By Hilary Kabak
Avnet fulfills goal of efficient M&A systems integration with FiREapps’ FX exposure management system.
Some of the big challenges corporate foreign currency managers face is getting accurate and timely data on their FX exposures. These were the oft-cited complaints at the NeuGroup’s FX Managers’ Peer Group Summit in March of this year.
At the meeting, co-sponsor FiREapps’ team showed members how they could minimize these risks. In doing so the FiREapps team emphasized not only the ability to improve visibility with their custom-built ERP data repository, but also the necessity of such visibility when your M&A activities leave you responsible for more currencies than your spreadsheets can handle.
the avnet example
FiREapps recently illustrated its capabilities with a case study on client Avnet, a technology company with annual revenue of $26 billion, that connects manufacturers to over 100,000 customers globally. Avnet works in more than 130 currencies and since 1991 has completed over 80 acquisitions around the world. While this growth pattern consistently yields high value, it also poses challenges in the form of operating and systems landscapes and increased exposure to volatility in FX as the percentage of income generated outside the US continues to rise.
Avnet takes a decentralized approach to treasury, with regional treasury centers located in the US, Europe and Asia, staffed with 11 FTEs in total. The philosophy is global visibility with regional responsibility for execution. Additionally, they continually inherit ERP systems from companies they acquire, so, as treasurer Joe Burke explains: “Many of them need to be quickly integrated into our risk-management program so we can understand and mitigate the exposures they bring with them.” There is also the issue of different entities’ accounting groups having different definitions of FX risk.
To combat these problems, Treasury leverages Avnet’s Operational Excellence (OE) program, whose job it is to manage operational fluidity and efficiency in the company. This includes managing M&A integration and making sure everyone is on the same page with key concepts, including the definition of foreign currency risk. For Avnet, the OE team helps the company make the most use of a FiREapps solution for “a collaborative, integrated, full-circle FX management program,” but the concept could work for any technology solution that streamlines operations.
out with the old
To improve efficiency and reduce error, Avnet replaced its spreadsheets and manual processes with FiREapps FX STP. “If you looked at the global footprint for our exposure risk management program a few years ago, before we got together with FiREapps and our Operational Excellence team, you’d see a bunch of spreadsheets and telephones—that’s the truth: everything was done manually,” recalled Mr. Burke. But today, the FiREapps exposure analytics platform operates with the company’s ERP, trade execution and accounting systems, providing treasury with automated exposure identification, global visibility and the analytics and tools required for informed, effective risk management at the regional level.
It’s a closed-loop, straight-through product that:
- Enables consistent exposure definition and calculation management based on data extracted from multiple instances of SAP and other ERP systems.
- Can be effectively managed from regional treasury centers to support hedging at the frequency needed for each entity (based on factors including size, time since acquisition, and regional business conditions).
- Incorporates new businesses and systems quickly and efficiently.
Through this solution, total exposure is identified with each new development; Automated and template-based data collection, exposure definition and validation.
into the cloud
All of the ERP data generate files into the FiREapps cloud, and other sources of exposure, such as newly acquired companies, either upload through an automated transformation process or through an Excel spreadsheet. The end result is a system that allows you to integrate new exposures as soon as they come into the company, the value of which cannot be overstated for treasurers and FX managers who struggle to align newly acquired entities and their specific exposure tracking with the parent company’s policies.
Analyzing the data also becomes much more efficient when it is all gathered reliably in one place. Files coming into FiREapps go through a filtering process based on FAS52/ASC830 rules for revaluation to produce an exposure report, basically mirroring the foreign exchange reevaluation that occurs in the general ledgers of the subsidiaries. The end result for Mr. Burke and his treasury team is “complete global visibility and the ability to execute quickly.”
Working with Avnet’s own Operational Excellence team, Treasury was able to improve timeliness, accuracy and controls; enable cleaner and faster accounting closes, use more time to discuss qualitative issues surrounding exposure data; and boost confidence in the FX exposure management program. As a result, Treasury has:
- Gained real-time visibility toward exposures and Value at Risk (VaR) at the entity and enterprise level.
- Increased the frequency of exposure management based on VaR.
- Lowered hedging costs by $75,000 a month in Europe through organic exposure elimination and reduced transaction volume by aggregating exposures on a regional or corporate basis and hedging the net exposure externally with a financial institution.
- Reduced FX gain/loss volatility on a corporate and regional basis.
Particularly for an acquisition-minded company, being able to improve visibility and reduce volatility is an operational boon. It also speaks to the broader benefits of centralizing your data, an oft-cited wish for companies whose manual processes prevent them from confidently forecasting their FX exposures but who haven’t found the right technology solution for automation or integration.
simpatico
Even if you are able to find the technology portion, your actual results depend on your own team. Avnet was able to increase productivity with the FiREapps FX STP because they had a team of people with the same ideas about what the goal of this solution was. You don’t need a formal Operational Excellence team, but if your goal is to have consistent, accurate data all the way up to the board, step one is to get everyone on the same page. Then you are primed to make the best use of a customizable technology solution.