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For decades, Goodyear did not have an automated liquidity structure in place in Asia Pacific, Goodyear has been exploring a better way to get access to the excess cash spreading in 13 markets in Asia Pacific in an efficient way.
The challenges Goodyear faces are including but not limited to: cash that was not always in the right place, unnecessary banking fees and associated correspondent bank fees incurred through the manual transfer of funds, and the inefficient utilisation of internal cash at both regional and group levels. Entities had to build up extra safety cash balances locally, and the movement of funds between the entities was being manually tracked via spreadsheets.
Goodyear sought to improve its liquidity structure.
Goodyear began its journey to re-architect its entire cash management function in Asia Pacific, leveraging the comprehensive and fully automated liquidity solutions involving account rationalisation, cash concentration, multicurrency, and multi-entity notional pool, and ‘just-in-time’ funding.
The overhaul is being implemented in a phased approach, starting with the unrestricted markets of Singapore, Australia, New Zealand and Japan, whereby domestic physical cash has been pooled via cash concentration to automate the consolidation of liquidity. In markets where Goodyear must maintain accounts with local third-party banks, an automated multibank sweep solution will be deployed to allow Goodyear the ability to concentrate local liquidity to its bank, J.P. Morgan.
Specific to one market, where Goodyear has one entity with the local currency as its functional currency that is typically short of cash, and another entity with both local currency and the US dollar as functional currencies that is generally in a cash surplus – a multi-entity, multicurrency notional pool will be set up to allow both entities to keep its functional currencies while being able to automatically move cash between them, without additional costs and avoiding FX exposure risks.
For Singapore, where Goodyear’s global procurement hub resides, the firm will also leverage J.P. Morgan’s ‘just-in-time’ funding tool that automatically calculates and funds the accounts as necessary – to fund its procurement entity for large-value payment runs and at the same time ensure the optimisation of their intraday overdraft facility.
To connect these structures, a regional multicurrency notional pool in Singapore has been set up and linked to the various local cash pools via a physical two-way cross-border sweep. This notional pool will allow Goodyear to maximise the efficiency of its balance sheet, improve the utilisation and efficiency of internal cash, improve foreign exchange management across currencies and centralise cash for increased visibility and control. The pool is also further integrated into Goodyear’s in-house bank in Luxembourg on a same-day value basis via an automated two-way cross border sweep.
The solution is currently being implemented for the unrestricted markets in phases and will eventually be rolled out to the other restricted markets, where regulations permit, with the targeted end-state a simplified, cost effective, and fully automated liquidity management structure for the region.
Goodyear will also auto-post the sweep transactions into their ERP for intercompany reporting and will be leveraging the bank’s intercompany reporting feature for Japan.
Best practice and innovation
The power of the solution lies in the carefully tailored combination of the individual liquidity-enhancing capabilities that, when put together, completely transform Goodyear’s cash management function. The multi-entity, multicurrency notional pool is also unique in the industry in its ability to pool entities that have different functional currencies and cash needs.
Optimal utilisation of cash.
Manual processes eliminated.
Improved efficiency and risk management.
Same day value transfers.
“With this cocktail of cross-border, multi-currency, multi-entity, fully automated notional pooling, cash concentration and ‘just-in-time’ funding, we have achieved our treasury objectives,” says James Ho, Regional Treasury Manager.