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Fellow manufacturers, it’s time to start thinking backwards about your supply chain. A new rule from the Securities and Exchange Commission (SEC) is requiring you to trace back the roots of where your materials came from.
On August 22 of this year the SEC approved the adoption of a new rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, that will require businesses, whose production includes the use of any of the so called “conflict minerals,” to make a reasonable effort at determining where those minerals originated.
The adoption of the new rule came from calls by humanitarians who are fighting to stop the indirect funding of armies and wars in the Democratic Republic of the Congo (DRC) and its neighboring countries. The major conflict minerals outlined in the new rule include tantalum, tin, gold and tungsten, all of which are part of major mining operation in and around the DRC.
According to sec.gov, the new law will “require (public) companies to publicly disclose their use of conflict minerals… if those minerals are ‘necessary to the functionality or production of a product’ manufactured by those companies.” The findings reports would be submitted to the SEC and if a company is either unable to determine that their minerals are “conflict-free” or are in fact from these militant areas, those companies are required to post these finding on their websites.
So what does this mean for the cutting tool industry? Well, since tungsten and tantalum is used in the making of carbide, several things could be impacted by this new rule.
First, it could mean a lot more work, time, and money. Trying to trace back where your raw materials came from could be tricky for some companies, especially those who use a lot of any of the four minerals. And the reports are to be conducted annually.
This could also lead to a trickle-down effect because manufacturers making tools will have to go to their suppliers to find were the carbide came from, and if those suppliers bought it from another company, then they will go push the burden further down the line. Each company would want to try and push it off onto another company to find the answers.
According to Eric Savitz of Forbes, reports from the Brookings Institution claim that the National Association of Manufacturers have estimated compliance costs will range from $9 billion to $16 billion.
Second, while the SEC is requiring that companies that fit the profile stated above, no real penalties can or will be imposed if those companies claim to be using any minerals from the DRC.
Savitz sums it nicely by saying, “the SEC won’t be able to punish companies who use conflict minerals; the court of public opinion will do that for them.”
One major question I am asking is why manufacturers, such as those in the cutting tool industry, would be responsible for creating those reports and doing all the work, when often times they buy their raw materials from other suppliers?
Finally, what effect is this going to have on the small businesses that play an important role in the supply chain for much larger companies? Sure while the SEC is requiring only public companies to file reports on their usage of minerals, the effect could trickle down to those supplying them with the tools the need to manufacturing their goods (e.g. selling drills or reamers to Ford to produce cars).
In such a time where the U.S. economy remains extremely fragile and with domestic manufacturing finally starting to grow again (albeit slowly), new rules like this one could put a fair amount of pressure on manufacturers and could possibly slow growth even further.
Chadd Brown
Super Tool, Inc.