Raw Materials Management - Conflict Minerals Guidelines

Responsible Supply Chain Reporting

The capability to 'decompose' a finished good into to its elemental inputs and lowest common denominator is the cornerstone of our strategy, processes and reflected throughout our SDX™ 8.0 platform and solutions.  In an effort to keep our clients and followers informed, we felt that it is important both from a business and social perspective to provide the guidelines and our position about the responsible Supply Chain reporting of minerals from conflict-affected areas.

We are committed to helping companies recapture visibility and control of the materials that flow into their purchased/outsourced parts, components and assemblies.  Furthermore, as an organization and as individuals we greatly value the protection of human rights and denounce violations of said freedoms, wherever they may occur.  We are proud to offer technology that can help and support the efforts to halt the exploitation and sale of minerals from conflict-affected regions.

OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

Rules apply only to public companies, beginning January 1, 2013.

It applies to companies that manufacture products directly or assemble products made from parts and assemblies that contain Conflict Minerals.

There is no minimum amount of Conflict Minerals for compliance. A company that assembles its products using component parts would be viewed as the “manufacturer” a product

Products produced from scrap or recycled sources may be labeled “DRC conflict free.”

No rules have been released specifying the steps necessary to meet “reasonable country of origin inquiry” requirements.

The Rule simply states that Company’s must follow the “supplier engagement” approach in the OECD Due Diligence Guidance, meaning companies will engage with companies in their supply chain to make inquiry about the source of Conflict Minerals and the smelters and refineries involved in the production of them.  OECD Due Diligence Guidance does anticipate and appears to allow the flow down of reporting requirement to a Company’s lower-tier suppliers (what it calls “push down”).  If this occurs, a Company must have reason to believe representations received by its downstream supply chain (Contract Manufacturers, Mills, Distributors, Smelters and refineries) are “true.”  On the other hand, it also states that, in order to be relied upon, a supplier’s representations must be based on something demonstrable.  In other words, flat representations from suppliers may not be enough.  The Guidelines seems to anticipate a world in which sources of Conflict Minerals have been certified as “conflict mineral free” – a condition that has yet to fully materialize.

To this end, the electronic industry and Global e-Sustainability Initiative (EICG and GeSI) have developed a Conflict Mineral Free Smelter Program that oversees independent audits of smelters that process conflict minerals.  Lists of compliant suppliers are being compiled.

Consultants/third-parties can be used to carry out a country of origin inquiry on behalf of a Company BUT the SEC also has said that a reasonable country of origin inquiry should involve “supplier engagement,” so to what degree consultants should be used exclusively is a bit uncertain.

The “Adopting Release” says that an inquiry does NOT require a company to receive input from its entire supply chain as long as the company’s inquiry is “reasonably designed and conducted in good faith, and the company does not ignore warning signs indicating some of its minerals may have originated in covered countries.”

Right now, here is what public companies are reported to be doing:

• Some are using industry-wide protocols such as the EICG and GeSI reporting templates and certification tools.  These are essentially Excel based questionnaires distributed to lower tiers of the supply chain.  We are not aware of this being tried by anyone in the aerospace sector, only in the electronics industry.
• Lists of compliant tantalum suppliers are the most mature while lists of compliant tin and tungsten suppliers are still being compiled.
• Conflict Minerals “flow down” requirements are being developed and added to new contracts, purchase orders, etc. In some instances these flow down requirements are seeking audit rights for higher tiers of the supply chain in order to corroborate representations.
• Companies are hiring consultants to design reasonable country of origin inquiry procedures and protocols and/or due diligence.

For 2013 and 2014, if a company conducts its Conflict Minerals inquiry and is unable to reach a conclusion from that inquiry as to whether its products contain Conflict Minerals, it must still file a Conflict Minerals Report.

If a Company’s parts contain Conflict Minerals and it determines that they did NOT come from the DRC or that they were manufactured from recycled materials, it files a Form SD and describes the Reasonable Country of Origin Inquiry it used to reach this conclusion.

If a Company’s parts contain Conflict Minerals and it determines that they DID come from the DRC and were NOT manufactured from recycled materials, it must, among other things, exercise due diligence on the source and chain of custody of such conflict minerals, following OECD Due Diligence Guidelines.

Finally any Conflict Minerals smelted or fully refined or that are located outside of the DRC prior to 01/31/2013 are not covered by the Rule.