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Conflict Mineral Rules Improve Supply Chain Visibility

NASA’s Apollo program had the goal of putting men on the moon, but a lasting impact of the initiative was its multitude of spin-off technologies, from advances in athletic shoes to improvements in kidney dialysis treatment.

On the last three Apollo missions, astronauts drove a lunar rover on the moon.
Credits: NASA

On the last three Apollo missions, astronauts drove a lunar rover on the moon.

Credits: NASA

In a similar fashion, conflict minerals regulations were specifically designed to reduce the use of raw materials sold to fund war crimes. However, a long-term legacy of these rules may be the spin-off benefit of dramatic improvements in visibility into supply-chain issues. This visibility has changed the nature of electronics supply-chain management, giving companies the capability to anticipate and manage all kinds of problems, including issues arising from unexpected quarters.

Supply chain journey

It seems remarkable, but just a few years ago, many U.S. electronics companies had very little awareness of their suppliers–and even less knowledge about their suppliers’ suppliers. Firms often didn’t know where their suppliers’ factories were located, or where those companies sourced their raw materials.

However, things began to change dramatically with the implementation of Section 1502 of the Dodd-Frank Act, which required U.S. companies to disclose the usage of these raw materials to the Securities and Exchange Commission. The requirements of Section 1502 compelled electronics companies to survey and audit their suppliers regarding their use of such minerals sourced the Democratic Republic of the Congo (DRC) and surrounding nations.

The effects of this effort are readily apparent. In 2015, a much higher percentage of companies indicated they had knowledge about their supply chains than they did in 2014, according to the US Government Accountability Office. In 2014, just 30% of companies could determine whether the conflict minerals in their products originated in countries covered by the regulation, the GAO reported in an August 2016 report. By 2015, that total had grown to 49%.

Jabil itself has tracked the progress of this phenomenon, with 87% of its 4,201 suppliers responding to its conflict minerals reporting questionnaire in 2015.

Chain of tools

As electronics companies have taken steps to comply with 1502, many have adopted supply-chain tools or partnered with other firms that can help track the origin of components and raw materials. This has led to increased knowledge of the supply-chain in general, beyond the confines of the conflict-minerals issue.

Many companies now have end-to-end visibility on their supply chains, with detailed knowledge on every node, from the mine, to the smelter, to the component manufacturer, to the electronics manufacturing services provider, to the final product. This information includes not only the identity of the supplier, but the location of manufacturing, status of production, inventory levels, and other key factors.

Be prepared

The benefits of possessing this information redound directly to one of the most basic and critical functions a company engages in: risk management. Many electronics-producing regions are subject to natural disasters, geopolitical upheaval and other disruptions. With the electronics supply chain spanning the globe, these disruptions threaten to throw production schedules into chaos at any time.

However, companies that are aware of the locations of production facilities throughout their supply chain can effectively mitigate the impact of such disruptions, quickly determining which products and raw materials are affected by a problem in a specific region and lining up alternative sources.

Staying ahead of the news cycle

Furthermore, end-to-end supply-chain insights can allow companies to better manage potential public-relations crises related to the supply chain.

The media and industry groups are closely watching for instances of labor abuses and environmental issues in overseas manufacturing operations that supply U.S. companies. When such an issue arises, it’s critical for companies to be aware if any of their suppliers are affected by this issue. Armed with such information, companies can get out ahead of the story and reduce the impact of the bad press.

From swords to plowshares

The implementation of conflict-mineral regulations has been effective in reducing the prevalence of these materials in the global supply chain–and hopefully will help bring about a resolution to the warfare in the DRC. With luck, the increased supply-chain awareness resulting from the advent of these regulations will continue to benefit the electronics market long after the war in the DRC fades from memory.

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