At IDC Manufacturing Insights, we have been closely following the impact of the SEC's new requirements for identifying and disclosing the use of conflict minerals in manufactured goods. The official law passed in August 2012 (Section 1502 of the Dodd Frank Wall Street Act), and as of January 1, 2013 we are in the first year of reporting mandates. As such, the implications of the law are being felt throughout the manufacturing supply chain.
In essence, Dodd-Frank 1502 requires publicly traded companies, subject to regulations by the SEC, to report on the use of conflict minerals that are necessary to the functionality or production of products they manufacture or contract to manufacture. Conflict minerals are defined as minerals that have been mined in conditions of armed conflict and human rights abuses, namely in the geographic region of the Democratic Republic of Congo and nine neighboring Central African countries. Cassiterite, columbite-tantalite (coltan), gold, and wolframite, as well as their "3T" derivatives tin, tantalum and tungsten all have the potential to be conflict minerals.
Dodd-Frank 1502 will have a far-reaching effect across manufacturing industries, most notably electronics, appliances, aerospace, automotive, medical devices, industrial products, food, jewelry and other consumer goods. Initially thought to impact 6,000 companies, industry insiders put the potential number of companies closer to 800,000 because it involves entire supply chains with thousands of suppliers and multiple tiers. Estimates from the SEC place the initial costs for implementing Dodd-Frank 1502 at between $3 and $6 billion. However, industry groups like the National Association of Manufacturers currently estimates this SEC regulation could cost manufacturers closer to $16 billion.
Companies that are affected by Section 1502 need to determine how the requirements apply to their manufactured goods, and conduct appropriate outreach, third-party audits, and due diligence throughout their supply chain. Already, there are a number of third-party auditing organizations and services companies making efforts to help manufacturers comply with Section 1502. Also, enterprise software providers of procurement software, environmental compliance and sustainability software, and supplier relationship management software are responding to Section 1502 with additional functionality.
The most important thing for manufacturers to do today is develop a plan of attack for compliance with this law. It should involve identifying an executive sponsor to be certain these compliance efforts are fast-tracked and supported. Preparedness for gaining compliance will be dependent on how well the manufacturer has implemented traceability and supply chain visibility systems within their supply chains.
Early leaders in their efforts around conflict mineral compliance appear to be in the electronics market, especially those with consumer-facing brands since they risk the greatest brand damage if linked with sourcing conflict minerals from the identified geographies. However, there are other manufacturers, such as Johnson Controls, who have taken an early leadership position, publishing policy statements that support the conflict minerals legislature.
In the coming months, I will be looking more closely into the conflict minerals requirements and compliance efforts of manufacturers. An upcoming report will share some of the guidance and recommendations for manufacturers as well as a look at how technology suppliers are assisting with compliance. In the meantime, if you have a story to share around conflict minerals, I'd love to hear it.