Download - Transforming Financial Back-office Processes to Optimize Working Capital Veena Gundavelli
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Transforming Financial Back-office Transforming Financial Back-office Processes to Optimize Working CapitalProcesses to Optimize Working Capital
Veena GundavelliVeena GundavelliPresident & CEOPresident & CEO
Emagia CorporationEmagia Corporation
Transforming Financial Back-office Transforming Financial Back-office Processes to Optimize Working CapitalProcesses to Optimize Working Capital
Veena GundavelliVeena GundavelliPresident & CEOPresident & CEO
Emagia CorporationEmagia Corporation
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Emagia – Introduction
Leading Provider of Working Capital Management Software Solutions to Global 2000 companies
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Leadership in Working Capital Management Solutions
Emagia Customers Include: • In Business Over 8 years
• Unlocked over $10.3 Billion in Working Capital
• Have Delivered Over $150 Million in Bottom Line Savings
• Have Managed Over $30 Billion in Receivables
• Are Used By Over 2000 Global Users
• Process Over 100 Million Transactions Per Month
• Have Been Deployed Across Over 53 Countries
• Have Been Implemented in Over 35 Different Languages and in Over 30 Different Currencies
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Agenda
• Top Priorities for Today’s CFO
• Working Capital – A Key Competitive Advantage
• Transformation of Financial Back Office: 3 Step Approach
• Case Studies: Highly Effective Finance Organizations
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Transformation of Role of Finance
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
1. Performance – Managing enterprise-wide performance to maximize share holder value
2. Growth – Partnering with the enterprise to support new growth strategies
3. Risk – Strengthening process controls and streamlining processes to reduce risk and meet fiduciary/regulatory compliance standards
Top 3 Areas of Finance Focus
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
1. Structural Complexity – Multiple Disconnected Operations, Lack of Standardized Processes, Lack of Collaboration within and outside of Finance Departments
2. Fragmented Information – Disconnected Systems, Lack of Information Insight, Lack of Consolidated Information in Timely Order, Lack of Integrated or Global View of Processes, Lack of “Single version of truth”
Top 2 Challenges in Finance Departments
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Roadmap to an Agile Finance Organization
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
AccountsPayable
AccountsReceivable Inventory
Procure-to-Pay
Customer-to-Cash
RevenueRevenueManagementManagement
Forecast-to-Fulfillment
Supply ChainSupply ChainManagementManagement
ExpenditureExpenditureManagementManagement
CustomerStrategy
SalesManagement
RiskManagement
ContractManagement
Sales OrderProcessingCredit
CheckOrder
Fulfillment
Billing
CustomerService
CashCollection
CashReceipts
DisputeManagement
SupplyChain
StrategyProductManagement
Forecasting
Sales OrderForecasting
ProductionScheduling
RawMaterialPlanning
Production
Ware-housing
Distribution
Transportation
Replenishment
ProductionPlanning
PurchasingStrategy
Budgeting &Forecasting
OriginatingRequirements
Selection& Negotiation
Ordering& Contracting
ReceivingDiscrepancyManagement
InvoiceProcessing
DisbursementManagement
PaymentProcessing
CashManagement
Components of the Working Capital Cycle
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
• Cash is the life blood of any business
• Cash-to-Cash Cycle is the largest consumer/source of cash
• Cash Flow from Operations – “Free” measurement of health of any business
• Receivables – One of the top 3 largest assets of any business
• “Free Cash Flow” has stronger influence on share price compared to “Earnings”
Unlock Working Capital From Your Financial Operations
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
• Situation– Hi-tech Company with over $500M in revenues
– Serious failures in receivables management
– High DSO (> 110 days), Bad debt write-offs increasing
– Depressed Stock Price
– Speculations that either the new products are not working or sales reported were not true
• Solution– Streamlined entire order-to-cash processes, staff, management focus and
adopted specialized technology
– Working Capital Management focus right from Board and C-level executives
Impact of Better Working Capital Management: Case Study
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
• Result– Reduced DSO to high 50s
– Increased cash by equivalent of four month of sales
– Reduced bad debt expense by millions of dollars
– Increased stock price dramatically
Impact of Better Working Capital Management: Case Study
Source: Parson Consulting
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Cash Tied in Financial Operations
“Working capital remains top of mind for many CFOs. Indeed, continued working capital improvement — or even a controlled, temporary reduction — can ultimately drive growth.”
