"We now have operations in 80-plus countries, with offices in about 35," says Liu. Within the past couple of years, the company has invested substantially in systems and process improvements to support its newly, truly global operations. "In the past, we operated almost everything out of our U.S. operating companies. But the growth pushed us to shift our business model toward supply chain and distribution processes that are more global in nature."

In addition, "we anticipated that under the new business model, customer payments would happen in the local entities, so cash would be spreading all over the place," he continues. "Visibility would be challenging in this environment. Plus, intercompany transactions would multiply, and settling those intercompany transactions on a timely basis would create a headache for treasury groups throughout the organization."

Another challenge that the corporate treasury team anticipated was increased complexity of foreign exchange (FX) risk management. Some local entities would sell products in a major currency such as the U.S. dollar or euro, in addition to the local currency. Local finance staff worked closely with the corporate treasury team, but FX exposures would be widely dispersed among entities throughout the organization. Gaining a companywide view of currency risk and optimizing FX hedging activities at the corporate level would be challenging without a centralized platform.

The treasury team considered addressing each of these issues incrementally. However, they decided instead to launch a larger initiative that would prepare them proactively to support Ciena's anticipated future expansion. Restructuring the treasury function and operating structure to better reflect the company's new business model would not only boost short-term efficiency, but also enable treasury to manage an increasingly complex global operation without significantly expanding staff resources.

"We anticipated that more change would be coming in the future, and a piecemeal approach to treasury improvements would not prepare us for what was going to happen," Liu says. "We viewed this as a good opportunity to build a world-class global treasury infrastructure, so that we could continue to effectively support Ciena for years to come."

Ciena engaged a consulting firm to help with the planning and execution of the treasury function overhaul. "This type of transformational project would be hard to do without external help," Liu says. "We wanted to leverage the expertise of a professional adviser who understood, from experience, what makes this type of project successful. We also wanted assistance ensuring this would be a cross-functional effort. Tax, accounting, IT, legal, and supply chain all needed to be involved, and we needed to update our ERP [enterprise resource planning] system and our treasury management system. And then finally, we saw an external consultant as offering benefits in terms of time management. We all have our own day-to-day work, so it was very helpful to have someone who specializes in this type of initiative to focus on it and bring us all together."

With the support of this expertise, Ciena's treasury leaders selected new major banking partners, focusing on the institutions' capabilities around cash pooling. They weighed the benefits of fully consolidating the company's banking footprint in a given geography versus fostering strategic banking relationships. And, of course, they considered cost.

Once Ciena had selected its partner banks, treasury deployed a global notional cash pooling structure. For many of the company's entities outside the United States, this structure sweeps all operating account balances into cross-border pooling accounts. Operating accounts within the country can pull cash out of the pooling accounts to fund their disbursements. Then, excess cash is swept daily—across multiple currencies—into a notional pool in a European country. In a few instances, a multibank sweeping structure is also enabled.

"Every entity retains its own bank accounts," Liu explains. "But because of the pooling structure, they have cross-collateral against one another, so liquidity works, essentially, as if all the companies were operating from a single cash account."

For U.S. operations, Ciena established zero-balance accounts (ZBAs) that concentrate excess cash into a physical cash pool. Funds from across the country flow into the pool, and the company invests any excess. The ZBA structure essentially functions as an in-house bank for Ciena's U.S. operations.

The pooling approach dramatically improves efficiency throughout the global treasury and finance teams. It funds operations in countries where local entities need additional liquidity, reduces interest payments that certain Ciena entities might need to pay on bank lines of credit, and increases the possibility that excess cash will earn interest or investment income. It also represents an enormous efficiency improvement over the company's legacy intercompany settlement process.

"If you don't have a cash pool, treasury has to settle intercompany transactions by wiring cash from one entity to another across the globe," Liu says. "It's a lot of manual work." By contrast, he continues, "with the cash pooling, our ERP system provides information on all the intercompany exposures to our treasury management system. The treasury management system generates a netting report and a payment file that we send to the bank. We basically push a button in the treasury management system, and all the intercompany exposures get settled immediately within the notional cash pool. It's hard to overstate the efficiency of being able to settle thousands of intercompany invoices with the click of a button."

Ciena's treasury team also leveraged their treasury management system to centralize FX spot conversion and hedging activities through a designated hedge entity. By centralizing currency risk management, the company avoids the risk that different local entities will execute FX trading that is redundant or even at cross-purposes. This approach has also simplified FX exposure management and helped drive down trading costs.

See also:

• Broad Benefits from Centralizing Global Treasury Operations
• Enveloping Processes in Continuous Improvement
• And view our complimentary, on-demand webcast recognizing the 2022 Alexander Hamilton Award winners in the category Treasury Transformation—Treasury Transformation: Growing Your Organization Globally

All in all, the revamped treasury function has lowered costs, optimized investment income, and increased productivity of team members. It will also accelerate integration of new entities into corporate cash management activities: Anytime Ciena creates or acquires a new entity, it can easily add the entity and its bank accounts to the corporate cash pool and global netting structure.

Perhaps most important, the new treasury systems and processes build much better visibility into every treasury activity. "If you have one pool and all the cash flows into that pool, you can run one report from the bank portal or the treasury management system and see a summary of all your cash holdings, as well as cash inflows and outflows," Liu says. "We have that, and we can break down the report by local entity or by currency.

"This may be the most important benefit of our treasury transformation," he adds. "As treasury professionals, we always need to know how much cash we have, where it is located, and where in the company it's needed to fund operations. This is the goal of every treasury group. Some use spreadsheets to build this perspective, but it's much more efficient when you can minimize your manual inputs. That means we have more time to work on the strategic aspects of supporting the ongoing growth of Ciena Corporation."