RAPAPORT... Two things stand out during sight week at the Diamond Trading Company’s (DTC) headquarters in London. The first is the seeming banality of the week-long process during which DTC — the De Beers sales and marketing arm — delivers rough supplies to a select number of diamond manufacturers known as “sightholders.” There is none of the mystique present that has long been associated with this ritual. The second is the efficiency with which DTC carries out the preparation leading up to a sight. Operating on a five-week cycle, DTC sorts, processes and delivers an estimated 51 million carats annually — based on 2006 figures — into the hands of its 93 sightholders during sights held ten times a year.
The modern-day sight formally began in 1934, when De Beers Chairman Sir Ernest Oppenheimer created a single-channel marketing structure to funnel diamonds into the hands of a select group of producers. Based on his belief that market stability could be maintained only through limiting the quantity of diamonds relative to demand, the result was a secretive, monopolistic structure that brought near-mythological status to sight week and sightholders.
Beginning in 2001, De Beers, no longer wishing to maintain its expensive diamond stockpile or to serve as custodian to the industry, changed its business model. The result was the Supplier of Choice (SOC) sightholder system in place today. Despite the ongoing debate surrounding SOC, Varda Shine, DTC managing director, says the new system has brought “much more clarity” to sight week and more professionalism to the process.
SORTINGThe process of selling goods during sight week begins roughly three months prior to the sale when rough stones are first mined from the ground. The DTC used to keep enough rough supply in its vault for three individual sights. Now, it keeps little in storage, preferring a business model with more rapid turnover, in which goods move quickly from mine to sight.
After they are mined, stones are transferred to a local in-country sorting house, then flown to London and aggregated with stones from other countries and, finally, divided up into sight boxes. “Every single diamond we bring to London has to be matched to each sightholder,” explains Dave Johnson, head of the DTC Diamond Information Office.
To appreciate the enormity of the task, consider that De Beers has 11,344 categories into which it sorts unpolished goods. Divided first by size, then shape, clarity and color, the stones are further subcategorized by thousands of different criteria. Two-caraters alone have more than 2,000 categories into which they can be organized. It takes 1,500 employees, including 550 sorters, 100 of whom are in London, to accomplish this process.
Although technology significantly aids in the sorting process, professional sorters undergo rigorous training at one of four DTC Diamond Academies in the U.K. and Africa responsible for training and educating new employees. It takes at least two years for a sorter to be considered proficient enough to work with the stones, and each training class often has fewer than ten students. “The skills required to be a sorter and categorize diamonds are quite intensive,” says Angela O’Brien, who oversees the academies. “It is all about keeping the consistency.”
SIGHT WEEKOnce the goods have been sorted, the method by which the DTC determines which goods to supply to sightholders during sight week is exclusively determined by the assessment of their profiles, the availability of the diamonds DTC has to sell and the competing applications for the diamonds. The goods are offered at sight in accordance with DTC’s Intention to Offer (ITO), which is the plan agreed upon by the client and DTC key account managers for delivery in a six-month period.
Asserting that the ITO is an accurate determination of sight offerings between 97 percent and 99 percent of the time, the DTC plans to move the ITO to one year in advance of sights during the next sightholder period. For many sightholders, the ITO process has taken much of the guesswork out of sight week. “I know before I come exactly what I am going to get,” confirms Jean Paul Tolkowsky, managing partner at Exelco.
So why do sightholders still travel long distances to come to the sight at all? “Only at 9:00 a.m., when the doors open on the first day, do we find out the prices,” says one sightholder. With the exception of the somewhat negotiable large 10-carat-and-up goods, however, prices for rough are fixed. Sightholders are allowed to reject up to 10 percent of the value of the offering, but once goods are removed from a DTC offer, the remaining goods will not be resold at that sight. Packets of diamonds that have been opened will not be resealed with the DTC label, diminishing their resell value on the secondary market.
BOXING IT UP
On tight production schedules, most sightholders aim to survey and collect their goods as fast as possible. When the sight opens on the first day, brokers are already gathered in lieu of their clients to pick up the hard, black briefcase-like “boxes” with a yellow “D.T.C.” stamped on the front. Inside are sealed bags of goods ranging in value from $100,000 up to $1.5 million. The sightholder inspects the goods with his broker and a DTC account manager in a private room and then returns the box to the front sales office.
Despite the high-level sophistication of the sorting, pricing and weighing process, goods are still checked in and out of the front sales office by hand. Remarkably, a diamond has never failed to be accounted for after being examined and returned by sightholders. “They always turn up eventually,” says Patsy Cooper, sales front-office manager.
END OF THE DAYThe DTC typically prepares 500 boxes for an average sight, of which nearly 35 percent are accepted by sightholders and then packaged and shipped by the DTC the same day. Once all the goods have been shipped, are sightholders satisfied with their lots? “We never get enough, we never get what we need,” Tolkowsky says.
This reaction does not surprise Shine. “I have never yet met a sightholder happy with supply levels,” she says, noting that an estimated 30 percent of the clients receive up to 70 percent of goods “The day when sightholders say they are getting enough supply is the day the market is going downhill.”
Article from the Rapaport Magazine - January 2008. To subscribe click here.