- THE MAGAZINE
- INFO CENTER
The Dodd-Frank Wall Street Reform and Consumer Protection Act contained a short provision at the end of a very long bill requiring the Securities and Exchange Commission to promulgate rules requiring “issuers with conflict minerals that are necessary to the functionality or production of a product manufactured by such person to disclose annually whether any of those minerals originated in the Democratic Republic of the Congo or an adjoining country.”
While the SEC was working on those rules, Dodd-Frank gave me a great classroom exercise to help illustrate the complexities of supply chains. Since 2010 when the requirement first surfaced, I’ve asked successive classes to describe how they would comply by first modeling the supply chain.
All but one student started with the finished product and worked up the supply chain to the source. Only one student started with the source and the issues of confirming whether the raw materials were, in fact, conflict minerals. Among the suggestions – radioactive tagging of legitimate materials.
Whether looking for a paper trail, a method of fingerprinting, or following the financial transactions, the universal conclusion was that at some point in each of their answers, the students had to admit they could not maintain visibility along the whole supply chain.
When the benefits are high enough, I’ve seen systems that can track beef from the farm and field and feedstock it was fed through the abattoir to the final product delivered to the retail shelf. The key has been the rewards (and now lack of penalties – even if the penalties are consumer attitude).
The cost in engineered processes and technologies to achieve supply chain visibility can be sustained by materials at later stages of manufacturing or processing, but not typically in raw form. And, in some developing nations like the Congo those engineered processes and technologies may be totally lacking.
We have the ability to control quite a lot of what happens in our supply chains, but we must still manage the risk from the point where our control or our visibility over what occurs begins to wane.
What the SEC rules will likely drive is sourcing raw materials from anywhere but the region of the Democratic Republic of Congo. That may be the only cost effective way to ensure the legitimacy of the “DRC conflict free” label.