Over the years, some treasury departments have had the choice between implementing either a Treasury Management System (TMS) or the treasury module of an Enterprise Resource Planning (ERP) system, while others have had to soldier on with spreadsheets. What are the arguments for and against each system?
In the late 1880s, inventors Thomas Edison and Nikola Tesla battled over the correct way to transmit electric currents. Almost a century later, VHS and Betamax fought fiercely to dominate the video market. Today, Apple’s iOS platform continues to jostle with Android and Windows for number one position in the mobile market.
Like the retail space, treasury technology has its own battles. Treasury Management Systems (TMSs) and Enterprise Resource Planning systems (ERPs) have been competing to be the treasurer’s workstation of choice for well over a decade. Both systems fundamentally seek to achieve the same goal, improving the work of the treasury function. Yet, both have different methods of achieving this, offering their own advantages and disadvantages. Making matters worse, there is the possibility to use both technologies, with spreadsheets also in the mix.
TMS: built to fit
A TMS is a dedicated treasury technology solution that vendors claim offers a wide variety of tools that can be applied to many treasury tasks. “The TMS sits at the heart of a treasurer’s operation – collecting data from a plethora of different sources, processing this data and then outputting it where necessary for both the treasury and company as a whole,” says John Byrne, Managing Director at TMS provider Salmon Software.
The sheer range of functions that a TMS is able to process is one of the main selling points. Salmon Software’s offering, for example, has around 120 modules that cover a range of treasury activities including: cash management, debt and derivatives, forecasting, hedging and risk management. “Typically a corporate would use around 40 or 50 of these modules, depending on their circumstances,” explains Byrne.
This flexibility to customise the TMS using modules has been one of the major developments in the TMS space of late. Whereas once there was a worry among the corporate community that a TMS was a relatively monolithic tool, the systems can now be installed to fit. For example, a multinational corporate would be able to select all the FX modules that they require to carry out cross-border activity. A UK domestic company on the other hand with little use for these can turn these modules off and focus on the area that better suit its business requirements. “A TMS is a customisable solution for companies of all shapes and sizes,” confirms Byrne. And because corporates don’t have to buy the system lock stock and barrel, there are potentially benefits in terms of cost, the time taken to implement the system, and also the ability to add on modules when business requirements change – instead of having to deploy a new system.
The sheer range of functions that a TMS is able to process is one of the main selling points.
Another area that TMS vendors have focused heavily on in recent years is interoperability of TMSs – whether it be integration with internal systems, or communicating with an external party’s software, such as a financial institution’s e-banking platform. “The increasing drive from corporates for straight through processing (STP) has ensured that the vendors have focused on integration,” says Salmon’s Byrne. “This focus has, in turn, assisted in delivering other benefits such as real-time cash positions and improved forecasting, as well as reducing the error rate from manual inputs.”
For many treasurers, an additional tick in the box for the TMS is that the system ‘belongs’ to the treasury (unlike a company-wide ERP). For the treasury, owning the solution offers a number of advantages. Firstly, the treasury will have control over the system and therefore – in theory – should have more say over when it is optimal to install updates. Of course, central sign-off will still be required for this, and budget will need to be allocated to the TMS, but this should be less cumbersome than an ERP treasury module update. After all, updates to the ERP treasury module would normally be driven by IT and be bundled into a company-wide package therefore leaving treasury little say in when this happens. The smaller scale of a TMS upgrade is likely to mean it will also be cheaper and quicker to achieve.
The treasury workstation: a short history
The first TMS providers emerged in the mid-1980s when, inspired by the advent of personal computers and new technology entering the corporate space, pioneering developers began to create solutions that could aid the treasury function. Approaching treasury technology from different backgrounds, these companies initially developed solutions that impacted only a portion of the treasurer’s operations rather than offering an extensive treasury solution.
From the mid-1990s, the core functionality of the TMS expanded rapidly as corporates began to migrate across from ‘in-house’ or spreadsheet based solutions to the ‘off the shelf’ TMS market. This really began to help drive the widening capability of these offerings.
