Executive Briefings

Stopping Conflict Minerals With Supply-Chain Visibility

Consumer electronics supply chains can be long and brutally complex. The precise origin of each component or raw material within a given product isn't always known to the manufacturer, let alone the consumer. So we might be shocked to learn that a large percentage of smartphones, computers, game systems and other high-tech gadgetry contains materials sourced from parts of the world that are riven by conflict. Worse than that, the mere purchase of such items enriches those who engage in wholesale slaughter, rape and worker exploitation.

In the Democratic Republic of the Congo, combatants in a bloody civil war rely on the worldwide sale of several minerals critical to high-tech products for money to purchase weapons and fuel their depredations. The materials at issue are tantalum, tin and tungsten - the so-called "3 Ts" - as well as gold. Consumer electronics manufacturers can't do without them, and many have been willfully ignorant about the source of their raw materials, as they labor to satisfy demand for the latest iPhone, Xbox or similar gizmo.

The presence of valuable minerals in Congo isn't the cause of the civil war, but it has served to keep the conflict going. In what the International Rescue Committee calls "the world's most deadly crisis since World War II," a staggering 5.4 million people have died from disease and violence since 1998. Conflict minerals are helping to pay the bill.

The obvious response by electronics manufacturers is to stop sourcing from Congo. Up to now, though, they've argued that it's impossible to identify the actual mine from which a particular mineral was extracted. And on first blush, they would seem to have a point. For a manufacturer outsourcing nearly every aspect of its production, it's hard enough to communicate effectively with a primary supplier, much less one that's several tiers distant. Minerals emerging from a Congolese mine are mixed with supplies from elsewhere in the world, and very quickly shed their unique provenance.

In reality, the system isn't quite so impossible to sort out. Sasha Lezhnev and John Prendergast of The Enough Project have identified the six major steps of a conflict minerals supply chain. It begins at one of approximately 200 mines in eastern Congo. Twelve of the 13 biggest sites are controlled by armed groups, according to the International Peace Information Service. Workers, including many children, toil there under unspeakable conditions, and rape is a common occurrence.

From there, the mined minerals go to trading houses, who are typically paid in advance by their exporter customers, and ask few questions of the sellers. All they require is a verbal assurance that the minerals didn't come from a conflict area; no proof is required. This despite the fact that the origin of raw materials often can be determined at this stage with relative ease, based on their color and texture. "According to our interviews," Lezhnev and Prendergast write, "there has not been a single case where an exporter refused a batch of minerals because they believed it originated in a conflict mine." Exporters then process the minerals and sell them to international traders.

Origins are further obscured during the next stage, transportation to the neighboring countries of Rwanda, Uganda and Burundi. These locations serve as the exporting nation of record, erasing Congo as the true source. The ruse can lead to a near-comic disparity in trade statistics. In 2007, Lezhnev and Prendergast say, Rwanda produced $8m worth of tin ore - but officially exported at least $30m of tin. Viewers of the 2006 movie Blood Diamond will recall the depiction of a similar scam to cloak the origin of conflict diamonds from Sierra Leone.

Next, the mineral ore is refined into metals by specialized processors, based mostly in East Asia. Here, product from Congo is combined with that from other countries in huge furnaces, erasing all hopes of establishing origin. But the smelting stage is also a promising place to make that determination. Because there are only a handful of processors in the world, companies have a decent chance of identifying the presence of conflict minerals, by forcing smelters to adopt a rigorous audit procedure.

Finally, refiners sell the processed minerals to electronics companies, which tend to be blissfully unaware of where they came from, lacking as they do any formal process for tracing, auditing and certification. Other industries that use the tainted materials without compunction include tin-can manufacturers, light-bulb makers, aerospace and defense contractors and the jewelry industry.

