From the October 2014 Special Report issue of Treasury & Risk magazine

Designing a Blueprint for Optimal Treasury and Working Capital Management

To maximize efficiency and improve control over treasury and working capital management, many treasurers over the last several years have undertaken a detailed diagnostic analysis of their treasury operations and commercial flows. Core to this activity has been peer benchmarking to identify best-in-class practices, which, when combined with the diagnostic analysis, creates the foundation for a new blueprint for optimal treasury and working capital management.

Michael GuralnickIn today’s evolving global business environment, companies are seeking to create an optimal treasury management and working capital blueprint. The key steps in this journey are to: (1) intensify engagement with key partners, such as procurement, credit control, supply chain, sales and marketing, and (2) undertake a detailed diagnostic analysis of existing end-to-end processes. The results from the diagnostic can be assessed against external peer benchmarking to identify areas for improvement, such as liquidity management, systems and controls, risk management, technology platforms and policies and governance.

It is important to design a blueprint that is flexible given the need to respond quickly to external and internal factors that arise from a number of factors, such as: geopolitical circumstances, regulatory changes, corporate redesign as a result of M&A and spin-off activities, technological developments, and growth in the emerging markets. It is critical that the treasury team remain nimble in their ability to address these issues, which keeps them relevant to support the successful implementation of the company’s strategies. Post the recent credit and liquidity crisis, many multinationals have made significant effort to free-up cash trapped within their global operations, and as a result, many companies want to take the next step.

Rather than simply seeking short-term wins, forward-thinking companies are scrutinizing their operations, organization, processes, and systems to understand how they interact with their financial and commercial flows. The goal is to improve productivity, minimize risks and support accelerated business expansion.

 

Connecting commercial financial activities: The expanding role of treasurers

Many treasurers’ remit has expanded significantly in the past several years from funding, liquidity management and FX responsibilities into new areas of collaboration with functions such as supply chain, procurement and shared services. The treasurer can use this extended reach to act as a bridge between departments, and facilitate closer coordination between the company’s commercial and financial activities.

Treasurers are having to address a broad array of global financial and regulatory challenges that are necessitating a deeper relationship with financial institutions, legal and tax advisors as well as regulators to stay ahead of market developments. As a result they are well placed to be internal advisors to their partners across the organization; they are leading enterprise-wide initiatives that explore topics such as: (1) Is the group leveraging trade finance and new innovative card solutions to help improve working capital management? (2) Are best-in-class technologies being employed to improve workflow and reduce operational and systemic risks? (3) Based on the company’s evolving growth patterns, and legal entity structure, are there opportunities to redefine the construct for trading models (e.g., in-house banks, reinvoicing centers and procurement hubs)?

To assist clients in designing the most appropriate blueprint for their organization, Citi’s Treasury and Trade Solutions team has worked with numerous clients in conducting the diagnostics, identifying areas of improvement versus peers and embedding solutions across a wide spectrum of client needs.

We also leverage our Innovation Labs in Dublin, Singapore and Miami to develop Big Data analytic tools, and workflow automation channels to support our client’s global treasury transformation. Citi’s Innovation Labs have a track record of helping clients to turn data into actionable insights. One solution called Interactive Solutions, developed by the Singapore Lab, uses real-time visualization technology to analyze Citi’s global proprietary data and publicly available industry data. The application enables corporates to benchmark their treasury and liquidity management performance against peers, develop new blueprints and improve visibility, mobility and control over working capital.

 

Benchmarking to gain critical insights

Using our award-winning Citi® Treasury Diagnostics (CTD) tool, a first step is to survey a corporate’s treasury and operational processes, risk management and governance policies and benchmark them against industry peers. Nearly 500 clients around the world have completed the CTD survey to date.

CTD enables treasurers to compare, on a confidential and secure basis, their treasury practices and policies with other companies, including industry peers and best-in-class companies from other sectors. This identifies current strengths and areas for improvement. CTD is a web-based, easy-to-use online survey completed by a company’s treasury team, at a global or regional level. The survey questions are crafted by treasury practitioners and market research specialists, allowing for the most pertinent information to be extracted.

CTD benchmarks six critical treasury and finance activities:

  • Governance and controls
  • Liquidity management
  • Cash and working capital management
  • Entity funding and repatriation
  • Risk management
  • Systems and technology

 

Creating a blueprint for long-term transformation

Once benchmarking is complete, Citi evaluates the results with the company and creates a blueprint for transformation. This is where our treasury advisory group comes into play to provide a detailed comparative analysis which identifies areas of strength and areas for possible improvement.

While achieving best practice is important, it is essential to devise a plan that is appropriate for the company. For example, some clients, based on their own resource capacity, may elect to address just one of the six pillars initially. Whether they want a plan to address the rest, and over what timeframe, is ultimately their decision.

 

The importance of the evaluation process

The advisory process is followed with an evaluation by the company, which provides an opportunity to review and refine current operational practices. For example, where a decentralized company is using many local banks, Citi would make recommendations to simplify and standardize the banking architecture and interfaces to eliminate inefficiencies.

Another common task during evaluation is return on investment (ROI) analysis of a company’s enterprise resource planning (ERP) and treasury management systems. Many companies have invested significantly in best-in-class systems. They are seeking to ensure that they are deriving maximum ROI, and if not, what must be done to achieve the anticipated benefits.

Given the fast pace of technological development, a wider range of standards and connectivity models are emerging. Increased collaboration between banks, vendors and clients, makes it easier to re-think companies’ systems architecture and accelerate benefits.

One important element of Citi’s advisory process is helping corporates to understand the benefits of big data. Big data is driving next generation treasury solutions. By turning data into useful information for decision-making, corporates can better manage their overall transactional activities including supplier payments and global and regional liquidity pools. Big data analytics and related advisory are transforming business decision-making across the procure-to-pay cycle.

 

From blueprint to successful execution

Once a blueprint has been designed, successful execution requires alignment and prioritization of organization-wide resources (e.g., people, capital, and systems). To execute in a timely manner, the company will require clear performance indicators that are transparent across the company and are owned by all the stakeholders. Finally, as changes in external or internal factors arise, the blueprint will need to be reviewed and revised where necessary.

Citi, with its extensive global network, highly experienced sales and coverage professionals, and world-class treasury and trade solutions, has partnered with many multinationals to design the blueprint for treasury and working capital management transformation. These engagements have rendered significant benefits from a cost, risk management and productivity perspective. 

 

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