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Compliance : Dodd Frank : Supply Chain : Conflict Minerals

The Future of Conflict Minerals

Demand for Supply Chain Transparency Will Only Increase; Tracking Now in Full Swing for 2014 SEC Reporting Period Global Supply Chain Risk Management Firms, like Source Intelligence®, Providing Companies Highly Accurate Source Reports

Jess Kraus
Source Intelligence

Challenging, but not impossible. As last week’s conflict minerals filing deadline revealed, a handful of companies showed they could determine all or most sources of the raw materials in their products from a global network of suppliers.

“In the course of our investigations, we generally look to mitigate total supply chain risk, not just conflict minerals. We flag multiple items of concern in investigating and monitoring suppliers around the world”

Can – and will – more companies respond to social, political and shareholder pressure to dig deeper to issue more complete reports? As supply chain investigations ramp up for the 2014 U.S. filing period and as other countries begin to issue their own source disclosure rules, transparency efforts are just getting started, according to Source Intelligence®, a California-based global supply chain risk management company.

“A company’s ability to secure detailed reporting about the source of raw materials in their products is all about data collection, data assurance and data validation,” said Jess Kraus, CEO of Source Intelligence. “Demands on companies – whether regulatory or from consumers – to detail the source of their goods are only going to increase. It doesn't stop with conflict minerals, but includes goods and raw materials that come from countries under economic sanctions, those under child-labor watch or with any other illegal or unethical sourcing practices that can trigger vendor risk.”

This month, the focus is on tin, tantalum, tungsten and gold (often abbreviated to 3TG) – the “conflicted minerals” linked to funding armed groups in the Republic of Congo. June 2 was the deadline for conflict mineral disclosure filings with the U.S. Securities and Exchange Commission under the disclosure requirement of the Frank-Dodd Act. A small percentage of the estimated 6,000 U.S. companies expected to file reports stated they could accurately determine the source of raw materials for at least 85 percent of their product line. Fewer actually reported their products to be 100 percent “conflict free.”

From Tesla Motors to Hewlett-Packard, supplier cooperation and getting accurate information from suppliers were listed as the biggest obstacles for companies to determine whether their products contained conflict minerals. Supply chains can have as many as 10 tiers between the original mine, to a smelter, to a finished product.

“Supplier resistance being the stumbling block can be avoided,” Kraus said. “It's not just an email effort. To get to real data requires supplier education, human outreach, diligence and unique verification technology.”

Source Intelligence, whose operations have grown significantly since the conflict mineral legislation went into effect more than two years ago, provided more than 100 companies with comprehensive source reports involving an international web of hundreds of thousands of suppliers of raw, intermediate and finished goods. The reports are the result of data acquisition, assessment and verification accomplished in part through exhaustive investigations and a multi-lingual, 24/7 supplier engagement team based at the Carlsbad headquarters of Source Intelligence.

Kraus said companies prompted by U.S. legislation to investigate 3TG conflict minerals are now beginning to realize additional benefits from third-party service providers that can accurately investigate and recheck their supply chains for other regulated materials such as cotton, chemicals of concern and wood.

“In the course of our investigations, we generally look to mitigate total supply chain risk, not just conflict minerals. We flag multiple items of concern in investigating and monitoring suppliers around the world,” Kraus said.

Now that the initial wave of reports have been filed and most legal challenges to the Frank-Dodd Act appear to be resolved, Kraus has noticed a trend of companies shifting from “wait and see” to devoting adequate resources and sufficient time to prepare for the 2014 reporting period whic is already 5 months along.

“If you haven't already begun, now is the time to start investigating your conflict minerals sourcing diligence for the 2014 report,” Kraus said. “Supply chains are dynamic and this is not an overnight process.”

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