Lezhnev says electronics companies need to step up and develop a strict system of certification, involving third-party auditors, to identify conflict minerals and ban their use on a global scale. The initiative could be similar to the Kimberley Process, an effort between governments and industry to stop the flow of conflict diamonds from countries such as Sierra Leone, Angola and Ivory Coast.

Meanwhile, the Enough Project has launched a public awareness campaign called Raise Hope for Congo, which produced this video spoof of the "I'm a Mac/I'm a PC" ads to show that conflict minerals can be found in nearly all high-tech products, regardless of brand. And companies are beginning to band together under the Electronic Industry Citizenship Coalition to implement a code of conduct for the technology supply chain. Finally, a legislative proposal is under consideration in the U.S. Congress to require publicly traded companies to declare in their Securities and Exchange Commission filings whether they are sourcing conflict minerals from Congo and surrounding countries. If so, they would have to undertake independent audits to stop the practice. As of last week, the measure had been made part of the comprehensive financial reform bill, which had yet to be acted upon by the Senate.

The best solution, of course, lies with companies themselves, through the adoption of methods for ensuring supply-chain visibility all the way to the mine. Progress on that front has been less than satisfactory to date - Lezhnev says efforts are "not exactly moving at a Kentucky Derby pace." Intel has been working with EICC on achieving smelter validation. A Microsoft spokesperson says the company is cooperating with EICC and the Global e-Sustainability Initiative "to develop solutions that better monitor and incent the local mining companies, suppliers and governments to help drive responsible business practices." At the same time, the spokesperson said, "it's very hard to reliably trace metals to mine of origin and verify that they are conflict mineral free." A similar view was expressed by Steve Jobs, chief executive officer of Apple Computer, Inc., in a recent texted response to a New York Times reader's inquiry. "We require all of our suppliers to certify in writing that they use conflict [free] materials," Jobs reportedly said. "But honestly there is no way for them to be sure. Until someone invents a way to chemically trace minerals from the source mine, it's a very difficult problem."

Considering the severity of the problem, and the historic ingenuity of supply-chain executives, that's just not good enough.

- Robert J. Bowman, SupplyChainBrain

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Consumer electronics supply chains can be long and brutally complex. The precise origin of each component or raw material within a given product isn't always known to the manufacturer, let alone the consumer. So we might be shocked to learn that a large percentage of smartphones, computers, game systems and other high-tech gadgetry contains materials sourced from parts of the world that are riven by conflict. Worse than that, the mere purchase of such items enriches those who engage in wholesale slaughter, rape and worker exploitation.

In the Democratic Republic of the Congo, combatants in a bloody civil war rely on the worldwide sale of several minerals critical to high-tech products for money to purchase weapons and fuel their depredations. The materials at issue are tantalum, tin and tungsten - the so-called "3 Ts" - as well as gold. Consumer electronics manufacturers can't do without them, and many have been willfully ignorant about the source of their raw materials, as they labor to satisfy demand for the latest iPhone, Xbox or similar gizmo.

The presence of valuable minerals in Congo isn't the cause of the civil war, but it has served to keep the conflict going. In what the International Rescue Committee calls "the world's most deadly crisis since World War II," a staggering 5.4 million people have died from disease and violence since 1998. Conflict minerals are helping to pay the bill.

The obvious response by electronics manufacturers is to stop sourcing from Congo. Up to now, though, they've argued that it's impossible to identify the actual mine from which a particular mineral was extracted. And on first blush, they would seem to have a point. For a manufacturer outsourcing nearly every aspect of its production, it's hard enough to communicate effectively with a primary supplier, much less one that's several tiers distant. Minerals emerging from a Congolese mine are mixed with supplies from elsewhere in the world, and very quickly shed their unique provenance.

In reality, the system isn't quite so impossible to sort out. Sasha Lezhnev and John Prendergast of The Enough Project have identified the six major steps of a conflict minerals supply chain. It begins at one of approximately 200 mines in eastern Congo. Twelve of the 13 biggest sites are controlled by armed groups, according to the International Peace Information Service. Workers, including many children, toil there under unspeakable conditions, and rape is a common occurrence.

