shared service centers & in-house banks: trends in ... · shared service centers & in-house...

The Financial Professionals Forum 2012

Shared Service Centers & In-House Banks: Trends in Treasury and Working Capital Management

Shared Service Centers & In-House Banks: Trends in Treasury and Working Capital Management

Moderated by Michael Guralnick & Ron Chakravarti Panelists:

Marco Sandoval, Americas Head of Treasury Operations, Pfizer Eduardo Cataldi, Chief Financial Officer, Ingenico

Oscar Ducoing, Financial Operations Manager, Pemex Maria Simmons, Treasurer, Copa Airlines

Cassio Moura, Chief Financial Officer, PromonLogicalls



Table of Contents

1. Trends and Key Drivers of SSCs

2. What’s Next for SSCs

3. In-House Banking and Implications


Cost Management - With revenue slowdown, cost efficiency is a focus, as centralized procurement and processing hubs provide savings

Visibility - Access to quality bank information and accurate cash flow forecasts is critical for control

Liquidity Efficiency - Drive towards better usage / redeployment of internal cash, for more efficient internal liquidity management, less reliance on external funding

Credit Crunch - With customers and suppliers impacted, attention on optimization of working capital management – both processes (payables and receivables) and financing (supplier financing and distribution financing)

Efficiency – Focus on rationalization of bank relationships (improving cash efficiency), which also makes it easier to centrally manage end of day cash positions (improving counterparty risk management)

Automation - Leveraging technology for efficiency, better workflow control, and provider independence – deployment of ERP / TMS, XML ISO 200022, SWIFTNet

Working Capital Efficiency Supply Chain Stabilization Operational Excellence

Trends Driving Treasury and Shared Service Centers The environment is driving continued focus on organizational efficiency and operational excellence.

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Cost Savings

Improved Control

Efficiency Gains

Superior ERP integration

Process Standardization

Shorter Cycle Times

More Timely Information

Clearer Accountability

Centers of Excellence

Leaves Business Units to focus on core activities

Promotes ‘One Company’ Model

Shared Service Centers (SSCs): Defined

Hard Benefits

Regulatory / Market Changes Need for greater transparency

Control of processes and data

Compliance with regulations

Cost Reduction Consolidation to execute transactions with fewer resources

Move to lower cost zones

Increased efficiency and economies of scale

Standardized Business Processes High quality and scalable processes

Leverage technology systems and ERP investments

Transfer of best practices

Banking Needs Consistency of products and services

Fewer banking relationships and accounts

Outsourcing of activities

Drivers Benefits

– Centralization – Standardization – Automation – Globalization

Scalable operating model : Citi’s SSC Clients Report Financial Savings of 30% – 40%.

Soft Benefits

SSC Model

Organizations use SSCs to reduce cost, gain process harmonization and efficiencies, and increase visibility & control.

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http://www.sxc.hu/browse.phtml?f=download&id=1102237


Working Capital Strategy

(DPO, DSO, CCC, Payment terms)

Process Efficiency (SSC, ERP,

Automation)

Banking Interface

(Paper vs. Electronic, STP,

Connectivity)

Balancing Operational Excellence & Working Capital Efficiency

SSCs supporting standardization, centralization and automation

Working Capital Strategy: Best in class entities… Support Treasury through improved

visibility and cash forecasting Rely on Treasury to play an advisory role

in working capital initiatives and bank relationships

Process Efficiency: Best in class entities… Centralize back-office and

compliance functions in low cost, politically stable environments

Leverage economies of scale to reduce processing cost

Quickly react to changes in environment or polices

Take full advantage of automation and centralized processing

Banking Interface: Best in class entities… Centralize payment

processes to reduce transaction costs and risks

Automate processes to initiate through the most efficient channels, without compromising control

Benchmark processes regularly to drive down costs, reduce cycle times, and increase error-free straight through processing

Organizations are seeking to achieve success across three areas – working capital strategy, processing efficiency and managing their banking interfaces. Best in class companies find a balance across these three areas and use SSCs to deliver results.

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Panel Discussion on Trends and Key Drivers of SSCs



What’s Next For Shared Service Centers? Mature SSCs have delivered their promise of cost savings…So what’s next?

Off-shoring and Outsourcing Location, Location, Location SSC Hotspots Location Evolution Captive or Outsourced?

