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<\/a>Trust Issues<\/b><\/p>\n
The international segmentation of FLIR\u2019s supply chain has resulted in various roadblocks, including compliance with international laws and standards governing trade. In accordance with the California Transparency in Supply Chain Act, large manufacturers, such as FLIR\u2019s Santa Barbara facility, are required to disclose their efforts to eradicate slavery within their supply chains [2]. There is concern that some raw material inputs for FLIR\u2019s finished goods are sourced from the Democratic Republic of Congo (DRC), and are thereby \u201cconflict minerals\u201d (CMs) [3]. Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act directs the Securities and Exchange Commission (SEC) to promulgate restrictions that require public companies to disclose their use of such minerals, as these CMs directly benefit armed groups in the DRC [4]. In accordance with United Nations due diligence guidelines, FLIR is obligated to take proactive measures to minimize the usage of CMs [5].<\/p>\n
Additionally, because FLIR produces a core component of their products in the US (infrared camera sensor) and then exports it to manufacturing locations across the globe, there is a complex regulatory framework that limits its ability to distribute this sensitive technology. Per an interview with an attorney who specializes in international trade and import\/export controls, such military technologies are controlled for export under the International Traffic in Arms Regulations, a United States regulatory regime [6]. For these exports, a license must be procured from the US State Department\u2018s Directorate of Defense Trade Controls via a lengthy and costly process. These licenses strictly limit the partners to whom the product may be distributed (no use of third party distributors unless specifically authorized) and place a cap on the quantity that may be exported over a defined time period [7].<\/p>\n
Incremental Solutions<\/b><\/p>\n
FLIR has taken measures to address these various concerns in the short term. With regards to its usage of conflict minerals, FLIR has distributed its supplier code of conduct in multiple languages, in which FLIR specifies labor condition requirements and emphasizes compliance with the Conflict Minerals Act [8]. FLIR has also created and distributed a standard questionnaire that requires each supplier to self-certify that it does not engage in illegal activities. FLIR has attempted to comply with UN Due Diligence guidelines for its supply chain via the establishment of dedicated internal managerial systems and cross-referencing of smelter and refiner information with data from the Conflict Free Smelter Program [9]. The success of these measures has been limited to date, primarily due to limited supplier completion of surveys.<\/p>\n
In the medium term, FLIR is attempting to vertically integrate its supply chain to circumvent the above issues and maximize its control of raw material sourcing [1]. FLIR is also expanding its utilization of lean techniques, point-of-use material replenishment, and value-stream mapping. Regarding risk mitigation, FLIR plans to develop a policy to escalate senior management\u2019s involvement with non-compliant suppliers and begin requiring supplier remediation of issues so that they are compliant with FLIR\u2019s policies on conflict minerals and security [8].<\/p>\n
Recommendations<\/b><\/p>\n
To maximize control over its supply chain, FLIR should take responsible measures. Independent third-party audits of supply chain due diligence would help minimize the use of CMs. These audits should be unannounced and randomized. Moreover, FLIR should have all supply chain members sign contracts that affirm their commitment to legal and ethical labor, raw material sourcing practices, and compliance with U.S. export regulations by enforcing their own due diligence procedures. FLIR should minimize the involvement of other parties in their supply chain and employ the industry best practice of utilizing third party services to screen potential customers and distributors against \u201cdenied parties\u201d lists produced and enforced by the US government. Through these measures, FLIR will be more compliant with international trade laws.<\/p>\n
What\u2019s Next?<\/b><\/p>\n
Going forward, FLIR\u2019s ability to maintain a legal and ethical international supply chain is unclear. Will FLIR be able to establish enough transparency to reasonably prevent the usage of conflict minerals? How will shifting US international trade policies under the Trump Administration impact FLIR\u2019s ability to export sensitive technology? The answers to these questions remain invisible.<\/p>\n
(800 words)<\/p>\n
References<\/b><\/p>\n
[1] Gager, R. \u201cFLIR Systems Inc.\u201d Supply Chain World. 2015 March 26. [http:\/\/www.scw-mag.com\/sections\/retail\/433-flir-systems-inc<\/a>], accessed November 2017.<\/p>\n [2] State of California Department of Justice. \u201cCalifornia Transparency in Supply Chains Act, SB 657.\u201d 2010 September 30, [https:\/\/oag.ca.gov\/SB657<\/a>], accessed November 2017.<\/p>\n [3] FLIR Systems. \u201cUnited States Securities and Exchange Commission Form SD Specialized Disclosure Report.\u201d 31 May 2016, [http:\/\/www.flir.com\/uploadedFiles\/Corporate\/FLIR%20-%20Form%20SD%20[Executed]_(palib2_8074700_4).pdf], accessed November 2017.<\/p>\n [4] Business for Social Responsibility. \u201cGoing Beyond the Supply Chain in the Democratic Republic of Congo.\u201d February 2012, [https:\/\/www.bsr.org\/reports\/BSR_Interim_Report_Going_Beyond_the_Supply_Chain.pdf<\/a>], accessed November 2017.<\/p>\n [5] United Nations Security Council. \u201cDue diligence guidelines for the responsible supply chain of minerals from red flag locations to mitigate the risk of providing direct or indirect support for conflict in the eastern part of the Democratic Republic of the Congo.\u201d 30 November 2009, [https:\/\/www.un.org\/sc\/suborg\/sites\/www.un.org.sc.suborg\/files\/due_diligence_guidelines.pdf<\/a>], accessed November 2017.<\/p>\n [6] International Traffic in Arms Regulations. “22 C.F.R. Parts 120-130.” 6 November 2017, [https:\/\/www.pmddtc.state.gov\/regulations_laws\/itar.html<\/a>], accessed November 2017.<\/p>\n [7] Interview with legal professional (name protected for anonymity and client-attorney privilege), November 2017.<\/p>\n [8] FLIR Systems. \u201cFLIR Supplier Code of Conduct.\u201d 8 November 2016, [http:\/\/www.flir.com\/Documents\/Supplier\/FLIR-Supplier-Code-of-Conduct.pdf<\/a>], accessed November 2017.<\/p>\n