In the most difficult economic climate of recent memory, businesses in every industry are under tremendous pressure to maximise resources, reduce costs and improve overall operations. Nowhere is that challenge more acute than in the treasury function of a global enterprise. Fortunately, today’s robust financial enterprise resource planning (ERP) systems can be invaluable in helping manage the day-to-day liquidity needs of a company, as well as the growing list of responsibilities that now fall under the treasurer’s purview. By leveraging technology globally in a SSC environment, a single financial ERP system can eliminate redundancies, enhance productivity, and raise standards across the organisation. The results are not merely cost savings, but also the improved visibility and better forecasting that chief executives demand. These are the ultimate benefits that can lead to sustained, long-term success. The decision to implement a single, global ERP system and leverage it across the organisation in a shared service environment requires careful deliberation.
The Shared Services Environment: Still Relevant Today?
The debate is not so much whether improving the corporate treasury function is necessary, but rather what is the optimal way to do it. For many, leveraging an ERP system in a shared services environment is the gateway to wringing out superfluous costs, streamlining operations and improving reporting. This is especially true for organisations with diverse income streams and wide geographic footprints, which often struggle with decentralised treasury management systems due to the very nature of the organisation.
The SSC concept is hardly new, and the benefits have been well documented. Centralising payment processing, accounting, supply chain, and other back office functions with the same ERP system across all business units and all regions can eliminate redundancies and reduce headcount, improve liquidity and cash management, yield tax benefits, improve compliance, and help maintain consistent standards across the organisation. Is a move toward shared services still relevant today? Probably more than ever, given the dynamics of globalisation and the current economic state of affairs we find ourselves in. Although the era of mergers and acquisitions has allowed many companies to reach new customers and lower costs, it has also left them with a patchwork of treasury systems, uneven protocols, and multiple (often redundant) banking relationships.
Compounding matters is the very nature of cross-border transactions. Expanding into new markets brings with it new challenges, including compliance and tax issues that vary significantly by country. Moreover, the recent credit crisis has severely hampered the ability to access capital, thereby putting a premium on navigating currency controls and unlocking any trapped cash. An organisation can address many of these challenges by introducing a single banking solution and leveraging an existing (or new) ERP system across the organisation.
Common Obstacles to Gaining Approval
Inertia is a powerful force, and the sheer magnitude of making wholesale changes has derailed more than a few ambitious plans for implementing a single financial ERP system and migrating to a shared services environment. Chief among these is a parochial cost benefit analysis that focuses almost exclusively on the hard costs. Indeed, rolling out a shared services environment solely to eliminate redundancies may be difficult to justify in terms of cost savings over the next few quarters. This is not to say the potential savings are insignificant even if some up-front capital investment is necessary. The ultimate justification, however, is more about providing senior management with the means to achieve broader strategic business objectives. It is imperative to consider these more important benefits, as well as the opportunity costs associated with maintaining the status quo, in arguing the business case. Failure to include these hard-to-quantify benefits unfairly skews the true return on investment and could undermine a project’s approval. The logistics and physical challenges of creating shared service centres can also be daunting. There are brick-and mortar real estate decisions that carry with them an entirely different set of variables.
Consolidating sites, disposing of or subleasing real estate in a down market, and the costs of relocating staff will also enter into any cost-benefit analysis. Here it is important to note that today’s shared service centres can also be virtual, thanks to improvements in technology. Companies can leverage the benefits of shared service centres without necessarily bringing everyone together in one office. This virtual concept also enables companies to keep some staff local, particularly where relationships and in-country expertise is critical, and simply hold everyone to shared standards and protocols regardless of location. A brand-new facility is not always feasible or appropriate, but a virtual shared service centre or some hybrid thereof could still be a viable option.
Considerations for Selecting ERP Systems and Banks
In order to harness an ERP system’s full potential, treasury must be a key participant in the selection process and the primary agent of change during any implementation. There are myriad considerations in selecting an ERP system and banking solution, not the least of which is determining the costs associated with rolling it out globally. Other questions to ask include:
- Will it help to achieve the most efficient method of executing collection and payment transactions?