Magazine
2005 Working Capital Survey
Working Capital Improvements In Receivables, Payables and Cash FlowForecasting Can Be A “Hidden Reservoir” To Drive Financial Excellence
Source: McKinsey & Co. Studyof Top 24 U.S. Corporations
Potential Cash Flow FromUnlocking Working Capital
$71 Bn
$49 Bn
$91 Bn
Receivables
Payables
Inventory $162 Bn Opportunity toDrive Cash Flow Improvements
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Close the Short-term Liquidity Gap
Accelerate Cash InflowsImprove Cash Receipts Forecasting
Regulate Cash OutflowsImprove Disbursements Forecasting
Cash Inflows
Short-termLiquidity Gap
• Greater Need to Borrow
• Higher Interest Expense
• Higher Debt-to Equity Ratio
• Lower Return on Invested Capital
Cash Outflows
Time
Cash Flow Visibility, Control and Predictability Ensures Better WorkingCapital Management and Cash Conversion Cycles
Payables
Receivables
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Barriers to Working Capital Excellence
Working Capital Process
Typical Challenges Impact on Financial Performance
Accounts
Receivable
• Disconnected A/R Systems and Processes• Ineffective Credit Risk Extension• Slow Customer-to-Cash Cycle• Manual Processes• Unattended Disputes
• Higher DSO• Increased Bad Debt Expense• Slower Quote-to-Cash Cycle• Higher Operational Expenses• Higher Revenue Risk
Accounts
Payable
• Disconnected A/P Systems and Processes• Inefficient Payment Decisions• Inefficient Procure-to-Pay Cycle• Manual Processes
• Sub-optimal DPO• Increased Administrative Expenses• Lost Discount Savings
Cash Flow Forecasting
• Limited Consolidated Visibility• Lack of Structured Real-time Data• Discrepancies in Forecast Models• Lack of Structured Forecasting Process
• Inaccurate Short-term Forecasts• Sub-optimal Investment Strategies• Reduced Efficiencies• Lowered Returns from Cash Management
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Transforming the Enterprise to Drive Sustainable Value
Cash Flow Transactions Management
Cash FlowProcess Management
WorkingCapital
Optimization
From Working Capital Vision
DecisionSupport
BestPractices
BasedStandardization
TransactionManagement
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Transforming the Enterprise to Drive Sustainable Value
Time
To Working CapitalActualization
Value
StandardizationSimplification
Controls & Efficiencies
& RiskManagement
Strategic FocusSustainableGrowth &
ShareholderValue
Cash FlowTransactionsManagement
Cash FlowTransactionsManagement
Cash FlowProcess
Management
Cash FlowProcess
Management
WorkingCapital
Optimization
WorkingCapital
Optimization
Managing Complexity
Balancing Risk And Performance
Effectively DrivingProfitable Growth
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 1 Transformation : Transactions Management
Simplification and Integration of Enterprise-Wide Information Management
• Reduce structural and data complexity
• Reduce number of disparate Finance Platforms
• Reduce number of ERP instances
• Reduce number of point transaction solutions
• Rationalize common platforms for consolidation and reporting across receivables, payables, treasury
• Deploy solutions that address multi-currency, multi-language, multi-level organizational and customer hierarchies
Cash Flow Transactions Management
Cash FlowProcess Management
WorkingCapital
Optimization
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Transactions Management: Reality Out There
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 1 Transformation : Transactions Management
Advantages• Single version of truth
• Reduces number of reconciliations
• Reduces time and effort needed to gather information
• Faster access to information for decision making
JD Edwards LegacySystems
BaaN
Working Capital Platform
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Process Management
Standardize Process Management Management with Technology
• Streamline and document internal processes for local and globally operations – order-to-cash, procure-to-pay, treasury
• Implement enterprise-wide standard policies and rules on credit, collections, deductions, payables, billing, dispute handling
• Formulate workflow and collaboration processes across finance, sales, order-entry, customer support, purchasing and other departments
• Automate business processes with common technology, platforms
• Adopt functional best practices in the industry
Cash Flow Transactions Management
Cash FlowProcess Management
WorkingCapital
Optimization
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Process Management
Advantages
• Improves productivity and efficiency • Reduces operational costs and increases scalability• Enhances compliance and reduces process control risks• Mitigates and manages corporate risk• Improves Free Cash Flow
Cash Flow Transactions Management
Cash FlowProcess Management
WorkingCapital
Optimization
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Credit Scoring Decision Management with Technology
• Credit Policies - Formulate and establish credit extension policies across multiple customers and operating units
• Credit Scoring - Implement a standardized and flexible credit scoring approach which takes into account historical payment patterns, external credit data and input from field sales and credit analysts
• Credit Information - Integrate with third party credit data bureaus like D&B, Experian, etc to leverage the latest credit information
• Credit Reviews - Establish a credit review process using workflow technology to focus credit analysts on high risk accounts
• Portfolio Analysis - Measure and monitor credit exposures across global customer base
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Collections Management with Technology
• Strategy Driven - Enable global collections to be carried out in a proactive manner based on customer segments, regions, etc…
• Intelligent Collections - Direct the collections team to focus on high impact accounts
• Automation - Focus the team on high value added activities such as customer management by automating repetitive and manual tasks
• Collaboration - Align closely with sales and leverage relationships for faster collections. Connect to enterprise systems within the company and outside with trading partners
• Portfolio Management - Embed best practices for collections management across multiple divisions and business units
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Billing and Accounts Receivable with Technology
