Transforming Financial Back-office
Processes to Optimize Working Capital
Veena Gundavelli
President & CEO
Emagia Corporation
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Emagia – Introduction
Leading Provider of Working Capital Management Software Solutions to
Global 2000 companies
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Leadership in Working Capital Management Solutions
Emagia Customers Include:
• In Business Over 8 years
• Unlocked over $10.3 Billion
in Working Capital
• Have Delivered Over $150 Million
in Bottom Line Savings
• Have Managed Over $30 Billion
in Receivables
• Are Used By Over 2000
Global Users
• Process Over 100 Million
Transactions Per Month
• Have Been Deployed Across
Over 53 Countries
• Have Been Implemented in Over
35 Different Languages and in
Over 30 Different Currencies
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Agenda
• Top Priorities for Today’s CFO
• Working Capital – A Key Competitive Advantage
• Transformation of Financial Back Office: 3 Step Approach
• Case Studies: Highly Effective Finance Organizations
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Transformation of Role of Finance
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Top 3 Areas of Finance Focus
1. Performance – Managing enterprise-wide performance to
maximize share holder value
2. Growth – Partnering with the enterprise to support new
growth strategies
3. Risk – Strengthening process controls and streamlining
processes to reduce risk and meet fiduciary/regulatory
compliance standards
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Top 2 Challenges in Finance Departments
1. Structural Complexity – Multiple Disconnected Operations,
Lack of Standardized Processes, Lack of Collaboration within
and outside of Finance Departments
2. Fragmented Information – Disconnected Systems, Lack of
Information Insight, Lack of Consolidated Information in
Timely Order, Lack of Integrated or Global View of
Processes, Lack of “Single version of truth”
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Roadmap to an Agile Finance Organization
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Components of the Working Capital Cycle
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Unlock Working Capital From Your Financial Operations
• Cash is the life blood of any business
• Cash-to-Cash Cycle is the largest consumer/source of cash
• Cash Flow from Operations – “Free” measurement of health of
any business
• Receivables – One of the top 3 largest assets of any business
• “Free Cash Flow” has stronger influence on share price
compared to “Earnings”
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Impact of Better Working Capital Management: Case Study
• Situation
–
–
–
–
–
Hi-tech Company with over $500M in revenues
Serious failures in receivables management
High DSO (> 110 days), Bad debt write-offs increasing
Depressed Stock Price
Speculations that either the new products are not working or sales reported
were not true
• Solution
– Streamlined entire order-to-cash processes, staff, management focus and
adopted specialized technology
– Working Capital Management focus right from Board and C-level executives
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Impact of Better Working Capital Management: Case Study
•
Result
– Reduced DSO to high 50s
– Increased cash by equivalent of
four month of sales
– Reduced bad debt expense by
millions of dollars
– Increased stock price
dramatically
Source: Parson Consulting
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Cash Tied in Financial Operations
“Working capital remains top of mind for many CFOs. Indeed, continued
working capital improvement — or even a controlled, temporary reduction —
can ultimately drive growth.”
