conflict minerals – The OM Blog by Heizer, Render, & Munson

OM in the News: Apple’s Transparent Supply Chain

Apple stopped short of declaring itself conflict-free because some suppliers might still use smuggling or fraud for small amounts of minerals that might get back to armed groups. — Apple stopped short of declaring itself 100% conflict-free because some suppliers still use smuggling or fraud for small amounts of minerals that might get back to armed groups.

Apple has reached what it’s calling a milestone in supply-chain transparency, saying it’s now auditing 100% of its suppliers for the use of conflict minerals linked to violent militia groups in the Democratic Republic of the Congo, reports Businessweek (March 28-April 3, 2016). The iPhone maker has been working since 2010 to remove minerals connected to these groups from its supply chain, and while it isn’t yet declaring its products totally conflict-free, the company said all of its 242 smelters and refiners of tin, tantalum, tungsten and gold are now subject to third-party audits. That figure is up from about 88% at the end of 2014 and 44% in 2013.

“We could have very easily chosen a path of re-routing our supply and declared ourselves conflict-free long ago, but that would have done nothing to help the people on the ground,” Apple’s COO stated.

Apple, which uses the minerals in its mobile-phone processors, motherboards and screen displays, is required to investigate its supply chain for the presence of the minerals under the 2010 Dodd-Frank Act. The law is meant to choke off revenue to violent militia groups in African nations. More than 1,300 companies file annual conflict minerals reports, but few have been able to fully audit their supply chains and determine if their products are free of the minerals. Only a handful, such as Intel, have been able to say they sell conflict-free products.

To reach a fully audited supply chain, Apple spent 5 years “cajoling, persuading, and even embarrassing suppliers by publishing their names.” Apple has spent hundreds of hours in the region and also kicked out 35 smelters from its supply chain because they wouldn’t participate in the audits. The company started saying in 2014 that it would end supply contracts with companies that didn’t take part in the audits.

Classroom discussion questions:

Why is it so hard to validate Apple’s supply chain in Africa?
Why is supply chain transparency a major OM issue?

OM in the News: The “Conflict Minerals” Supply Chain Dilemma

A gold miner digging at an open pit at a mine in the Congo. The Dodd-Frank Act requires companies to disclose whether conflict minerals in their supply chains are connected to violent militia groups in the country.

“Hundreds of U.S. companies are coming up short as they face a deadline to reveal whether their supply chains contain even trace amounts of minerals linked to violence in Africa”, writes The Wall Street Journal (Aug. 4, 2015). The finding illustrates the challenges companies face in keeping tabs on all of the players and materials in their global supply chains. In all, companies shelled out roughly $709 million and 6 million staff hours last year to comply with rules to disclose “conflict minerals” in their supply chains. And next year, they will need to hire auditors to evaluate their results.

“Conflict minerals” include tin, tantalum, tungsten and gold originating from the Democratic Republic of the Congo. That country holds vast reserves of these 4 minerals, which are widely used in a flurry of products, from electronic devices to engagement rings to auto parts.

But tracking materials from more than 2 million miners in the Eastern Congo that smelt small amounts of metals—and determining their links to guerrilla operations—is like trying to “apply modern supply-chain logistics to the 1849 California gold rush,” said one consultant. To track the origin of tantalum, companies often have to dig 4 or 5 layers deep into their supply chains, as the material travels across the globe to various parts manufacturers.

Only 314 companies, or fewer than 24% of the total, reached full compliance with the law. The U.S. Commerce Department was supposed to publish a world-wide list of refiners and smelters that are being used to fund militia groups, but it said in September that the task was impossible.

Classroom discussion questions:

Why are “conflict minerals”, sometimes also called “rare earths”, so important to manufacturers?
What is the supply chain issue being faced by managers?

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?