Demystifying the
Conflict Minerals –
The 3Ts and Gold Mystery
Demystifying the Conflict Minerals – The 3Ts and Gold Mystery
The Democratic Republic of Congo (DRC) is widely considered to be the richest country
in the world regarding natural resources. Its untapped deposits of raw minerals are
estimated to be worth in excess of US$ 24 trillion. Due to its rich minerals reserves, the
eastern Congo is in a state of upheaval due to armed conflict and human rights abuses
for extracting minerals - mainly tin, tungsten, tantalum and gold. These minerals are
used by various industries like jewelry, industrial manufacturing, aerospace, electronics
& communications, automotive, etc.
Understanding Section 1502 of the Dodd–Frank Act and its implications on
the companies
The extensive human rights violations and the conditions under which these minerals
are extracted and sold via middlemen to companies around the globe, led to 'section
1502' of the Dodd-Frank Act. The Act's intent is to try and curb the violence and
exploitation in the DRC and neighboring countries through disclosure and public
pressure, by exposing companies that use minerals derived from this region.
Under the law, companies would be required to submit an annual conflict minerals
report to the SEC if: (a) they are required to file reports with the SEC under the
Exchange Act of 1934 and, (b) conflict minerals are necessary to the functionality or
production of a product that they manufacture or contract to be manufactured. Even
companies not directly regulated by the SEC, privately held and foreign owned, will be
impacted by the audit requirements as they are applied throughout the entire supply
chains. Additionally, the Act also requires carrying out third-party audits at different
point in the supply chain.
The latest development in the Dodd-Frank Act is that, as of May 31, 2014, public
companies will have to comply with the SEC's conflict minerals rule filing.
As per the PWC report “Conflict minerals survey: How companies are preparing”, it is
estimated that 6,000 SEC issuers will have to provide new disclosures under the rule
and approximately 275,000 private companies that are part of the issuers' supply
chains will also be affected.
The report also states that nearly 900 executives surveyed are still in the initial
stages of their compliance efforts, while 16% have not yet begun gathering
information, and 32% are still determining if the rule even applies to them.
The single most challenging task for the companies is getting accurate and complete
information from their suppliers. This challenge is exacerbated further considering that
13% of respondents said their companies have 5,000 or more suppliers
Nearly 14% saying they had over 1,000 but less than 5,000
More than 23% saying between 100 and 1,000
16.5% having fewer than 100
The longer the supply chain, the more complicated it is to extract information about
the raw materials being used and to verifying their accuracy.
How can technology help?
As highlighted in the PWC survey, organizations have large numbers of suppliers spread
around the globe. Determining if conflict minerals are being used by any of the supplier
in your supply chain is a daunting task. This is where technology, to be precise –
Supplier Management technology – can make the task easier.
Supplier Management technology can help organizations comply with the conflict
minerals rule in the following ways:
Supplier Onboarding
& Information Management
The supplier portal makes the onboarding process simple and less time-consuming.
It helps suppliers to upload the required documents, and for the buyer company to
keep track of it by installing approval workflows. It also enables maintaining an audit
trail to check compliance requirements. For instance, if the organization has a DRC
conflict-free policy, and the supplier has not submitted the required documents, an
alert is triggered. Organizations can then take necessary actions.
Vast data is difficult to manage if not for technology. Supplier management
technology enables categorizing supplier data and ensuring that it is centrally
accessible. It helps organizations maintain a single version of truth.
Technology also helps store historical data.
Supplier
Qualification
The sourcing team should be aware of unscrupulous suppliers entering the supply
chain and providing minerals from conflict zones or substandard raw materials.
Sourcing teams should have a predetermined screening process that every supplier
registering on the supplier portal should go through. This helps eliminate suppliers
who do not meet the company's purchasing policies.
Companies can have a questionnaire to judge the suppliers. The questions can vary
depending upon the project requirement. Each question can be given a different
weight depending on the project needs and complexity, and can be assigned a range
of scores. Depending on the answers, the qualification score is calculated and,
according to the benchmark set, the supplier is either qualified or disqualified.
Supplier
Selection
After the qualifying round, the shortlisted suppliers can be evaluated on different
parameters or scenarios, like avoiding a supplier from a particular geographic
location or those dealing with sub-suppliers from the conflict zone, etc.
It is necessary to ensure that companies select the right suppliers, who not only
provide materials at a competitive cost, but also from a conflict-free zone.
All stakeholders should be involved in the supplier selection process to ensure
transparency and to make the evaluation process more objective. Standardizing the
requirements and specifications in the form of a template makes the process more
repeatable and effective.
After performing the required analysis, the most competitive supplier complying
with the company's purchasing policies as well as the conflict minerals rule, is
awarded the contract.
Supplier
Audit
As per the rule, a third-party audit is compulsory. In addition, organizations need to
ensure that they evaluate supplier performance and compliance (in terms of
submission of renewed certificates, etc.) at regular intervals. Companies should
have a supplier segmentation strategy to bucket the suppliers based on criticality in
the supply chain or total spend, for instance. After the segmentation, KPIs should be
determined and assigned a particular weight for each bucket, and the supplier
performance must be reviewed based on the scores generated.

Supplier Survey
The PWC survey highlights that approximately 47% of the surveyed
companies plan to gather information regarding conflict minerals rules from
their suppliers through survey.
Supplier management technology enables organizations to carry out
surveys among their suppliers to gather information for the conflict minerals
rule. Organizations can include questions like:
1.
What are the names of your smelters?
2.
Have you implemented measures for conflict-free sourcing?
3.
Are your suppliers (if any) DRC conflict-free?
Additionally, organizations can ask their direct suppliers to carry out the
survey with their sub-suppliers. This ensures that information is collected
down the entire supply chain.
Conclusion
The level of complexity and the resources required to ensure compliance to the
Conflicts Minerals Rule will vary depending upon the organization's size and its
products. The level of transparency demanded by the Act requires organizations to turn
to technology for relevant results in less time. Organizations should also carry out onsite audits at the supplier/sub-supplier factories after conducting the initial survey for
better accuracy of the information provided by the supplier.
Organizations need to devise an appropriate strategy and execute it at as soon as
possible in order to meet the requirements of section 1502 of the Dodd–Frank Act! As
the PWC report states, “And that's just the beginning – then companies need to
execute. There's no time to waste.”
About Zycus
At Zycus we are 100% dedicated to positioning procurement at the heart of business performance. With our spirit
of innovation and a passion to help procurement create even greater business advantages, we have evolved our
portfolio to a full suite of Procurement Performance Solutions - Spend Analysis, eSourcing, Contract
Management, Supplier Management, Financial Savings Management, and Procure-to-Pay.
We believe our deep, detailed procurement expertise and a sharp focus on being responsive to our customers has
reflected in us being positioned as a 'Leader' in the '2013 Gartner Magic Quadrant' for Strategic Sourcing
Application Suites. We continue to see each customer as a partner in innovation and no client is too small to
deserve our attention.
We are a 600+ company with a physical presence in virtually every major region of the globe. With more than
200 solution deployments among Global 1000 clients, we search the world continually for procurement practices
proven to drive competitive business performance. We incorporate these practices into easy-to-use solutions that
give procurement teams the power to get moving quickly - from any point of departure - and to continue
innovating and pushing business and procurement performance to new heights.
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