2005 Working Capital Survey
Magazine
Potential Cash Flow From
Unlocking Working Capital
Inventory
Receivables
$49 Bn
$91 Bn
$71 Bn
$162 Bn Opportunity to
Drive Cash Flow Improvements
Source: McKinsey & Co. Study
of Top 24 U.S. Corporations
Payables
Working Capital Improvements In Receivables, Payables and Cash Flow
Forecasting Can Be A “Hidden Reservoir” To Drive Financial Excellence
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Close the Short-term Liquidity Gap
Short-term
Liquidity Gap
Regulate Cash Outflows
Improve Disbursements Forecasting
• Greater Need
to Borrow
Accelerate Cash Inflows
Improve Cash Receipts Forecasting
• Higher Interest
Expense
• Higher Debt-to
Equity Ratio
Cash Inflows
• Lower Return
on Invested
Capital
Receivables
Payables
Time
Cash Outflows
Cash Flow Visibility, Control and Predictability Ensures Better Working
Capital Management and Cash Conversion Cycles
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Barriers to Working Capital Excellence
Working Capital
Process
Typical Challenges
Impact on Financial Performance
Accounts
Receivable
• Disconnected A/R Systems and
Processes
• Ineffective Credit Risk Extension
• Slow Customer-to-Cash Cycle
• Manual Processes
• Unattended Disputes
• Higher DSO
• Increased Bad Debt Expense
• Slower Quote-to-Cash Cycle
• Higher Operational Expenses
• Higher Revenue Risk
Accounts
Payable
• Disconnected A/P Systems and
Processes
• Inefficient Payment Decisions
• Inefficient Procure-to-Pay Cycle
• Manual Processes
• Sub-optimal DPO
• Increased Administrative Expenses
• Lost Discount Savings
Cash Flow
Forecasting
•
•
•
•
• Inaccurate Short-term Forecasts
• Sub-optimal Investment Strategies
• Reduced Efficiencies
• Lowered Returns from Cash
Management
Limited Consolidated Visibility
Lack of Structured Real-time Data
Discrepancies in Forecast Models
Lack of Structured Forecasting
Process
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Transforming the Enterprise to Drive Sustainable Value
Decision
Support
Working
Capital
Optimization
Cash Flow
Process Management
Cash Flow Transactions Management
Best
Practices
Based
Standardization
Transaction
Management
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Transforming the Enterprise to Drive Sustainable Value
Value
Effectively Driving
Profitable Growth
Working
Capital
Optimization
Balancing Risk
And Performance
Managing
Complexity
Cash Flow
Process
Management
Cash Flow
Transactions
Management
Standardization
Simplification
Controls &
Efficiencies
& Risk
Management
Strategic Focus
Sustainable
Growth &
Shareholder
Value
Time
To Working Capital
Actualization
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 1 Transformation : Transactions Management
Simplification and Integration of EnterpriseWide Information Management
Working
Capital
Optimization
• Reduce structural and data complexity
• Reduce number of disparate Finance Platforms
• Reduce number of ERP instances
• Reduce number of point transaction solutions
Cash Flow
Process Management
Cash Flow Transactions Management
• Rationalize common platforms for consolidation and
reporting across receivables, payables, treasury
• Deploy solutions that address multi-currency, multilanguage, multi-level organizational and customer
hierarchies
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Transactions Management: Reality Out There
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Level 1 Transformation : Transactions Management
Advantages
• Single version of truth
Working Capital
Platform
• Reduces number of reconciliations
• Reduces time and effort needed to gather information
• Faster access to information for decision making
JD Edwards
BaaN
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
Legacy
Systems
OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Process Management
Standardize Process Management Management
with Technology
Working
Capital
Optimization
• Streamline and document internal processes for local and globally
operations – order-to-cash, procure-to-pay, treasury
• Implement enterprise-wide standard policies and rules on credit,
collections, deductions, payables, billing, dispute handling
Cash Flow
Process Management
• Formulate workflow and collaboration processes across finance,
sales, order-entry, customer support, purchasing and other
departments
•
Cash Flow Transactions Management
Automate business processes with common technology, platforms
• Adopt functional best practices in the industry
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Process Management
Advantages
Working
Capital
Optimization
Cash Flow
Process Management
•
•
•
•
•
Improves productivity and efficiency
Reduces operational costs and increases scalability
Enhances compliance and reduces process control risks
Mitigates and manages corporate risk
Improves Free Cash Flow
Cash Flow Transactions Management
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Level 2 Transformation : Quote-To-Cash Process Example
Standardize Credit Scoring Decision Management
with Technology
• Credit Policies - Formulate and establish credit extension policies
across multiple customers and operating units
• Credit Scoring - Implement a standardized and flexible credit
scoring approach which takes into account historical payment
patterns, external credit data and input from field sales and credit
analysts
• Credit Information - Integrate with third party credit data
bureaus like D&B, Experian, etc to leverage the latest credit
information
• Credit Reviews - Establish a credit review process using
workflow technology to focus credit analysts on high risk accounts
• Portfolio Analysis - Measure and monitor credit exposures across
global customer base
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Level 2 Transformation : Quote-To-Cash Process Example
Standardize Collections Management with
Technology
• Strategy Driven - Enable global collections to be carried out in a
proactive manner based on customer segments, regions, etc…
• Intelligent Collections - Direct the collections team to focus on
high impact accounts
