In May of next year, new rules part of Dodd-Frank financial reform will require US companies to disclose whether their products contain conflict minerals, materials sourced from areas such as those controlled by armed groups in the Democratic Republic of Congo. However, the Wall Street Journal reports, even using the best software available, manufacturers are years away from the degree of knowledge required to declare their supply chains “conflict free.” Swiss Ruling Enables Swatch to Cut Back
Businesses challenged the rules in the courts, which may have further delayed companies in compliance efforts. Many organizations took a wait-and-see approach, hoping the requirements would be overturned, says Howard Heppelmann, general manager at PTC, a supply chain software provider. However, after a federal district court shot down those hopes in July, many companies are scrambling, Heppelmann says.
Supply chain software, including that made by PTC, enables companies to track which of their hundreds of suppliers use minerals associated with conflict areas, including tantalum and tungsten. The software automatically requests suppliers provide documentation on where the minerals were obtained. However, the trouble is many suppliers can’t-or won’t-track their origins, says Bill Olson, director of sustainability and stewardship at Motorola Mobility. “They are concerned that if people know where they get their ore from, their competitors will go to the source and cut them out of the supply chain.”
A recent court ruling in Switzerland will allow Swatch Group, the world’s largest watchmaker, to cut back component sales to competitors, Fortune reports. The company holds a near-monopoly on the manufacture of precision mechanics. Smaller manufacturers of timepieces require that Swatch supply them in order to be able to claim “Swiss-made.”
The court ruling “will put a lot of small companies in great pain,” says Giselle Rufer, chief executive of watchmaker Delance. Her company may be forced to scramble to find new suppliers and stockpile components, which would tie up working capital. Smaller watchmakers are forced to consider whether they can invest in their own manufacture, consolidate into larger groups, or look into becoming supplied by China.
A spokesperson for Swatch, Beatrice Howard, says the court ruling is “a positive, albeit tentative, first step toward finally making it clear to all the brands and groups in the Swiss watch industry that they have to invest in their own mechanical movements and assume the associated industrial risk themselves.”
Auto Parts Suppliers Turn to High-Tech for Higher Margins
Companies in the auto industry are shifting away from producing low-margin components, such as steering wheels, ball bearings, and spark plugs, and instead focusing on technologically complex products to stay ahead, the Wall Street Journal reports. The trend is in “active safety products,” including adaptive cruise control, lane-departure warning systems, front and rear cameras, and technology that enables a vehicle to react to unexpected obstacles.
“We went from 119 different product lines to 33 that were relevant and what the world cared about,” says Rodney O’Neal, chief executive of automotive components manufacturer Delphi. “Active safety will drive a huge change for Delphi. It is our fastest-growing product line.” He adds that his company and other parts manufacturers are staying firm on prices and moving from other past practices such as filling orders even when it means losing money. He says he wants his business to move away from manufacturing commodities.
Auto parts in the United States are experiencing a renaissance, a stark difference from the situation four years ago, when the government offered a line of credit to the industry while banks refused to lend. Many manufacturers are trading near record share highs and raising full-year forecasts. “Barring any unforeseen event, we see stable growth in the vehicle production range,” says Tim Leuliette, chief executive of Visteon, a global auto parts supplier. “I don't think profit margins for auto suppliers are peaking. I think they will continue to grow.”