The march of time and technology is relentless, not least of all in the diamond business, Antwerp Facets Online writes. In less than a generation, the industry’s production base has shifted from West to East; demand has joined, if not replaced supply as the main market driver; and developments at one end of the pipeline are detected and reacted to with lightening speed.
Twenty years ago, rough diamonds were often bought, cut and then sold as polished within an area of two or three city blocks. Today, it is likely that each stage of the process will occur thousands of kilometres from another. At the same time, a specific request in one jewellery market will trigger a sequence of actions along the pipeline, as a result of which a buyer’s order will be filled in a matter of days. Thus, while the physical length of pipeline has expanded almost exponentially, when it comes to reaction time it has shrunk considerably.
The shift of manufacturing power from West to East did not eliminate the Western manufacturer. Indeed, diamond companies based in Antwerp have played a leading role in the growth of the Asian manufacturing base, by investing in offshore factories, and at other times outsourcing their diamonds to vendors who are able to render the manufacturing process more cost effective.
Production has become diffuse, but the process has enhanced efficiency. Instead of producing a range of goods in the same factory, some of which may not be produced as cost effectively as others, companies are able to tweak production to enable them to supply precisely what is needed.
"We produce our diamonds in Vietnam," said one veteran Antwerp diamantaire. "The level of understanding of English is fine, their ability is very good, and the willingness of workers and supervisors to learn and improve is excellent. We are very happy with the results."
Despite the obvious attraction of reduced costs, however, outsourcing is not a decision taken lightly. There are factors involved other than reduced outlay on labour. Among the most important are maintaining high-quality production, ensuring customer satisfaction, and working in countries that have good communications with the rest of the world.
There is also the issue of managing the chain, of integrating the many parts of the manufacturing process to ensure production is smooth and that goods are produced on time.
Software is keeping the entire process under control, says Adi Shva, a partner at Aerodiam, located on Antwerp’s Hoveniersstraat, which specialises in the development of financial and stock control systems for the diamond industry. "I would say there are very few companies that do not use technological applications. People feel that they need the benefits that technology can bring."
“Around 10 years ago, you could sell almost anything you made. But now, with the competition and wide range of options that buyers have, the customer is very specific in what he requires and is willing to buy,” Shva says. “Buyers want to receive information about the diamonds being offered in real time.”
It is not just the decision-making process in the production stage of the supply chain that has contracted over the past decade. Technology has affected the way companies supply goods and find customers.
Whereas manufacturers in manufacturing and trading centres like Antwerp used to sell diamonds to wholesalers in gateway cities such as New York, who in turn sold the merchandise to jewellery manufacturers and regional and national jewellery chains in the consumer markets, that situation has changed. Technology now enables jewellery manufacturers to find diamond manufacturers who can then supply their specific needs. In turn, knowing exactly what they need to supply enables diamond makers to fine-tune their production. The process is more reactive, more accurate and more efficient.
Data flow is a critical factor. Modern trading platforms, which include at any point in time vast quantities and ranges of diamonds, deliver results almost instantaneously, while at the same time serving as a platform upon which dealers can communicate with one another. The optimal time it takes for a diamond to move from a mine to a store and on to a buyer has been sharply reduced.
"In 1992, before the Internet became widely available in the mid-1990s, we launched a trading platform that we thought would lead to the end of the brokers' role because we provided a direct link between customers and suppliers,” Shva recalls. “And here we are 18 years later, and most are still in business."
Brokers used to be the worker bees of the diamond business, making the connections between buyers and suppliers. But the birth of the Internet and the development of intelligent database systems, which enable buyers to link up with suppliers, appeared to threaten their existence.
For many brokers, however, technological progress offered a new lease on life. Whereas they once were limited to the diamonds in their briefcase and to the suppliers and buyers in their immediate vicinity, today they also can venture out into the international marketplace, unfettered by geographic and other physical constraints. Former brokers, who once operated exclusively at the local level, now do business on an international scale.
That is not to say that the transformation of the pipeline was not painless. There clearly are those who found the adjustment too difficult, and discovered themselves being pushed to the sidelines and into early retirement. Like the typewriter, the vinyl record and the VCR player, they discovered that the march of time and technology can be relentless and brutal.
Looking back over the first 10 years of the new century, it is clear that one of the key factors behind the shortening of the supply chain was De Beers' Supplier of Choice policy, introduced a decade ago. De Beers at the time argued that it was no longer enough for diamond manufacturers simply to produce polished goods. They had to be able to create added value and give the entire diamond jewellery a boost by being involved in jewellery making.
Indeed, De Beers itself, in a tie-up with LVMH has opened several luxury jewellery stores around the world. Although the firm has said that it does not use exclusively diamonds that it mines, the precedent of mine to store was set. Vertical integration in the diamond jewellery was further strengthened when the Aber Corporation, a junior partner in Canada’s Diavik diamond mine, bought the Harry Winston fine jewellery company. As a result, the company is both a diamond miner and jewellery retailer.
The global financial crisis that struck at the end of 2008 did not alter the general trend in diamond distribution. With the need to reduce costs even more relevant and the drive for greater efficiencies intensifying, the simultaneous expansion and shrinking of the chain of distribution is likely to accelerate.
