Ciba produces chemicals for a range of industry sectors including Automotive, Packaging, Paper, Construction and Electronics. Ciba has 14,000 employees worldwide and is headquartered in Basel, Switzerland. In 2006, Ciba had sales of CHF 6.4 billion. This month we talk to Stefan Eggli and Peter Vogelbacher about their recent transition from a standalone treasury management system to an ERP system.

What are your roles?

Stefan Eggli (SE): I head up the treasury control group within Ciba’s group treasury. So I am responsible for the middle and back office, for the operation of the internal and external risk management process. That includes foreign exchange trading, inter-company financing and short- and long-term borrowings and investments. I was project manager for the integration of the financial risk management processes into the new ERP system.

Peter Vogelbacher (PV): I am responsible for the middle office and that includes end-user support projects and system customising. I was also very much involved in the details and implementation of both the old treasury management system and the treasury module of the new ERP system.

How is Ciba’s treasury structured?

SE: We run a very centralised approach within group treasury. We implemented a payment factory a year ago and are now in the process of rolling in all the countries in which we operate. Since mid 2007 we have run a centralised financial risk management process using the treasury module of the new ERP solution. Centralisation was really very much enabled by the implementation of the new ERP solution because we run a so-called single instance approach. This means we implemented only one environment in order to cover most of the financial risk management processes of our headquarters and our affiliates.

Why did you move from your treasury management to an ERP system?

SE: The ERP replacement was not only about treasury as you can imagine. It was a project undertaken by the whole company. The corporate strategy was to replace the existing multiple instances of the legacy ERP system with a single ERP system. Treasury took the chance to review the payment and financial risk management processes to become more standardised and centralised.

Did you go through an RFP process?

SE: Yes we did. Basically it was driven on a corporate level, but Treasury was also invited to look at how we could benefit from ERP solutions. One advantage of the ERP that we finally selected over the previous ERP was that it also covered treasury needs. If the company had selected an ERP system without treasury support we would have stuck with the older treasury management system.

Did the project require much communication with other departments internally?

SE: Yes, mainly with the accounting department, as we took over accounting responsibility, and the affiliates with local financial risk management activities. Another very important link was to the ERP project management as we had to co-ordinate tasks and deadlines with the global rollout schedule.

Could you talk me through the features of the ERP system from a treasury point of view?

SE: It covers the global financial risk management process – that means internal and external foreign exchange hedging of the local and global exposures. Ciba has a yearly global gross exposure of roughly CHF 1,500m equivalent that group treasury needs to manage. The whole inter-company loan process is also now within the ERP treasury solution. Additionally, the external investment and borrowing process, including interest rates derivatives, is fully covered by the new solution.

The biggest step forward is the seamless interface of the financial risk management processes into the accounting module of the ERP system. In the old system the posting process required a lot of manual work and bore operational risks.

We also use the direct SWIFT connectivity under the SCORE model and the previous model called MA-CUG. It works well, except that we have implementation issues with the SWIFT payment formats coming out from the ERP. There we saw better support from the standalone solution.

However, we have seen that the selected ERP solution supports the group treasury needs very well. We recognise that they have really improved in terms of functionality and instrument coverage over the recent years.

What sort of obstacles did you encounter?

SE: We had some issues in finding the right external consultant. We needed someone who really had the technical expertise on the ERP treasury module. That was a little different from the former treasury management system. There were quite a few people with knowledge of the old system.

PV: It seems that the treasury part of the ERP system, particularly the risk management part, is fairly new. That’s why there is not too much expertise around in the consulting market.

SE: What was specific to Ciba is that we had to keep up with the global rollout plan. In other words, the ERP rollout plan was to go live in the headquarters in the middle of 2007, so we had to stick to this plan. It was difficult to meet the deadlines, especially because the consultant was not available from the beginning of the project. We met the deadline by putting in more internal resources.

PV: The real benefit was that we already had internal expertise on treasury management systems from running the old system. We found that the logic between the two systems was not that different so we were able to transfer our knowledge over to the new system.

Were there any other obstacles?

SE: In our case there was no real interface that could have uploaded the data from the legacy system to the new system. And also some of our entities are not yet live on the new system, so we still have to keep the old system until all the entities are on the new ERP environment.

PV: Another obstacle is the issue of interfaces to external systems. The standalone treasury management system is much more flexible when it comes to interfaces. We still have to bring the ERP and market data system provider together in order to discuss how to better interface. The former treasury management system supported various market data systems as well as leading e-trading platforms with no difficulties.

So what are the advantages of the ERP system over the old treasury management system?

SE: The seamless integration between the accounting module and the treasury module is a major advantage. We also found that there is a good integration between the treasury module and the payment factory module within the ERP. Additionally it allows better visibility over the cash flows because of the integration to the supply chain modules.

There are also big benefits from a compliance point of view, which were recently confirmed during the regular external audit. The seamless integration to the ERP accounting module allows for a standardised and therefore highly compliant and auditable valuation and posting process.

But there were advantages of the old standalone treasury management system over the new system?

SE: As mentioned earlier, we found our treasury management system had better integration with the external market data providers and e-trading platforms.

In the past we also ran the back office procedure for the pension fund management, which we couldn’t do with the new system. The old treasury management system had more treasury specific features. I would also say from a reporting point of view the old system was a lot more flexible than the new one.

PV: Another advantage of the standalone system is in the area of change management. The ERP system is managed centrally. The treasury cannot simply decide to upgrade the new system.

If the ERP providers develop some additional new features or release some service packs, the upgrade has to fit into the global change management schedule. So we would like to upgrade a few of the modules, but we can’t because we’re still in this roll-in phase.

SE: Ultimately, we were driven by the corporate strategy on the ERP system, whether we liked it or not. But overall it turned out to be a success. We gained a lot of expertise on the old treasury management system that we can now use in the new system.

What future trends and developments do you anticipate in the TMS market?

SE: We are in contact with other multinational corporates and many of them are moving in the same direction. They have centralised their treasury operations, they want to reduce their environments, and in this case it might make sense to select an integrated treasury management solution within an ERP system.

PV: The ERP providers have understood treasury needs meanwhile and have put more resources into further enhancing the treasury solutions. Many functionalities that were previously only covered in the treasury management solutions are now becoming more and more standard in the ERP area.

And what are the standalone treasury management systems doing?

PV: I think there will be further merges between the providers. Their market is not becoming any bigger. It might be that the treasury management system will also become more of a niche product, for example for central banks or for corporates that have special needs that cannot be covered by an ERP system.

SE: When you are replacing an ERP system, what rationale is there to have an additional treasury management system if you have most of the functionalities already in the ERP system? On the downside, one loses specific functionalities by adopting a more standardised solution, but in our case we have been able to either accept this or to find workarounds.

What do you have planned for 2008?

SE: The ERP project is due to be completed at the end of 2008. The EMEA region and also the Asian region still need to be integrated. And we still have a few instruments on the derivatives side we would like to have implemented. We also have some open issues with SWIFT messages. Once all this is done we might look for an upgrade and look for a better interface with e-trading platforms, but this is more likely to be in 2009.

Are you doing anything in the SEPA area?

SE: We have already put a lot of effort into using our payment factory to turn cross-border payments into domestic payments by opening local bank accounts. So for us there is no strong need to look at SEPA schemas. But the situation might change. Banks have started to promote their SEPA schemas – corporates can send their old formats and banks turn them into SEPA formats.

I used to say SEPA comes a few years too late for us. It would have been of great benefit two years ago when we were looking at our cash management processes. But SEPA is the right way to go and payment factories will certainly benefit from that initiative.