This presentation provides an introduction to the Dodd Frank Conflict Minerals Law and how it is likely to impact global supply chains. The law was introduced to help remove conflict minerals from global supply chains and to adhere to this law companies will need to assess their supply chains before they can submit their SEC filings. This presentation highlights how OpenText Active Community can be used as part of this assessment process.
Hello and welcome to this webinar hosted by OpenText. My name is Mark Morley, Industry Marketing Director at OpenText.
Many companies today need to adhere to numerous regulatory and compliance laws that have been introduced by governments around the world.
One of the latest laws introduced by the US government aims to minimise the use of Conflict Minerals across global supply chains.
Due to a lack of visibility across today’s supply chains it can sometimes be difficult to keep track of where rare and expensive minerals such as gold are sourced from. Gold for example is used in everything from electrical switch contacts to heat resistant foil linings on satellites.
This webinar will introduce the Dodd-Frank conflict minerals law and explain why companies, initially based in North America, will need to embrace this new law moving forwards. This webinar will also discuss how improved collaboration across today’s supply chains can help companies adhere to this new regulation.
Let me briefly outline an agenda for this session.
I will begin this webinar by introducing the Dodd-Frank Law before then going on to discuss which minerals will be impacted by this new regulation.
I will then discuss some of the key industry initiatives being put in place to help minimise the amount of Conflict Minerals moving across today’s global supply chains.
I will then discuss one particular assessment tool that was introduced to help try and remove conflict minerals from the high tech industry
I will then finish this webinar by discussing how the increased adoption of Community Management tools can help with the execution and management of these assessment processes.
Today’s global supply chains face many challenges with ensuring trading partners adhere to various government related compliance and risk management initiatives.
Adhering to any form of regulatory or legal compliance can be a lengthy process for many businesses. Increased collaboration with trading partners can improve the rate of compliance to such initiatives through a mix of regular communications and data gathering surveys, with or without closed loop tracking of the outreach efforts and their results.
During a period of supply chain disruption, how can a company quickly reach out to their trading partner community to not only check on their operational status and continued ability to provide materials, but assess the broader condition of a supply chain across a geographical region?
Improving Corporate Social Responsibility is on the agenda of nearly every CEO around the world and ensuring that trading partners comply with these CSR requirements can be a challenge
Many governments are clamping down on the use of conflict minerals across global supply chains, how can a company ensure that a supply chain is conflict mineral-free?
The new Dodd-Frank law was introduced by the US government to ensure that every company submitting a filing to the Securities and Exchange Commission in North America in 2014 has no conflict minerals across their supply chain. So what exactly is the Dodd-Frank law?
In order to try and remove conflict minerals from global supply chains, the U.S congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which was signed into law on 21st July 2010. Section 1502 of the act is a provision related to sourcing.
The intention of this provision is to deter through increased transparency of companies sourcing practices, the extreme violence and human rights violations in the Democratic Republic of Congo and neighbouring countries funded by the exploitation and trade of certain materials.
Section 1502 instructs the U.S Securities and Exchange Commission (SEC), in consultation with the US Department of State, to introduce regulations requiring certain companies to submit annually a description of measures taken to exercise due diligence on the source and chain of custody of conflict minerals.
All companies submitting filings to the SEC must now complete forms to confirm that they are not using conflict minerals across their supply chain and the first submission is 31st May 2014 and then annually by 31st May each year. Any company that files Forms 10-K, 20-F or 40-F with the SEC each year will be affected by this new law.
The manufacturing industry is the most affected by Dodd-Frank conflict minerals with high tech, industrial and consumer product goods sectors being particularly badly impacted.
Whilst conflict minerals reporting is mandated by law in North America, other regions around the world are starting to formulate their own responses to this particular initiative.
For example the European Union has decided to allow companies across the member countries to self-certify their supply chains for conflict minerals
The EU ruling currently applies to importers of raw materials and does not include manufacturers and companies importing finished products
EU governments have already endorsed the use of the OECD framework, discussed later in this presentation
It is expected that over time the new regulation will become mandatory and may include a broader group of minerals
US and EU rules are intended to introduce more transparency into global supply chains, companies will be ethically compelled to find out what is in their supply chains
There are basically four types of minerals that have been classified as conflict minerals:
Tan-ta-lum: which is regarded as the first conflict mineral and became popular on the back of growth across the mobile phone industry.
