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Pillar four
Cost reset
Resetting Massmart’s cost base

During the past few years, selling, general and administrative expenses (SG&A) have been growing faster than sales growth, resulting in unsustainable margin compression. The focus of current savings initiatives has been on product price reduction, rather than a holistic focus on price, consumption and specification. There has been a lack of transparency and a consolidated Group view of costs, resulting in a misaligned approach to managing costs across the Group.

We have set out to leverage Group scale to target spend reduction across indirect procurement categories through price and volume reduction. By creating visibility of every aspect across the Group to identify opportunities for savings, we have identified an addressable indirect spend baseline of R10.4 billion. We applied local and global benchmarks and identified savings opportunities between R0.6 billion and R1.5 billion across cost packages. While savings opportunities have been identified, targeted spend and culture initiatives need to be developed and executed to realise and sustain value. We will address this by:

a. Immediate execution of quick wins and kick off value targeting by:

  • Appointing cost category owners and sponsors
  • Providing the team with additional skills and capacity to execute and realise value
  • Start embedding the Smart Spend culture across the Group

b. Enhancing the Group’s integrated spend management capability by:

  • Recruiting an Indirect Spend Management (ISM) Lead
  • Centralising and upskilling of ISM capability
  • Establishing an eAuction programme

We will implement new approaches and new ways of working to reset the cost structure by:

  • Reviewing existing cost structures, including the identification of addressable spend and targeting reductions
  • Creating a culture of cost consciousness through our Every Rand matters initiative
  • Initiating a Group-wide Smart Spend project to deliver cost savings
  • Centralising ISM under the Group CFO to manage procurement.

 

By maintaining disciplined control of our expenses,we are able to create efficiencies, thus freeing cash to reinvest in price and customer experience and provide the business with fuel for future growth.