Over the last decade, there has been much focus on conflict mineral management practices due to worry amongst electronics manufacturer stakeholders. Stakeholders are fearful since the use of conflict minerals can be hard to track. Now, blockchain technology is proving to be a solution to traceability and responsible sourcing of components.
Why Conflict Minerals Matter in Supply Chain
Conflict minerals are minerals that are extracted via exploitation and whose trade propels human rights violations in the countries where the minerals are taken from. Here in the West, supply chain professionals have been presented with the task of Supply Chain Due Diligence (SCDD) which implements processes around maintaining visibility and tracking where the minerals located in their electronics are actually coming from.
It’s no secret that transparency is considered one of the most important factors in a successful supply chain. When someone purchases any electronic system, they don’t often think about the journey that is the supply chain that made it all possible. Devices are typically manufactured, assembled, and produced in factories very far from where they’re purchased, with components that can be sourced from anywhere in the world. Tracking complete and correct information about components’ sources has become a very complex part of the supply chain process. Manufacturers want to monitor and control where the materials are being sourced.
In 2017, The Harvard Business Review published a report in the Academy of Management Journal, revealing that many corporations often have little idea where their raw materials come from. Specifically, HBR reported that, of the companies it reviewed over the course of three years:
Source: Harvard Business Review
“Only about 1% of the companies were able to declare that their products were conflict-free beyond a reasonable doubt. Of the rest, 19% declared that they had no reason to believe their products contained DRC conflict minerals. The remaining 80% admitted that they were unable to determine their raw materials’ country of origin.”
Tin, tungsten, tantalum, and gold are considered four conflict minerals that have made their way into the many electronics we use every day. Our consumer electronics rely on these metals to function. For example,
Tantalum is used in capacitors and semiconductors found in consumer and automotive devices. It stores electrical charges. Tin is used to solder and gold is found on PCBs. They are everywhere and the need for these materials is increasing over time.
“The portfolio of minerals needed for manufacturing is dynamic. The Information Age is creating demand for an ever-wider range of metallic and nonmetallic minerals to perform essential functions in cellular telephones (e.g., tantalum), liquid crystal displays (e.g., indium), computer chips (a broad mineral suite), and photovoltaic cells (e.g., silicon, gallium, cadmium, selenium, tellurium, and indium). Whereas today’s cars require about 50 pounds of copper to create electrical wiring systems, new hybrid cars will require even more copper—about 75 pounds, by some estimates. ”Source: The National Academy of Sciences
Many manufacturers within the electronics industry take the matter very seriously. For example, Texas Instruments, Analog Devices, Infineon, and most of the other reputable companies in the industry, in accordance with the law, require that suppliers whose products contain tantalum, tin, gold
How can Blockchain help?
Blockchain technology is already predicted to transform the supply chain by reducing costs and delays and eliminating human error with its record-keeping mechanisms.
Now, Ford Motor Company, Huayou Cobalt, IBM, LG Chem
The group, which includes participants at each major stage of the supply chain from mine to end-user, will begin with a pilot focused on cobalt and explore the creation of an open, industrywide blockchain platform that could ultimately be used to trace and validate a range of minerals used in consumer products.
Cobalt is in high demand for its use in lithium-ion batteries, which power a wide range of products such as laptops, mobile devices and electric vehicles. According to a report from Morgan Stanley, by 2026, demand is expected to multiply eightfold, especially for its use in electric vehicles and consumer devices. The typical electric car battery requires up to 20 pounds of cobalt and a standard laptop requires around one ounce of the mineral.
The blockchain pilot is already underway and seeks to demonstrate how materials in the supply chain are responsibly produced, traded and processed.
For this pilot based on a simulated sourcing scenario, Cobalt produced at Huayou’s industrial mine site in the Democratic Republic of Congo (DRC) will be traced through the supply chain as it travels from mine and smelter to LG Chem’s cathode plant and battery plant in South Korea, and finally into a Ford plant in the United States. An immutable audit trail will be created on the blockchain, which will include corresponding data to provide evidence of the cobalt production from mine to end manufacturer.
Participants in the network will be validated against responsible sourcing standards developed by the Organization for Economic Cooperation and Development (OECD).
Traditionally, miners, smelters and consumer brands rely on third-party audits to establish compliance with generally accepted industry standards. Coupled with these assessments, blockchain technology offers a network of validated participants and immutable data that can be seen by all permissioned network participants in real time. Blockchain can also be used to help network participants address their compliance requirements.
While the initial focus is on large-scale miners (LSMs), an important objective of the group is to help increase transparency in artisanal and small-scale mining (ASMs) and enable these operators to sell their raw materials in the global market, while they meet their internationally ratified responsibility requirements. The network can help enable ASM operators to partner with due diligence data providers and, ultimately, join a blockchain-based network of validated participants. The pilot will also explore the use of incentives or financial benefits for ASMs and their local communities impacted by mining.
Built on the IBM Blockchain Platform and powered by the Linux Foundation’s Hyperledger Fabric, the platform is designed to be adopted across industry. The solution is built to allow interested parties of all sizes and roles in the supply chain easy access, including original equipment manufacturers (OEMs) across the automotive, electronics, aerospace and defense industries and their supply chain partners such as mining companies and battery manufacturers. Supply chain networks will be encouraged to join this open, industrywide network to trace and validate minerals upon successful completion of the pilot.
Work is expected to be extended beyond cobalt into other battery metals and raw materials, including the conflict minerals discussed above. Focus industries for the solution include automotive, aerospace and defense, and consumer electronics. There are plans for a governance board representing members across these industries, to help further ensure the platform’s growth, functionality
The pilot is expected to be completed mid-year 2019.
This work is a step in the right direction for implementing blockchain