Evaluation of the Supply Chain for Coloured Gemstones: The Case of Sri Lanka

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R4TLI Conference Proceedings 2017
ISSN: 2513-2520
Paper Reference: R4TL (17) - B12
- 45 -
Evaluation of the Supply Chain for Coloured
Gemstones: The Case of Sri Lanka
Rafhan Rifan
University of Moratuwa, Sri Lanka
Pradeepa Jayaratne
University of Moratuwa, Sri Lanka
1. Introduction
Every product has a Supply Chain (SC) consisting of several integrated processes,
extending from raw materials to end products and beyond end use. Supply chain
management is important in any industry. Attention to SC concepts was especially
vital in manufacturing industries due to industrial changes such as rising costs and
shrinking product life-cycles which made reduction of overall cost and enhancement
of profitability imperative. Mining industries have also begun to adopt SC practices,
not only for aforementioned reasons but also for sustainable and ethical purposes too.
This is the trigger for the SC application in gemstone industry [1].
Generally, gemstones are defined as rare and hard materials used for adornment or
decoration, and these include diamonds, rubies, sapphires and emeralds. Even though
diamonds are gemstones, the industry maintains a scientifically illogical distinction
between diamonds and other gemstones. Gemstones which are not diamonds are
denoted as “coloured” gemstones [2].
A gemstone SC consists processes such as extraction, rough gemstone trading, cutting
and polishing, polished gemstone trading, jewellery manufacture, wholesale and
retail, and participants such as miners, rough gemstone sellers, buyers for cartels and
collectors, gemstone dealers and retailers [3]. In a traditional industry, gemstones are
passed through these participants to retailers with low-profit margins, compared to
wholesale companies like De Beers who uses their own mines to extract gemstones.
There are other SC structures practised in between these two extremes with a varying
number of intermediaries and performance.
From ancient times to the present, Sri Lanka holds a prominent position for coloured
gemstones. In 2014 gemstone exports were accounted for 1.3% of total export value
which is approximately 18.65 billion rupees. This shows a great value created by the
local gemstone industry and yet it is a secretive industry due to community-based,
informal and traditional market practices. More than 50 varieties of gemstones are
mined in Sri Lanka and some other varieties are imported, and go through a series of
processes, triggering the gemstone SC. There has been very little research on the

R4TLI Conference Proceedings 2017
Paper Reference: R4TL (17) - B12
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gemstone SC in Sri Lanka and this assessment identifies and maps existing SC
structures.
2. Research Objective
The Sri Lankan coloured gemstone industry as a whole faces intense competition
from global players. Implementing SC practices can improve the position of the
country but the lack of scientific studies in this area make it hard for researchers to
analyse and recommend best practices. Therefore, this study aims to fill this gap. The
objectives of this research are
1) to identify and map existing coloured gemstone SC structures
2) to identify factors affecting SC performance and
3) to evaluate the performance of existing coloured gemstone SC in Sri Lanka.
3. Methodology
This research employed a mixed approach where both interviews and survey was
carried out. Data were collected from SC stakeholders using interviews in order to
identify SC structures. Interviews were conducted until saturation point where
nothing new comes from SC participants. The researcher visited the Ratnapura,
Beruwala and Gintota, and Colombo areas to interview gemstone miners, rough and
polished gemstone dealers, and gemstone exporters respectively. Using collected data
and Value Mapping Tool, the researchers identified different SC structures existing
in Sri Lanka. Also, the researchers used online surveys to collect data to evaluate the
performance of coloured gemstone industry and to prioritise performance measures.
Respondents were from gemstone business background, consisting miners (12.9%),
rough gemstone dealers (16.1%), polished gemstone dealers (29%), gemstone
brokers (12.9%), gemstone exporters (22.6%) and interested parties who are willing
do business in future, who already did business and gemstone enthusiasts (38.7%).
Data collected were further analysed using Analytical Hierarchy Process techniques.
4. Data Analysis
Data collected through interviews was used to construct coloured gemstone SC
structures in Sri Lanka. It is considered that the end users of coloured gemstone SC
of Sri Lanka are jewellery retailers, wholesalers and manufacturers, and gemstone
collectors. The following SC structures were identified.