- How difficult will it be to link the system to the necessary internal business systems platforms?
- Does the system allow for real-time reporting in a standard global file format (and language) for use with all banks?
- Will the system ultimately facilitate cash pooling in a manner that maximises liquidity?
- Can the system facilitate a continued move away from paper?
- Do I have a bank who truly understands my global strategy and can offer applicable expertise and advice?
Any decision to migrate to an ERP system from a traditional treasury management system is likely to be based on a desire to improve standards and visibility across the organisation. Although ERP systems are sometimes criticised for lacking the functionality of dedicated treasury management systems, recent iterations of ERP systems now include treasury modules that are robust enough to be a viable alternative. Ultimately, however, it is imperative to select a system that improves data quality, enables straight-through processing, and leads to enhanced working capital efficiency and control.
Does Your Bank Measure Up?
Equally critical to the ERP system is the selection of a single banking partner (or at a minimum, consolidating banks to the extent possible given a company’s credit needs). Chief among the considerations is finding a bank that has a global reach and expertise in the major regions of company operations. A solid infrastructure and connectivity, as well as the ability to deliver a variety of value-added services, are also of paramount importance.
Consolidating banking relationships globally can make doing business easier and is one instance where less diversity is better. Standards allow companies to focus on their core business and banking needs, and becoming a larger player to fewer banks offers the company better leverage and a stronger voice in any negotiations. It goes without saying that any financial services providers under consideration must understand the client’s core business and show a willingness to work with its nuances. The bank should also have experience dealing with local stakeholders within each region. In the end, the capabilities of the bank and the shared services centre must be flexible and scalable, with the ability to grow in conjunction with the longer-term goals of the company. Relationships really do matter.
Challenges of Implementation
The challenges of implementing a single banking solution are magnified for companies with numerous business lines and stakeholders in many countries. It is these same organisations, however, that have the most to gain. Once the ERP system and banking solution are selected, the question becomes which regions and which divisions are brought into the fold and when. It is virtually impossible to make wholesale changes simultaneously across a large organisation, and thus a phased approach is suggested, whereby standards are implemented first by functionality and then by region. A well-documented treasury migration plan should be the roadmap. In any disparate company, success may rest on achieving stakeholder buy-in, particularly at the local level. Whoever is leading the migration must be able to articulate, define and communicate expectations to all groups.
The ability to demonstrate why changes are necessary rather than arbitrary will go a long way toward gaining wide acceptance. Setting consistent standards across the organisation is imperative, particularly since the different regions and business units will undoubtedly talk among themselves. Failure to do so can create an environment of resistance. Yet at the same time, the dynamics of intra-company communication can also be used constructively, creating subtle competition among regions for adopting and even creating best practices. Successes will also be infectious.
Another key challenge in the implementation phase that cannot be underestimated is the need to accommodate regulatory differences on a country-by-country basis, particularly for currency issues. This is where the selected bank’s expertise will be invaluable to treasury. Certainly there will be social, language and business culture considerations; however, over-accommodating individual countries could undermine the goal of standardisation. The final solution needs to be savvy enough to accommodate unique country standards and business practices, but the ‘we are different’ argument cannot be an excuse for maintaining the status quo. Ultimately, success may be predicated on treasury’s true ownership of the project, without which many implementations are doomed to failure.
Strong leadership and consistent communication can go a long way toward overcoming any inherent distrust between regions, cultural differences, and the natural resistance to change. There also must be a dedicated implementation manager from the bank who is available to work with treasury to help coordinate all resources.
Measuring Success Over the Long-term
Measuring success of implementation will obviously vary, depending on the goals set at the outset. Aggregating the cost savings from consolidating the number of banks, reducing headcount for back office functions, and improving productivity will be straightforward measures. Of greater value, however, are the more nebulous and lasting benefits. Consider, for example:
- What is the value of a true state-of the-art electronic banking system that can be used globally for payment file delivery and automatic reconciliations?
