Exposing the Risk of Conflict Minerals in Supply Chains

Jan 11 2016, 9:49 AM5 min read

As Intel declares that its supply chain will be free from conflict minerals this year, we take a look at what other organisations are doing, and what impact these materials can have on a supply chain.

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Conflict materials are raw materials sourced from a particular part of the world where conflict, such as civil war, is occurring and affects the trading of those materials. The proceeds from the trade of these materials, such as conflict diamonds, are often used to fund armed groups in these regions.

Conflict minerals are the raw materials columbite-tantalite (coltan), cassiterite (tin), gold, wolframite (tungsten) and their derivatives, the vast majority of which are found in the Democratic Republic of Congo and adjoining countries, a region which has been ravaged by civil war and other conflicts for over 20 years.

These minerals are used in a wide variety of manufactured products, including consumer electronics such as computers, laptops, tablets, smart phones and even washing machines.

Global Regulation

In 2010, US President Barack Obama signed The Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Section 1502 of the Act required all American companies to determine whether their products contained conflict minerals through due diligence carried out in their supply chain, and to report this to the US Securities and Exchange Commission (SEC).

There were criticisms of the law on both sides, with some groups arguing that it didn’t go far enough and ban the sourcing of such products entirely, while others argued that over-zealous enforcement of the law could adversely impact legitimate workers in the region, who relied on trading these materials for their livelihoods.

Since the law was passed, it has been estimated that it has helped to reduce funds going to armed groups in the DRC by up to 65 per cent.

In the UK there is no strict regulation on conflict minerals, although there are initiatives that have been created to stop these materials entering the supply chain. These initiatives require organisations to provide a ‘proof of origin’ on raw materials, or carry out similar due diligence in their supply chains to assess where funds from trading are going.

During 2015, the European Parliament voted in favour of a mandatory monitoring system for minerals originating in conflict areas, similar to the provisions in Dodd-Frank. The system suffered similar criticism to Dodd-Frank in relation to provisions for legitimate traders and miners.

Supply Chain Transparency

Growing public scrutiny of organisational practices, and the rise of consumer power when it comes to sustainably manufactured or procured products, will lead to a requirement for a vast improvement in supply chain transparency in the short-term future.

With Intel now reporting that its supply chain will be free from all conflict minerals in 2016, many other high-profile organisations, particularly those in the electronics industry, will be keen to follow suit.

Apple reported progress in the removal of conflict minerals in its product in April last year, but cannot yet claim to be ‘conflict free’ as all of their suppliers are yet to complete the auditing process. A further 120 companies,including Dell, HP, Nokia and Microsoft, have signed up as members of the Conflict-Free Smelter Program (CFSP), which aims to ensure that metals and minerals are worked with in conflict-free factories.

However, there appears to be a lot of work for a number of organisations to do. A report released by Amnesty International last year showed that 79 per cent of a sample of companies who had filed reports to the SEC in 2014, had failed to meet the minimum disclosure requirements.

Supply Chain Risk

Organisations must undertake a considerable volume of work to ensure that their supply chains are free from conflict materials of any kind, including conflict minerals. The management of this issue, and the associated risks, needs to be handled proactively, or the organisations will have to deal with any repercussions.

As political and socio-economic climates grow more unstable, global supply chains face increasing risks when doing business, and even the best prepared can fall foul of the actions or activities of a third party in the chain. However, there are steps that can be taken to minimise these risks.

Increased collaboration with suppliers and supply chain partners and creating greater visibility through the use of data, as well as policies and processes governed by procurement, can all help to reduce these risks. It’s down to the individual organisations to work out what is best for them.

Procurement risk, including supply chain transparency and ethics, will be one of the major themes at the Procurious Big Ideas Summit 2016. Stay tuned in the next couple of months for more information on the event, and learn how you can get involved.

Meanwhile, we’ve scanned the news feeds and Internet to find the major procurement and supply chain headlines this week.

‘Non-Compliance’ Issues Alleged at Co-op Group

Kath Harmeston, former Procurement Director at the Co-operative Group, has alleged that procurement policy non-compliance were as high as 70 per cent
The claims were made during an employment tribunal where Harmeston is seeking £5.2 million from the organisation for unfair dismissal
Harmeston alleged that staff “across the business were placing commitments with suppliers without going to the procurement department first”, including on up to 50 capital projects
The Co-operative Group responded that Harmeston’s claims were a “smokescreen”, covering up poor performance and the hiring of a firm of consultants who had previously been subject to whistleblowing claims
The case continues