You and your suppliers understand the challenges related to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires compliance reporting by every SEC-reporting company with products that contain conflict minerals (tin, tantalum, tungsten, and gold). It’s no surprise that — given the complexity of the rule and the extent of the effort required to comply — many companies struggle with reaching a determination as to their DRC conflict minerals status. Common reasons include:
- Inability to obtain information from suppliers
- Inadequate response rate
- Inaccuracies in the content received
Before you can recognize the reporting challenges your supply chain faces, it is necessary to understand the reporting scope. As a baseline, it’s important to understand the SEC’s guidance on the Conflict Minerals Rule, specifically the FAQs issued in March 2013, and the supplementary FAQs issued in April 2014. You’ll find that the complexity of conflict minerals guidelines and scope is an ongoing learning process. However, this understanding is crucial to helping your company prioritize and streamline your supply chain due diligence efforts.
You also need to determine and refine the parts of your business that are within the scope of the Conflict Minerals Rule so that you can avoid spending time on categories of items that are outside the scope of these reporting obligations. A process-focused reporting approach will ensure that your suppliers understand what you need from them to meet the ultimate goal of accurate reporting.
Consider these steps to guide your supply chain through conflict minerals reporting.
First, establish a strong company management system. This means establishing conflict minerals policies, grievance mechanisms, and a solid internal management infrastructure to support supply-chain due diligence. Consider using the OECD framework, the only recognized due diligence standard. Ensure that information about your conflict mineral policies is clearly disclosed and understood. An AIAG 2014 survey indicated that the companies with the most successful conflict minerals reporting programs are those where compliance efforts receive strong executive management support.
Next, identify and assess risk within the supply chain. Most companies are downstream users of conflict minerals that do not source directly from mines, smelters, or refiners, and are often several layers removed from these upstream supply-chain participants. Identify and review the due diligence process of the smelters/refiners in their supply chain and assess whether they adhere to due diligence measures.
Finally, design and implement strategy to respond to these risks. Determine the reasons suppliers are unresponsive or provide incomplete information or send responses that raise red flags. Do not create new methods to collect supplier information; AIAG-conducted surveys have shown this decreases the likelihood of receiving meaningful responses. Put in place follow-up efforts as needed to ensure consistency. Send emails or mailings or reach out to suppliers by telephone or through on-site visits.
Consider use of a commercial solution for the collection and evaluation of supplier responses. By designing and implementing a consistent approach, you can guide supplier responses and ensure greater accuracy, while helping suppliers understand what they need to submit and why. Such solutions may provide you and your company with additional capabilities you may not have otherwise such as:
- Multilingual support
- Data security and protection
- Pre-screening of supplier responses
- Improved data quality
- Established support mechanism to help answer supplier questions
Many solutions also offer supplier training materials, support for due diligence, and multi-site and multi-user capabilities. Providing ongoing supplier education and training will likely result in higher supplier response rates and quality responses. By investing more resources early on, companies will see reduced compliance costs. This could include instruction on completing template submissions and your compliance expectations. Design a strategy and process for risk remediation, which could include dedicated task forces, governance committees, or other groups.
Going forward, companies should consider reviewing their filings against those of appropriate competitors and other peers. Many companies can expect to update their disclosures to reflect increased supply chain visibility. Some companies already have comprehensive compliance programs in place, while others need to enhance and improve selected elements of their compliance reporting.
By working with and guiding your suppliers, they will understand what you expect and help ensure that the subsequent reporting results are accurate, timely, and - relatively - pain-free.
Eileen Luhta McFarlane is a manufacturing business development consultant and materials compliance marketing consultant for IMDX and CDX at HP.