R4TLI Conference Proceedings 2017
Paper Reference: R4TL (17) - B12
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Figure 1: SC Structure without brokers
Figure 2: SC Structure with brokers
Figure 3: Direct buying from miners
Figure 4: Group purchasing

R4TLI Conference Proceedings 2017
Paper Reference: R4TL (17) - B12
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Since there is no previous published research on this subject area, the researchers has
used the understanding of general industry practices and the work done by
Gunasekaran [4] to identify measures related to coloured gemstone SC performance.
It is identified that selling price of gemstones to end users is the main factor affecting
SC performance and that selling price depends on the following performance
measures: level of perceived value of the gemstone, quality of a gemstone, cash flow
time, return on investment (ROI) and buyer-supplier relationship. First, the perceived
impact of performance measures on increasing selling price is identified. Figure 5
shows the frequency distribution of respondents on five performance measures.
Figure 5: Perceived Impact of Performance Measures on Increasing Selling Price
Analytical Hierarchy Process is then used to prioritise performance measures impact
on increasing the selling price of coloured gemstones. Table 1 shows the results of
analytical hierarchy process for 32 respondents.
Table 1: Pairwise Comparison of Performance Measures
Performance
Measures Perceived
Value Quality Spot
Purchase ROI
Supplier-
Buyer
Relationship
Priority
Vector
Rank
Perceived Value
1
0.763
2.304
1.686
1.374
0.251
1
Quality
1.311
1
1.784
1.410
0.968
0.250
2
Spot Purchase
0.434
0.561
1
0.564
0.480
0.113
5
ROI
0.602
0.709
1.773
1
0.692
0.163
4
Supplier - Buyer
Relationship
0.728
1.033
2.083
1.445
1
0.223
3
CI
0.01
Inconsistency is acceptable
13
16
11
5
7
15 14
8
16
12
3
1
9 9
7
1 1
32
6
0010 0
0
2
4
6
8
10
12
14
16
18
High Percieved
Value impact on
inceasing selling
price
High Quality
impact on
increasing selling
price
Spot Purchases
impact on
increasing selling
price
ROI impact on
increasing selling
price
Seller-Buyer
Relationship
ompact on
increasing selling
price
Strongly Agree Agree Moderate Disagree Strongly Disagree

R4TLI Conference Proceedings 2017
Paper Reference: R4TL (17) - B12
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As per the AHP analysis, it was observed that the perceived value of the gemstone is
the most important determining factor for selling price, where it is followed by the
quality of the product. The supplier-buyer relationship also has a significant impact
on selling price.
5. Conclusion
This research has identified four different types of gemstone SC structures in Sri
Lanka. The performance of SC is mainly reflected through the selling price of the
gemstone, and as to analytical hierarchy process it is identified that selling price is
mainly decided by the perceived value and quality of gemstone which are
approximately equal (25%) in priority vectors. Though quality of a gemstone is high,
most of the buyers and sellers in Sri Lanka also depend on perceived value of
gemstone to determine the price. Moreover, there is a considerable impact of supplier-
buyer relationship in increasing selling price. Buyers are more willing to buy from
known suppliers for higher prices. ROI and spot purchases are least important.
6. References
Amnesty International, “Chains of Abuse: The global diamond supply chain
and the case of the Central African Republic,” 2015.
E. Fritsch and B. Rondeau, “Geology: The developing science of gems,”
Elements, vol. 5, no. 3, pp. 147–152, 2009.
L. Collet, L. Kurtz, and K. Reed, “Responsible Sourcing of Coloured
Gemstones,” 2013.
A. Gunasekaran, C. Patel, and E. Tirtiroglu, Performance measures and
metrics in a supply chain environment, vol. 21, no. 1/2. 2001.
Keywords: gemstone supply chain, supply chain structure, supply chain performance,
evaluation, Sri Lanka