During this period, TMS improvements allowed treasuries to begin to trade more and more complex instruments, and to integrate with a wider set of internal and external solutions and data providers. “At times, TMS providers struggled to keep up with the fast-changing demands of their clients, and at times new functionality could be delivered to market before it was ready,” says Andrew Marshall, Managing Director, SLG Treasury.
Since 2008 however, the treasury industry has gone ‘back to basics’ to reflect the changing attitudes to risk since the onset of the financial crisis. “This in turn has allowed breathing space for the TMS providers to focus on improving existing functionality, whilst at the same time allowing the ERP treasury solution providers a good opportunity to catch up with their TMS rivals,” adds Marshall.
ERP: the holistic view
Data from consultancy firm Zanders shows that currently 70% of corporates who employ a treasury workstation use a specialised TMS system. Yet, the data also suggests that there is a drive towards companies exploring and implementing an ERP treasury module. In 2006, 19% of companies were using SAP in combination with SAP treasury. In 2014 this number had increased to 40%, says Zanders. The driver for this change is not necessarily coming from the treasury department but from the boardroom.
By its very nature, an ERP system has a wider focus than a specialised TMS, with modules being available and used across the entire business. As such its treasury module can be seen as a branch of the system and not the heart of the system itself. While this might sound like a significant disadvantage, this can actually offer the business a number of benefits as treasury is fully integrated and on the same platform as the rest of the company – helping to facilitate the consistent passage of data. “The capabilities that are provided from a treasury perspective complement the story that the data from the wider finance function and beyond provides,” says Christian Mnich, Director of Solution Management for Treasury Application at SAP SE. “An ERP gives a view of core processes that concern treasury from end-to-end, and allows companies to better collaborate, identify risks earlier, obtain real-time data and bring all the pieces together in one place.”
In addition, “the ability of an ERP treasury module to retrieve information from other modules reduces integration headaches and ensures that the costs associated with non-ERP TMS platforms, are minimised,” says James Bateman, TMS Architect at SLG Treasury. “It also offers executives and internal audit a greater sense of satisfaction because all the data is being retrieved from a single platform.”
The sheer scale and technical complexity of an ERP system means that it has the ability, if supported by the right advisory and professional services support, to create a best-in-class architecture that can offer the treasury above and beyond what a standalone TMS can offer. “ERP vendors often work on economies of scales and have an ability to lower cost on the latest technologies a lot faster than non-ERP TMS vendors, as their TMS platforms are crucial to a wider sales strategy,” says Bateman. “Concepts that are considered the Holy Grail for most treasurers such as organisation-wide, real-time cash management views, are only available on ERP platforms,” he notes.
“ERP vendors often work on economies of scales and have an ability to lower cost on the latest technologies a lot faster than non-ERP TMS vendors.”
James Bateman, TMS Architect, SLG Treasury
The common consensus, however, is that achieving such an integrated architecture comes at a large cost and one that the majority of organisations are not able to invest in. SLG Treasury’s Bateman contests this perception and argues that an ERP treasury module project may actually be a cheaper alternative overall. “If a company has already invested in an ERP then installing the treasury module is likely to be a cheaper option overall. This is because these types of systems are almost always architected to integrate seamlessly and haven’t in recent years been layered with the latest open interfacing technologies like Enterprise Web Services.” For Bateman, the cost of integration post-2008 is an excessively underestimated concept within most TMS rollouts and often accounts for large over-expenditure, future rework and is something that can potentially be avoided by leveraging an ERP treasury module crafted on standardised business and integration processes.
Cost aside, treasurers have often been cautious of using an ERP treasury module, because – historically at least – it has not offered such a rich variety of functionality in comparison to a TMS. An ERP, by its very nature, is vastly different to a specialised TMS system vendor package because an ERP is designed to fit complex organisational requirements – and the treasury module is only one minor element in the broader scheme of the architecture.
