Photo of Thomas Aubry, Citi, Vipul Gupta, Chi May Koong, Yee Ling Choo and Enrique Patrikson, Electrolux S.E.A Pte Ltd and Swee Sun Tay, HSBC.
Electrolux operates in a very competitive white goods industry. With an over-reliance on local banks for collection in countries where international banks lacked branch presence for over-the-counter transactions, it took a holistic approach towards driving working capital improvement. This saw it adopt RPA, standardisation of processes such as consistent use of virtual account and lockbox solution, and supply chain financing. This has enabled it to achieve substantial savings, financial and non-financial.
Head of Tax & Treasury APAC
Electrolux S.E.A. was founded in 1970. The company’s line of business includes trading a wide range of whitegoods and household appliances. It is part of Electrolux AB, the Swedish multinational. The group is consistently ranked the world’s second largest appliance maker. The company is the regional headquarters for Asia-Pacific.
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Concerted group focus on working capital triggered drastic action to drive overall improvement
Electrolux was over-reliant on local banks for collection in countries where international banks lacked branch presence for over-the-counter transactions throughout the Asia Pacific region. Bank balances in the local bank account needed to be monitored and transferred to Citi regularly. Poor references in bank statements created difficulty in identifying who had paid and posting in the customer ledger was a manually intensive process. In addition, there were fragmented processes and uneven payment terms across the region. Overall, this had an impact on Electrolux’s working capital management and reconciliation processes.
All elements of net operating working capital such as accounts payable (AP), accounts receivable (AR) and inventory were of prime focus. Key efficiency gains were achieved after a portion of the transactional handling and operations work was assigned to the shared services centre (SSC) in Malaysia.
To drive digital productivity, a review of accounting processes was actioned across in AR, AP and general ledger (GL). Further productivity improvements were also observed through the application of six sigma techniques (Electrolux Continuous Improvement Programme).
There was a collaborative approach where treasury, finance, working capital and the procurement teams joined forces to overcome various challenges including standardising payment terms and payment cycles. The focus on indirect purchasing spend led to increased transparency of spend and setting of minimum payment terms with suppliers. Electrolux also carried out a direct material inventory consignment programme (VMI) in factories, and had a robust inventory planning process for reducing multiple stock keeping units (SKUs).
Technical solutions in the following areas were implemented:
Supply chain financing.
Robotics – currently Electrolux has a total of six virtual bots in a SSC in Kuala Lumpur.
Banking solutions like virtual accounts and lockbox required collaboration with partner banks and integrated bank reporting tools.
Automatic identification of the payer of Electrolux invoices and postings in the ERP (JD Edwards) to offset against customer ledgers.
A Philippines “For account of” solution: leveraging Citi’s partner bank (BDO) branch network for cheque deposits through a virtual account opened by Citi on behalf of Electrolux with BDO.
Malaysia Wholesale lockbox with Virtual Account.
Best practice and innovation
Initially Electrolux experienced teething challenges, both operational and technical in nature, but increasingly the solutions described were normalised within the group. Robust improvements are still being made to processes so that, for example, RPA projects, can yield maximum benefits.
Electrolux incorporated multiple solutions, solicited a large variety of providers, and was able to bring together multiple teams and stakeholders internally, each of which had different KPIs, in achieving the goal of improving working capital and reconciliation. Many companies are not able to fulfil clear alignment and improvement in such a short time because of differences in objectives internally.
From 2014 to 2018, a 68% reduction in absolute amount tied up in working capital was recorded, while net sales have gone up by 18%.
Where automation is concerned, significant financial efficiencies are projected:
For FY 2018, US$401,000 of cost savings projected from Procure to Pay, Order to Cash, Record to Report and Master Data.
The savings projected for FY 2021 is US$1.52m from Procure to Pay, Order to Cash, Record to Report, Management Reporting and Master Data.
Cash flow impact resulting from this projected to be US$1.17m in FY 2021.