Law Office of Hayes & Welsh

Businesses - Know Your Supply Chain

As a business operator, your supply chain plays a critical role in not only your product development but also in the success of your business. Each component and piece of your product comes from a supplier or subcontractor, and the components of your supply chain are often negotiated in order to provide consumers with an affordable, durable product.

Given the intricate web of companies and contractors that can be involved in the average supply chain, it's not surprising to find out that many business owners do not know the ultimate source of their materials. However, complex as your supply chain may be, it's critical that you know it thoroughly, in the event of a dispute that rises to litigation.

Meeting government regulations and social responsibility

Knowing your supply chain is particularly critical during this day and age, when social responsibility is considered a top priority amongst government regulators as well as the average consumer. Recently, University of Michigan researchers took a closer look at the due diligence reports that were provided to the U.S. Securities and Exchanges Commission, or SEC, during 2014 and 2015. These due diligence reports must be submitted by publicly-traded companies and businesses who use conflict minerals in their source materials, according to an article posted on the Journalists Resource. These reports are required in order for public companies stay in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed in 2010.

What are conflict minerals?

Conflict minerals include the 3TG - tungsten, tin, tantalum and gold. These materials are found in many household products that are used today, including modern cars, updated electronic devices and luxurious jewelry. Many consumers unknowingly have products that include these materials.

Highlights of the study findings include:

  • It was difficult for firms, particularly large companies, to identify the exact source of all materials used during the supply chain process. In fact, about 80 percent of firms reported that they could not determine their precise source materials. Only 1 percent of firms could affirm with certainty that they did not use any conflict minerals during their production process.
  • Beyond that, the majority of businesses submitting their due diligence reports to the SEC could not give specific reasons for why they could not confirm the exact source of their product materials. In most cases, the publicly-traded companies simply said their supply chain was so large and complex that the exact source materials could not be identified with relative certainty.
  • Throughout the reports, it was noted that an increasing number of suppliers within a supply chain typically led to a decrease in the certainty over where materials were sourced from. Businesses with large supply chains were less likely to be able to determine, with certainty, that they did not use conflict materials in their production process.
  • Many companies became more committed to due diligence in an effort to preserve their reputation in the future, particularly if they were not able to provide clarity on the exact source materials that are used throughout the production process. This is due to the fact that many consumers care deeply about the social responsibility of businesses that provide products and services in today's interconnected, global economy.

No matter how large your company may be, know your supply chain

Whether or not you are a publicly-traded company that has to file a due diligence report, it's still critical that you understand the inner workings of your business supply chain. Your reputation as a business and your ability to tout yourself as a responsible company depends on whether or not you use conflict materials, or engage in other controversial business practices.

Managing your overall brand while also dealing with the minute details of your business requires you to make important decisions on a daily basis. This is why it's necessary to have a trustworthy attorney available to advise you and guide you through these choices.

In most cases, a dispute or legal issue will develop relatively unexpectedly. While you try to focus on your daily responsibilities and the operations of your business, your commercial business attorney can manage the details of your case. For more information on the importance of knowing your business supply chain and the need to have reliable representation, begin working with a Nevada business law firm today that specializes in disputes and litigation.

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Law Office of Hayes & Welsh

Law Office of Hayes & Welsh
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