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Can Your Supply Chain Withstand Scrutiny?

How well do you know every link in your supply chain? Probably not as well as you should.

All you have to do is read recent headlines to realize that in-depth examination, even auditing, of nearly every component, material, and manufacturer in your company’s supply chain is becoming critical. Companies without the means to do this risk, at best, bad press. At worst, they risk losing substantial amounts of business.

Just look at events of the last six months. The Dodd-Frank Wall Street Reform and Consumer Protection Act passed by the US Congress last summer will require public companies to disclose, probably starting later this year, whether their products contain any of four conflict minerals from the Democratic Republic of Congo.

Human rights organizations already are trying to call public attention to what electronics companies are doing, or not doing, to trace the conflict minerals in their products. In December, the Enough Project, which has been campaigning against conflict minerals for years, published a list of 21 electronics companies, ranked in terms of the amount of progress they’ve made in addressing the issue. (See the report and ranking here.)

The organization ranked the companies based on five categories that affect the conflict minerals trade. Three of those issues — tracing, auditing, and certification — involve the supply chain. The report praised six companies that scored the highest in the rankings, and also pointed out six that “stood out for having investigated their supply chains in detail, some to the point of fully identifying their minerals smelters.” These included {complink 2376|Hewlett-Packard Co.}, {complink 3426|Microsoft Corp.}, {complink 379|Apple Inc.}, {complink 3847|Nokia Corp.}, {complink 38|Acer Inc.}, and {complink 2657|Intel Corp.}.

That’s a lot deeper into the supply chain than most companies dig. The report also praised HP for publishing a list of its suppliers, noting that the company “did not suffer competitive disadvantages.” But how much information about its supply chain should a company make public? Apple is known for keeping a tight rein on the details of its supply chain, and that doesn’t win it any public relations prizes.

Two weeks ago, a consortium of 36 environmental groups in China published a report ranking more than 39 multinational technology companies on how they handled inquiries about environmental and occupational health hazards in their supply chains. Apple ranked dead last. Among the incidents the report cites for the low rank is one in which 49 Chinese workers were sickened by a chemical cleaner called n-hexane at Lianjian Technology, a subsidiary of Taiwan-based Wintek.

Wintek produces touchscreens for Apple. When the environmental groups brought this to Apple’s attention, the report said, Apple refused to confirm or deny whether the allegedly polluting companies were even its suppliers and would not respond further, according to an article in the Financial Times.

Demands for more visibility into high-tech supply chains are growing louder and coming from more quarters, including the US Department of Defense. New provisions included in the National Defense Authorization Act passed in December could keep companies that can’t verify their supply chains out of government contracts. More on that in my next post.

Meanwhile, how much do you know about your supply chain? What are you doing to prepare for the increased scrutiny?

— Tam Harbert has been covering electronics since the dawn of surface-mount technology. She lives online at tamharbert.com.

5 comments on “Can Your Supply Chain Withstand Scrutiny?

  1. Taimoor Zubar
    January 31, 2011

    If the government or other authorities are going to scrutinize your supply chain and investigate on different areas, are the rules clearly defined somewhere? In other words, are companies well aware of the Do's and Dont's of the trade and can easily access the laws?

  2. Anna Young
    January 31, 2011

    I like HP's approach and the openness the company has adopted. This is probably the preferred option but it takes a company that believes it has nothing to hide to open up its supply chain to scrutiny. The best strategy would be for companies to regularly review their operations and suppliers' supply chain first, set goals, ensure compliance with those goals and make changes where necessary. At all times, those goals have to exceed government requirements. Once you've done all these and helped suppliers understand the benefits, you can welcome any audits knowing you've gone beyond what anyone expected. There must be some satisfaction in knowing the closets had been thoroughly inspected by inside experts before the external examiner showed up.

  3. Barbara Jorgensen
    February 1, 2011

    Transparency and full disclosure are always the best approach to take. Doing it voluntarily before it becomes mandatory likewise. Even if something unfavorable is voluntarily disclosed, there's opportunity to fix the problem before it's too late. What the saying: “It's easier to ask for forgivness than it is to ask for permission”?

  4. Mydesign
    February 1, 2011

         That’s very true; most of the electronic components have the presence of many toxic minerals, which are used in its manufacturing stage. The most common toxic substances using in product manufacturing are Lead, Tin, Mercury, Magnesium, Radioactive elements etc. During the manufacturing process, labour or employees have to be in regular contact with this type of minerals, which can cause a serious hazard to their life in long term run. So the question is how they are going to handle such substances in the safer way? Apart from the automation of such mineral processing or handling, what are the other precautions companies can take care about the health of fellow workers?

         I think it’s better to take necessary precausitions from company side rather than offering risk allowances and other compensations to the workers. As a part of industrial saftey and expecting the well being of workers, government has taken such initiatives.  Let’s hope that it will address the problem up to certain extend.

  5. saranyatil
    May 9, 2011

    Rich I do agree on your thought,

    It does happen in food industry my friend works for a very famous one i got here the loops in their supply chain.

    But where as in electronics a serious level of testing and scrutiny should be adapted in order to deliver high quality products. probably we can use technology to help the need.

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