I've always felt that you should only generate cut gems when you use that option, and have crafts require cut gems to create (A single one in the case of a ring, multiple in the case of a crown or summat). However, I realize this would break some existing elements of crafting, I don't really consider this a bad thing.
Another possibility is to allow crafts to only be created from a large gem, and subtly bump up the likelihood of getting a large gem while eliminating the possibility to get a crafted item. This would make sense since even a ring would require a fairly large gem.
A third possibility, and my favorite.. when a dwarf cuts a gem, one of a few small types of jewel is created. They would be tiny, small, medium, large. You can set out to create any gem type, but you would only immediately succeed on tiny, anything else would have a small margin of error based on the dwarves skill. The resulting gems would be of a particular size, and a particular quality.
At that point you would be able to assign cut gems to create craftable items. Craftable items would be separated into all four size categories, as well as a fifth labelled 'complex'. Necklaces would be in the tiny column, earrings in small, rings in medium, crowns in large. In complex we find things like 'Necklace with pendant', where you assign two tiny or small jewels and a medium or large jewel, creating a 'moonstone necklace with large peridot pendant' for instance.
Encrusting would also have an expanded option, the ability to choose a specific gem type (Of any size) and apply it to anything else in the fortress, including already placed items. This would allow pearl rings, diamond encrusted statues, and the like, with you selecting which gems are used to encrust what items. Diamond encrusted Artifact Adamantine swords for the win!