From the November 2011 issue of Treasury & Risk magazine

Silver AHA Winner in Financial Risk Management

Credit Function Redesign: Flextronics International

In 2005, electronics manufacturer Flextronics International projected significant growth levels ahead and began looking for ways to scale up its financial functions without incurring an equivalent increase in costs. The $29 billion company, which is based in Singapore, decided to move certain functions to India to reduce expenses. The first department to make the trip was the global credit function.

At the time, the department was decentralized, with offices in Asia, Europe and the Americas, and processes were inefficient. “Everything was done through e-mails,” explains Paul Anderson, senior director of credit. “We didn’t have a database, other than an Excel file, which made it difficult to keep track of things.” As part of the move to India, the company decided to implement credit software to automate and simplify the department’s activities.

Flextronics’ first step was to set up a global shared service center in Chennai, India, which was chosen because of its low-cost workforce, affordable buildings and good transportation links. During a 90-day transition period, the existing credit staff helped answer the new team’s questions. However, certain problems arose. Although staffing costs were greatly reduced, the new team was much less productive than its more experienced counterpart in the U.S. The 12-hour time difference presented another challenge and Anderson initially worked split shifts in order to manage the Chennai team.

Seven months later, the second stage of the project was launched when Flextronics adopted CreditPoint Software, a cloud-based credit tool that automates the credit review process. At this point, the improvements resulting from the project became more marked: The average time to complete a credit decision fell from five hours to three, while data accuracy increased by 30%. Meanwhile, staffing costs had been reduced by 85%, saving the company $1.5 million per year.

Understanding the high staff turnover in Chennai was a crucial success factor, Anderson says. “We really had to change the way we do things and not count on someone growing with the company. The automation and simplification of processes was really key in making it work.” Following the success of the project, around 1,500 Flextronics finance employees are now based in Chennai.