September 2010 | Commentary | In Perspective

Conflict in the Supply Chain

Tags: Supply Chain Management, Legislation, Public Policy, and Regulations, Global Economy, Global Logistics

Everyone wants a smooth-flowing supply chain, free of conflict. But the U.S. government has added a new wrinkle to the issue of supply chain management in the context of global politics and human rights.

You have to mine deep inside the Dodd-Frank Wall Street Reform and Consumer Protection Act to find it, but the U.S. Congress took the opportunity to add provisions to stop the flow of raw materials termed "conflict minerals." Just as we've seen initiatives for food safety—nicknamed "field-to-fork" for their close scrutiny from source to consumption—we now have a provision to ensure sourcing of certain minerals doesn't contribute to human rights atrocities in the Democratic Republic of Congo.

On its surface, that may not sound like a complex matter or even one with much impact outside the Congo. But minerals such as tantalum are an important part of nearly every electronic tool and entertainment device we have come to depend on—from iPods to mobile phones.

The electronics industry supported efforts to regulate conflict minerals trade. And, in an e-mail circulating around the Internet, Apple CEO Steve Jobs explains that Apple requires all suppliers to certify they do not use conflict minerals. Jobs points out that until a method is developed "to chemically trace minerals from the source mine, it is a very difficult problem."

At the source, a United Nations group reportedly found that nearly all mining operations are controlled by armed groups who are demanding illegal taxes before they allow goods to be transported. A ban on conflict minerals, therefore, could amount to a defacto boycott of Congo-origin minerals. This has led some suppliers to attempt to obscure the origin by claiming the minerals originated in neighboring countries.

The problem is exacerbated when conflict minerals are transported to another country where there are no restrictions or they are loosely enforced. The conflict minerals may then be incorporated into parts and components that are, in turn, exported as originating in that country.

From a risk-management perspective, importers, manufacturers, and assemblers of products that use materials containing potential conflict minerals face at least two major problems. One is enforcement action from governments trying to stop the flow of funds to groups guilty of human rights atrocities. The other is public perception, where there is ample precedent—genetically modified foods are one example.

Supply chain management comprises the tools to monitor much of the inbound logistics chain from source to consumption, through reuse or disposal. Motivated by cost, quality, security, and even public perception in some cases, we have hardened the supply chain against many types of threats. Where the technology is limited, we have supplemented with process controls.

As Steve Jobs' comments imply, and others in the electronics industry have said, we may not be able to reach 100-percent compliance. But we can squeeze tolerances tight and eliminate willful or knowing violations.

We aren't likely to run out of regulatory or legislative actions that seek to regulate supply chain functions. We may run out of nicknames—"mine-to-mobile"?

It is a good time to look at our supply chains and find and plug information gaps. It is also wise to educate the public—including regulators—that the levels of practice and self-regulation are already high.