RAPAPORT... Laurelton Diamonds, the wholly owned subsidiary of Tiffany & Co. that sources, cuts and polishes the retailer’s diamonds, is now handling a full 75 percent of the company’s precious stones at nine operations in eight countries. According to James N. Fernandez, executive vice president and chief financial officer (CFO) of Tiffany & Co., the company has developed a number of different models in order to implement Tiffany’s social and environmental standards in the varied locations, each of which has unique factory and labor issues.
Speaking at “Diamonds: Substance, Significance and Symbol,” a two-day conference sponsored by Initiatives in Art and Culture and held at the City University of New York (CUNY) Graduate Center in April, Fernandez said the Laurelton operations currently are located in the U.S., Belgium, South Africa, Botswana, Namibia, Vietnam, Mauritius and China. Laurelton closed a Canadian diamond-polishing unit in Yellowknife in early 2009 as recession took hold of the economy, citing high operational costs and a lack of accessible rough diamond supply.
Tiffany established Laurelton Diamonds in 2002 primarily as a way to secure additional supplies of diamonds. “Cost efficiency was a reason, but an assured supply was the main reason,” Fernandez said. The company quickly grasped, however, that strict control of its global supply chain was also a way to ensure the integrity and high quality of its diamonds, from mine to finger. Since its founding, Laurelton has developed close direct supply relationships with major miners De Beers, Rio Tinto and BHP Billiton, as well as with second-level diamond miners, such as Gem Diamonds in Kimberley, Australia.
Starting in Antwerp
In its first operation, in Antwerp, Laurelton established quality control, lab services and sorting and marking operations, taking advantage of what Fernandez called “a huge amount of unused talent there.” It began manufacturing diamonds in Antwerp in 2003.
In 2004, Laurelton found an operation in Vietnam to cut melee to its quality requirements — but the existing facility couldn’t meet the parent company’s social and environmental standards so the subsidiary began to build its own state-of-the-art plant, which opened in 2007.
The company also tackled the issue of wages in Vietnam. “We weren’t satisfied with the wages workers typically earn there, so we set about to define a living wage, quickly learning that there was no specific definition,” said Fernandez. Tiffany proceeded to write its own definition by researching transportation needs, family size, education fees and other living costs in the area. Factory workers, supervisers and managers allowed the researchers to visit their homes and neighborhoods and answered surveys. From the data, Tiffany devised a system for skill-based pay, with opportunities for career advancement for workers at all levels. The company now conducts the same kind of research to define a living wage in all locations where the company hires workers.
“Vietnam was our first significant manufacturing facility and we’re very proud now of how we do this,” said Fernandez. “We invest in state-of-the-art equipment and technology and have very dynamic training programs.”
Africa
At the same time it was starting its operations in Vietnam, Laurelton began eyeing Africa as a place to base manufacturing, as the issues surrounding diamond beneficiation became more important. In 2004, Tiffany & Co. formed a joint venture with Rand Precision Cut Diamonds for a cutting and polishing center in Johannesburg. In 2007, Laurelton opened a factory in Botswana and is now able to source diamonds there. Rand Botswana has already outgrown its current facility and is breaking ground on a significantly larger one, said Fernandez.
Laurelton also began cutting diamonds in Namibia in 2007, and has broken ground on a facility it will own there. “A permanent structure sends a signal that means a long-term commitment to a country,” Fernandez noted. He pointed out that Tiffany & Co. is the only firm with local partners and operations in South Africa, Botswana and Namibia.
Laurelton’s most recent plant openings have been in China and Mauritius, off the coast of Madagascar. The Chinese facility, in Xi’an on the Guanzhong Plain in central China, uses the same kind of equipment as in Vietnam. There was no diamond-cutting skill base locally, however, so the company had to start from scratch, said Fernandez. It designed training programs that included many components for beginning cutters and the site is now successful, he said.
In 2008, Laurelton opened a factory in Mauritius, where there were skilled workers but an outdated facility. Workers there who can cut fancy colors and shapes can earn higher wages. Tiffany is purchasing land and building a factory there.
Driving the development of the new factory is Laurelton’s 2009 agreement with miner Gem Diamonds to purchase the fancy yellow diamond production from the latter’s Ellendale mine, in Western Australia. The stones are intended for some design initiatives that Tiffany & Co. is introducing, said Fernandez. Ellendale is widely regarded as the world’s leading producer of these stones. The agreement will run for the economic life of the mine.
As has been Tiffany’s custom, none of these efforts to secure its supply chain for diamonds are overtly promoted to its customers. “We know where our diamonds are mined, and where they’re produced and manufactured, but we don’t necessarily put it on the price tag. Our customers know we’ve done our due diligence — and that it’s part of the benefit we offer,” said Fernandez.
Article from the Rapaport Magazine - May 2010. To subscribe click here.