[Milwaukee, Wisc…] American manufacturers are facing an enormous task due to new federal regulations that went in effect on January 1st that presents another disadvantage when competing with foreign companies.
Companies that produce products containing gold, tin, tungsten, or tantalum must map out their entire supply chains all the way back to the mine the materials came from. Those materials are used in every single electronic device, from toasters to cell phones.
“I don’t know of any industry that won’t be impacted,” Tim Rayburn, Johnson Controls Global Supply Chain Sustainability Director, told the MacIver News Service.
Foreign manufacturers that sell their finished consumer goods in the US, however, are not subject to the new reporting requirements.
“[The new requirements] are very onerous to US companies,” Carolyn Woznicki, Johnson Controls Vice President of Global Procurement, told MNS.
This new regulation originated as a mandate in the Dodd Frank Act, which was created to address concerns over financial regulation. That particular mandate, however, was meant to address a humanitarian crisis in the Democratic Republic of the Congo.
Armed factions in that country are funding their war machines by mining those four minerals, commonly called “conflict minerals.” The Dodd Frank Act mandated the US Securities Exchange Commission to create a regulation requiring reporting and disclosure standards involving those four minerals to ensure the US economy is not supporting the war in the DRC. The final rules were adopted on August 22, 2012. Companies have until May 31, 2014 to comply.
It is not illegal for companies to use conflict minerals, but they must declare it. That means public relations ramifications.
Johnson Controls, in Milwaukee, began notifying its 9,000 suppliers last month, encouraging them to use an online supply chain tracking service. Johnson Controls does not anticipate much difficulty with getting their immediate suppliers to do their part. However, tracking the materials further down the supply chain will become more and more difficult, especially since communist and third world countries are involved. The total supply chain could contain up to seven layers.
The whole task is complicated because many suppliers are not public companies, and therefore are not subject to SEC rules. However, in order to do business with those public companies, they also must comply, and they likely aren’t aware of the new rules.
“You aren’t going to find a lot of people that know about this,” Rayburn said. “We want to be conflict free and we’ll do everything we can, even if we have to go to different suppliers.”
Johnson Controls will not be the only company potentially looking for new suppliers that can trace their own supply chains back to the mines and verify their materials are conflict-free. That means supply and demand will come into play.
In its last 10K filing with the SEC, Johnson Controls stated, “The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering ‘conflict free’ conflict materials, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices.”
Rayburn said for Johnson Controls’ products, “it’s not acceptable to raise prices because of this.”
Last year, Dr. Paul Griffin, a professor at the University of California-Davis, conducted a study of 206 companies to examine the effects of complying with the new rule. He found it has already cost them $6.5 billion and only half had already voluntarily complied. In August, when the SEC passed the new rule, it estimated compliance would cost $3 to $4 billion up front and $200 million annually going forward.
Johnson Controls’ memo to its suppliers included a casual warning about the new regulation, “the U.S. Secretary of State may designate other minerals in the future.”