Knowing Your Supply Chain from a Hole in the Ground

A new standard of accountability and traceability for supply chains is emerging. Companies are increasingly faced with the need to be able to trace their supply chains back to the hole in the ground their raw materials came from. This is one of the implications of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a U.S. Federal law passed in 2010. Section 1502 requires any company that must file reports with the SEC to assess its supply chain for the presence of “conflict minerals” and determine whether they originate in mines in the Democratic Republic of Congo or surrounding nations.

There are lots of nuances and implications to the law. (For more information, see Dodd-Frank Section1502.) But an essential one is that companies are being asked to know far more about where the raw materials in their products came from, and the conditions under which those materials were obtained, than ever before.

On behalf of a client I am currently researching the impacts of Dodd-Frank Secdtion 1502 on companies. A number of the firms I’ve interviewed see a broader trend toward ever higher standards of visibility, traceability and accountability in company supply chains. As they work to design processes that will enable them to comply with the new rules, they are trying to think ahead and design them to be able to accomodate new requirements, which they believe are all but inevitable.

Another example of these heightened standards for traceability and accountability is the recent announcement by fruit producer Chiquita Brands that it had committed to identifying – and eliminating from its list of fuel suppliers – all of the companies that it believes sell diesel made from Canadian tar sands oils. This action came after a pressure campaign from the environmental group ForestEthics.

We are entering an era when “fungible commodities” such as petroleum and tin are not as fungible as they once were. Companies are going to need to improve their supply chain game to keep pace with rising expectations for traceability and accountability.

What are your thoughts?

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