Foremost, the DTC is highlighting a change in the new contract application. According to Borhanjoo, the application will be simpler, quicker to fill in and more efficient for all participants. Among the simplifications is the elimination of multiple Contract Proposal Questionnaires (CPQ). Instead of submitting a CPQ for every category of goods a diamond firm is applying for, they will be required to submit just one CPQ.

 

"In the past they had to fill a full contract for each category," Borhanjoo said about companies applying for a Sight. "Now, we want them to tell us about their core business in an easier way."

 

DTC is therefore somewhat shifting the focus of its Supplier of Choice (SoC) program. In the past, DTC sought to know how Sightholders use a particular category, and decided on allocations based on who used the goods in the most efficient way. In SoC Phase Three, as Borhanjoo calls it, the DTC is focusing on the companies and what they want to do, instead of on the goods.

 

Providing DTC Sightholders with the opportunity to compete for an additional source of rough, they will now be allowed to participate in Diamdel's auctions. This, according to Borhanjoo, will allow Sightholders to buy goods in categories that they didn't receive from the DTC. Diamdel, in turn will offer more of its goods in the auction system.

 

A possible uproar may come from the secondary market about this. Non-Sightholders may claim that they will now have even less access to goods. That very well may be the case. However, and a big question mark hangs over this, Diamdel in the past was not always able to sell all its goods, and it even cancelled auctions due to lack of interest by buyers or an inability to get bids that passed the minimum sell price.

 

The question is what specific categories we are speaking about. Popular goods will be fought over, and the fears of the secondary market traders may be justified.

 

Borhanjoo suggested that “the reason to introduce auctions in Diamdel was to give non-Sightholders greater and more equal access to the rough diamonds that Diamdel has available for sale. Goods will now be offered in a range of lot sizes to ensure that smaller diamantaires will have an equal opportunity to bid for the rough diamonds they need to help sustain their particular operations. It is a very transparent system.”

 

Borhanjoo rejected the idea that these changes are what Sightholders fear – that the DTC will add tenders to sell goods at higher prices. "Not at all! Diamdel will focus more on auctions, providing more goods," he said, adding that the DTC is committed to SoC, and the Intention to Offer (ITO) process.

 

He also said that Diamdel will continue to receive up to 10 percent of De Beers' production. To the best of our knowledge, in the past couple of years the allocation was less than 10 percent.

 

One of the interesting proposed changes is the possibility that Diamdel buyers – including Sightholders that buy from Diamdel - may be invited to apply for a Sight of a certain category of goods that they buy consistently from Diamdel.

 

This is an almost revolutionary change (the company prefers to view it as an evolution), because it means that as the 2012-15 contract is running, additional companies may be invited to join as Sightholders.

 

So while Sightholders that buy from Diamdel may find that they caught DTC's attention and will have that category added to their ITO, non-Sightholders may gain the clubish status of Sightholder half way though the contract.

 

The pilot will run for 18 months, with the first part ending in March 2011. The second part will follow a reassessment in which first conclusions may be applied into the second part of the pilot.

 

The De Beers press release covered DTC and Diamdel, "the relationship between the two companies will remain the same. We continue to cooperate as before, we learn from them, we share non – customer confidential information, we receive information on pricing trends from them," Borhanjoo disclosed, “as already happens, price patterns at the Diamdel auctions will continue to provide one additional source of data for the DTC’s dynamic pricing model. It will not be used as a direct short term pricing determinant as, for the DTC, long term sustainable pricing continues to be of importance."

 

Borhanjoo told us that he is very excited about this evolution of SoC and will be working closely with his stakeholders during the pilot phase to listen to their feedback.