CHANNEL AND SHARED SERVICES REVIEW

We believe that the value of the Massmart Group should be greater than the sum of its parts. This philosophy underpins Massmart’s approach to collaboration across the Divisions which is facilitated and implemented by our Channel and Shared Services functions.

Channel

The Channel function provides a secure and structured place for our Divisions to share information and collaborate in a way that we believe will materially benefit the Group. This is done primarily by organising forums, in specific areas of competence and interest, which bring together the best and most senior skills in the Group in each functional area. These forums are chaired by members of the Group Executive Committee and consist of both trading and functional forums. The Channel structure served as an internal Massmart resource to drive the Walmart integration process through the relevant forums, providing Group leverage, the sharing of Best Practice and opportunity identification.

Each forum is tasked with performing four key functions, outlined below:

The first, and most important, is identifying common opportunities across Divisions where the capability and resources of the Group can be leveraged to increase profits or reduce costs across some or all Divisions in a way that could not be entirely achieved by any Division acting independently. This can take the form, for example, of sharing private label products, collaborating on product sourcing, supplier negotiations to reduce the cost per unit from shared vendors, or building shared supplier relationships.

Secondly, forums are also used to reach agreement on common standards that are important for Divisions to adhere to. In addition to this, forums assign and monitor Group representation on external standards and industry bodies and engage government in legislative processes relevant to our industry.

Thirdly, forums perform a peer review function to improve performance. Massmart Divisions assess each other for adherence to agreed Group standards and operating norms, and ensure appropriate measures are adopted to mitigate against risks material to the Group.

Lastly, forums function as a place to share internally and externally sourced learning. Divisional level data is gathered, analysed and benchmarked at Group level, then presented and debated at the various forums, and experiences across Divisions that will materially advantage the Group are shared. Processes piloted in one Division can be rolled out in another, reducing execution risk. External learning takes the form of presentations from conferences, visiting other local and international retail sites, gathering market share data meaningful in tracking Divisional category performance against competitors and monitoring competitor activity through supplier and market intelligence. Regular presentations to forums from outside experts keep Group and Divisional executives up to date with the latest developments in our industry and operating environment.

Trading forums

The Massmart Group’s trading forums consist of the Food, Liquor, General Merchandise and Cellular Forums. During the year, Massmart’s trading forums continued their focus on Joint Business Planning and data-sharing initiatives with strategic suppliers. With the enactment of the Consumer Protection Act (April 2011), the forums remained focused on legislative compliance and product safety and quality assurance, including the adoption of key global standards such as GFSI in regard to food safety.

In May 2012, Massmart invited 10 of their largest South African suppliers to participate in a unique tailored programme in Bentonville USA in order to prepare them for the collaborative Joint Business Planning utilised globally by Walmart with key strategic suppliers. This trip included exposure to Walmart senior leadership and business formats, together with a deeper education on business philosophies around collaborative business process focusing on the customer. The trip was well attended and feedback was overwhelmingly positive.

Functional forums

Our functional forums are the Technology, Information and Process (TIP), Operations & Construction, Real Estate, Finance, Supply Chain and Human Resources Forums. These focus on the management of skills and the procurement of resources and services required to support key Group-wide activities.

The scope of the Operations forum was broadened during the year to include a focus on benchmarking and reducing design and construction costs compared to Walmart formats in North and South America. In addition, this forum has reached new levels of collaboration in respect of operating more efficiently on non-merchandise sourcing. This has provided a strong foundation for the introduction of the Walmart “We Operate for Less” model. The Supply Chain Forum worked closely with Walmart Integration on developing a Massmart strategic plan to identify collaborative supply chain leverage opportunities. The HR Forum collaborated with Walmart on delivering the Integration culture work streams. The Massmart Corporate University continues to deliver outstanding programmes such as the Executive Development Programme, Leadership Development Programme, Graduate Development Programme, and various Functional Skills Training programmes. The TIP Forum focused on leveraging Walmart global technology vendors to improve cost efficiencies, service and support.

Shared Services

The Shared Services teams provide services to the Divisions that can be provided more efficiently in aggregate rather than as Divisions may be able to source individually. These services are requested by the Channel forums (described above) and are ultimately accountable to these forums for their performance. These services must respond to Divisional needs and be of higher value – measured as quality, cost and benefit – than can be sourced externally or generated inside the Division. A Shared Services team’s relationship with the Divisions is one of a service provider that must strive for excellence and become the best among competitors. The Divisions are their customers and their reason for existing.

Shared Services currently includes: Supplier Liaison and Administration; International Commerce; Employee Benefits and Shared Private Label management.

The Supplier Liaison and Administration team achieves savings by negotiating supplier contracts at Group level. This team also focused on the roll-out of the Joint Business Planning process (JBP) to 17 multi-national and seven local vendors. The International Commerce team handles the treasury and logistics aspects of importing products directly to be sold across our Divisions. During the past year, this team engaged substantially with Walmart to ensure our processes align with best practice, and we have taken advantage of savings available on sea freight rates and service provider fees at origin. Employee benefits aggregate the employee retirement and medical funds to achieve lower per unit costs and possible greater benefits from scale. The Shared Private Label team manages various brands that are private or exclusive to Massmart and shared across trading Divisions; and had an important year with the launch of its newest brand, Blacksmith power tool accessories. We achieved great collaboration between the chains in launching Walmart’s Great Value brand. This has further allowed us to initiate some exciting projects to bring more of the Walmart power brands into South Africa.