It was about time. Last year $5.8 billion Eastman Chemical Co. dumped its obsolescing installed XRT software, licensed in 1995 and last updated in 2008, in favor of software as a service (SaaS). The new solution, Treasura, let treasury move all of its global cash management to one highly accessible platform that would accommodate multiple currencies instead of just U.S. dollars, as the XRT system did, reports Shane Mann, manager of global cash management. “We needed a platform to standardize and centralize all processes across all regions,” he says. “The move to an up-to-date SaaS system made us more efficient and allows us to back each other up across all regions.”
The choice of Treasura was not only dictated by functionality but economics. “They were the right fit for our middle-market size,” Mann says. “A lot of the others would have been overkill for us. They had great features, but they were too expensive and too complex to implement. Treasura offered what we needed at an attractive price.”
Mann is satisfied with the choice, which has been running since May 2010. “All the involved parties are happy,” he reports. “It has saved two to three hours a day for the person who does our daily cash management. Overall, it has eliminated the work of about half a person, which allows us to do things we couldn’t do before.”
Wires are a good example. “Before, to send wires, we would log onto individual bank sites. Now we can pull them from our SAP AP system through an Excel spreadsheet into Treasura, which automatically initiates the wires through the chosen banks,” he explains. “And before we had to manage our own bank links manually. Now Treasura does that automatically.” The IT workload for treasury systems has shifted entirely to Treasura, he adds. And that has speeded up treasury operations. “Before, the bank data was ready before we were. Now we’re ahead of the bank data,” Mann points out.
But treasuries’ technology choices are exposed to market events. Kingsport, Tenn.-based Eastman bought its system from Thomson Reuters, which then sold the technology to Wall Street Systems, which was then acquired by Ion Trading. Mann says that if he’d known all that would happen, he still would have favored Treasura because of the fit and price tag, but he notes that all those ownership changes make him “a little unsure about the future.”
Although Eastman chose a middle-market solution, there are benefits yet to come, Mann says. One at the top of his list is switching reporting from spreadsheets to Crystal Reports, something Treasura is set up to handle. That will make reporting more efficient and more automatic, although reports will contain the same information and will look like the old reports. “There will be less manual work around our reports,” Mann explains. “That should be a significant saving.” An intercompany loan module that Treasura offers also should be useful to Eastman in the future, he adds. “We’re just at the tip of the iceberg. There’s plenty more we can and will do.”
The only integration required is a feed from Treasura to SAP to post journal entries. Eastman does not use SWIFT yet and considers eBAM “not important to us at the moment but probably in the future,” Mann says.
At the same time, Eastman rationalized and upgraded its hedging technology by moving from an installed system to a hosted Reval offering. “We wanted a one-stop solution for our currency, commodity and interest-rate hedging,” explains Pat Ryder, the company’s director of financial risk management. “One system. One place.”
Eastman had been using one provider for the commodity market data that it would import and and another provider whose software was installed on the company’s server that was built for commodity risk management. “But we finagled it to do currency risk as well,” Ryder says. The old system accommodated trading but left Ryder to “do the calculations for hedge effectiveness manually on spreadsheets,” he explains. “Now it’s all done automatically, in Reval.”
The change makes Eastman more efficient and more effective, Ryder says. Because hedging activity is automatic instead of manual, “we save more than a few hours—probably a day or two” a month, he estimates. “And that savings comes at the close of the month, when time is particularly valuable.
“The system is programmed to calculate prospective and retrospective hedge effectiveness in all the ways that the rules allow,” he says. “There is more integrity in the math output than we had before. With a lot of hands touching a lot of spreadsheets, we had more room for errors.”
Implementing Reval was quick and easy for currency but a challenge on all sides for commodities. “Commodity risk is more specialized, and there are more ways to skin the cat,” Ryder notes. “It took us longer to get it working right than we had expected.”
For Eastman, exposure to the fluctuating costs of propane, ethane, natural gas and paraxylene is financially important, and Ryder’s group hedges those exposures. The market for paraxylene is particularly thin and subject to manipulation. “There are few makers and even fewer buyers,” he notes. “It has been extremely volatile.”
Hedging commodities is intrinsically more complex than hedging currencies and interest rates because there are so many different commodities and the market data needed to construct forward curves is hard to come by.
“It’s a very nuanced market, and Pat Ryder and Eastman are at the head of the class among companies that attempt it,” says Jiro Okochi, Reval’s CEO. “For currencies and interest rates you deal with very liquid and transparent markets. That’s not so for commodities. If a client wants to hedge a commodity we haven’t hedged before, we have our financial engineers study that space and build the best model they can. So much depends on getting market data, and some of the vendors won’t share pricing information.”
For conservative Eastman, the move to SaaS was big. “SaaS is relatively new for Eastman,” Ryder says. “Treasury—cash management and financial risk management—was the tip of the spear.”
While SaaS is efficient, it does limit customization, he agrees. “It is harder to customize a SaaS solution. With multiple users, any change at the host level affects others.”
Reval currently stands alone at Eastman. “Some companies link it to an ERP system. Some use a currency trading platform with straight-through processing on the front end,” Ryder explains. “We’re looking at both options, but we aren’t there yet.”
For more on software-as-a-system treasury technology, see The Cloud Invasion.