What you need to know Direct material sourcing continues to be a moving target for many organizations. With the constant changing exchange rates, increasing wages and shortage of skilled manufacturing labor, sourcing today is as hard and complicated as it has ever been in our history. The latest change in direct material sourcing is the conflict minerals ruling that was enacted. With the Dodd-Frank Wall Street Reform and Consumer Protection Act signed in 2010, LiveSource has developed a set of tools to help assist in meeting the requirements set forth. We have years of experience in sourcing and we understand the challenges presented with the new ruling. The information below outlines the regulations and the solutions we have available to you. Conflict minerals ruling passed The Securities and Exchange Commission (SEC) approved the rule on “conflict minerals� on August 22, 2012. With the passing of the conflict minerals ruling, full disclosure is required as stated in Section 1502 of the Dodd-Frank. Publicly traded companies and their suppliers now are required to disclose whether they manufacture products that contain conflict minerals. In addition, they must also disclose what actions they have taken to ensure their use of the minerals do not contribute to human atrocities in the Democratic Republic of Congo (DRC) and adjoining countries. The ruling requires reporting on use of conflict minerals beginning January 1, 2013. The filing date for the reporting is May 31, 2014. Reporting on the use has grown into a very burdensome task for all organizations involved. The organization must engage their diverse, multi-tier supply chains to collect the data, analyze it, and then compile reporting for the data. If an organization is not able to comply with the law for SEC reporting requirements and providing information to third-party requests, they face stiff penalties. In addition, if they discover a product contains conflict minerals, they must seek new sources to provide the parts and materials from conflict-free regions.
What are conflict minerals? The SEC ruling defines “conflict minerals” as columbite-tantalite, also known as coltan (used to produce tantalum), cassiterite (used to produce tin), wolframite (used to produce tungsten), and gold regardless of their source of origin; it also includes the derivatives of these minerals. The conflict region highlighted is the DRC. The DRC is the 12th largest country in size and has a population of 71 million. The region is extremely abundant in natural resources with some estimates of the value of its total mineral wealth ranging from $10 to $24 trillion. Everything from cell phones, hearing aids, pacemakers, and GPS systems use of alloys and finishes that contain these materials. Is my organization required to report? Companies that file reports with the SEC under Sections 13(a) or 15(d) of the Exchange Act are subject to the regulatory requirements if they have products that require the use of conflict minerals as part of their functionality.
How LiveSource can help you •
LiveSource allows for the collection of your suppliers as well as their supplier’s documentation to verify that they are not sourcing from countries that are on the banned supplier list.
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LiveSource notifies you and your supply chain when any signed or verified document or certification is due to expire, such that you do not find yourself working with a supply base that does not have current documentation on file.
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LiveSource can act as your single supplier communication vehicle so you can easily communicate your company’s policies regarding conflict minerals and verify who read the communication and when.
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LiveSource can be configured so that you can establish as many levels of supply chain visibility as needed in order to protect yourself from any conflict mineral sanctions.
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LiveSource can provide on-demand reports detailing which suppliers are and are not in compliance with your enforcement of the conflict mineral policy.
Companies who fall into this category then must conduct a “reasonable country of origin inquiry” to understand and determine the origin of the minerals in their supply chain. The results from this inquiry must be included in the filing of the Conflict Minerals Report. Lastly, the report will be subject to a “certified audit” conducted by an independent third party.
Benefits of LiveSource
How does this affect my supply chain? Here’s the important part. It is easy to monitor and review internally controlled sourcing. It becomes a bigger challenge when having to monitor the sourcing habits of suppliers. Many see this as extra ‘paperwork’ that their over worked staff must now complete to make sure they are not sourcing their materials from the designated conflict areas. Also, you must be able to reasonably and easily report on the materials within your supply chain. Essentially, you will need to keep records for sourceof-origin and perform due diligence to determine the presence or use of very common materials inherent in conflict minerals – namely gold, tin, tantalum, and tungsten.
Move Past Price to Best Value Sophisticated capabilities in RFx and auctions give you greater control in considering not just cost, but risk, performance and best value when selecting key suppliers
This will be an extremely complex process because of the typical structure within the minerals sourcing industry. A network of mines, traders, exporters, smelters, refiners, and alloy producers can all be part of the supply chain prior to a single part or electronic component is even produced. Then include the extended nature of technology value chains globally and you will start to see the difficulty in tracking minerals back to the mine of origin. It quickly becomes overwhelming.
Optimize Supplier Performance LiveSource provides current data and insight into your supplier base and increases your ability to examine performance and manage risk
LiveSource is the MFG.com cloud-based sourcing tool that combines the power of advanced supplier management with the global reach of the world’s largest manufacturing marketplace. LiveSource helps companies discover, collaborate and work with qualified global suppliers, resulting in smarter spending, reduced product costs, shorter delivery times, and a more flexible supply chain.
