De Beers' Worst "Supplier of Choice" Choice

Charles Wyndham has the latest of his anti-Supplier of Choice screeds in Polishedprices. I think some of the crticism of this policy I've heard is missplaced — De Beers HAD to change. It was just a question of how they did it. But I particularly agree with this bit:

SoC has in its totally misplaced attack on the middleman destroyed liquidity in the market. 

Dealers or wholesalers, rough or polished, were pariahs under SoC. ….

What Bain and DTC failed to realise, despite being told on numerous occasions, was that what these guys did bring was the not inconsiderable assets of money and risk taking.

De Beers' campaign to cut out what it used to call "spaghetti junction" may be one of the costliest mistakes in its whole policy. It got De Beers sued once — and possibly twice, if you think that cutting down the pipleine was behind the great Sightholder Shedding of 2003.

The logic behind all of this seemed, typically, "good on paper." When De Beers first formulated Supplier of Choice, its consultants Bain and Co. told them that the industry's "complex and inefficient pipeline" was an inhibitor to growth. It noted there was no analogous pipeline in any other industry.

So De Beers set out to narrow down the pipeline, by making an "efficient and effective distribution" a criteria for sightholder status. But why should De Beers care if a company sells its diamonds to a retailer or the guy next door? Does it really think that will make any difference in overall diamond sales? And hadn't De Beers given up the role of "market guardian" anyway? 

If the diamond pipeline is really such an inefficient business model, it will die on its own accord. The Internet and greater transparency are having a serious impact on industry middlemen anyway.

But instead of De Beers letting that process take place organically, it forced its clients to quickly master the very perilous practice of dealing with retailers (at the same time they also had to master branding and marketing.)  This caused competition for companies who were already good at dealing with retailers, like Fabrikant. (Chaim Even-Zohar has the latest dope on them today.) And the domino effect from all this could be with us for quite some time

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