Tin: widely regarded as the primary funding source of rebel groups and used in alloys, tin plating, and solders for joining pipes and electronic circuits
Tungsten: which is widely used across electrical and electronic components and finally
Gold: which due to its superior electric conductivity and corrosion resistance is used in electronic, communications and aerospace equipment
Together these four materials are referred to as the 3TG Minerals.
Raw materials or minerals used in the manufacture of electronic components are typically sourced from many different locations around the world. One country that is rich in these minerals is the Democratic Republic of the Congo (DRC) however it is widely known that the trade of minerals in this particular country is helping to fund extreme levels of violence across the region.
The conflict in this particular country has so far claimed more than 5.4 million lives since it began in the late 1990’s. Raw materials mining is crucial to the DRC economy, however some mines are controlled by militant groups causing serious social and environmental issues in the region.
Such issues include serious human rights abuse, theft, extortion, forced child labour, deforestation and high taxation of mineral resources. All of these factors combined have had a negative effect on both the manufacturing industry and the image of the DRC.
So what exactly is “DRC Conflict Free”? This is defined as the products that do not contain minerals or their derivatives determined to be directly or indirectly financing or benefit armed groups from the countries highlighted in the map shown above which includes the DRC and its immediate surrounding neighbour countries
Even though the percentage of 3TG minerals used in today’s products is relatively small these particular minerals are used across a broad group of products as can be seen on this slide.
Everything from aerospace and automotive parts, to batteries, jewellery, wiring looms, medical devices, fishing lures, electronic devices and even pesticides.
So with 3TG minerals being used across many different industries, what are these individual industries doing to reduce the amount of conflict minerals that are moving across their respective supply chains?
Here are just three examples of how industry bodies are working to remove 3TG minerals from their respective industries.
Given that 3TG minerals are widely used across the high tech industry, probably more so than any other industry, it should be no surprise to learn that more progress has been made to try and assess supply chains within this particular industry. The Electronics Industry Citizenship Coalition (EICC) and Global eSustainability Initiative (GeSI) launched a joint project called the Conflict Free Smelter Initiative, a voluntary program aimed at tracing the supply chain minerals used in electronic goods. If the source for these 3TG minerals can be identified before they are smelted into a new material then it will be easier to close down the source of each individual mineral.
In the automotive sector, the Automotive Industry Action Group (AIAG) has developed a web based tool which replicates the functionality of the spreadsheet based reporting tool created by the EICC. AIAG’s web based reporting tool and the EICC reporting template are the two most common methods for reporting conflict mineral usage across a supply chain. From a global perspective AIAG is likely to work with their partner organisations, ODETTE in Europe and JAMA in Japan to ensure that all automotive companies, irrespective of location in the world has the ability to undertake a conflict minerals assessment of their supply chain. This is a great example of how three regional industry bodies could work together to achieve a common goal, in this case removing conflict minerals from the automotive supply chain.
Another example, from the Jewellery industry if the World Gold Council (WGC) have developed a conflict free gold standard which will ensure that companies producing, transporting and refining gold meets the standards in order to claim their gold products are conflict free.
Intel is one of many companies that have publicly stated this year that they will be removing conflict minerals from their global supply chains, Intel made their announcement at the consumer electronics show in Las Vegas in January 2014.
To try and understand some of the challenges with obtaining information from a supplier community, PwC recently completed a survey of companies across the automotive industry.
As you can see from this study 31% of respondents said that the number one challenge that automotive companies face is getting accurate and complete information from relevant suppliers across their respective supply chains.
PwC estimates that up to 160,000 automotive companies will be impacted by Dodd-Frank and this is where industry associations such as AIAG will play an important part in educating the industry on what exactly is required of them.
So what steps can companies take to address the number one challenge of obtaining accurate and complete information from their supply chains?
As discussed on an earlier slide, a number of organisations have started to define processes for clamping down on conflict minerals sourcing.
In December 2010, the International ‘Organisation for Economic Co-Operation and Development’ (OECD) produced a document which provides Due diligence guidance for sourcing minerals from conflict affected and high risk areas
The purpose of this report is to help companies avoid fuelling, facilitating or exacerbating conflict through their sourcing practices or contributing or being associated with serious human rights abuses. The OECD designed a 5 step framework for identifying and removing conflict minerals from a supply chain.
