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The challenge

India’s restrictive monetary policies and highly regulated financial market brought unique challenges to the operations within the group treasury at Merck. It faced large FX impacts (local exposure not hedged) and limited use of global treasury processes.

Complex and manual local processes as well as a fragmented banking landscape across the four legal entities created multiple inefficiencies. These proved to be hurdles for core treasury processes and efficient growth. Merck kicked off a treasury optimisation programme in 2020.

A request for proposal (RFP) was issued in June 2020 to pitch for Merck’s Indian banking business. Merck’s objectives were:

• Risk reduction by introducing a FX hedging programme.
• Efficient processing of inbound and outbound cross-border transactions and associated documentation requirements for goods and services transactions.
• Process optimisation around cheques, virtual accounts, and automation of accounts receivable (AR) reconciliation.
• Cost reduction by streamlining the local account structure and consolidation through a one bank approach for all services.
• Improving flows of information for cash management and monitoring of treasury activities through centralised connectivity established with Merck globally and increased usage of standardised global treasury processes.
• Innovation and digitisation, ensuring treasury is ready for the future.

The solution

Merck worked alongside Deutsche Bank to completely streamline and automate cross-border flows, integrate FX execution and hedge adjustments with these flows, and to achieve considerable cost savings through competitive FX rates as well as a reduction in manual labour. This was accomplished by creating a rule-based, automated workflow, based on robotic process automation (RPA) designed to work with minimal human involvement.

One example involves the integration of a first of its kind Indian rupee (INR) target balancing solution, employing invoice selection logic based on invoice ageing and payment due date rules to further optimise liquidity at headquarter/IHB level.

A cheque collection solution is included as is the receivables matching and analytics (RMA) engine, which works within and as a module of SAP and is based on artificial intelligence (AI).

File formats have been harmonised across 25 different payment types including vendor payment, cross-border payments, and other disbursements and existing SWIFT FileAct connectivity between the bank and Merck Germany has also been leveraged to achieve a faster rollout.

The solution also provides automated time deposits (ATDs) linked to market rates for transparency and mapped this to Merck’s collection and payments cycle for optimised liquidity management. This leads to increased interest income and a reduction in manual processes. The time deposit confirmations were relayed in QXT format over SWIFT for the TMS to read and account for these directly in Merck’s ERP. It is believed this to be the first of its kind in the Indian market.

Best practice and innovation

Merck and its bank worked very closely for about 12 months with 50+ meetings discussing FX, trade finance and cash management requirements extensively for over 2,500 person hours, with teams spread across India, Singapore, the Philippines and Germany. The outcome was Merck deciding to consolidate its banking requirements which is delivering savings of low single digit million p.a.

Key benefits

• Cost savings.
• Reduction in number of banks.
• Integration and automation of cross-border flows with FX risk management.
• Day sales outstanding reduced.
• Single channel and file formats.
• FTE savings.

“The journey has accomplished substantial financial savings, the automation of processes and the prevention of fraud. Through cross-functional collaboration and harnessing of new technology, the project transformed our India treasury processes into a state-of-the-art organisation,” says Arno Classen, Senior Manager, Merck Group Treasury.