The challenge

IKEA’s pre-transformation treasury was far from the minimalist ethos of less is more and simple for the many, complex for the few. The core deficiencies identified were:

• Decentralised operating model with multiple treasury centres and a lack of consistent processes and controls.

• Treasury had very limited transparency on global liquidity.

• Cash was sitting in local bank accounts with €1bn in idle cash.

• No cross-border cash pooling.

• No electronic bank statement receipt and integration.

• Cash forecasting was decentralised, unstructured and delivered incorrect results.

• Group Treasury had low visibility on liquidity, bank facilities and services, bank mandates and bank access management were fully decentralised.

• Niche competences (eg, financial risk management, hedge accounting) were required in various locations with different levels of expertise available.

• A treasury management system (TMS) was in place but lacking consistent use, not integrated with the ERP and payment factory leading to interrupted data flows.

• The payment factory was outdated, ran on legacy IT infrastructure and was nearly out of support.

The solution

The treasury transformation objectives of IKEA were based on four cornerstones:

1. Treasury excellence and enhance laser sharp commercial focus. A fully centralised global treasury centre of excellence (COE) was established, and IKEA implemented near real-time digital dashboards for core treasury data facilitating decision making. The company improved financial risk management driven by highly automated and accurate forecasted risk exposures. It also limited the use of bank portals locally to exceptional cases only, while streamlining portal access management globally.

2. Liquidity effectiveness and yield enhancement. During the global deployment period alone, the solution helped IKEA free up €360m of idle cash and achieve an additional €250m in float reduction via the implementation of an in-house bank (IHB) creating global cash concentration structures, bank fee monitoring/control and virtual accounts. The company streamlined its global banking strategy to six core banks (previously 18) and now uses a minimum of banks offering store-based cash and coin services.

3. Data and process driven with advanced analytics and machine learning. IKEA is now data driven using advanced analytics and machine learning enabled FX and liquidity forecasting. The company now has end-to-end focused risk exposure capture to treasury accounting and a fully integrated global application landscape (TMS: Quantum, Payment Factory: TRAX, ERP: S/4HANA in the process of roll-out).

4. Operation efficiency and better business partnerships. IKEA has achieved a very high level of automation and touch-less processes for core treasury areas. Seventy-five new globally consistent and optimised treasury processes as well as robust controls were implemented to ensure enhanced operational efficiency. Further efficiency gains were realised by outsourcing selected treasury processes to global business operations (GBO).

Best practice and innovation

Advanced analytics and machine learning capabilities – IKEA developed a proprietary liquidity and FX forecast engine ‘Prognos’ with integration to/from the ERP, payment factory and TMS. The now ‘hands-free’ forecasting process securing 90%+ accuracy enables IKEA to monetise forecasted FX positions in the market. Streamlined global banking landscape with ESG focus – a pool of six global banking partners was selected to create a network of uninterrupted global liquidity flows. Local banks were only retained for purely domestic services such as coin and note logistics, necessary to support IKEA’s 460 stores.

Bank ESG ratings are used in bank scorecards to allocate foreign exchange volumes.

The TMS, Payment Factory and bank account management (BAM) are fully deployed within the cloud, each with out-of-the-box integration. There is no host-to-host connectivity with banks anymore, as IKEA now has a fully SWIFT-based infrastructure.

(Near) touch-less IHB/payment factory – the full-scope IHB achieves end-to-end visibility for every single cash flow and true global cash concentration with no local cash left overnight in deregulated countries leading to significant float reduction across currencies.

Advanced funding routes into regulated markets – China and India are pioneering the use of tools such as Masala bonds, CMBN and bond connect (China) with IKEA actively using them as early adopters.

Key benefits

• Reduced idle cash and float.

• Yield enhancement.

• Cost savings.

• Headcount savings.

• Process efficiencies.

• Increased automation.

• Risk mitigated.

• Improved visibility.

• Errors reduced.

• Streamlined banking partners/bank accounts.

• Use of latest technologies like ML and AI.

• Increased system connectivity and integration.

• Future-proof solution.

• Improved key performance indicator (KPI) metrics.