Treasury & Risk's 7th Annual Alexander Hamilton Best Practices Summit — October 1 and 2, 2002
2002 — Technology Winners: Gold—Dell Computer; Silver—Cisco Systems; Bronze—General Electric Capital
STAND BACK! ENZO HAS ARRIVED
Dell Computer snags the gold
GOLD TECHNOLOGY WINNER—Dell Computer Corp. wasn’t satisfied with the accuracy of its cash flow forecasts, so it built its own forecasting tool, using Microsoft Excel and Microsoft Visual Basic for Applications. The result: The Enzo Liquidity Forecasting Tool (named for race car designer Enzo Ferrari) provides Dell with speedier, more accurate forecasts and requires much less manpower to generate those forecasts.
While Dell’s previous systems only looked out three years—and in the case of some types of analysis weren’t accurate beyond the current quarter—Enzo can project out 10 years. A cash flow forecast that used to take three people two days to tackle now can be accomplished by one person in a single afternoon. The new tool also forecasts most components with a variance of less than $30 million, which translates into a 99.4% accuracy level for Dell’s $5 billion account payable balance. Dell estimates that using Enzo, along with other tools, enabled it to increase its investment income by $1.5 million annually.
But to create the tool, Dell’s treasury team first had to figure out how various components of the enterprise interacted. The tricky pieces were tax, the [weighted average shares outstanding] and foreign exchange, says Nathan Brunner, senior finance consultant at Dell. We quite honestly didn’t have a good understanding of how some of the cash flows worked. By drilling down and working with our business partners, we were able to build a much more comprehensive model.
With Enzo in place, Dell’s treasury can answer a lot of questions we hadn’t even contemplated before, Brunner says. He cites as an example the impact that a rising stock price would have on the company’s taxes as it changed the rate at which employees exercised options. The tool’s analysis provides a comprehensive picture, he says. Any question you can have about a scenario, you can answer.
The process of building the cash-forecasting tool also increased communication within treasury. A.E.—After Enzo—people in different areas began to take the initiative, actually reaching out when something was happening or was going better or worse than expected. People are a lot more frequently proactive about letting people know what the impact will be, Brunner says. ?And we have a common framework for understanding what that means.
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SILVER TECHNOLOGY WINNER—All Cisco’s foreign exchange trades flow through its San Jose, Calif., headquarters, and with some 60 subsidiaries dealing in 28 different currencies, Cisco’s treasury faced a massive job just aggregating the exposures, doing the transactions and maintaining the records, which involved re-keying data into multiple systems. Treasury’s month-end foreign exchange cycle was taking days to complete instead of hours, says Greg Bromberger, senior manager in Cisco’s treasury.
The solution: A Web-enabled process that consolidates the foreign exchange exposures and needs of the subsidiaries and feeds trades into multibank foreign exchange platform FXall, providing straight-through processing.
There wasn’t anything right off the shelf that fit Cisco’s needs so it hired Green River Computing to provide a customized version of its Orbit software.
The task of rethinking Cisco’s processes and revising and building upon the software took 15 months. The system has eliminated re-keying—data is entered manually just once, at the beginning of the process, by Cisco’s subsidiaries. And it cut the time spent on FX transactions, reducing the month-end cycle to a mere 12 hours from five days. It’s just so much smoother, says Bromberger. Cisco estimates that overall the new system reduces direct labor costs by up to 70%. With the time that has been freed up, treasury analysts can review transactions rather than just process them and devote more time to strategic initiatives, Bromberger says.
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BRONZE TECHNOLOGY WINNER—Talk about capturing savings from innovation. GE Capital’s treasury worked to get commercial banks to bill it electronically, rather than on paper, and has saved more than $2.7 billion in just the first 19 months.
Treasury pays the bank fees for all GE subsidiaries, which have 4,200 accounts in 24 banks, and the banks were sending it tons of paper account analyses a month. Although it had a system to capture electronic account analysis statements, few banks were using it and even fewer were sending meaningful statements. The flood of paper made it hard for treasury to check the charges on statements.
It launched its reforms in the first quarter of 2001 by letting the banks know that it wanted all statements delivered electronically and by the 15th of each month. It asked them to attach standardized codes to every item, and to provide a price list that it could use to check the statements.
By April 2002, 99% of the bank statements were arriving electronically, 77% were on time, and the error rate had fallen to less than 1%, from 6% in mid-2001. “The goal is to know exactly what we’re paying bank fees for and avoid erroneous charges,” says Terence Devine, manager of treasury consulting.
—As seen in the October 2002 issue of Treasury & Risk magazine