De Beers Case Study Conduct Research Proposal

Length: 12 pages Sources: 1+ Subject: Business Type: Research Proposal Paper: #23972699 Related Topics: Intermediate Accounting, Mining, Measure For Measure, Procurement
Excerpt from Research Proposal :

All of these factors then contribute to the complexity of hiring senior international positions, and underscore the HR issues that are going to cause difficulties in the hiring process.

De Beers' recruiting process is going to have to focus on those professionals in critical skill gap positions that are accustomed to being in an industry that has complex ethical trade-offs that need to be made, yet has the necessary initiative level to attack manual processes that need to be updated to me market-competitive instead of cartel-sustaining. This becomes more concrete when the considerations are taken into account of hiring a new general manager for one of the company's many diamond fields in Africa. Anyone from a manufacturing background will find the processes in these diamond fields archaic and nearly impossible to apply advanced Six Sigma planning techniques to, much less measure in any meaningful way. There are also no real information systems in place within these mining operations, or in any of the Inbound Logistics, Operations, or Outbound Logistics functions of the De Beers supply chain. Why all this is important in hiring senior staff to operate international operations, especially in manufacturing, is that these senior-level professionals are accustomed to running their business using dashboards and scorecards, yet in the De Beers existing organization there is no need for this level of detailing reporting and analysis. Paradoxically however De Beers will need to have the expertise of these senior managers to navigate the complexities of the three core strategic area mentioned earlier yet does not have the necessary infrastructure to allow them to excel in the positions they want them to fill. In essence they need an experienced, capable senior manager who has been literally in start-up situations that can manage to automate the most critical manual processes while also developing their own approach to evaluating how the operations they are responsible for running are performing. This recruitment challenge is made even more difficult when the lack of metrics and measurement inherent in a cartel-dominated culture is taken into account. As De Beers navigates its way from a supply control dominated business model to driving demand growth, all of these challenges will be the most acutely felt in hiring efforts and practices.

Skill gaps in staff positions necessary for the transformation of De Beers include supply chain, strategic sourcing, marketing, sales and managing the retailing joint venture with LVMH. These skill sets are crucial if De Beers is to be successful in transition from a supply control to driving demand growth company. Starting with supply chain and strategic sourcing, the skill gaps include the need for professionals who are familiar with Collaborative Planning Forecasting & Replenishing (CPFR) techniques so that demand generated in retail channels is quickly translated into forecasts and mining operations work schedules to ensure all sales can be fulfilled. The need for the skill sets of Vendor Managed Inventory (VMI) a crucial area of inventory management in supply chains that serve retailers as well. There is also the need for strategic sourcing expertise, which is the ability to create a high level of collaboration and shared risk across an entire series of suppliers, multiple tiers down in the procurement networks of companies. This is entirely new to De Beers which has extensively relied on its own captive supply chains in the past; there is complete ignorance of strategic sourcing in the company and it will take a senior level professional to initiate and keep this type of collaboration running smoothly. Additional skill gaps in supply chain and procurement include supplier quality management and supplier audits, and the need for advanced supply chain expertise in validating synthetic diamonds, an area De Beers is investigating during this time period. If all these challenges were not enough, there is also the need for managing to new ethical standards to alleviate "conflict" diamonds and adherence to fair...


All of these requirements make the selection of senior managers for international operations all the more difficult.

