and audit is breathtaking — significantly larger and more costly in scope than RoHS. While the SEC last year estimated the cost of implementation at $16.5 million, IPC in a survey to its members estimated the cost to the electronic interconnection industry alone to be $279 million in the first year of implementation.

    What’s the answer then? Well, the law has been passed and the SEC is writing the rules to address sourcing conflict metals. For artisanal miners, the damage has been done. No OEM in their right mind (or members of their supply chain) will willingly source metals from Africa, let alone the DRC.

    And quite candidly, no one will oppose the law. As you can see, this is a complex issue turned into sound bites by well-meaning non-governmental organizations using terms like “blood metals” and “bloodberry phones.” If you oppose the law, then obviously you support rape and murder in the DRC by the rebel miners and criminal networks. It’s a no-win position.

    There was — and maybe still is — a responsible solution to the issue of conflict metals. Over the last three years, electronics industry groups and global metals associations have been working to “bag and tag” minerals from artisanal mines in the DRC. The DRC government supports this action as do other countries in the Great Lakes Region of Africa.

    It’s not a perfect system, but it can work if it’s given time to be implemented.  Unfortunately, the rush to source ‘”conflict free” immediately can only serve to worsen the situation in the DRC.    Right now, the only smelters that can be certified as “conflict free” are those that are not sourcing in the DRC or adjacent countries. We need to give these certification systems time to work.

    Let’s face it; it seems nothing in the DRC is perfect or easy, even though we keep trying to legislate in order to make it that way.

    http://www.ipc.org/minerals

    Tony Hilvers

    Vice President of Industry Programs

    IPC – Association Connecting Electronics Industries

     

     

     

     

     

     

      

     

  8. Gerry Fay
    May 6, 2011

    Tony,
    Thanks for your informative post. Through these interchanges, we all learn more.

    While I appreciate your view and perspective, by singling out one paragraph to make your point, I want to ensure the readers understand the main point of my blog:

    “The proposed SEC disclosure rules for the conflict minerals provision of the There is no doubt that the effects of this legislation will ripple throughout all layers of the electronics supply chain. How deep and wide these ripples will spread is still open for debate. What we do know, however, is the electronics supply chain is no stranger to the challenges imposed by such regulations.

    I again thank you for your views as you are doing exactly what I hoped the blog would do: Create a debate to improve our overall education on this issue and to strive for creative solutions to a complex issue.

    Regards,
    Gerry

  9. Richbuyer
    May 10, 2011

    Thank you, Mr Hilvers, for intoducing some salient points of reality, the kind of which often is lost, amidst all the happy talk about saving the planet and intervening in the bad things done in other countries, (or even in our own!) I'm ALL FOR social responsibility, but as you allude to, the commonplace demogoguery found connected with such legislation will prevent any fair minded consideration of the actual human toll on the people impacted. At least, Reps Frank and Dodd can feel good about being champions of do-goodism.

    And, Gerry – Your saying “I guess I am more of a market driven person and that doing the right thing eventually gets recognized in the marketplace.” actually runs counter to what you're trumpeting. Aside from giving yourself a pat on the back, “doing the right thing” in the marketplace need not require the forceful intervention of the law. Is market driven synonymous with Gov't force-driven? I fear the rise of too many fascist-leaning people that are comfortable posing as free market cheerleaders. Please re-read Mr Hilver's message, albeit a bit more thoughtfully. Thank you. 

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