The EICC and GeSI joint working group aims to help companies deploy the OECD framework to allow the sourcing of conflict free minerals, this will be achieved by:
Implementing conflict free smelter and due diligence programs to verify conflict free minerals across the supply chain from the OEM
Supporting in region sourcing schemes to enable future legitimate trade from DRC and surrounding countries
Supporting OECD due diligence guidance and pilot
Engaging with stakeholders for collaboration and efficiency
Supporting individual company’s assurance processes through information sharing, standard tools and templates
For the high tech industry, the OECD defines upstream and downstream as follows…..
As can be seen from this diagram the supply chain down from the Original equipment manufacturers or OEMs, for example the mobile phone and consumer electronics companies, is relatively short. The main area of focus for the OECD framework is upstream to the smelters, ie the miners and traders as this is where the 3TG minerals can potentially be sold on by rogue organisations in the DRC. If the control and monitoring of mineral supply can be improved before the 3TG minerals enter the smelter then there will be a higher chance of identifying and removing conflict minerals from global supply chains.
All the major industry analysts have produced reports offering their own analysis on the sourcing of conflict minerals. Deloitte succinctly summarised the issues as follows:-
“The complexity of today’s supply chains combined with the lack of visibility into sourcing practices will be one of the key challenges of ensuring that Dodd-Frank can be adhered to”
In addition, at this end of the supply chain there is relatively little process automation with extensive paper based processes that if necessary can be easily forged or modified. Adoption of electronic process such as EDI will help to secure the supply chain, making it more resilient to conflict minerals entering the supply chain. There are many low cost, easy to use B2B solutions that could potentially be deployed at this end of the supply chain.
Within the OECD framework, stage 2 relates to how companies assess their supply chains for conflict minerals. This stage of the process requires all suppliers to be analysed to determine the source of 3TG minerals. In most cases it is easier for companies to engage with industry bodies who are driving a standard way to monitor what is being processed through the network of smelters that exists around the world.
From a supply chain management point of view there are two key challenges associated with the successful reporting of conflict minerals
Ensuring that contact information for each supplier across a supply chain is up to date
Keeping track of every assessment completed by a community of suppliers
Efficient contact management is therefore critical to the success of this particular reporting process and hence ensure that a SEC filing is submitted on time.
So what has been done so far by the industry bodies to assess the supply chains?, let’s take a look at the example from the high tech industry
The Conflict Free Sourcing Initiative, a joint project by the EICC and GeSI have developed the conflict minerals reporting template shown on this slide. The format of the spreadsheet and layout of information complies with SEC’s due diligence requirements for downstream companies.
The Microsoft Excel based reporting template embraces the OECD framework and asks specific questions to ensure that conflict minerals are not used across a supply chain.
According to the EICC using a spreadsheet based reporting tool is far better than a paper based questionnaire that would need to be mailed out to participants across an entire supply chain. The sheer number of supply chain participants is complicated enough but having to distribute the reporting tool to the correct contacts in every company across the downstream supply chain is a big challenge in itself. What happens if the email contact information is out of date, how do you track which suppliers have not only received the assessment but have completed it as well?
Given that conflict minerals reporting is now law for North American based SEC filings, it is in a company’s interests to find an efficient way to conduct the reporting process with minimal effort and without disrupting the day to day operation of the companies being asked to complete the survey. Even though the Dodd-Frank law applies to North America SEC filings, it won’t be too long before other countries adopt this type of assessment process.
However given that suppliers are based all over the world would it not be easier and more importantly quicker to complete this assessment and exchange the information securely across the internet? Could some form of collaborative community management platform be used for this purpose instead?
I will discuss one such community platform in one moment , but lets just see how companies got on during this year’s reporting cycle.
The initial estimate of the number of companies that would need to complete a conflict minerals report to the SEC was around 6,000.
However In June 2014, according to a survey conducted by Ernst and Young, the actual number of companies that completed a standard disclosure form to the SEC to confirm that 3TG minerals were a necessary part of their supply chain was just over 1300 and of these just over a 1000 completed a conflict minerals report as they had reason to believe that 3TG minerals may have been sourced from the DRC.