• Accuracy - Enable accuracy and timeliness of invoice documentation sent to customers
• Timeliness - Ensure that invoicing is properly carried out after order fulfillment processes
• Consolidation - Consolidate invoice information sent to customers to reduce redundant business processes
• Collaboration - Offer customers the ability to view all supporting documents and transactions for the invoice
• Self-Service - Offer customer self service functions to strengthen customer relationships and facilitate speedier dispute resolution and payment
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Dispute Resolution and DeductionsManagement with Technology
• Predict - Proactively manage customer disputes by identifying at-risk accounts and short payments from customers
• Reason Codes - Tailor specific resolution approaches across the enterprise based on the type of dispute or deduction
• Resolution Workflows - Leverage a collaborative approach to dispute resolution and deductions management using workflow technology
• Escalations - Establish a sense of urgency with clear resolution processes and escalation technology
• Root Cause Analysis - Drive business process improvements across the quote-to-cash cycle using root cause analysis and process monitoring
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Cash Application with Technology• Consistency - Establish a consistent approach to processing
remittances and applying cash
• Automation - Facilitate faster processing of high volume payments with reduced need for research and reconciliation
• Reconciliation - Reconcile payments with erroneous reference information – invoice numbers, purchase order numbers, etc..
• Corrective - Enable cash application personnel to identify and process deductions earlier in the quote-to-cash process
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Level 3 Transformation : Optimization
Optimization using Insight and Analysis• Performance Dash Boards, KPIs, Scorecards that are deployed
enterprise-wide
• Executive attention from CFO, VP Finance, Controller, AR/AP managers, Director/VP of credit collections, credit managers, sales executive managements teams and field sales
• Strategic goal setting and proactive management of performance across the board
• Analysis of historical performance and changing business practices to eliminate bottlenecks
• What-if analysis for predicting future states and setting strategies for growth
Cash Flow Transactions Management
Cash FlowProcess Management
WorkingCapital
Optimization
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Advantages
• Enable fact-based decision making with better integration of information
• Better insight into overall operations• Strategic planning and risk management• Executive attention on timely basis• Improved cash forecasting and free cash flow
management• Drives optimal levels of performance across the entire
enterprise
Level 3 Transformation : Optimization
The ideal solution for optimizing global Finance and treasury functions is one thatcombines business intelligence with collaborativeprocess automation to increase world-wide efficiencies - John Van Decker, Senior VP and Principal Research Fellow
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Technologies commonly used
ERP systems (Oracle, SAP, PeopleSoft, JDEdwards, Geac) do not cover working capital process management – 67 percent of respondents of survey were not satisfied
Home grown systems are expensive and time consuming Adoption of specialized working capital management solutions
increasing in trend -56 percent of survey respondents indicated plans to implement specialized solutions
Performance management dash boards rank in top 3 projects from IT
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
SpecializedTechnologyPlatform
Cash FlowProcessAutomation
Cash FlowPerformanceManagement
+
+
Working CapitalOptimization
Cash FlowPerformance Dashboard
Enterprise Application Integration Layer
Cash Flow Forecasting Engine
ERP 1 ERP 2Legacy
SystemsSpread-sheets
CorporateCorporateFinanceFinance
CFOCFO CorporateCorporateTreasuryTreasury
AccountsAccountsReceivableReceivable
SharedSharedServicesServices
AccountsAccountsPayablePayable
OutsourcingOutsourcingProvidersProviders
Emagia Cash Flow Performance Management SolutionEmagia Cash Flow Performance Management Solution
Cash InflowManager
Cash OutflowManager
Emagia Cash Flow Management Platform
Cash Flow Management Data Server
Emagia Application Engines
CreditCredit& Collections& Collections
Example of Specialized Working Capital Solution
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Case In Point: Solectron Corporation
• $12 Billion Global Electronics Contract Manufacturer
• A/R Shared Services spans across 3 continents and across multiple disparate systems
CHALLENGES
• No single system for global A/R and cash flow visibility
• No automation of country-specific A/R processes
• No decision support tools for cash flow management and cash forecasting
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Baan Baan LegacySAP
North America Asian/PacificEuropean
Emagia Working Capital
Management Solution
MFGPro
Legacy
Global A/R & Cash Flow DataGlobal A/R & Cash Flow DataConsolidation PlatformConsolidation Platform
Global A/R Process AutomationGlobal A/R Process Automation
Shared Services Performance ManagementShared Services Performance Management
Corporate OversightCorporate Oversight& Governance& Governance
ERP 1ERP 1 ERP 2ERP 2 LeqacyLeqacyOtherOther
SystemsSystems
Solectron: Mastering Global Cash Flow
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
ROI ComponentROI Component BenefitsBenefits ROI ValueROI Value
Interest Expense Savings from Improved Cash Flow
Acceleration of collections Reduction of DSO by 15 days and compressed Cash-to-Cash cycle Improved cash forecasting accuracy
$14 Million
Direct Cost Reductions Consolidation of direct costs Wider support with fewer resources Reduce SG&A and overhead costs
$1 Million
Common Business Processes & Shared Services Enabler
Streamline invoice-to-cash System used by collectors at over 45 sites on three continents
Estimated $20 Million
Solectron: Sustainable Value
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
“We now have a powerful working capital platform that allows us to make better cash flow decisions, empower our Shared Services teams and maintain focus on maximizing profitability.”
