Robust cost transparency model for a fashion retail giant

Background

JSE-listed TFG is one of South Africa's largest retailers and has a diverse portfolio of 29 leading fashion retail brands. It trades through more than 4,200 outlets in 26 countries across five continents. Their brands offer a variety of lifestyle products including clothing, jewelry, cell phones, accessories, cosmetics, sporting apparel, homeware, and furniture, offered both in-store and online. This independent chain-store group found that the size and complexity of its business required a particularly robust, granular cost transparency model that would enable it to bill the various areas of the business for the costs directly associated with the services they consumed.

Challenge

TFG had no accurate product and service catalog, and only very limited cost allocation models. The Group embarked on a cost transparency journey to better understand its profitability and costs. It was essential for TFG to gain visibility into a more accurate return on capital employed (ROCE) per brand. They needed to determine earnings before interest and taxes (EBIT) after shared services cost allocations for each of the brands, rather than having to rely on this metric at a consolidated group level alone. Since TFG had no real cost transparency solution and a very limited chargeback model to its various brands, the group clearly required not only the right solution, but also the relevant expertise to introduce an effective cost transparency discipline into the enterprise.

Approach

As part of the solution, Keyrus provided consulting services and assisted the retailer to define their ITFM vision as well as develop a roadmap. Keyrus recommended and implemented the Gartner-recognized progressive ITFM solution MagicOrange. The first requirement was to create a complete product and service catalog, which the Keyrus team helped to build from scratch, based on relevant input from the various business areas. As the existing models for the allocation of costs were very limited and not consistently based on operational drivers, every product and service required a driver to be sourced and incorporated into the MagicOrange model. In addition to the development of these drivers, the implementation included training to ensure employees understood both the nature and fairness of the drivers. The first phase focused on the customer’s IT, logistics, and facilities management budget stack, an individual stack that nonetheless had a substantial budget. This core model was delivered in a mere eight weeks, despite being driven from a zero base. The reciprocal charging was properly modeled and catered. Fully loaded and accurate TCOs for products and services across the organization were also made available. Finally, scenario modeling was implemented, which enabled multiple scenarios to be loaded, including a range of different budgets, actuals, and forecast data.

Key results

Benefits

Following this implementation, TFG was able to show accurate profit margins; calculate the total cost of ownership (TCO) of its IT, logistics, and property investments; ensure accurate chargebacks, and utilize its assets more effectively. Many of the previously manual processes are now automated. The group is benefitting from insights into the costs of delivering IT and services to the group, as well as the ability to accurately assign costs to users of IT services. For the first time, IT is able to properly explain these chargebacks with accurate, detailed reports. In addition, scenario modeling assists TFG to make both strategic and tactical informed decisions. Rollout to the rest of head office service divisions has commenced to include them in a chargeback model. The customer gained a cost transparency process and a credible recharge model based on consumption of services, as opposed to just a cost allocation model, which assisted in optimizing costs and calculating ROCE at a brand level.

What our clients say

"The Keyrus team fully delivered on our challenges and exceeded our expectations in the way they understood and cared for our business success.”

Marlize van der Westhuizen, Finance Shared Service Manager, The Foschini Group

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