Find More Suppliers in Less Time Access to more than 150,000 global manufacturers including Woman-Owned, Small Business, HUBZone, 8a, Veteran-Owned and SDVO designated businesses
Increase Sourcing Productivity Category or geography-specific workflows to standardize efforts Generate Actionable Sourcing Insights Complete power to assemble and analyze spend data across multiple categories and industries
Take Control of Your Documents Automated document management process
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7 Ways to Prepare for the Conflict Minerals Provision Achieving compliance with the Conflict Minerals Law passed in 2010 is a major challenge for businesses today. As per this law, companies are now required to examine their mineral sources and ensure that they are not purchased from the Democratic Republic of Congo, an area known for its rich mineral deposits in an environment of extreme violence. While companies listed with the Securities and Exchange Commission (SEC) have to undergo the annual audits without fail, other companies associated with them through their supply chain network will also feel the effects of these stringent regulations. Not complying would be illegal, not to mention damaging to the brand image in the long run. The conflict minerals include Cassiterite, Columbite-tantalite (coltan), Wolframite and Gold. They are used in numerous products and form the basis of production processes across industries. From circuit board solders, paint manufacturing, capacitors, airbags, hearing aids, pacemakers, laptops, mobiles, cameras and video game consoles, to heavy industrial tools, they are present everywhere. Gold of course needs no introduction but apart from jewelry it is also widely used in dental and electronic products like semiconductors and chips. Businesses which make or use any of these minerals are now bound by law to examine their sources and scrutinize the supply chain network thoroughly so that they can prevent sourcing from the troubled Congo region and prevent further violence.
While compliance issues and related problems are reigning in every mind, experts have come up with certain methods that can help businesses prepare for the conflict minerals provision. A brief look: Examination of sources: The first step is to go deep into the supply chain network and uncover the sources of all the relevant minerals used in the production process. While the immediate next supplier in the loop might be a legitimate dealer, delving deep within will reveal multiple middlemen across the globe and can most of the times be traced back to the DRC. Companies should be more circumspect about all sources published prior to August 2012, before the SEC regulations came into active effect. For this rule there is a no de minimis exception which means that even if you are using these minerals in trace amounts you are still subject to the rule. Liability: Consider and prepare for liability actions. The disclosure needs to be filed with the SEC which means that the issuers are subject to Exchange Act Section 18 liability for fraudulent or false conflict minerals reporting. Make sure that you have consulted both legal and industry experts to help you deal with the rule. Misrepresentation or false information, even inadvertently put, can land you in serious legal troubles and also lead to heavy financial losses and damages. Careful acquisition rules: The problem does not end with just the existing companies. Businesses which have or are on the verge of acquiring new companies have to be very careful about their mineral source locations as well. If the acquired company is not listed with the SEC, the audit can be delayed for a time but in the long run it makes best sense to scrutinize all sources and produce the specialized disclosure report required by the SEC revealing all conflict minerals presence. However, if the company is into servicing, maintenance or repairs, it can be exempt from this rule.
Timing: Timing of disclosures for components is as important as timing for possession of conflict minerals. For the former, one has to disclose the source and network information for the year when the minerals have been used in manufacturing and production. At times, it can be the year when the finished product that contains that component has been completed. If one possesses the conflict minerals but did not produce the product in a calendar year, then there is no need to audit or report that year. Exemption of minerals: Do not blindly make changes into your logistics framework before you have all facts in hand. You may have been sourcing the minerals listed but if your source country does not fall under the covered names then you will be exempt from the audits and regulations. The countries under the scanner are the Democratic Republic of the Congo, Tanzania, Republic of Congo, Zambia, Central African Republic, Uganda, Angola, Rwanda, Burundi and South Sudan. You can also be exempt from this rule if the minerals have been smelted or refined by January 31, 2013 even if they have sourced from these countries. Framework: With the help of expert consultants you can also find and prepare your Conflict Minerals Report as per the accepted framework. An internationally recognized due diligence framework is the OECD framework which can be applied on specific as well as multiple metals like tin, tungsten, tantalum and gold. Conflict mineral compliance is going to be a monumental challenge for many companies. It is something that should not be taken lightly. Acknowledging these seven items will help you start the process.
Application and preparation: Once the scrutiny phase is over, companies should prepare for the compliance laws and be ready to face the post audit interrogations as a part of their larger planning. A robust plan and assessment of the objectives will stand in good stead when it comes to following the rule closely. There is a need for thorough due diligence to determine the proper application of the products to rule once the Reasonable Country of Origin Inquiry (RCOI) has been established.
