OM in the News: War and the Global Supply Chain

In the next week, says The Wall Street Journal (May 20, 2014), some 6,000 U.S.-listed companies are expected to release lots of detail about their supply chains in the first reports required by law on whether their products contain “conflict minerals.” The law, part of the 2010 Dodd-Frank Act, was intended to choke off financing for violent militia groups in and around the Democratic Republic of the Congo, which sell minerals used in products ranging from smartphones to engagement rings. The SEC estimated that conflict-mineral reports would cost companies a total of $3-$4 billion in the first year, then drop to about $200-$600 million in following years.  But the law has been under continuous assault from business groups, which consider it too burdensome.

AMD Inc., has spent years investigating the manufacturing of its computer chips, trying to determine whether the company’s suppliers used any tin, tungsten, gold or tantalum sold by armed groups in Africa’s war-torn Congo region. Just days before a June 2 regulatory deadline, the chip maker still doesn’t know. And neither do most companies. Affymetrix, a California biotech company, said it had found 209 smelters and refineries in its supply chain, but could only be certain that 68 of those were conflict-free. Many companies say they are still years away from knowing the source of their minerals. Hewlett-Packard Co. has disclosed that it is unsure of the “conflict” status of its materials. There may be as many as 10 companies between H-P and the initial buyer of the minerals, which for now makes it almost impossible to learn where many materials are obtained.

Plenty of products still contain the four targeted metals from the Congo region. More perplexing, the supply-chain audits have had little impact on Congo’s market share. Last year, Congolese production of tantalum was estimated to have increased slightly to about 18% of the world’s total. The country’s tin production is holding steady at about 2%.

Classroom discussion questions:

1. Why is it so difficult for companies to document 2nd and 3rd tier suppliers?

2. Can these Congo mineral suppliers be easily replaced?