This nomination demonstrates best practice in a shared service centre and how the use of SixSigma process methodology helped Caterpillar to implement an end-to-end cash management solution.
The solution allows Caterpillar to centrally manage its local and foreign currency payables. Payables, receivables and liquidity management are controlled through a single bank account and efficient online banking platform via a single bank. Most of Caterpillar’s cash is concentrated through a cash pooling structure and its idle cash is automatically deposited to a seven day call deposit for yield enhancement. This structure also ensures daily liquidity needs are met.
As Fiona Yang points out, “Caterpillar started implementing Citi’s STP payment solution in March 2008. Wherever possible, Caterpillar concentrated local currency payments through a single Citi account that is linked to other Citi accounts in various cities in China.”
In addition, Caterpillar also centrally managed their foreign currency payments through the Tianjin SSC and this has to comply with China’s strict regulatory framework. In August 2008, Caterpillar’s objective of centralising payments for all its China affiliates had been achieved within five months, which was only 16 months after their Tianjin SSC was established.
Following the STP payment project, Caterpillar extended the scope to receivables and liquidity management. This enables Caterpillar to control and centrally manage its group cash and bank accounts with a dedicated treasury team based in Beijing. In addition, Caterpillar benefited from increased yield on idle cash. Within three months, Caterpillar moved most of their collections to Citi accounts for all participating China subsidiaries.
“Caterpillar’s execution of this project is world class and consistent with its SixSigma methodology.”
By May 2009, a RMB pooling structure to concentrate group cash was implemented. Concurrently, Caterpillar also implemented an automatic investment process to move idle cash from the pool header account to achieve a higher yield. The final enhancement was the Citi TreasuryVision® implementation, which allowed Caterpillar to have visibility to all Citi accounts as well as other local bank accounts on a daily basis.
Given Caterpillar’s extensive project scope and the complexity of its initial bank account structure, it is very impressive for the Caterpillar project team to work closely with its bank project team to achieve all the objectives in slightly over a year.
Furthermore, Caterpillar went beyond their original intention of merely setting up a SSC in China. Within a short timeframe, Caterpillar China successfully implemented a fully integrated end-to-end solution to cover its cash management requirements in China. Caterpillar achieved multiple goals despite China’s complex regulatory framework such as FCY restrictions. Throughout the China SSC implementation, Caterpillar demonstrated outstanding capacity and tenacity.
Yang concludes, “Though challenging, Caterpillar included its wholly owned entities and JVs that are located all over China in the project scope. This greatly improved Caterpillar’s treasury control and management as well as intangible benefits to its compliance and risk departments. Caterpillar’s execution of this project is world class and consistent with its SixSigma methodology.”
