Managing cash flows for a Fortune 500 manufacturer that hasoperations in more than 50 countries requires deliberativedecision-making based on available data. Information silos in areassuch as foreign exchange (FX) exposures or bank account balancesmay be hard to avoid, but they can quickly undercut both theefficiency and effectiveness of treasury operations.

Eliminating such silos was a key concern for Glendale,Calif.-based Avery Dennison, whose approximately 30,000 employeesaround the world annually produce US$6.6 billion worth of labelingproducts and functional materials. “Our European business has beengrowing rapidly, both organically and through acquisitions,”explains Michael Klein, vice president and treasurer for AveryDennison. “That growth increased our business complexity in Europe,leading us to launch an initiative to assess the treasury-relatedrisks, processes, and opportunities to improve service.”

Klein and Gregory Reddy, the senior director of treasury whopreviously oversaw Avery Dennison's European treasury activities,worked with both internal stakeholders and third parties todetermine service requirements. “We looked at the overarchingtreasury function and then focused in on certain areas, disciplineby discipline,” Reddy says. “We'd done some benchmarking about adecade earlier, and we reached out to some of the same companiesacross a variety of industries. We also reviewed trade journals,including Treasury & Risk, to better understand trendsand best practices.”

They quickly identified several opportunities for improvement.One was FX risk management, which at the time was mostly handled inthe business units. Visibility into risks was limited, and alltrades were placed by phone. “FX is an area where we couldn'tafford manual-intervention mistakes,” Klein says. “A single-digiterror could have caused outsized impact to the business. Inaddition to that risk, we wanted to develop better line of sight toour FX exposures to minimize their impact on the corporateP&L.” Avery Dennison decided to automate as many tasks withinFX risk management as possible.

Two more areas of European treasury that the team identified asripe for improvement were bank account management and theintercompany loan process. Like FX, responsibility for intercompanyloans rested with the individual business units. And although thesmall treasury group in Switzerland directly managed its own bankaccounts, the administration of most of the company's Europeanaccounts was decentralized. Treasury knew about the business units'accounts but had to circulate documentation from country to countryto make account changes. Decentralized bank account management alsorestricted visibility and reduced treasury's ability to driveaccount rationalization and other strategic bankinginitiatives.

“We mainly had line of sight into treasury-specific accounts,”Klein says. “We needed to centrally drive bank account managementacross the region, to be able to look at all the accounts andrationalize them from a cost and efficiency perspective. Along thesame lines, we wanted treasury to gain more control and visibilityover all the intercompany loans across Europe.”

Avery Dennison undertook major changes that transformed itstreasury operations in Europe, which included rebuilding itsEuropean treasury center in Switzerland, then moving it to theNetherlands, and implementing a new treasury management system fromFIS that integrates with FX trading platform 360T and with AveryDennison's partner banks across Europe.

The company centralized all European business units' bankingpowers of attorney in the treasury center and began rationalizingthe company's bank account structure. The project team developed adefinitive database of bank account information, including thepurpose of each account, its currency, and approved signers. Thenthey built connectivity so that account balances and transactiondetails flow automatically into the treasury management system.

“Now we have line of sight into all the bank accounts across thebusiness,” Reddy says. “We have visibility into how the funds areflowing, including accounts payable, accounts receivable, andpayroll. And the treasury management system enables us to groupflows however we want—by division, even down to the unit level.This has improved our cash management as well as the treasurycenter's customer service to the businesses. We are funding theircash needs more effectively, and our ability to forecast flows hasimproved.” In addition, centralization and improved bank accountmanagement streamlined merger and acquisition (M&A) integrationprocesses.

The European treasury center alsobegan managing all intercompany loans for Avery Dennison's Europeanbusiness units. “This enables treasury to standardize terms acrossloans and gives us access to all the source data within each loan,”Klein says. Underlying processes regarding controls andreconciliations improved with this change.

Another benefit of the centralization: Avery Dennison startedhedging the FX risks inherent in intercompany loans. The idea to doso came from an executive hired during the treasury centerbuild-out. “Hedging intercompany loans lifts the FX risk from thebusiness units into treasury,” Reddy says. “In treasury, we can netexposures, then hedge what's left. And because of our volume, weget better pricing on trades.”

In fact, FX risk management has improved across the board; thisis one of the biggest benefits of the treasury transformationproject. “We've changed the way treasury collects information aboutFX exposures, reducing the manual workflows, and we've consolidatedall that information centrally within our European treasurycenter,” Klein says. “This enables us to optimize hedging at a highlevel. We now have visibility into more than 99 percent of FXexposures across Avery Dennison's European businesses. We've seensignificantly less FX-related volatility in the P&L as aresult.”

It's not an accident that this transformational project tookplace at Avery Dennison. Explains Reddy: “Avery Dennison has aculture of collaboration. All companies want to be able to saythat, but it's an area in which Avery Dennison really stands out.Our corporate culture made this project possible.”

The treasury rebuild also helped enhance that collaborativeculture. “This project really strengthened the relationshipsbetween the treasury function and individual business units,” Kleinsays. “We didn't just set up new information flows from thebusiness units to a centralized treasury center; we focused onimproving those relationships to build much more proactivediscussions around the challenges the businesses are facing and thetypes of solutions they need from treasury. Because we're havingthese ongoing discussions, when a need comes up—for example,financing arrangements or fixed capital purchases at the countrylevel—we are better suited to provide advice in advance ofdecisions being made.

“As a business,” Klein concludes, “we make much better decisionswhen there's a strong relationship between the business units andthe centralized treasury function in the region. We've seen adramatic change in that since this project. That's an intangiblebenefit that Avery Dennison continues to enjoy to this day.”