Colgate-Palmolive’s major foreign currency exposures involve the markets in Europe, Asia/Africa and certain Latin American countries. Historically, these exposures were tracked and reported separately by different business regions using spreadsheets.
The treasury function at Colgate-Palmolive embarked on a centralisation project with a vision to establish a world class foreign exchange risk management organisation based in Switzerland.
The project sought to accomplish five key objectives:
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Foreign exchange risk exposure reporting.
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Cost savings.
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Accounting automation (FAS 133 requirements).
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Counterparty management.
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Streamlined internal controls.
To realise these, Colgate-Palmolive created a central treasury structure whereby all subsidiaries’ FX requests are routed through a global foreign exchange centre (GFX) based at Colgate’s European Treasury Centre, for consolidation and FX trade management.
Chen Seong Joon, Associate Director, Colgate-Palmolive Europe said, “The team leveraged ERP-based system functionality to support the end-to-end processing of the ‘life-cycle’ of a foreign exchange transaction. The solution is fully integrated to the company’s ERP general ledger system for accounting and reporting, and to a multibank online trading portal.”
The design provides a single integrated platform that enables currency exposures from Colgate-Palmolive subsidiaries globally to be captured centrally.
“Colgate’s approach to integrating centralised global FX trading processes, using ERP functionality, is truly a solid example of innovatively leveraging best practices and technology to achieve concrete business benefits.”
Users located around the world are able to instruct the GFX Centre via the system on currency requirements using this platform. All transaction information, including accounting, is automatically processed in SAP Treasury and posted to Colgate’s general ledger.
Where relevant, the processing of FX contract valuation and the FAS 133 hedge documentation are also automated. The core system was rolled out to subsidiaries through a series of six roll-out waves, prioritised by business benefit, over 12 months.
Key to the success of this solution was process standardisation and straight through accounting. Each process flow was vetted by Colgate’s Finance Management as well as internal and external auditors. During roll-out, subsidiary on-boarding meetings were held to ensure a smooth transition upon implementation.
The system’s KPI reporting provides the basis to engage the company’s liquidity providers during relationship management discussions. As outlined, the solution enables straight through accounting automation, valuations accuracy and full compliance with FAS 133 requirements. Internal controls are a cornerstone of the design, with Sarbanes-Oxley requirements and clear segregation of tasks between users embedded into each process.
The true success of the project is attributed to an objective that clearly demonstrates innovation and integration in everything that is implemented and introduced effectiveness and efficiencies to what was once a complex process. All of these key attributes embody Colgate-Palmolive’s strategic values.
As Seong Joon concludes, “Implementing a new global process and system in a large multinational firm requires careful attention to design and implementation. Colgate’s approach to integrating centralised global FX trading processes, using ERP functionality, is truly a solid example of innovatively leveraging best practices and technology to achieve concrete business benefits.”
