Treasury & Risk's 7th Annual Alexander Hamilton Best Practices Summit — October 1 and 2, 2002
2003 — Cash Management Winners: Gold—Ford Motor; Silver—Cisco Systems; Bronze—The Related Cos.
CENTRALIZING AND SIMPLIFYING
Ford Motor consolidates its way to gold
GOLD CASH MANAGEMENT WINNER—On the heels of merging the treasury operations of its finance arm, Ford Credit, with that of the parent company, Ford Motor Co. was keen on centralizing as many functions as possible. Work had already been done to collapse into a single function fixed-income and foreign exchange trading, and now treasury’s sights were fixed on the rest of its cash management operations.
But this would prove to be a formidable task. Over time, Ford’s cash management function had sprawled into an operation with 10 different platforms that handled various cash management tasks—the result of the treasury shops operating separately until their consolidation in the summer of 2000. In addition, the Dearborn, Mich.-based company had more than 300 legal entities that required cash management services and 700 bank accounts to manage those accounts and handle 5,000 transactions a month in more than 25 currencies.
What Ford envisioned first was a single cash management system that would be used globally to view cash positions and bank reporting and process wire transfers worldwide. The second goal was to streamline Ford’s bank communications while at the same time keeping its existing bank relationships intact and not relying solely on a proprietary bank system, as the company wanted a flexibility not found with bank-unique systems.
The company accomplished its first goal by tapping Wall Street Systems to standardize Ford’s cash management processing. Already deployed to handle FX and fixed-income trading, Wall Street Systems was able to add its cash management module to existing software and further customize it to fulfill Ford’s requirements. That decision eliminated the need to build a solution from scratch. The move also leveraged a strategy common in Europe, where standardized processing software enables companies to use multiple banks and not be bound by proprietary banking systems.
The second goal was achieved by naming two “hub” banks—Bank of America and Comerica Bank—that would use a standard Swift format for message communication and would act as intermediaries between Ford and more than 60 other banks for funds transfers and bank balance and transaction reporting. The idea was to send instructions for wire transfers in a Swift message from Ford’s system to a hub, which then passed the information on to one of the banks. The banks would send balance and transaction reporting through the hub to Ford.
The moves have trimmed the number of banks with direct links to Ford to two from as many as 10 and has reduced the number of systems treasury staff must be trained to use. Also, since it’s not tethered to specific bank software, Ford says it can now redirect its cash flows to wherever it can maximize its use of funds.
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SILVER CASH MANAGEMENT WINNER—When it came time to revamp how Cisco's cash management processes were handled in the Asia Pacific region, the San Jose, Calif.-based company decided that it needed to take matters into its own hands. With 14 different currencies, varying tax and legal rules, less developed banking systems and more than 40 different bank accounts at 11 different banks, Cisco's treasury wanted a way to consolidate and automate cash management functions using a just-in-time funding approach—ideally under a single bank using a Web-based interface.
When treasury approached seven banks about a solution, their suggestions tended toward cross-border liquidity strategies that in the end wouldn't work with all 14 countries. What Cisco would have to do was to create a prototype that standardized the relevant data, provided transparency of its cash positions and had a single set of terms and conditions for U.S. dollar billing. To that end, treasury conducted extensive research, talking to banks about what was feasible. It then approached the same seven banks with an RFP that outlined exactly what the company wanted.
Ultimately, J.P. Morgan Chase was selected to handle the task, which has enabled the company to collapse those multiple accounts into a single U.S.-dollar account based in New York, responsible for funding 14 local entities in 11 countries using a just-in-time method. Also, the company has reduced its idle cash by 96% and improve the transparency of FX conversion rates and banking fees to generate annual savings of more than $1 million.
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BRONZE CASH MANAGEMENT WINNER—Call them growing pains. The New York-based real estate company had gone through a growth spurt—its revenue advanced 12% a year for the past three years—and treasury needed to keep up with the pace. What had worked in The Related Cos.'s early days was no longer appropriate for a department responsible for the treasury functions of more than 400 entities, including three public companies. Simply put, treasury had to centralize and modernize procedures like wire transfers, retrieval and distribution of Bank Administration Institute (BAI) information and customer account analysis—all of which had relied on antiquated processes that increased the risk of errors and were slower to execute.
The solution rested with a project jointly developed by Related's treasury and IT teams and termed the Treasury Workstation Interface Network (TWIN). What they came up with was a secure Web-based application that permits treasury and Related's business units to post information online and enable others access to the data. Wire transfers can be conducted via the Web, and BAI information and cash management schedules can be stored on the site. What's more, the new interface enables treasury to interact with its accounting software systems to automate the general ledger and accounts payable posting linked to wire transfers.
—As seen in the October 2002 issue of Treasury & Risk magazine