This can only be accomplished by first focusing on the entire value chains unmet needs, and given the monopolistic approaches of De Beers in this industry, channel partners and retailers will have many unmet process needs that once served could turn into a significant competitive advantage. The initial visits to each export market would need to be on a regular basis to build trust with each member of the value chain and also stabilize distribution channels first, and second, looking for innovative and creative ways to make adaptation and customization strategies successful in each market. Only by working to create these unique competitive advantages and most importantly, building trust throughout the entire value chain can a new market entrant be financially viable against cartels like De Beers in the long run.
Question 2 – Operations Management Questions for creating De Beers as a New Brand
Part I Process Map: Using the information in the case study draw a process map of the process that would be needed to put this “fair trade” operation in place, starting at the mine and ending in the jewelry store. Note any assumptions you have made.
Based on the cases contents, the following figure has been derived. It captures the processes that need to be audited on a regular basis to ensure fair trade ethics are adhered to. To ensure there is a corporate-wide level of support for fair trade practices, the office of the Chief Governance Officer (CGO) needs to be created that has oversight of operations and supply chain processes to the location level.
The office of the Chief Governance Officer will be staffed with auditors who will work with De Beers Information Technologies (it) and Business Process Management (BPM) analysts, managers and directors to ensure that all processes pertaining to sourcing, procurement, manufacturing, logistics and the coordinate with Sightholders will be done in accordance with internal standards for fair trade compliance. Further, the office of the CGO needs to also have a strategic plan specifically defined for Governance, Risk and Compliance (GRC) across all suppliers, procurement specialists, new supplier development and strategic sourcing departments of De Beers. With the strategic objective of being the most transparent diamond mining, manufacturing and sourcing company in the world, De Beers will quantify the extent of their levels of adherence to internal standards of ethical conduct and process performance every ninety days in a scorecard accessible to anyone over the Internet. The scorecards published to the Internet would also provide the percentage of raw materials from free trade zones including the source of mining as well. As De Beers provides this information in the financial analyst briefings and for the analyst community, publishing it in the form of a scorecard would be useful for evaluating progress. In addition to the scorecard and quarterly reporting, De Beers CGO performance would be audited by a third party accounting and auditing firm every year, possibly relying on Accenture or Deloitte to complete the audit.
Second, the CGO needs to have oversight rights to immediately stop any process, sourcing or procurement activity that is in violated of fair trade best practices as defined by De Beers. Oversight is critical for the CGO to be able to successfully manage compliance to the specific goals of ensuring fair trade occurs throughout every process in the supply chain over time. In addition, the CGO will also have a department that focuses entirely on ethics and arbitration with suppliers, procurement and strategic sourcing teams as well. There needs to be a grievance procedure in place so that each member of the process has the opportunity to dispute a claim of not adhering to fair trade practices in additioo0n to all these points, the CGO will have the option of immediately dismissing any supplier, subcontractor or department that does not adhere to these requirements. Immediate termination of suppliers, strategic sourcing partners and any employee who looks to gain personally from not adhering to free trade requirements of the company needs to be vigorously supported.
All of these programs under the GCO need to be stringently applied to the company if the culture of De Beers is to change and embrace the new set of moral and ethical norms necessary for them to become more ethically sound in their practices. The CEO and Board of Directors need to also sign the scorecards every quarter and commit to continually enhance and improve their levels of compliance overall.
The cultural shift that has to happen in De Beers will only be possible if audits are periodic, thorough, and accomplished at each step of the process in addition to each physical location. Only then will the culture of the company change to embrace a new standard of ethical and moral performance based on fair trade.
Part II Fair Trade
Part 2: Compare the current De Beers operations set up with the “fair trade” alternative using the five basic performance objectives: quality; speed; dependability; flexibility; and cost.
The current De Beers operations are deficient in many of the areas of fair trade, having defined their business model as a cartel. The five aspects of quality, speed, dependability, flexibility and cost however are critical for any business to have in order to survive. This section analyzes these five attributes.
First, in terms of quality, De Beers had defined a segmented product strategy based on this attribute, and in fact defined their mining operations by the quality of diamond being mined. This was done purely for the purpose of differentiating on price and attempting to control both the demand and supply curves of the diamonds themselves. While transitioning to a fair trade scenario will give De Beers less selection of mines, the ability to exert greater market leverage based on the value of their brand will begin to eventually become the new competitive advantage the company uses. Ensuring ethical and moral compliance will limit the suppliers De Beers can work with, yet will create more a more valuable brand in the long run. It is critical that De Beers accomplish the goal of becoming more transparent and therefore strengthening their brand and making it worthy of being trusted. So while the number of suppliers will diminish, the respect and reputation of the brand will increase, alleviating the need to use pricing as a competitive weapon and only determinant of market positioning.
Second, De Beers in the past had not major impetus for improving their internal processes and becoming more efficient. As a result, speed or the lack of it was dictated by the need for controlling supply and also managing pricing. As the value chain De Beers relied on became less of a competitive advantage and competing value chains emerged, the company had to increase its level of alacrity or speed. This, in conjunction with the need of resurrecting its brand by making it more transparent also forced a higher level of speed into the companys culture. Speed as it relates to fair trade compliance is a by-product of speed to attempt to continually control their own value chain despite competitive value chains gaining significant in-roads into their most coveted market, North America.
In conjunction with speed, dependability also has become more critical for the companys success when free trade is at the forefront of their strategic plans and goals. The role of the CGO needs to be done consistently and reinforced continually for free trade to become a permanent part of the companys culture. At present, dependability is critical from the standpoint of keeping their supply chains attuned to cartel requirements and ensuring fulfillment of orders. Dependability however is going to go through a radical shift as an attribute of their operations as competitors pressure them from the supply chain side, retailers and mass merchandisers force a shift from the distribution channel side, and multiple value chains in the industry begin to gain critical mass.
Fourth, flexibility at the process level is clearly an attribute of the company during the time period of the case study being written. Yet for the CGO to be successful in their strategic initiative to ensure a higher level of fair trade compliance, the company must first re-align core processes to the department and division level, and in so doing also make them highly auditable and accountable for overall performance. Flexibility and agility are going to be critical at the process level to stay competitive in the markets served while also attaining the levels of transparency and compliance. Over and above all these aspects are the fact that the industry is changing at a fundamental level, and the company must become more agile and flexible if it is going to stay competitive against smaller, more focused and more agile competitors.
On the last factor, cost, De Beers will have a major cultural shift away from merely pricing to what they consider to be.