LiveSource is the MFG.com cloud-based sourcing tool that combines the power of advanced supplier management with the global reach of the world’s largest manufacturing marketplace. LiveSource helps companies discover, collaborate and work with qualified global suppliers, resulting in smarter spending, reduced product costs, shorter delivery times, and a more flexible supply chain.
www.livesource.com | info@livesource.com | +1 877.866.5343
What You Need to Know About the DoD’s New Counterfeit Prevention Policy The recently issued regulations by the U.S. Department of Defense (DoD) will place stringent regulations on contractors who supply products with electronic parts to the DoD as well as other wings of the Government. The proposed regulations will be partially implementing the Section 818 of the National Defense Authorization Act for the fiscal year 2012 (NDAA 2012). In theory, it is meant to make it easy for manufacturers and quality assurance teams to detect and avoid counterfeit electronic parts. This regulation will significantly impact the Defense Federal Acquisition Regulations Supplement (DFARS). Counterfeit parts find their way into countless products in the U.S. supply chain network, though infiltration is highest at the original manufacturing level. They find their way into many discrete electronic components like bare and assembled circuit boards, as well as microcircuits. Through varied circuits, the counterfeit parts contribute to many end products like electronic goods as well as high end products like defense goods, aircrafts, arms and ammunitions. It is difficult to detect what is counterfeit because counterfeiters cleverly mask the old and used products in shiny packaging and then pass them off as new. They blatantly flout regulations to mark new as well as refurbished items as high grade products and have no qualms about using nonworking components or unauthorized parts in their making.
The proposed regulations by the DoD offer three definitions for counterfeit parts: - An unauthorized copy or substitute part that has been identified, marked, and/or altered by a source other
than the part’s legally authorized source and has been misrepresented to be from a legally authorized source; - An item misrepresented to be an authorized item of the legally authorized source; or - A new, used, outdated, or expired item from a legally authorized source that is misrepresented by any source to the end-user as meeting the performance requirements for the intended use.
The use of counterfeit parts is not only damaging for brand
It is evident from these definitions that DoD’s idea of
image, but it can be potentially harmful for end users. It
counterfeit parts goes beyond their internal policies and
is especially damaging for the DoD to be sold counterfeit
responsibilities. They now want their suppliers and con-
parts. Over the years it has led to lower efficiency levels,
tractors to follow the same anti-counterfeiting guidelines
system failures, repeat malfunctions and reduced product
that mark their internal policies. The last definition will
life span, all resulting in unwarranted and unforeseen acci-
likely cause major problems for contractors and their sup-
dents that hampers the overall image of the DoD. The last
pliers as it will completely shake up the system as it comes
decade has been a repeat hue and cry over compromised
into effect. Under these definitions all non-conforming
goods for the DoD which has led to a rather tainted supply
parts, even genuine parts from original manufacturers
chain network. The outcry has been a boon in disguise, as
with quality issues will struggle to be approved, even after
it has led to increased awareness of the problem and has
rectification.
thus paved the way for definitive changes like the recently passed regulations.
This will have a deeply negative impact on the entire supply network and will likely shake up things in the financial
Counterfeit parts are harmful for all, corporate or other-
department as well. The process of investigation, identi-
wise. It is even more dangerous for the DoD because of its
fying, repairing, reporting and remediating suspected
uniquely high standards and sworn duty to prevent breach
counterfeit electronic parts can be time consuming and
of information. Inferior counterfeit items pose a threat to
expensive. While there will be many protests and many
the Nation’s information network and strategic defense.
detractors for this move, in the long run, it will help to filter
Under the aegis of the new regulations, the DoD will have
out the genuine from the counterfeit, paving the way for a
to modify or reestablish the current anti-counterfeit pro-
healthier supply chain and logistics network for the DoD.
gram. Contractors are also required to assess and examine their existing processes and networks so that sufficient control can be administered to prevent further infiltration of the counterfeit parts. Stringent measures are now being applied to detect suspected parts and take immediate action to contain such situations.
How LiveSource can help you:
Benefits of LiveSource:
• LiveSource allows for the collection of your suppliers
Find More Suppliers in Less Time Access to more than 150,000 global manufacturers including Woman-Owned, Small Business, HUBZone, 8a, Veteran-Owned and SDVO designated businesses
as well as their supplier’s documentation to verify the authenticity of sourced parts.
• LiveSource notifies you and your supply chain when any signed or verified document or certification is due to expire, such that you do not find yourself working with a supply base that does not have current documentation on file. • LiveSource can act as your single supplier communication vehicle so you can easily communicate your company’s policies regarding counterfeit materials and verify who read the communication and when. • LiveSource can be configured so that you can establish as many levels of supply chain visibility as needed in order to protect yourself from any counterfeit material sanctions. • LiveSource can provide on-demand reports detailing which suppliers are and are not in compliance with your enforcement of the counterfeit part policy.
LiveSource is the MFG.com cloud-based sourcing tool that combines the power of advanced supplier management with the global reach of the world’s largest manufacturing marketplace. LiveSource helps companies discover, collaborate and work with qualified global suppliers, resulting in smarter spending, reduced product costs, shorter delivery times, and a more flexible supply chain.
Move Past Price to Best Value Sophisticated capabilities in RFx and auctions give you greater control in considering not just cost, but risk, performance and best value when selecting key suppliers Increase Sourcing Productivity Category or geography-specific workflows to standardize efforts Generate Actionable Sourcing Insights Complete power to assemble and analyze spend data across multiple categories and industries Optimize Supplier Performance LiveSource provides current data and insight into your supplier base and increases your ability to examine performance and manage risk Take Control of Your Documents Automated document management process
www.livesource.com | info@livesource.com | +1 877.866.5343