Get Visibility Into Your Supply Chain: Four Reasons To Act Now

By Jess Kraus, President, CEO and Co-Founder, Source 44

Ever since the SEC released its final rules on conflict minerals in August, the phone at my company, Source 44, started ringing more often — and more loudly, it seems. For trailblazing businesses, the clock started ticking long before the final rule was issued. But for the rest of the nearly 6,000 companies in retail, electronics and other industries that will need a way to trace tin, tungsten, tantalum and gold in their supply chains from the Democratic Republic of Congo and surrounding countries, time and resources to get the job done are becoming scarce.

The urgency around the conflict minerals issue is real and justified: The first reporting year starts on January 1, just two months from now. But in my view, it’s only the most pressing of four compelling reasons why you should get total visibility into your supply chain, starting now:

1. Conflict Minerals Compliance Is Looming

For the first time ever, the conflict minerals requirements set forth in Section 1502 of the Dodd-Frank Consumer Protection Act will make it a necessity to have a complete understanding of your supply chain. No regulation to date has posed such a comprehensive requirement. It will be the deepest dive companies have been required to make into their supply chain, going all the way back to the origin of the raw materials. This is indeed a daunting task, and many are understandably anxious.

If you haven’t mapped this out already, here are some of the key steps you’ll need to take:

• Develop Your Policy and Make a Plan: By now, you should have internal alignment and a game plan on how you’ll handle conflict minerals tracing and reporting requirements.

• Select and Implement a Management System: You also need to make a choice between two options: Build a conflict minerals system or buy a solution. If you’re going to do it yourself, make sure to carefully consider the costs of designing, building and coding; determining the reasonable country of origin (RCOI), chain of custody and due diligence for the raw materials; reporting; and monitoring. Many companies are finding that, given the complexity of those tasks, buying a solution can be more cost-effective. If so, your choices are template-based toolkits, such as from EICC/GeSI; software programs; or full-service solutions, such as those we offer. Whatever decision you’re going to make, make it soon. January 1 is the day you’ll need to start tracing for conflict minerals anywhere in your supply chain, and it’s certainly better to kick off the year with a system in place than endure the hassle of “looking back” several months later.

• Report, Audit and File: With your RCOI, chain of custody and due diligence processes underway throughout 2013 and beyond, you’ll have until May 2014 to generate your report to the SEC, have it audited and file it.

2. Supply Chain Transparency Is Much Bigger Than Conflict Minerals

The issue of conflict minerals has recently risen to the top of human rights concerns, certainly among business, for all the reasons above. But a host of bigger-picture issues are driving a trend toward true supply chain transparency among forward-looking companies.

Respecting human rights, from paying fair wages to allowing freedom of expression, has become an expectation of business today, thanks in part to the UN’s endorsement of the Guiding Principles for Business and Human Rights. And as repeated incidents at Apple supplier Foxconnillustrate, companies can be held responsible — in both the court of law and court of public opinion — for any transgressions within their supply chain. In our globalized world, we will continue to see an increase in outsourcing of manufacturing, customer service and a range of other core business functions to developing countries, and thus an increase in the supply chain issues that inevitably arise. Of course, environmental issues are likewise at the forefront of corporate sustainability challenges, from controlling CO₂ emissions to natural resource depletion.

Add to these realities the growing expectation among hyper-connected consumers that brands big and small act responsibly, without fail, in each of these areas. For these reasons and more, it’s imperative to know what’s in your products, how they’re made, and how those who make them have been treated along the way.

3.  This Is Only the Tip of the Regulatory Iceberg

The seas of corporate regulation have been comparatively calm for the past 20 years, but the pace seems to be picking up. Not since passage of the EU’s RoHS and REACH, in 2003 and 2007 respectively, have we seen regulations of the scope of Dodd-Frank. California’s enactment of a conflict minerals compliance law in 2011 was a sign of what has now come to pass on a national level. And the California Transparency in Supply Chains Act, which requires manufacturers and retailers doing business in the state to disclose efforts to eradicate slavery and human trafficking from supply chains, took effect this year. These laws have certainly accelerated the urgency of companies achieving supply chain transparency. But I suspect we’re only seeing the tip of a proverbial iceberg of regulations due to hit business in the years ahead.

4.  It’s Simply Good Business

Managing and avoiding risk is one obvious reason to achieve supply chain transparency. But leading companies think one step further, to the brand and reputational benefits of taking proactive and comprehensive action — before problems arise.

Walmart, the biggest company in the world, clearly understands the business case for supply chain transparency. While Walmart has undoubtedly been motivated in part by doing the right thing, its journeyto the forefront of sustainability leadership was squarely grounded in economics.

If you need more reasons to take action on supply chain transparency, consider this: By tackling the conflict minerals challenge now, you’ll reduce your costs for the next supply chain compliance issues that arise. But at the end of the day, it’s not just about compliance, it’s about knowing what’s in your supply chain. And that’s simply good business.

Source 44, home of Source Intelligence®, delivers a unique blend of cost-effective technology, expertise and data to rapidly improve supply chain sustainability and transparency. We guarantee our solutions are tailored to the distinct challenges that retailers and manufacturers face when they set out to define and meet sustainability targets, from assessing suppliers for increased supply chain transparency and brand protection to complying with conflict minerals requirements. Each solution is powered by proprietary algorithms within Source Intelligence® and complemented by a 24/7 supplier engagement team to enable companies to meet sustainability goals like never before. Source 44 is headquartered in Solana Beach, CA, with additional offices in San Diego and San Francisco.

Get More. With Source 44. Visit: s44.co