- Can a dollar figure be put on a consolidated liquidity structure that helps maximise cash resources going forward?
- How much is it worth to have access to high-quality data that is consistent and timely?
- Is there a price for accurate forecasts and ongoing compliance?
- If a SSC solution is flexible and scalable, what will be the savings associated with any future merger and acquisition?
- How should one value a culture of sharing of best practices across regions?
The answers to all these questions cannot necessarily be quantified upon the implementation of a single banking solution in a shared services environment. Embarking on ambitious, large-scale migration takes vision, maybe even courage, in a number-loving world that is too often focused on next quarter’s results. In the end it is not about the immediate savings, but rather the intellectual capital gained by having the tools to achieve broad business objectives. There is no denying that implementing a banking solution and migrating to a shared services environment is a colossal challenge, but successful implementation is really just the beginning. This is just a vehicle to improve company performance over the long term. The following case study around NCH Corporation outlines how the company was able to successfully implement an ERP system, ultimately creating a successful shared services environment.
Case Study: NCH Corporation Treasury ERP Implementation
“When I came here several years ago we were beginning to adopt an ERP system for financial statement modules,” explains Irena Kildisas, treasurer of NCH Corporation. “It soon became obvious that the company’s decentralised culture also created immense challenges for the treasury function. We had hundreds of bank accounts and far too many relationships. At any given time I had no idea how much cash was on hand, and I certainly couldn’t get my hands on it to manage it properly.” NCH Corporation was looking to introduce a single banking solution and leverage its investment in ERP technology to improve all payment and collection transactions. Among other objectives, the company wanted to create an effective liquidity structure; achieve real-time reporting with consistent standards for all accounts; and build a direct interface with existing systems to enable the automatic upload/download of statements and files.
Creating the template
To facilitate the implementation of treasury ERP modules and, ultimately, lead the migration to a shared services environment, NCH Corporation needed a primary banking partner with brick-and-mortar locations in its largest operating regions. Germany became an obvious choice to develop and implement a solution, due to its large revenue base and rigorous
The first step was consolidation, taking all in-country accounts and mapping them to two ERP bank accounts – one for receivables and the other for disbursements. Working through the local statutory requirements, agreeing on an appropriate file format, and communicating new requirements to both customers and the supply chain were among the key challenges. In the end, NCH created a single template – a clear roadmap – that could be followed by other countries.
A similar implementation of local ERP treasury modules, along with the corresponding bank account consolidations, continued in a logical geographic progression in Switzerland, Belgium and Austria. As more European countries were added, the scope of the project expanded to include streamlining the accounting functions. Eventually, the German accounting group was given access to the other countries’ ERP modules, thus creating a regional SSC that will be replicated in select other countries.
Meeting the liquidity challenge
The treasury centralisation project has been largely completed in Europe, and it continues in Latin America and Asia as well. The results, even at this stage, can be quantified in several ways. In Europe alone, for example, NCH began with more than 400 bank accounts and 30 banking relationships. That has been consolidated into five banking relationships and 150 accounts – and falling. The number of financial professionals managing the payables and receivables has also been reduced.
Beyond these savings, however, leveraging a single ERP system across the organisation has helped NCH free up substantial liquidity that had been trapped. That was especially critical during the rapidly deteriorating economic environment in late 2008 and early 2009.
“In Europe we had somewhere around US$25m that we couldn’t access via trade payments or other means, and we didn’t have a pooling structure where we could offset balances,” explains Kildisas. “As a result, we had cash-rich countries holding onto liquidity, and at the same time we had cash-poor countries that needed to be funded through inter-company
loans or some other borrowing. Now those costs have been eliminated, and we are able to funnel any excesses back to operations.”
Already NCH Corporation is in a vastly improved position to forecast its liquidity position with total visibility for all receipts and disbursements across Europe. That same visibility will soon be available in Asia and Latin America. This gives management a clear understanding of when they will need to draw on lines of credit and when they will have excess cash for investment, providing an opportunity to deploy it in regions where it is needed for growth or operations.
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