Seeing the Unseen
FLIR Systems is a leader in developing technologies that “enhance perception and awareness.” Founded in 1978, FLIR designs, develops, markets, and distributes a product suite that ranges from consumer thermal cameras to night vision and aircraft-mounted imaging systems for military use. Although FLIR is headquartered in the United States, they have locations spanning across the world, including Israel, the UAE, India, and China. Accordingly, FLIR’s global supply chain is fragmented; the core of many of FLIR’s products is an infrared camera sensor, which is produced in California and transported to FLIR facilities across the world. The thousands of other components needed by FLIR to manufacture its products are procured as complete assemblies or components from various suppliers .
The international segmentation of FLIR’s 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’s Santa Barbara facility, are required to disclose their efforts to eradicate slavery within their supply chains . There is concern that some raw material inputs for FLIR’s finished goods are sourced from the Democratic Republic of Congo (DRC), and are thereby “conflict minerals” (CMs) . 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 . In accordance with United Nations due diligence guidelines, FLIR is obligated to take proactive measures to minimize the usage of CMs .
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 . For these exports, a license must be procured from the US State Department‘s 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 .
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 . 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 . The success of these measures has been limited to date, primarily due to limited supplier completion of surveys.
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 . 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’s involvement with non-compliant suppliers and begin requiring supplier remediation of issues so that they are compliant with FLIR’s policies on conflict minerals and security .
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 “denied parties” lists produced and enforced by the US government. Through these measures, FLIR will be more compliant with international trade laws.
Going forward, FLIR’s 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’s ability to export sensitive technology? The answers to these questions remain invisible.
 Gager, R. “FLIR Systems Inc.” Supply Chain World. 2015 March 26. [http://www.scw-mag.com/sections/retail/433-flir-systems-inc], accessed November 2017.
 State of California Department of Justice. “California Transparency in Supply Chains Act, SB 657.” 2010 September 30, [https://oag.ca.gov/SB657], accessed November 2017.
 FLIR Systems. “United States Securities and Exchange Commission Form SD Specialized Disclosure Report.” 31 May 2016, [http://www.flir.com/uploadedFiles/Corporate/FLIR%20-%20Form%20SD%20[Executed]_(palib2_8074700_4).pdf], accessed November 2017.
 Business for Social Responsibility. “Going Beyond the Supply Chain in the Democratic Republic of Congo.” February 2012, [https://www.bsr.org/reports/BSR_Interim_Report_Going_Beyond_the_Supply_Chain.pdf], accessed November 2017.
 United Nations Security Council. “Due 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.” 30 November 2009, [https://www.un.org/sc/suborg/sites/www.un.org.sc.suborg/files/due_diligence_guidelines.pdf], accessed November 2017.
 International Traffic in Arms Regulations. “22 C.F.R. Parts 120-130.” 6 November 2017, [https://www.pmddtc.state.gov/regulations_laws/itar.html], accessed November 2017.
 Interview with legal professional (name protected for anonymity and client-attorney privilege), November 2017.
 FLIR Systems. “FLIR Supplier Code of Conduct.” 8 November 2016, [http://www.flir.com/Documents/Supplier/FLIR-Supplier-Code-of-Conduct.pdf], accessed November 2017.
 Organisation for Economic Co-operation and Development. “OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.” 2013, [https://www.oecd.org/corporate/mne/GuidanceEdition2.pdf], accessed November 2017.