The DTC Client Selection: A Score Card
June 26, 03The (not unexpected) severe reduction in the list of DTC sightholders remains the main topic of discourse in the cutting and trading centers, almost as if there are no other issues on the industry agenda. There are other matters, but they all pale in the enormity and significance of the actions of De Beers and thus it is only logical that the issue remains ‘hot’. In its sensitivity to some specific market reactions (to articles on IDEX and in other places), De Beers may not sufficiently appreciate that, overall, the industry has accepted and even embraced the Supplier of Choice strategy. There is no visible argument to the conscious decision by De Beers to turn a supply-controlled system into a demand-driven one. There is virtually no disagreement to the focus, preoccupation or even obsession to leave no stone unturned to increase the pace of growth on the demand side. At most, there may be some doubts whether the steps being taken will indeed lead to the desired results. There is, however, a general feeling of discomfort with the lack of transparency in the DTC client selection process. That’s a technical rather than a strategic matter. It is also a perception matter fuelled and heightened by expectations raised in the 3-year “waiting period”. In the absence of hard process information (which involves commercially confidential information), the “success” is judged by the outcome – i.e. by looking at the final list.
DTC brokers, present and (soon to be) past clients, and even some of the non-clients, seem to feel that there may have been mistakes or bugs in the selection process. We are not talking about grumpy, disappointed clients. We are talking about sensible, loyal and intelligent individuals who privately question some of the decisions. As the livelihood of people depend on it, for 70%-90% of the decisions being correct may not be good enough. It is easy to argue that this is far and far better than the previous systems. That’s a relative issue. The DTC has, in all its presentations, taken considerable pride in having designed an equitable, fair and just system. It is not enough that the DTC thinks so; it is up to the DTC to ensure that the market agrees with it.
The DTC has gone to some lengths to explain their reasoning to the brokers but, even after those explanations, many questions are still raised in private conversations of brokers with clients. [Some of my friends at De Beers would probably stop reading at this point and sigh with a great sense of frustration ‘wow. Chaim does it again’. I suggest to these friends to take a deep breath and continue reading.]
In any mammoth system reform there are bound to be bugs. These mishaps are made in good faith and I don’t think that anyone expected things to be perfect from day one. In the selection process, at an early stage, all sightholders and prospective sightholders were given an initial rating in 7 categories of criteria. In each of these categories, the client was considered ‘good’, ‘above average’, ‘average’ or ‘below average’, so basically in each of those criteria the clients found themselves in a specific quartile. Later on these ratings were fine-tuned by a points system within each quartile. This was the data that was entered in the computer system and this resulted in the client’s ranking order of quality, very much tied to the availability of certain goods. The system is sophisticated. It recognizes that a sightholder in Surat cannot be compared to a sightholder in New York and the system takes account of the different types of businesses and articles needed.
However, if people close to the process (especially brokers who know De Beers’ clients more intimately than anyone else) have been told that on certain criteria customer A is rated average and customer B is above average, and then if the broker privately concludes that he would have reversed the order, or have made quite a different determination, then it is legitimate to add some question marks. If one client gets feedback to the effect that even some DTC officials were surprised by a certain decision, this is certainly not helpful to instill confidence in, or support for, this new and yet unproven process.
This also leads to speculation and conjecture that, from a DTC perspective, may not be helpful. In one of the reactions to some of our previous articles, a DTC client wrote: “Internally at the DTC there seem to be only three individuals who fully and totally understand the operation of the entire system. Maybe that was done intentionally to make the system more objective, to decrease the possibilities of certain individuals to affect the total outcomes. We don’t know. It almost seems that the lack of transparency is not only an external (i.e. market) matter.”
It is our understanding that the ombudsman, if and when people lodge a complaint with him, will examine if all phases of the allocation process, whether the correct and agreed procedures (agreed with the EC) were followed. The question is whether a sightholder who was ranked below average in a certain category can be reranked to an above average or average category. Or someone who was left on the list be replaced by someone who was made redundant.
In science, a research finding has no meaning if other scientists following the same methods of procedure don’t arrive at an identical conclusion. I wonder whether it would be possible for the ombudsman and his experts to take at random all the available “raw” materials of a dozen sightholders and run these through the system. Will these sightholders end up with exactly the same or a similar ranking? Has the DTC internally gone through this type of exercise? We would urge the DTC to take measures to debug the system and, at the same time, to look for opportunities to clarify and disclose more details about the process. It doesn’t have to (it’s a private company), but this should be seen as serving the best self-interest of the company. The DTC takes a lot of pride in having designed a transparent, fully accountable mechanism – accountable to whom? If the market is extremely skeptical and fails to recognize it as such, this doesn’t provide much comfort to either DTC or market and will certainly not contribute to a smoother acceptance of the choices. The last thing the DTC should do is run a system just to make the European Commission happy.
We fully recognize that this is not a one time ‘big-bang’, but a continuous process. Irrespective of what actually may happen, the majority of sightholders are convinced that the present reduction of some 35 clients is only the first step; in two years from now, this may be followed by an additional 20 or 30 names. And if the Alrosa-De Beers marketing contract is not approved, the future cuts may even be larger. The current SoC system should not be prepared to the past – as no such comparison is possible -- and here credit is given where credit is due. Market dissatisfaction should be seen as the representing the gap between the “expectations” and the “perceived reality”.
If the expectations were too high (something which is not inconceivable) this is the direct result of the “hype” intentionally created in the waiting period; a “hype” which very much governed the actions, investments and business decisions of the industry players. In the long term the success of SoC and the DTC client selection process depends on the widespread trust and confidence in the fairness, and I would even add “decency”, of the new system. At this point the DTC’s score on these issues is “average”. It’s a perception issue which the DTC can and should address with ease. These are just one of these “technical” things in which the Supplier has little Choice.