Suppliers will be asked to account for the origin of as many 0.3 ct. and larger stones as possible

As promised last week, I am taking a more in-depth look at Signet’s Responsible Sourcing Program for Diamonds.

The diamond industry has a notoriously convoluted supply chain, with parcels frequently sold from various sources. The new program was designed with that in mind and will allow companies to break down the origin of their diamonds into several different categories, says Signet consultant John Hall, the Rio Tinto veteran who helped design the protocol.

“We recognized that we needed to have a fairly good amount of flexibility,” he says. “You couldn’t have a one size fits all.”

Perhaps the biggest change is that Signet will want suppliers to account for the provenance of as many 0.3 ct. (30 pointers) and larger stones as possible. Hall believes this isn’t as big a challenge as it may first appear.

“When we started doing this work we asked our suppliers: Do you know where the goods derive from?” Hall says. “And mostly they said we never asked the question because no one has ever asked us. But the answers were fairly interesting. From a fairly high percentage, they know where the goods are from.”

Of course, information about a diamond’s ultimate origin isn’t always available: De Beers, for instance, doesn’t sort its goods by mine, so in those cases, it will be okay just to identify that company. In other instances, vendors may say they source from the four major mining companies—De Beers, Alrosa, Rio Tinto, and Dominion—without getting into more granular detail. (Companies can also specify that their goods came from artisanal, or informal, sources.)

For goods less than 0.3 ct., the protocol gets even more flexible, allowing for a category known as “mixed sources.” 

“Sometimes there is quite a wide range of secondary market suppliers,” says Hall. “Some of that will be material that will have evidence of original provenance and some of it won’t.”

In those instances, companies will have two responsibilities: First, they must determine what percentage of those goods can currently be tracked. Second, if they are buying goods from other suppliers, they must do due diligence on those companies.

“The vendors’ primary responsibility is to know their counterparty,” Hall says. “Do you know from whom you are buying? Do you keep those records? Have you done due diligence on those suppliers, and have you identified and mitigated any risks? Signet is placing a level of responsibility on suppliers to know who they are dealing with and obtain as much as information about their own supply chain.”

“[The protocol] asks when a company has terms of business [with its suppliers] it tries to obtain as much original source information as possible, so they are asking [questions about sourcing] of their suppliers down the chain,” he continues. “They will then obtain greater levels of information about their original sourcing. We hope over time there will be an increasing level of transparency.”

Hall says suppliers shouldn’t expect to mark all their melee as mixed indefinitely. “I think that over time we will expect to see an improvement in the percentage of material that has known provenance, but we didn’t want to begin from that standpoint,” Hall says. “We wouldn’t want to put numbers on it. We are not a policeman. We more want to see continuous improvement.”

The protocol launches this year; over the coming months, suppliers will be asked to work toward compliance. At some point, that compliance will be audited.

 “In this first year, we will get a baseline,” said vice president of corporate affairs David Bouffard at a Jewelers of America press conference announcing the protocol. “We will learn what percentage of diamonds can be tracked back to the four main diamond companies. We think that will be a small number, compared to our gold knowledge.… [But] we will know where we are, where we are starting from, and how long that journey will take to get to a number where we feel more comfortable.

“We don’t understand everything about our diamond supply chain just like we didn’t understand everything about our gold supply chain when we started looking into that,” he added. “But over the coming years we are going to learn more and more about it.”

Obviously, suppliers have reservations about these protocols, particularly with regard to expenses. Adding new reporting and auditing requirements, and possibly installing new tracking systems, will increase the burdens of companies in the middle market—already the most burdened segment of the pipeline.

“There will be costs attached to this,” admits Hall. “But, of course, many of our suppliers say we already have that sort of documentation. They all say we have some form of inventory management. If they didn’t have that they wouldn’t know what their costs are. We envision in many cases existing systems and documentation that are already maintained will be sufficient.”

At the JA press conference, Bouffard told the story of seeing one mom-and-pop Indian factory where all the inventory management is literally done on paper. “But you know what?” he added. “If I’m an auditor, that is all I need, a paper trail. It’s taking advantage of what existing process are.”

Bouffard also argued that getting suppliers to join the Responsible Jewellery Council will ultimately hold down the costs and disruptions posed by frequent audits. “We hear loud and clear from our suppliers about audit fatigue,” he said. “We want our customers who are customers of De Beers and Alrosa to have one audit and that’s an RJC audit. If we can get diamonds and gold into an RJC audit, think of the savings.”

Another thing that makes suppliers nervous: If Signet knows their suppliers, won’t it be able to cut them out?

Hall has two answers for this. First, he says “there are several big firewalls between Signet corporate affairs and Signet merchandising.” Second, Signet won’t know the information anyway. “If it comes to an audit, the auditor will go over everything with the supplier, but the supplier and the auditor are the only people that will know that information,” he says. “Signet will get a form from the auditor that says we have audited the supplier, but Signet would never be privy to the information that lies behind the auditor’s findings.”

Signet says the protocol is largely a response to increased expectations about sourcing from consumers—particularly millennials. So the question arises: Does Signet have a plan to promote this to them?  

“This isn’t something that we intend to bring up to the consumer on any kind of basis,” Bouffard said. “It’s not something that we intend to use in marketing or as a competitive advantage.”

However, background on the protocol will appear on Signet’s store brand websites, and when consumers ask sales associates about these issues, information about the new standards will be integrated into their talking points.  “All the consumer is looking for is some kind of assurance,” said Bouffard. “When consumers are looking for a conflict-free diamond, they really mean: Does it respect human rights. Does it respect labor processes?… So we will continue to educate our team members about that.”

In any case, the company isn’t done fiddling with its supply chain. Next up, Bouffard says, is another category with a notoriously fragmented supply chain: colored stones.

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