Finding More Savings Additional Cost Reduction Search for Incremental Savings Banking Solutions to Drive Further

Automation

Creating New Value Rising to the Economic Challenge New Customers, New Services Focus on Function -Supplier

Management From Cost Cutters to Strategic

Enablers The Strategic Value of SSC Data A New Culture for SSCs

New Perceptions of SSCs In Search of Best Practice From Support to Service Mechanisms to Keep SSCs Connected

to Their Customers Talent – a Challenge...

…or an Opportunity?

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According to Citi Treasury Diagnostics research, 67% of firms manage WC through shared service centers

However, according to recent research from Deliotte, only 8% of SSCs cover 4 or more continents, with 43% covering only a single country

Expanding the geographical coverage of an SSC to service more countries can be a logical way to increase the value of the SSC and deliver more cost savings and efficiencies

Many SSCs have experienced demand from new geographies due to macro-economic conditions – as business has scaled back in certain locations, an on-the-ground presence is no longer viable/necessary

Citi’s experience – based on capabilities in over 190 countries and 135 currencies, and SSC clients across every region – is that scalable solutions to expand your SSC’s reach is entirely feasible with minimal disruption

More Geographies – Expanding the Scope of Your SSC Expanding geographical coverage can be a powerful way to increase the value of existing SSCs and deliver further cost savings.

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Single Country – 43%

Single Continent – 31%

2 Continents -12%

3 Continents – 6%

4+ Continents – 8% * Source: 2009 Global Shared Services Survey,

Deloitte Consulting

http://www.sxc.hu/browse.phtml?f=download&id=1102237

Panel Discussion on What’s Next for SSCs



In-House Bank Structures Many companies are also establishing In-house Banks (IHBs) to gain liquidity & risk management benefits. In fact, In-house Banks can take many stages of evolution - as this chart shows.

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I. I/C Fixed Loans / Deposits

II. Cross-entity Liquidity

Management- Regional

V. Intercompany Netting

Internal - Cashless

VI. POBO / ROBO External

Finance

Company

IHB (Treasury

Functionality)

IHB (Commercial Functionality)

Netting – Cash Settlement

Cen

tral

izat

ion

Benefits

“Segregated “ Liquidity Management

(no co-mingling / intercompany loans)

Cross-entity Liquidity Management - Global

IV. Centralized Cash Flow

Forecasting / FX Risk

Management

While companies often establish legal entities in tax-favorable jurisdictions as IHBs, what really defines an IHB is the aggregation of liquidity and risks through an entity

that faces off with external banks.

III. Centralized External Loans

and Deposits


Model Business Units hold their operating

cash in pseudo-bank accounts within IHB

BUs transact with IHB to conduct internal Treasury deals - FX and investments/deposits

All BU / IHB transactions are done at “arms length”

External liquidity is concentrated at IHB through automated daily sweeps by bank

Only IHB deals with banks - owns all credit lines, does all external FX and Investment/Deposit deals

Commercial Transactions between BUs and IHB include Intercompany Netting, Payments on Behalf of, and Receipts on Behalf of

A “Highly Evolved” In House Bank IHBs are managed by Treasury to aggregate and net risks arising from the Trading Model - internally and with external counterparties. It minimizes banking transaction volume and costs. It also becomes the hub for information for working capital / commercial flows.

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Legend 1. Interco txns

aggregated and settled to G/L (cash-less, wherever possible)

2. Liquidity aggregated, intercompany loans recorded on G/L

3. Net transactions with banks

I/C Trade Flows

Global or Regional Treasury Center

IHB

BU

BU

BU

BU

JV

Bank(s)

Liquidity Structure

Stand alone

accounts

Netting Center

Net MM & FX Trades

3

I/C trxns 1 Liquidity 2

3 Third party payments

POBO &ROBO


SSC and Treasury Both centralized functions can work together to create greater efficiencies and benefits to each other and the firm as a whole.

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SSC

Controllers / Working Capital Function

Payment Factory Netting Center Regional Treasury Center

In-house Bank

Treasury Function

SSC helps Treasury Supports bank consolidation and rationalization

processes

Centralized processing improves predictability and accuracy of cash forecasts, FX exposure forecasts

Potentially takes over Treasury back office functions such as FX settlements

Treasury system (TMS) links to SSC ERP for automated G/L entry of Treasury deals

Treasury helps SSC Establishes bank account structure to complement

SSC

Co-ordinates bank relationships for AR and AP

Serve as expert on policies for working capital (e.g.. payment terms) and banking aspects of SSC processing

Integrates processes with SSC as In-house Bank is implemented for greater W/C benefits

Panel Discussion on In-House Banking and Implications for SSCs


efficiency, renewable energy & mitigation

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) power for our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services to clients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.

Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

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