In the staff positions of marketing, sales and after-sales service, the need for branding expertise is evident. The Right Hand Ring Campaign has significant potential as it gives women the opportunity to assert their individuality and enjoy celebrating their own achievements by purchasing a diamond ring for their right hand. Branding, marketing and after-sales service in Japan, India and China are also critical skills sets the company will have to actively recruit in order to be successful with the new strategic initiative of driving demand growth. The challenges of finding branding professionals in each of these geographies including the U.S.A., Japan, India and Chinas will also force De Beers HR to concentrate on cultural alignment of candidates with the unique aspects of each nation as well. In conjunction with the cultural biases of the company internally, finding candidates who can align with the specific cultural norms and values of these nations that De Beers must successfully market into also presents a unique set of recruitment challenges. In making recommendations regarding the recruitment and placement of senior-level professionals in the core areas of Inbound Logistics, Operations and Outbound Logistics including mining, manufacturing, and refinement De Beers must first work to change the internal company culture away from supply control to driving demand growth. Second, these areas require key performance indicators (KPIs) and metrics of performance to effectively be run and are often the basis by which senior managers and professionals manage these aspects of any business. Without this infrastructure in place, De Beers will find it difficult to hire the level of professional they need to run these businesses. Third, the redefining of key process areas including the development of Business Process Management (BPM) strategies to make each of these key areas as efficient as possible and autonomous is going to be critical to recruit the level of professionals needed to transform the company from a cartel into one driven to satisfy consumers' wants and needs - in short to be market driven. Recommendations for accomplishing this daunting series of tasks must start with finding experienced professionals in each area who are experience enough to deal with uncertainty but confident and resilient enough to look for a challenge. Using interviewing, recruiting, and screening techniques that look for the best possible combination of traits combined with a high tolerance for ambiguity yet strong initiative is going to be critical in the hiring processes for key senior and staff positions.

Question 2 De Beers -- Finance Questions

Part 1: Using the information provided in the case, analyze the financial performance of De Beers highlighting the areas of significant strength or weaknesses. This should include an analysis of the apparent sources and uses of cash. Tie the results of your analysis to the De Beers' activities and events from the case.

In analyzing the financial performance of De Beers from the case study, the company is growing despite a reduction in working capital and increased costs of depreciation on fixed assets. Starting with Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) growing 8% between 2003 and 2004, and the 23.3% cash flow return, De Beers also attained a Return on Capital Employed (ROCE) of approximately 14% from 2003 to 2004. Return on Equity (ROE) has consistently been at 16%, and operating cash flow for the years covered in the case study is staying constant at $1.5B (U.S.). Debt has declined steadily from $2.57B in 2002 to $1.76B in December, 2003. Net working capital has also steadily declined during the time period of the case study as well, sliding from approximately $2.5B in 2003 to approximately $1.3B a year later. The increase in Debt and the reduction in Working Capital are mainly due to significant spending on production costs which according to the case have been marginally effective in finding higher quality, larger carat diamonds. The majority of cash is being spent on increasing carat production which is resulting in more tonnage of wastes produced from the four mines that De beers relies on and mentioned in the case study. The rapid reduction in Net Working Capital is directly related to the inefficiencies in searching for larger carat diamonds. This strategy has not worked well for De Beers, yet their yields have been sufficient in terms of lesser grade diamonds to provide a positive ROCE, which this specific ratio being influenced by the low wage rates in Africa and throughout mining regions the company operates in. The Weighted Average Cost of Capital (WACC) for De Beers for 2003 is 9.4% and 9.8% at the end of 2004.

When the financial analysis completed is applied to the analysis of De Beer's activities and events in the case, the need for risk management and governance is made clear. The WACC is one example that shows how critical it is for the company to get a better grasp of the risks of transitioning its…

Sources Used in Documents:

references. This is a critical measurement for De Beers to produce the right demand at the right price for each specific geographic market.

Brand Studies -as De Beers gets completely immersed in a market-driven business model this is going to be critical for them to concentrate on over time. Just as measuring the Return on Marketing Investments is critical; this measure tells De beers Marketing how effective their branding campaigns are being.

Fair Trade Compliance & Audit Ratings - it is essential for De Beers to focus on providing audited statements of the extent to which they adhere to Fair Trade Compliance and Ethics guidelines that need to be created through the Chief Governance Officer, a position the company needs to create to ensure compliance to these critical standards. The company cannot afford to operate in an ethical vacuum as its approaches to mining, exploration and treatment of workers is now transparent to the world via the Internet.

Financial Analysis of Synthetic Diamonds - a relatively new business for De Beers, this area has financial statements defining all key financial ratios in addition to market forecasts by country and also by distribution channel.

Retail Channel Forecast by Product and by Channel - De Beers also is monitoring retail channel forecasts by type of diamond and by channel within each of the four countries they are operating in. In addition, inventory velocities from these reports provide De Beers supply chain and procurement departments with the necessary visibility to anticipate demand fro each retail channel in each country and align manufacturing availability to each market's needs.

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