With only about 21 months remaining until publicly-traded U.S. component manufacturers must disclose their usage of conflict minerals to the federal government, the industry appears to be unprepared, given that about 90 percent of firms so far have not produced the data, declarations, or documentation that will help fulfill regulatory requirements detailing the presence of such minerals in their supply chains.
Conflict minerals are defined as those mined in locales of armed conflict and human rights abuses. These minerals—tin, tantalum, tungsten and gold—are used in a wide range of components across the electronics supply chain.
On August 22, the Securities and Exchange Commission (SEC) approved a final rule on so-called “conflict minerals” with a narrow 3-2 vote that implements disclosure requirements mandated by Section 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. As of August, the percentage of electronics component manufacturers with available conflict minerals information amounted to only 11.3 percent of the peer group, according to the IHS Parts Management Service at information and analytics provider IHS (NYSE: IHS). These companies account for 17.1 percent of active electronic components on the market, as presented in the figure below.
Utilization of conflict minerals is widespread in the electronics market, employed in all kinds of products, from cellphones to hearing aids, to pacemakers and jet engines. For example, IHS estimates that $0.15 worth of tantalum—a conflict material— was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010. In 2012, this would amount to $93 million worth of tantalum in smartphones alone.
The Heart of the Conflict
The final SEC ruling defines conflict minerals as those including gold; columbite-tantalite, utilized to produce tantalum; cassiterite, used to make tin; and wolframite, used to produce tungsten. A major supplier of such minerals is the Democratic Republic of the Congo (DRC) in Africa. The DRC is rich in natural resources, with estimates of the value of its mineral wealth as high as $24 trillion.
Under the terms of the SEC ruling, affected companies not only must disclose whether they use conflict minerals in their products, they also must state what efforts they have undertaken to ensure that their use of the raw materials does not contribute to human atrocities in the DRC and adjoining countries.
Conflict and Complexity
The time issue is critical for electronic component suppliers, considering the size and complexity of the task.
The SEC rule is estimated to directly apply to 5,994 companies that file reports to the SEC and to hundreds of thousands of their suppliers. This large number of companies arises from the rule’s widespread impact throughout the supply chain, affecting electronic product makers, their suppliers, their suppliers’ suppliers and so on.
“Large electronic original equipment manufacturers (OEM) use tens of thousands of parts that must be examined to determine their conflict mineral content,” said Rory King, director, supply chain product marketing at IHS. “The next 19 months really is not very much time to communicate, collect, analyze, and prepare information on mineral sources across a globally diverse, multi tier value chain, in order to determine conflict minerals content and develop reports that comply with the SEC rule.”
Journey to Compliance
Even after the SEC deadline arrives, the task of reducing or eliminating conflict mineral usage will continue.
“Compliance with the conflict mineral rule is about the journey, rather than the destination,” King noted. “Companies will have to arm themselves with information, tools and procedures to continually monitor their supply chains for conflict minerals.”
The arrival of the SEC deadline also could have unintended consequences for the electronics supply chain.
“The Reduction of Hazardous Substances (ROHS) legislation in Europe produced a series of unintended consequences, including shortages, price increases, and large-scale obsolescence of components,” King said. “Similar unexpected events could arise from the SEC conflict minerals rule, especially as a pooling of two supply chains materialize where some companies and their supply chains move away from minerals sourced from illegal operations in the DRC and other global supply chains do not.”
Sorting Out the Conflict Minerals
IHS has been able to gather detailed and accurate information on the extent of conflict mineral reporting by leveraging data from its electronic component database. The database offers information and tools for more than 300 million electronic, electromechanical and fastener components used in commercial and military applications.
“IHS has been gathering information on conflict minerals for more than two years,” said Greg Wood, director, product management for IHS. “Our conflict mineral data is not based on a survey or estimate, but rather was developed using data provided directly from companies, including environmental declarations, part descriptions and compliance documents. IHS has led the way on conflict minerals and has begun to incorporate conflict minerals documents, declarations and descriptions into our innovative solutions.”
Resolving the Conflict
IHS maintains its leadership position by offering expertise and insight, as well as information and analysis, on emerging issues that affecting global product design and supply chain performance. Addressing conflict minerals regulatory obligations and supply chain risk is no exception.
Since Dodd-Frank passed more than two years ago, only IHS has collected considerable conflict minerals data and documentation that not only enables decision making for clients but also gives them a distinct head start advantage.
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