Photo of Jörg Bermüller and Thomas Eberle, Deutsche Bank.
Each of Merck’s subsidiaries is responsible for their own guarantee for business transactions embarked upon in their particular locality. Issued by financial institutions, bank guarantees are needed for tender participations, required by customs and tax authorities, and are a prerequisite for any operational business.
Jörg Bermüller
Head of Cash and Risk Management
Merck KGaA in Darmstadt is the oldest pharmaceutical and chemical company in the world. It conducts the operations in four divisions: Merck Serono, Consumer Health Care, Merck Millipore and Performance Materials. With 40,000 employees in 67 countries, Merck KGaA generated annual total revenues of €10.5 billion in 2011.
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However, there was no harmonised framework set up for Merck’s 250 subsidiaries; therefore, there was no data on the multiple guarantee portfolios available at group level. Each guarantee was obeying its own local terms and conditions which naturally led to high complexity, no transparency and unnecessary costs across the board. “We wanted to centralise a group-wide bank guarantee scheme,” says Jörg Bermüller, Head of Cash and Risk Management at Merck. The company used this as an opportunity to establish a standardised global process which would also allow potential for improvement.
In the initial stages of the project, ten international banks received a very detailed request for proposal (RFP) which already provided a clear outline of what the solution should look like and what was important for Merck. It outlined the centralised booking of all global guarantees and optimum transparency, combined with a highly streamlined process.
During the beauty contest, the remaining three banks received more than 150 questions that all needed to be answered in detail. Once satisfied, Merck chose to work with Deutsche Bank on this global scheme and the bank subsequently delivered their web-based electronic global platform for guarantees to the company.
Says Bermüller: “We have achieved our aim of one worldwide bank guarantee facility over €150m valid for all of our 250 subsidiaries, and one global guarantee issuance process for all types of guarantees and jurisdictions.” Moreover, one interface with the in-house bank cash management system is available for automated fee payment, and for automated reconciliation.
Merck’s paper-based guarantee process has now been replaced with an electronic straight through processing workflow. Time per guarantee request had been reduced from one hour to just 12 minutes, while time for guarantee issuance has been reduced from 14 days to a mere 24 hours. All guarantees are now in one single database system enabling full transparency and reduced complexity.
This simplicity factor is re-enforced by the fact that the number of banking relationships has also been reduced from 103 to one, and document requirements have been reduced from 575 to five on an annual basis (ie balance sheet, P&L, signature card, passport copies, and commercial register). These process improvements have led to significant cost savings for the company. “The number of man days needed for guarantee handling has been reduced from 250 to 25 annually, and bank fees have been reduced by 50% on an annual basis also,” says Bermüller.
With a very small project team of only two, this implementation was completed on top of daily business requirements and no external consultants or any other external resources were employed. There was no ready-to-use solution available, and the company’s banking partner, Deutsche Bank, had to develop and programme a bespoke solution for Merck’s needs. With no comparable projects available for orientation, Merck was the market forerunner in the implementation of a global trade solution among multinational corporate clients.
Bermüller concludes: “During the company’s global guarantee project, our team displayed a great level of motivation, dedication and attention to detail, which were cornerstones of this extremely successful venture.”