• Automation - Focus the team on high value added activities such
as customer management by automating repetitive and manual
tasks
• Collaboration - Align closely with sales and leverage
relationships for faster collections. Connect to enterprise systems
within the company and outside with trading partners
• Portfolio Management - Embed best practices for collections
management across multiple divisions and business units
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Billing and Accounts Receivable with
Technology
• Accuracy - Enable accuracy and timeliness of invoice
documentation sent to customers
• Timeliness - Ensure that invoicing is properly carried out after
order fulfillment processes
• Consolidation - Consolidate invoice information sent to
customers to reduce redundant business processes
• Collaboration - Offer customers the ability to view all supporting
documents and transactions for the invoice
• Self-Service - Offer customer self service functions to strengthen
customer relationships and facilitate speedier dispute resolution
and payment
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Dispute Resolution and Deductions
Management with Technology
• Predict - Proactively manage customer disputes by identifying atrisk accounts and short payments from customers
• Reason Codes - Tailor specific resolution approaches across the
enterprise based on the type of dispute or deduction
• Resolution Workflows - Leverage a collaborative approach to
dispute resolution and deductions management using workflow
technology
•
Escalations - Establish a sense of urgency with clear resolution
processes and escalation technology
• Root Cause Analysis - Drive business process improvements
across the quote-to-cash cycle using root cause analysis and
process monitoring
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 2 Transformation : Quote-To-Cash Process Example
Standardize Cash Application with Technology
• Consistency - Establish a consistent approach to processing
remittances and applying cash
• Automation - Facilitate faster processing of high volume
payments with reduced need for research and reconciliation
• Reconciliation - Reconcile payments with erroneous reference
information – invoice numbers, purchase order numbers, etc..
• Corrective - Enable cash application personnel to identify and
process deductions earlier in the quote-to-cash process
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 3 Transformation : Optimization
Optimization using Insight and Analysis
Working
Capital
Optimization
Cash Flow
Process Management
• Performance Dash Boards, KPIs, Scorecards that are deployed
enterprise-wide
• Executive attention from CFO, VP Finance, Controller, AR/AP
managers, Director/VP of credit collections, credit managers, sales
executive managements teams and field sales
• Strategic goal setting and proactive management of performance
across the board
•
Cash Flow Transactions Management
Analysis of historical performance and changing business
practices to eliminate bottlenecks
• What-if analysis for predicting future states and setting strategies
for growth
From Working Capital Vision
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Level 3 Transformation : Optimization
Advantages
•
•
•
•
•
•
Enable fact-based decision making with better integration
of information
Better insight into overall operations
Strategic planning and risk management
Executive attention on timely basis
Improved cash forecasting and free cash flow
management
Drives optimal levels of performance across the entire
enterprise
The ideal solution for optimizing global
Finance and treasury functions is one that
combines business intelligence with collaborative
process automation to increase world-wide efficiencies
- John Van Decker, Senior VP and Principal Research Fellow
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Technologies commonly used

ERP systems (Oracle, SAP, PeopleSoft, JDEdwards, Geac) do
not cover working capital process management – 67 percent of
respondents of survey were not satisfied

Home grown systems are expensive and time consuming

Adoption of specialized working capital management solutions
increasing in trend -56 percent of survey respondents indicated
plans to implement specialized solutions

Performance management dash boards rank in top 3 projects
from IT
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Example of Specialized Working Capital Solution
Cash Flow
Performance
Management
+
Cash Flow
Process
Automation
+
Specialized
Technology
Platform
Working Capital
Optimization
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Case In Point: Solectron Corporation
• $12 Billion Global Electronics Contract Manufacturer
• A/R Shared Services spans across 3 continents and across multiple
disparate systems
CHALLENGES
• No single system for global A/R and cash flow visibility
• No automation of country-specific A/R processes
• No decision support tools for cash flow management and cash
forecasting
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Solectron: Mastering Global Cash Flow
Emagia Working Capital
Management Solution
Baan
SAP
North America
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
Baan
MFG
Pro
European
Legacy
Legacy
Asian/Pacific
OPTIMIZE WORKING CAPITAL
Solectron: Sustainable Value
ROI Component
Benefits
ROI Value
Interest Expense Savings from
Improved Cash Flow
 Acceleration of collections
 Reduction of DSO by 15 days and
compressed Cash-to-Cash cycle
 Improved cash forecasting
accuracy
$14 Million
Direct Cost Reductions
 Consolidation of direct costs
 Wider support with fewer resources
 Reduce SG&A and overhead costs
$1 Million
Common Business Processes
& Shared Services Enabler
 Streamline invoice-to-cash
 System used by collectors at over
45 sites on three continents
Estimated $20 Million
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Solectron: Sustainable Value
“We now have a powerful working
capital platform that allows us to
make better cash flow decisions,
empower our Shared Services teams
and maintain focus on maximizing
profitability.”
