Last year, Toyota Financial Services (TFS) transformed its collateral-exchange procedure with 23 bank counterparties, which used to take five days at the end of the month, to meet a new two-hour daily processing requirement. The effort took seven months, five months less than expected, and an investment of only $100,000, which was 50% under budget.
With these changes, TFS, a wholly owned subsidiary of Toyota Motor, eliminated $1 billion in unsecured counterparty risk exposure and saved more than $100 million via lower funding costs, while also avoiding the use of credit default swaps and decreasing its credit value adjustments.
The company achieved its goal of managing margin calls by 7 am (PST) and completing collateral exchanges by 9 am (PST) by using the “Toyota Way” management philosophy, which includes Kaizen continuous improvement methodology and lessons learned from Toyota Motor’s just-in-time (JIT) manufacturing practice.
“The Kaizen methodology helped us view the entire process flow,” says Rohatgi. “It has you look at the people and the processes and identify the right strategy for this solution.”