Streamlining Treasury Flextronics Style

Streamlining business is often synonymous with increased efficiency, and as "tighter belt syndrome" has spread throughout Global 2000 corporations, medium- and small-sized businesses and government agencies alike over the past three years, the concept of streamlining business is a topic of discussion these days almost anywhere you travel in the world. John Joy, director of treasury operations, Flextronics International, should know; he manages treasury for a company created and built on the principle of streamlining EMS, short for electronics manufacturing services. Joy sat down over lunch in San Jose, California, to discuss the role of treasury at Flextronics and how what happens in Hungary, Poland, Sweden, Austria, Brazil, China, Malaysia, Japan and in the rest of their locations in 29 countries around the world, can impact the lives of billions of consumers every day.

If you use a computer, cell phone, printer, PDA, stereo, DVD player, camera or any number of electronic devises, chances are, they are manufactured by Flextronics to keep you connected or entertained. And you're relying on them, in many cases, for post-purchase support. More than 95,000 employees around the world provide design, manufacturing, logistics or support to the original equipment manufacturer (OEM) companies most business people rely on every day. By utilizing these services, OEMs can concentrate on their core competencies-such as research and development of new products, sales, marketing and branding-and less on the actual design, manufacturing and distribution.

Flextronics industrial parks are similar to small cities, complete with factories, living quarters or dormitories, supplier offices, logistics offices, legal services and customs specialists necessary to diminish the cost of production and maximize the advantages of their global, large-scale, high volume capabilities.

Altering the Course Without Changing Direction

Over the past four years, Flextronics International has grown rapidly, and with fiscal year 2003 revenues of USD$14.0 billion, it has become increasingly evident that while some departments work perfectly in a decentralized fashion, other departments, namely treasury, needed to make some adjustments that would balance local empowerment with a consolidated corporate approach to financial management.

"It's important to create an environment that gives local regions the ability to make decisions that add value to the organization as a whole. Sometimes a local tradition may seem like a more comfortable or accepted practice for a company of limited size, but if it fails to serve or even hinders the company globally as the company expands, then adjustments have to be made in terms of streamlining business practices," Joy said. He gave an example of a controller in China who used to sit down every Friday over coffee and bread with his banker. The banker, in turn, gave his business more attention and slightly better foreign exchange rates when possible; but when that same level of service and value can be achieved by maintaining fewer banking relationships and granting those selected a larger volume, it doesn't make sense to commit unnecessary resources each week that could otherwise be devoted to something more productive to the company as a whole.

Providing Local Staff With Reliability They Can Depend On

Global treasury departments cannot afford to wait ten days to know their regional cash balances and only hope the investment choices that are made in the mean time represent the best opportunities available across the global market.

Flextronics selected SunGard's AvantGard/Quantum because it supported a balance between regional decision-making on certain positions, but also gave the director of treasury the valuable benefits of a global vision in terms of global cash management and investment opportunities, while minimizing the costs of external borrowing, foreign exchange trading and other service fees.

Originally, this was of marginal interest to a staff that viewed these changes as a symbol of corporate control, but that changed as they were able to actually monitor success from the decisions they made on a daily basis.

"By consolidating our information and accounts on one system, Flextronics was able to negotiate global contracts using real and comprehensive data that provides our regional staff more options and better reliability than the former way of managing accounts and relationships," Joy said. "It's natural for people to be skeptical of something they don't fully understand, which is why the way it is presented is so important," he said "It's important to empower the local staff to take ownership of running the system."

Examining Results that Speak for Themselves

Since implementing the treasury system, Flextronics has re-evaluated their banking relationships, closed the accounts that didn't benefit them, and opened investment accounts at the local level (based on global contracts), thus increasing their interest revenue.

The system provides Web-based (eTreasury) access for remote users, foreign exchange dealing and FAS 133 accounting on one platform, offering complete visibility of their global exposures, which enables them to do a better job managing their hedging activities (because they now have time to verify and analyze the information versus simply entering the data). In the end, AvantGard/Quantum has allowed Flextronics to dramatically reduce the need for overtime (cost savings on staff hours), and has provided Joy's team with the reporting capabilities that support the higher salary costs of a well-educated and experienced team—all good things for Flextronics' bottom line.

And finally, with greater global cash visibility, centralizing the treasury processes and implementing a real-time global debt and investment solution, the need for external borrowing is minimized. Cash needed by one business unit is covered through internal loans from another, meaning the interest paid is netted out and does not affect the stock price. Since the SunGard system automatically generates reconciliation reports to both the internal lenders and borrowers, a confirmation number is generated for the global cash manager making manager-to-manager "agreements" passé.

Expanding Treasury's Role within the Enterprise

Joy takes great pride in constantly challenging the team to run an extra mile. In addition to streamlining a global treasury process, he is also a premier example of expanding treasury's role within the enterprise.

Joy discussed how he and members of his team now participate in contract negotiations for new business ventures and how the treasury department can be absolutely pivotal in alerting the M&A team to potential foreign exchange risks, debt, even as advising the team about each country's often complex currency agreements (or restrictions). "A single transaction can wipe out your profit margin if it's not structured properly," Joy said.

Joy and his management consider treasury's involvement to be a great asset in their company's M&A activities—an asset he feels many enterprises may not be taking full advantage of. "Since treasury manages the back-office, an involved treasurer or director of treasury could be an optimum advisor on leases, litigation costs, insurance fees or the debt positions of a company the buyer is interested in acquiring. Something as easily overlooked as a prospective company's bank covenants could either work well with the products and services offered by the acquiring corporation's contract, or it could conflict miserably and end up costing the acquiring corporation more money than they had bargained for," he said.

"It's important to understand the total business and not just your individual role. The best treasurers take opportunities to talk to their counterparts in operations, sales, and they get involved in professional organizations. It's so important to force yourself to keep growing and expanding what you know and how you can use that to give your department and your company an edge," he said.

Combining Dependable Technology With a Capable Staff

Before acquiring AG-Quantum, Flextronics did everything manually. Their corporate treasury department would receive weekly e-mails of bank statements from around the globe, and one person would sit and consolidate the data to create a one-page summary. They had thousands of accounts, some with balances of only a couple thousand dollars, requiring a substantial amount of time to examine, in addition to all the unnecessary fees.

But as the company grew, so did their need for a streamlined process of accountability: ironically, exactly what they provide to their clients. Joy says there are three crucial elements required for any corporation to change the status quo by dramatically increasing value: a visionary staff, a supportive senior management and a solid treasury system that provides the technology and functionality that supports your team and initiatives.

"Everyone has to be willing to make an investment, not just of money, but of time and their own involvement," Joy said. "And a good treasury system is worth the financial investment because the long-term benefits it provides will pay for itself ten-fold in labor costs, optimized cash positions and increased investment opportunities. You need the combination of a committed team, a supportive management and reliable technology," he added.

At Flextronics, five people, complemented by a flexible and robust system and the support of senior management, essentially do the work of about ten to fifteen. "We don't have the luxury of hiring fifteen people right now, so we have a team that is committed to the company and to each other and we make the best possible use of technology to leverage the value of those people," he said. "I think that's the biggest secret to success in business anywhere," he added.

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