Over the past 12 months, the team has delivered on a significant number of projects and operational activities that have ensured their operations continue to be among the most efficient, automated and reliable in the corporate world.
Highlights over the past year can be summarised as follows:
Continuous improvement ‘boot-camps’.
Operational efficiency and productivity gains.
TMS upgrade and ‘other’ projects.
Having completely redesigned and remodelled the entire treasury operations around the successful Quantum implementation in 2011, a detailed and ambitious, dynamic systems and operational road map was put in place. In 2012, a new approach to change was introduced to ensure that the culture within treasury remained one of continuous improvement.
Prior to the implementation of Quantum, AZ performed a LEAN (Six Sigma) review of all processes. The findings of this initial LEAN project provided much of the detail for the business case for the original replacement project of the legacy TMS.
As such, the team was determined not to let the skills, experience and the change in attitudes gained during this project to be lost. Therefore, in 2012, AZ Treasury implemented a new policy centred round the key objective of ‘continuous improvement’. The result was the birth of ‘son of LEAN’ entitled ‘zero tolerance on manual processes’ (ZTMP).
To ensure that this did not just become ‘another’ over used strapline, the entire team are now engaged in quarterly ‘boot camps’.
Continuous improvement ‘boot-camps’
The ‘boot-camps’ bring ZTMP to life and are designed to provide a platform for each member of the team to identify areas of their roles that can be improved and to present these to the group. A ranking scale allows all processes/issues to be ranked either ‘good, bad or ugly’. The team member presenting an item as ‘ugly’ or ‘bad’ is expected to propose a workable solution to address this situation. From this point onwards, the introduction of the solution or proposal will be treated as a mini-project that is logged, monitored and reviewed at subsequent boot camps, right through to resolution. The introduction of this approach, has helped the mind-set within the team to change, and this is highlighted by the adoption of a zero tolerance attitude to ‘workarounds’, ‘quick fixes’ and manual processes. One of the key takeaways from the initial implementation was to ensure that AZ would remain at the forefront of technology, with a strong determination to avoid ‘offline’ (eg not in the TMS) processes to gradually work their way to becoming ‘normal’. Greenfield explains, “the boot-camps and ZTMP policy has ensured everything we do is constantly being questioned and reviewed, which has now become our ultimate insurance policy on ensuring everything we do is both automated and as efficient as can be physically be achieved.”
Following the implementation of the Quantum TMS, AZ Treasury performed a review of all processes and operational areas. The objective was to identify processes and tasks they felt would be performed or managed to a higher level by outsourcing.
The key to this review was that the desire to outsource was not driven purely by potential cost savings (as is often the case with outsource initiatives), but instead by the fact that certain skill sets required to run a treasury operation actually exist outside of the organisation to a far higher level of competence than can ever be called upon, and more so, retained in-house. In addition, even if it were possible to attract, train and retain such resources, it would be highly unlikely that AZ would ever be able to boast depth of coverage sufficient to ensure ongoing, unbroken support into the future. Ultimately, three key operational areas were identified that could bring immediate and tangible benefits to their operations through ‘strategic’ outsourcing.
Technical interface management
Integration – critical interface monitoring and management. Interfaces by their very nature are technical. Interfaces are also at the heart of everything AZ does. It was agreed that the best and most logical place for the management of their key interfaces should be with the software vendor (who were already managing their hardware and software through existing hosting arrangements) as this is where the best first line support resides, as well as an easier route to second line support (eg the developers). Putting interface management with the ‘system owners’ made perfect sense. After a series of lengthy and extremely detailed workshops, SunGard took over the real-time monitoring and management of the most critical processes.
Payments, confirmations and investigations
The complexity, risk and ability to respond to changing market legislation and general compliance in the field of back office processing is a complicated one. Managing the day-to-day process, risk and constantly moving regulatory landscape in this area is a constant challenge and diversion.
AZ Treasury decided that this operational area, could, with the right partner, be better outsourced.
Bank of America Merrill Lynch has subsequently been chosen as the partner to provide back office services around the core areas of payments, confirmations and investigations.
The approach fits perfectly with AZ’s outsourcing strategy of utilising the superior skills available outside of their own organisation. The end result is that AZ is now benefiting from the experience and vast support network one of the world’s foremost financial institutions to manage all of their payments, settlements, confirmations and investigations.
AZ has benefitted in terms of a significant reduction in payment errors, settlement errors and ultimately bank charges/interest claims. With the low volume, high ticket value deals executed by AZ, the annual costs associated with outsourcing these processes, can be easily offset by a single missed payment/cut off time. On this measure alone, their strategic outsourcing agreement with Bank of America Merrill Lynch has quickly exceeded expected return on investment (ROI).
Strategic solution and system management
As part of the long-term plan to ensure that AZ remains focussed on continuous improvement and innovation, it was decided to retain, on a long-term basis, the services of an external consultancy (SLG) to provide guidance and input into the short to long-term strategy governing solutions and systems. One key output of this is a defined, dynamic five-year road map.
AZ have gained from this unique relationship in many ways, but feel in particular that in areas of innovation, clear thinking (that is free from the stresses of day-to-day treasury operations) and an open and honest approach to raising new ideas and solutions, this has helped to remove the danger that, following a period of great change and achievement, people’s attitudes within the team can naturally start slanting back towards a ‘job’s done’ approach.
Having an external feed of ideas, brought from all manner of different sources (eg industry working parties, other client’s approach to best practice etc) has ensured AZ can continue to operate at the forefront of innovation within the industry. When this approach is added into the existing culture (eg boot-camps, continuous improvement etc) the team and operations have a perfect environment in which to continue to exceed.
Capital markets activities
To complete the picture, and not to make treasury seem like all it does is ‘boot camps’ and projects, in the last 12 months, the team has also issued two bonds and a complex cross currency swap, launched a CP programme and designed and implemented an internal, cross-border, tax efficient refinancing solution.
TMS upgrade and ‘other’ projects
Quantum TMS, having been implemented in 2011, was identified as being critical to the ongoing direction and development of AZ’s treasury operations. As such, the operational five year roadmap has been built around Quantum to ensure that AZ continue to invest in, and develop this product to support existing activities, but also that it continues to be both in good health and flexible enough to be able to help deliver change as and when required.
Starting in March 2013, the team has been working tirelessly on upgrading to Quantum Version 5. This is the latest version of Quantum and a significant upgrade in terms of system change and added functionality. The project went live on 27th May and was under budget.
Other projects included:
Implementation of MMF portal.
Implementation of collateral management solution.
Cash forecasting and FX requests.
Cash visibility and cash pooling.
These recent, considerable achievements have been achieved by a very small treasury team by industry standards. Using the recognised Deloitte resource to turnover ratio (0.9 headcount per $1 billion of turnover), AZ should have somewhere in the region of 27 full time resources.
Greenfield concludes, “the fact that a core team of ten, plus three outsourced, have achieved such a significant amount, over a relatively short period (as well as continuing to run the daily operations of a $33 billion turnover corporate with operations in over 100 countries), is an absolute testament to great leadership, bold vision, huge ambition and above all else, a world class, innovative treasury team.”