- Perry Hayes, Solectron VP & Treasurer
Solectron: Sustainable Value
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
• Syngenta - $3 Billion leading global manufacturer of Agricultural
Chemicals spun off from Astra Zeneca and Novartis
• Over 15,000 U.S. customers including agents, distributors, retailers
and end users
• Agricultural cycle drives seasonality and unpredictability in
Syngenta’s cash forecast
• Manual customer-to-cash processes adversely impacted
Syngenta’s cash conversion efficiency
Case Study: Mastering Global Cash Flow
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Key Success Factor: Cash Flow Visibility
• Syngenta deals with multiple types of customer roles who can all sell directly to end consumers
• Distributors can also beagents in some cases
• Collections may be done by Syngenta or agent or etc…
• Customers have multiple levels
• Global AR visibility requires aggregating portfolio and exposure across different customer roles at different levelsGoods Flow
Payment Flow
Dealer
Distributor
Agent
Point ofCollection
Point ofCollection
End Consumer
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Trend of Cash Receipt Forecast vs. Actuals
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11
Forecasted
Actual
Improved Cash Forecasting Accuracy
Mean AbsolutePercentage Error
2%- 20% after Emagia
Mean AbsolutePercentage Error
5%- 55% before EmagiaEmagiaGo Live
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
Improved Cash Flow
ROI Component Benefits ROI Value
1 Interest Expense Savings from Improved Cash Flow
- Acceleration of collections- Reduction of DSO by 4.5 days- Average Deductions balance decreased from $2.9 mil to $1.1mil- Improved cash forecasting by up to 30% in some cases
$3 Mil
2 Direct Cost reductions - Redeployment of excess resources- Reduce overhead costs
$100K
Also attained ‘Well Controlled’ rating for internal SOX audit
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
“Working Capital Platform has given us the consistency and control needed in our cash flow processes. As a result, we have seen a decrease in DSO, and a dramatic improvement in cash forecasting accuracy.”
- Bert Cuiston, Head of Credit and Receivables Management, Syngenta
Solectron: Sustainable Value
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
CustomerCustomer IndustryIndustry Business ChallengesBusiness Challenges ResultsResults
$12 Bn Electronics Contract Manufacturer
• Needed global A/R visibility across Shared Shared Services Centers• High financing costs
• $14 Mil Annual Interest Savings• $1 Mil Direct Expense Savings• Infrastructure for Shared Services
$3 Bn Agricultural Chemicals Manufacturer
• No A/R visibility into customer network and wide swings in cash forecasting accuracy
• $3 Mil Annual Savings• Reduced DSO by 5 days• Improved Cash Forecasting Accuracy by up to 35%
$2 Bn Staffing Services Company
• Six Sigma initiative focused on credit & collections• Little A/R automation
• $750K reduction in bad debt• $150K reduction in direct expenses• Six Sigma based automation
$500 Mil Enterprise Software Company
• High DSO with no collections or dispute resolution tools
• 25% reduction in DSO within 6 months
$800 Mil Consumer Packaged Goods Company
• Chargebacks & deductions negatively impacting revenue by over $17M
• Reduced deductions backlog by 75%• $12 Mil in bottom line savings
Selected Customer Success Stories
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL OPTIMIZE WORKING CAPITAL
For more information, please contact Veena GundavelliPresident & CEOEmagia [email protected]