Ensuring Conflict-Free Minerals and the Urgent Need for Sustainable Procurement

A couple of years ago, supply chain transparency was a buzzword reserved for a few responsible companies. Today, it has become a critical factor in the success of businesses, especially in the complex product manufacturing industries. With increasing pressure from governments, consumers, and NGOs for companies to disclose more information about their supply chains, the concept of supply chain traceability and transparency has taken center stage.

When talking about responsible businesses, sustainable procurement is an essential element for accountability, transparency, and socio-environmental reasons. It is crucial for many industries, including electronics, technology, medical services, jewelry, and automotive sectors, to pay close attention to the procurement of Tin, Tantalum, Tungsten, and Gold (3TG), also known as "conflict minerals." These minerals' extraction involves alarming human rights issues, making it crucial to have transparency in the supply chain.

Supply chain transparency means companies must know what is happening upstream in the supply chain and communicate this knowledge both internally and externally. The importance of this process has increased as more consumers demand it. Consumers seek information on product ingredients and materials, where products come from, and the conditions in which they were produced. This growing segment of discerning consumers places reputational risks on companies through media and NGO campaigns, leading to new laws pertaining to transparency.

Typical Actors in the 3TG Supply Chain:

Despite the clear benefits of supply chain transparency and traceability, not all companies are quick to adopt them. One reason is that supply chains were not initially designed to be transparent. Companies and suppliers often fear that divulging too much information would undermine their competitive advantage or expose them to criticism. Moreover, relevant information, such as details of upstream supply chain practices, may not be collected or may be inaccurate.

However, businesses that neglect supply chain transparency and traceability risk losing their competitive edge and running afoul of new laws and regulations. This is especially true in the electronics and electrical manufacturing industries, where even a single non-compliant shipment can result in costly disruptions that ripple through the entire supply chain. For instance, shipments that lack origin documents can be held up and turned away at ports, leading to significant financial losses.

Best Practices for Implementing Traceability and Transparency for Conflict Minerals

1. Manage your Master Data Properly. To establish an effective traceability system, it is essential to maintain a clear and up-to-date database of supplier & Part information. This includes the name of the supplier, their location, contact person, type of raw materials, and quantity of orders. Proper labeling will enable you to track supplier data efficiently and create a transparent supply chain.

2. Know your "High Risk" Suppliers. Conduct a supplier risk analysis to determine which suppliers are relevant to monitor for conflict minerals. Research for the presence of 3TG minerals in sourced materials, as they can be easily hidden in other materials. This will help you identify and assess your high-risk suppliers and ensure that they comply with your traceability and transparency requirements.

3. Assess your suppliers for Reasonable Country of origin inquiry. To ensure transparency on conflict minerals, request your suppliers to fill in the Conflict Minerals Reporting Template (CMRT). The CMRT is a free and standardized reporting tool that facilitates the transfer of information among supply chain actors. It enables you to know the country of origin of the minerals you source and which smelters and refiners are being used.

4. Establish proper boundaries. To demand conflict minerals responsibility from your suppliers, request audits, and include conflict minerals clauses in your supplier contracts. The most widely used audit is the Responsible Minerals Assurance Process (RMAP) from the Responsible Minerals Initiative (RMI), which can identify smelters and refiners that produce responsibly sourced materials. Ensure that your supplier's code of conduct outlines your expectations and obligations.

5. Create the necessary remediation procedures. Formalize a procedure that outlines how you want to cope with supplier non-conformity, ranging from capacity building to contract termination. The risk associated with noncompliance is not only regulatory but also reputational and can have a tremendous impact on your brand. Take necessary measures if data inconsistency arises.

6. Formalize everything into a policy. Creating a formalized policy will help guide your organization through the complexity of due diligence. Here, you should write down your conflict minerals goals and commitments, allocate roles and responsibilities, and demonstrate to both internal and external stakeholders that you engage in due diligence. Publish your mineral sourcing policy on your website and review it regularly.

7. Create a due diligence report. As a direct importer to the EU or as a publicly listed company in the USA, you are obligated to report annually on supply chain due diligence. If your organization is located in the supply chain and has a high volume of 3TG minerals in your products, it is necessary to create a due diligence report. The report should provide detailed information on your traceability and transparency efforts and demonstrate compliance with relevant regulations; including the list of 3TG smelters for conflict minerals.

Strategies for Ensuring Traceability and Transparency in your Supply chain

There are several strategies that companies can use to ensure traceability and transparency in their supply chain some of them are:

• Establish Clear Policies and Procedures for Data Management & Tracking:

It is essential to have clear policies and procedures in place for managing and tracking data related to supply chain traceability and transparency. This includes establishing guidelines for collecting and verifying information about suppliers, as well as setting standards for data quality and accuracy. Companies should also define roles and responsibilities for managing traceability and transparency initiatives and establish clear lines of communication and reporting.

• Conduct Regular Audits to Verify the Accuracy of Supplier Information:

Auditing is a critical component of ensuring that supplier information is accurate and up-to-date. Companies should conduct regular audits of their supply chains to verify the authenticity of supplier information and identify any potential risks or gaps. Auditing should include not only suppliers but also downstream partners such as distributors and retailers.

• Provide Training and Resources to Suppliers to help them comply with Traceability and Transparency Requirements:

Suppliers play a key role in ensuring supply chain traceability and transparency. To help them comply with requirements, companies should provide training and resources on responsible sourcing practices, as well as tools and technology to streamline compliance management processes. This can include web-based portals for data collection and tracking, as well as guidelines and checklists for compliance.

• Leverage Technology to Automate Compliance Management and Tracking processes:

Technology can play a significant role in streamlining compliance management and tracking processes, reducing the time and resources required for manual data collection and analysis. Companies should explore the use of advanced analytics, blockchain, and other technologies to automate data collection and tracking, as well as to enable real-time monitoring of supply chain activities.

Implementing a traceability and transparency system is critical for ensuring responsible sourcing compliance in the manufacturing industries. By establishing clear policies and procedures, conducting regular audits, providing training and resources to suppliers, and leveraging technology to automate compliance management processes, companies can reduce risks and enhance the transparency and accountability of their supply chains.