The challenge

Olam India is one of the leading commodity companies across the sub-continent and enjoys a pan-Indian footprint for ten key products. The company enjoys a strong reputation for managing one of the most diversified agri-commodity supply chains in India. Owing to this position, the company is exposed to significant foreign exchange (FX) and commodity price exposures.

In managing risk, Olam India’s treasury department was dependent on a combination of legacy systems and excel utilities. Understanding the need for automation and the benefits derived from it, its treasury team evaluated various suitable treasury and risk management solutions available to help it efficiently manage treasury whilst also monitoring the risk policy of the company.

The solution

After thorough evaluation, the company selected, IBSFINtech’s enterprise treasury and risk management solution (TRMS). Following its implementation, Olam was able to achieve the objective of automating end-to-end treasury operations. It also helped the company transform from spreadsheets and automate the end-to-end treasury operations.

Apart from this, the company’s treasury team took informed decisions and leveraged an option valuation engine to strengthen the overall treasury operations.

Best practice and innovation

Olam India’s primary purpose of having a risk management policy is to protect against volatility associated with foreign currency purchases and sales of raw materials. The forward contracts are primarily utilised to hedge the firm’s commitments. The following rules were implemented to help the treasury team adhere to the internal policies:

• Limit the management of loan equivalent risk.
• Alert on any deviation.
• All FX limits monitoring-reports are now generated on a daily basis. In addition, the creation of a weekly risk dashboard has helped in giving a brief and crisp overall view of almost all the risks the company is involved in (counterparty risk, credit risk, basis risk, currency risk, inventory ageing, operating cycle, and market risk positions).

It helps senior management exercise better control over all the business units exposed to the day-to-day risks they get involved in. It also saves management’s time, as all the major issues the business is exposed to are concisely presented in a weekly email to review. It also highlights all potential red flags for business.

In addition, development of the Olam Risk Approval Tracking System (ORATS) has helped keep track of multiple commercial paper risk proposals received and approved during the year, after closure of the risk budget cycle.

Key benefits

• Process-oriented risk approval system.
• Zero CP/CR defaults in the company in the last two years.
• Operation volumes doubled – 100% growth.
• Real-time mark-to-market calculation.
• Generate options deals, as well as structured options.
• Working hours per person reduced by one and a half to two hours.
• MIS report generation time reduced to a click, which previously took more than three hours.
• Monthly account closure for the treasury team was reduced by three to five days.
• Manual processing efforts reduced by 40%.
• Complete life cycle of a transaction from capture to settlement.
• Minimum user intervention in the company’s balance sheet.