Transforming Financial Back-office

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Transforming Financial Back-office Processes to
Optimize Working Capital Veena Gundavelli Presiden
t CEO Emagia Corporation
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Emagia Introduction
Leading Provider of Working Capital Management
Software Solutions to Global 2000 companies
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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

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Agenda

• Top Priorities for Todays CFO
• Working Capital A Key Competitive Advantage
• Transformation of Financial Back Office 3
  Step Approach
• Case Studies Highly Effective Finance
  Organizations

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Transformation of Role of Finance
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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

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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

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Roadmap to an Agile Finance Organization
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Components of the Working Capital Cycle
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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

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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 (gt 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

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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
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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
162 Bn Opportunity toDrive Cash Flow
Improvements
Source McKinsey Co. Studyof Top 24 U.S.
Corporations
Working Capital Improvements In Receivables,
Payables and Cash FlowForecasting Can Be A
Hidden Reservoir To Drive Financial Excellence
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Close the Short-term Liquidity Gap
Short-term Liquidity Gap

• Greater Need to Borrow
• Higher Interest Expense
• Higher Debt-to Equity Ratio
• Lower Return on Invested Capital

Accelerate Cash InflowsImprove Cash Receipts
Forecasting
Cash Inflows
Receivables
Time
Payables
Cash Outflows
Cash Flow Visibility, Control and Predictability
Ensures Better WorkingCapital Management and
Cash Conversion Cycles
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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 Limited Consolidated Visibility Lack of Structured Real-time Data Discrepancies in Forecast Models Lack of Structured Forecasting Process Inaccurate Short-term Forecasts Sub-optimal Investment Strategies Reduced Efficiencies Lowered Returns from Cash Management
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Transforming the Enterprise to Drive Sustainable
Value
Decision Support
WorkingCapital Optimization
Best PracticesBased Standardization
Cash FlowProcess Management
TransactionManagement
Cash Flow Transactions Management
From Working Capital Vision
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Transforming the Enterprise to Drive Sustainable
Value
Effectively Driving Profitable Growth
Balancing Risk And Performance
Managing Complexity
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Level 1 Transformation Transactions Management

• Simplification and Integration of Enterprise-Wide
  Information Management
• Reduce structural and data complexity
• Reduce number of disparate Finance Platforms
• Reduce number of ERP instances
• Reduce number of point transaction solutions
• Rationalize common platforms for consolidation
  and reporting across receivables, payables,
  treasury
• Deploy solutions that address multi-currency,
  multi-language, multi-level organizational and
  customer hierarchies

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Transactions Management Reality Out There
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Level 1 Transformation Transactions Management

• Advantages
• Single version of truth
• Reduces number of reconciliations
• Reduces time and effort needed to gather
  information
• Faster access to information for decision making

Working Capital Platform
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Level 2 Transformation Process Management

• Standardize Process Management Management with
  Technology
• 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
• Formulate workflow and collaboration processes
  across finance, sales, order-entry, customer
  support, purchasing and other departments
• Automate business processes with common
  technology, platforms
• Adopt functional best practices in the industry

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Level 2 Transformation Process Management

• Advantages
• 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

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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 DB, 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

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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

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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

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Level 2 Transformation Quote-To-Cash Process
Example

• Standardize Dispute Resolution and
  DeductionsManagement with Technology
• Predict - Proactively manage customer disputes by
  identifying at-risk 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

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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

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Level 3 Transformation Optimization

• Optimization using Insight and Analysis
• 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
• Analysis of historical performance and changing
  business practices to eliminate bottlenecks
• What-if analysis for predicting future states and
  setting strategies for growth

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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
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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

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Example of Specialized Working Capital Solution
Cash FlowPerformanceManagement

Cash FlowProcessAutomation

Specialized Technology Platform
Working CapitalOptimization
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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

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Solectron Mastering Global Cash Flow
Emagia Working Capital Management Solution
Baan
Baan
Legacy
SAP
MFGPro
Legacy
European
Asian/Pacific
North America
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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 SGA 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
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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
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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 Syngentas cash forecast
• Manual customer-to-cash processes adversely
  impacted Syngentas cash conversion efficiency

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Key Success Factor Cash Flow Visibility

• Syngenta deals with multiple types of customer
  roles who can all sell directly to end consumers
• Distributors can also beagents 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

Point ofCollection
Distributor
Dealer
End Consumer
Agent
Point ofCollection
Goods FlowPayment Flow
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Improved Cash Forecasting Accuracy
Mean AbsolutePercentage Error 5- 55 before
Emagia
Emagia Go Live
Mean AbsolutePercentage Error 2- 20 after
Emagia
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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
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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
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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
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For more information, please contact Veena
Gundavelli President CEO Emagia
Corporation veena.gundavelli_at_emagia.com 408.492.
8811 www.emagia.com