The Ernst and Young survey went on to say that:
Of the S&P500 (ie the 500 largest companies on the NYSE and NASDAQ stock exchanges), only 184 needed to file an exhibit and of these 94% used the CFSI reporting template
Average number of suppliers surveyed was 2500, but ranged from just 5 to over 40,000 suppliers
49% of respondents came from the technology, industrial and CPG sectors
43% of respondents showed sourcing of some portion of minerals from the DRC
52% of companies did not disclose supplier response rates, of those that did respond only 15% of companies had supplier response rate greater than 50%
Only 27% were able to provide a list of smelters and refiners
Even though many companies are starting to include conflict minerals compliance within their supplier code of conduct documents, many respondents to the SEC encountered numerous challenges with capturing information from their global supply chains.
For example
Ensuring that supplier contact information was up to date to allow reporting template to be sent to them
Some companies received no response from their direct and sub-tier materials suppliers, partly due to the complexity of their respective supply chains
Information provided by suppliers was often incomplete or inaccurate
Suppliers had to be chased up for report submissions to meet SEC’s May 31st deadline
So how can companies address the community management and regulatory and legal compliance issues highlighted on the previous few slides?
OpenText Active Community is an enterprise level community management tool that delivers people and process solutions across a supply chain. Active Community essentially helps to align people and process with transactional B2B. After all, for more and more businesses, improving the person to person interactions across a supply chain is becoming just as important as ensuring that companies can exchange business documents electronically. Active Community provides the foundation of the conflict minerals solution offered by OpenText.
Active Community is actually part of a much broader suite of community management tools from OpenText which together help to automate a data network and a people related network.
From a B2B point of view OpenText offers a suite of enablement tools to allow a company to exchange B2B documents with suppliers of any size. From web form solutions to Microsoft Excel based solutions, through to desktop EDI and direct integration solutions, no matter what size of trading partner a company is working with, or their technical capability, Opentext can help enable 100% of a trading partner community. As mentioned earlier the lower parts of the high tech supply chain will be using paper based processes which can be easily forged or tampered with. By using EDI, information can be exchanged securely from one end of the supply chain to the other.
In addition OpenText can help with the trading partner on boarding process by applying proven best practices and methodologies that include defining roll out strategies, education and testing connections, basically anything to do with ensuring that suppliers can connect electronically. Even when a trading partner community is on boarded, it doesn’t stop there as OpenText also offer 24/7 multi lingual support services to help ensure that any potential problems can be addressed immediately.
Rather than simply using Active Community to email out the CFSI reporting template, a more efficient approach would be to use the built in survey or assessment module that allows companies to define their own assessments and then push them out across a supply chain using Active Community’s email and communication tools. The tool also allows a company to keep track of completed assessments or responses and can automatically send out reminder emails to ensure that the suppliers complete their assessments on time.
The mass communication and traceability of responses should help any company keep track of whether any conflict minerals have been used across a supply chain. As the reporting process has to be conducted once a year, Active Community provides the ideal platform to ensure SEC compliance for this particular reporting process.
Active Community is a powerful community management platform and can be used to undertake many different compliance related assessment initiatives.
In order to help companies improve how they conduct conflict minerals related assessments, OpenText has recreated the CFSI reporting template within Active Community’s survey module ……
If you would like to see a short demonstration of the CFSI reporting template within Active Community then we would be happy to provide a demonstration of the platform’s capabilities.
The short demonstration will provide a brief overview of the Active Community platform and a review of the CFSI conflict minerals survey module that OpenText has developed as part of this platform.
So in terms of the key benefits of using OpenText Active Community for the Conflict Minerals Reporting Process
Provides an effective cloud based platform for distributing and tracking responses to conflict minerals based assessments
Offers a simple and efficient reporting environment to encourage 100% participation from trading partners
Ensures trading partner information is accurately maintained within a centralized environment
Allows a company to meet an important corporate social responsibility objective and allow a conflict minerals report to be filed on time
So to conclude this session,
Today’s global supply chains need to adhere to increasing levels of regulatory & legal compliance
Embracing assessment initiatives, such as the example from the CFSI requires a single and accurate view of all supplier related contact information
Keeping track of completed compliance assessments, especially for a globally diverse supplier community is time consuming
The removal of conflict minerals from today’s global supply chains should be on the agenda of every CEO around the world and should therefore become a key part of any corporate social responsibility initiative.