From there, the mined minerals go to trading houses, who are typically paid in advance by their exporter customers, and ask few questions of the sellers. All they require is a verbal assurance that the minerals didn't come from a conflict area; no proof is required. This despite the fact that the origin of raw materials often can be determined at this stage with relative ease, based on their color and texture. "According to our interviews," Lezhnev and Prendergast write, "there has not been a single case where an exporter refused a batch of minerals because they believed it originated in a conflict mine." Exporters then process the minerals and sell them to international traders.

Origins are further obscured during the next stage, transportation to the neighboring countries of Rwanda, Uganda and Burundi. These locations serve as the exporting nation of record, erasing Congo as the true source. The ruse can lead to a near-comic disparity in trade statistics. In 2007, Lezhnev and Prendergast say, Rwanda produced $8m worth of tin ore - but officially exported at least $30m of tin. Viewers of the 2006 movie Blood Diamond will recall the depiction of a similar scam to cloak the origin of conflict diamonds from Sierra Leone.

Next, the mineral ore is refined into metals by specialized processors, based mostly in East Asia. Here, product from Congo is combined with that from other countries in huge furnaces, erasing all hopes of establishing origin. But the smelting stage is also a promising place to make that determination. Because there are only a handful of processors in the world, companies have a decent chance of identifying the presence of conflict minerals, by forcing smelters to adopt a rigorous audit procedure.

Finally, refiners sell the processed minerals to electronics companies, which tend to be blissfully unaware of where they came from, lacking as they do any formal process for tracing, auditing and certification. Other industries that use the tainted materials without compunction include tin-can manufacturers, light-bulb makers, aerospace and defense contractors and the jewelry industry.

Lezhnev says electronics companies need to step up and develop a strict system of certification, involving third-party auditors, to identify conflict minerals and ban their use on a global scale. The initiative could be similar to the Kimberley Process, an effort between governments and industry to stop the flow of conflict diamonds from countries such as Sierra Leone, Angola and Ivory Coast.

Meanwhile, the Enough Project has launched a public awareness campaign called Raise Hope for Congo, which produced this video spoof of the "I'm a Mac/I'm a PC" ads to show that conflict minerals can be found in nearly all high-tech products, regardless of brand. And companies are beginning to band together under the Electronic Industry Citizenship Coalition to implement a code of conduct for the technology supply chain. Finally, a legislative proposal is under consideration in the U.S. Congress to require publicly traded companies to declare in their Securities and Exchange Commission filings whether they are sourcing conflict minerals from Congo and surrounding countries. If so, they would have to undertake independent audits to stop the practice. As of last week, the measure had been made part of the comprehensive financial reform bill, which had yet to be acted upon by the Senate.

The best solution, of course, lies with companies themselves, through the adoption of methods for ensuring supply-chain visibility all the way to the mine. Progress on that front has been less than satisfactory to date - Lezhnev says efforts are "not exactly moving at a Kentucky Derby pace." Intel has been working with EICC on achieving smelter validation. A Microsoft spokesperson says the company is cooperating with EICC and the Global e-Sustainability Initiative "to develop solutions that better monitor and incent the local mining companies, suppliers and governments to help drive responsible business practices." At the same time, the spokesperson said, "it's very hard to reliably trace metals to mine of origin and verify that they are conflict mineral free." A similar view was expressed by Steve Jobs, chief executive officer of Apple Computer, Inc., in a recent texted response to a New York Times reader's inquiry. "We require all of our suppliers to certify in writing that they use conflict [free] materials," Jobs reportedly said. "But honestly there is no way for them to be sure. Until someone invents a way to chemically trace minerals from the source mine, it's a very difficult problem."

Considering the severity of the problem, and the historic ingenuity of supply-chain executives, that's just not good enough.

- Robert J. Bowman, SupplyChainBrain

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