However, in recent years there has been a significant push by the ERP vendors to ‘beef up’ their treasury offerings. “The argument that the functionality in ERP treasury modules is outdated is ten years old now and there has been lots of investment in the treasury space,” says Mnich. “We now provide an end-to-end solution that covers the four key areas of – payments and banking, cash and liquidity management, debt and investment and FX management – and we are increasingly seeing more corporates adopt this.”
But then, a vendor will always back their own product. So what do end-users think?
“If a treasurer has the simple choice between a TMS vs ERP solution, I would say the majority would pick a TMS,” says Marshall. “A number of factors feed into this, but primarily it is the outdated stigma that exists surrounding the ERP’s functionality, cost, ownership and complexity of implementation. However, if for instance the business case for implementing the treasury module of the in-house ERP system is being driven by the wider IT strategy, or even driven downwards from CFO/CEO level, then the proposition becomes a hard one to argue against.”
Best of enemies
What then is the best solution for both the business and the corporate treasury? “In a perfect world the most optimal solution for the overall business is for all departments to be on the same platform. This would mean an ERP system that was seamlessly connected with the ERP treasury module allowing all cash flows to flow straight through giving complete visibility over cash and transactions,” says Marshall. But heavy investment is needed to achieve this. Also, large corporates often have different ERP instances within the same company, thus adding another layer of complexity when trying to reach a perfect solution.
For corporate treasury to be happy with the ERP solution, it will ultimately need to be satisfied with the level of functionality that is offered by the ERP treasury module, something that Salmon Software’s Byrne believes currently isn’t the case. “ERP systems in my opinion don’t have anything like the range of tools, functionality and coverage that a TMS has,” he says. “So depending on what the treasury activity is you would be unlikely to find it satisfied in an ERP system. Integration is therefore the key as this allows you to have best of breed systems that process a logical flow of data and satisfy all parties. Both a TMS and an ERP are strong in their own arenas and they should work together.”
Anglo American Plc
Head of Treasury Operations
UK based multinational mining company, Anglo American Plc, installed SunGard’s Avant Gard Quantum TMS in 2001 to manage its treasury operations, integrating this into SAP – the company’s ERP system. The TMS is upgraded regularly every 18 months to two years.
“We selected this system for a number of reasons,” says William Ward-Brew, Head of Treasury Operations at Anglo American. “Aside from it having the functionality we required, the reputation of the company was a big factor and we wanted to use a vendor with knowledge of the different markets we worked in and also with other blue chip companies on their books. The financial status of the vendor was also important due to the consolidation in the TMS industry over the years and we wanted to ensure our system was committed to and would be developed in the future.”
Anglo American did investigate the SAP treasury module after being pointed in that direction by IT, however, a specialised TMS seemed to be a better fit. “There was a lot of reluctance to use the ERP module because of the experience that some of the team members had had with it before and this carried a lot of weight towards not selecting it,” says Ward-Brew. “The project was treasury-led and we wanted a system that was suitable for treasury needs.”
Being suitable for treasury needs extends beyond functionality and also touches on its ability to be flexible. “If you work in a treasury environment where you need to adapt quickly then an ERP upgrade can take a number of months and will have to incorporate other functions that use it as well. With a TMS, you can dictate when things get changed,” he says. The support offered by the vendors was another selling point, “we wanted our teams across the globe that use the TMS to be able to obtain regional helpdesk support quickly should they need it and we didn’t believe that this was cost effective with the ERP solution.”
For Ward-Brew, there is a place for both systems in the current marketplace. “The integration between the two is getting better and better and now areas such as accounting are seamless,” he says. “I still believe that TMS vendors are closer to the treasury market in terms of development focus and they have built modules to meet the evolving needs of the treasury. Also, for real-time data, the TMS is a better solution because treasury can determine the flow of information, unlike an ERP which may be updated periodically based on competing workflow processes across the business. If the enhanced data flows from the ERP can be integrated into the TMS and vice versa, then that is a great solution.”