Managing cash flows for a Fortune 500 manufacturer that has operations in more than 50 countries requires deliberative decision-making based on available data. Information silos in areas such as foreign exchange (FX) exposures or bank account balances may be hard to avoid, but they can quickly undercut both the efficiency and effectiveness of treasury operations.

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

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

They quickly identified several opportunities for improvement. One was FX risk management, which at the time was mostly handled in the business units. Visibility into risks was limited, and all trades were placed by phone. “FX is an area where we couldn't afford manual-intervention mistakes,” Klein says. “A single-digit error could have caused outsized impact to the business. In addition to that risk, we wanted to develop better line of sight to our FX exposures to minimize their impact on the corporate P&L.” Avery Dennison decided to automate as many tasks within FX risk management as possible.

Two more areas of European treasury that the team identified as ripe for improvement were bank account management and the intercompany loan process. Like FX, responsibility for intercompany loans rested with the individual business units. And although the small treasury group in Switzerland directly managed its own bank accounts, the administration of most of the company's European accounts was decentralized. Treasury knew about the business units' accounts but had to circulate documentation from country to country to make account changes. Decentralized bank account management also restricted visibility and reduced treasury's ability to drive account rationalization and other strategic banking initiatives.

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

Avery Dennison undertook major changes that transformed its treasury operations in Europe, which included rebuilding its European treasury center in Switzerland, then moving it to the Netherlands, and implementing a new treasury management system from FIS that integrates with FX trading platform 360T and with Avery Dennison's partner banks across Europe.

The company centralized all European business units' banking powers of attorney in the treasury center and began rationalizing the company's bank account structure. The project team developed a definitive database of bank account information, including the purpose of each account, its currency, and approved signers. Then they built connectivity so that account balances and transaction details flow automatically into the treasury management system.

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

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

Another benefit of the centralization: Avery Dennison started hedging the FX risks inherent in intercompany loans. The idea to do so came from an executive hired during the treasury center build-out. “Hedging intercompany loans lifts the FX risk from the business units into treasury,” Reddy says. “In treasury, we can net exposures, then hedge what's left. And because of our volume, we get better pricing on trades.”

In fact, FX risk management has improved across the board; this is one of the biggest benefits of the treasury transformation project. “We've changed the way treasury collects information about FX exposures, reducing the manual workflows, and we've consolidated all that information centrally within our European treasury center,” Klein says. “This enables us to optimize hedging at a high level. We now have visibility into more than 99 percent of FX exposures across Avery Dennison's European businesses. We've seen significantly less FX-related volatility in the P&L as a result.”

It's not an accident that this transformational project took place at Avery Dennison. Explains Reddy: “Avery Dennison has a culture of collaboration. All companies want to be able to say that, 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 collaborative culture. “This project really strengthened the relationships between the treasury function and individual business units,” Klein says. “We didn't just set up new information flows from the business units to a centralized treasury center; we focused on improving those relationships to build much more proactive discussions around the challenges the businesses are facing and the types of solutions they need from treasury. Because we're having these ongoing discussions, when a need comes up—for example, financing arrangements or fixed capital purchases at the country level—we are better suited to provide advice in advance of decisions being made.

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

Instant Insights /

Collaborative Culture Underpins Treasury Transformation

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