- Perry Hayes, Solectron VP &
Treasurer
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Case Study: Mastering Global Cash Flow
•
Syngenta - $3 Billion leading global manufacturer of Agricultural
Chemicals spun off from Astra Zeneca and Novartis
•
Over 15,000 U.S. customers including agents, distributors, retailers
and end users
•
Agricultural cycle drives seasonality and unpredictability in
Syngenta’s cash forecast
•
Manual customer-to-cash processes adversely impacted
Syngenta’s cash conversion efficiency
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
Key Success Factor: Cash Flow Visibility
Point of
Collection
Distributor
Dealer
End Consumer
Agent
Point of
Collection
•
Syngenta deals with multiple
types of customer roles who can
all sell directly to end consumers
•
Distributors can also be
agents in some cases
•
Collections may be done by
Syngenta or agent or etc…
•
•
Customers have multiple levels
Global AR visibility requires
aggregating portfolio and
exposure across different
customer roles at different levels
Goods Flow
Payment Flow
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Improved Cash Forecasting Accuracy
Trend of Cash Receipt Forecast vs. Actuals
Mean Absolute
Percentage Error
5%- 55% before Emagia
Emagia
Go Live
Forecasted
Actual
Mean Absolute
Percentage Error
2%- 20% after Emagia
P1
P2
P3
P4
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
P5
P6
P7
P8
P9
P10
P11
OPTIMIZE WORKING CAPITAL
Improved Cash Flow
ROI Component
Benefits
ROI Value
1
Interest Expense
Savings from Improved
Cash Flow
- Acceleration of collections
- Reduction of DSO by 4.5 days
- Average Deductions balance
decreased from $2.9 mil to
$1.1mil
- Improved cash forecasting by
up to 30% in some cases
$3 Mil
2
Direct Cost reductions
- Redeployment of excess
resources
- Reduce overhead costs
$100K
Also attained ‘Well Controlled’ rating for internal SOX audit
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Solectron: Sustainable Value
“Working Capital Platform has given us the
consistency and control needed in our cash
flow processes. As a result, we have seen a
decrease in DSO, and a dramatic
improvement in cash forecasting accuracy.”
- Bert Cuiston, Head of Credit and
Receivables Management, Syngenta
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
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Selected Customer Success Stories
Customer
Industry
Business Challenges
Results
$12 Bn Electronics Contract
Manufacturer
• Needed global A/R
visibility across Shared
Shared Services Centers
• High financing costs
• $14 Mil Annual Interest
Savings
• $1 Mil Direct Expense Savings
• Infrastructure for Shared
Services
$3 Bn Agricultural
Chemicals Manufacturer
• No A/R visibility into
customer network and
wide swings in cash
forecasting accuracy
• $3 Mil Annual Savings
• Reduced DSO by 5 days
• Improved Cash Forecasting
Accuracy by up to 35%
$2 Bn Staffing Services
Company
• Six Sigma initiative
focused on credit &
collections
• Little A/R automation
• $750K reduction in bad debt
• $150K reduction in direct
expenses
• Six Sigma based automation
$500 Mil Enterprise
Software Company
• High DSO with no
collections or dispute
resolution tools
• 25% reduction in DSO within 6
months
$800 Mil Consumer
Packaged Goods Company
• Chargebacks &
deductions negatively
impacting revenue by
over $17M
• Reduced deductions backlog
by 75%
• $12 Mil in bottom line savings
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL
For more information, please contact
Veena Gundavelli
President & CEO
Emagia Corporation
veena.gundavelli@emagia.com
408.492.8811
www.emagia.com
EMAGIA CORPORATION 2005 – PROPRIETARY AND CONFIDENTIAL
OPTIMIZE WORKING CAPITAL