Cash & Liquidity Management

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A New Systems Framework at Tesco plc Since the mid-90s, Tesco has been investing in new markets overseas, seeking out new opportunities for growth and ways of generating long-term returns for shareholders. Today, the group operates in 12 markets outside the UK, in Europe and Asia. Over 100,000 employees work in the company’s international opera- tions, serving over 15 million customers and generating GBP7.6bn sales and GBP370m profit. To support the increased scale and complexity of its treasury activities, Tesco has recently embarked on a project to develop its treasury technology from a series of unconnected applications to a fully integrated, best-in-class technology framework able to support the increased scale and complexity of its treasury and payments activities derived from its global expansion.

A New Systems Framework at Tesco plc

by Karen Dobson, Sales Manager, Global Payments and Cash Management, Europe, HSBC Bank plc and Ian Hendrie, Senior Sales Manager, Global Payments and Cash Management, Europe, HSBC Bank plc

Until 2001, Tesco relied on a series of spreadsheets and in-house-developed applications to manage its treasury, risk and cash management. As a growing company, with expansion in Asia and Europe, as well as suppliers globally, Tesco’s treasury technology requirements were also becoming more complex and diverse, so the decision was taken to implement a third-party treasury management system (TMS). Following a rigorous selection project, Tesco selected and implemented SunGard’s AvantGard Quantum.

Although the system was implemented successfully to cover the company’s core requirements, Tesco’s treasury did not have the resources to optimise the way in which it was used, so ‘phase 2’ objectives such as integrating the TMS with its banking systems were never undertaken. Instead, a payments report was produced from AvantGard Quantum and the relevant payments typed into its banking systems. Therefore, many of the potential benefits of straight-through processing were lost.

Treasury was in a position to review the wider systems landscape to achieve more efficient transaction processing and a higher level of straight-through processing.

Over the next five years, the TMS was not upgraded and Tesco took the strategic decision to review the key processes in treasury, and the underlying systems framework. The aim was to ensure that the most appropriate systems were in place to support the company’s current and evolving requirements, and used in the most efficient and integrated way possible.

Firstly, Treasury conducted a market analysis of treasury management systems to verify that AvantGard Quantum was still the optimum TMS for its needs. Having confirmed this, the team decided to upgrade the system to the latest release to take advantage of technology and functional improvements and efficiencies. Treasury was also in a position to review the wider systems landscape to achieve more efficient transaction processing and a higher level of straight-through processing.

For a commercial organisation like Tesco, it is not always easy to justify expenditure on ‘back- office’ systems. As the TMS was already in place, implementing a new, visionary technology framework did not require major capital expenditure, but there were still significant costs in addition to the internal and external resources required to deliver the overall project successfully. Some elements of the project, such as implementing a new confirmation-matching system, were difficult to justify in terms of quantitative value, and therefore did not have a specific return on investment attached to them, but it was important to take into account the qualitative benefits, such as improved control. With others, such as online dealing, there were clear qualitative benefits, primarily better quotes through price discovery.

Hosted solution

One of the most important parts of the project has been to migrate from managing the technology infrastructure in-house to outsourcing it to a third party. The TMS is a specialist application with a limited number of users but a number of interfaces, so ideally it required support from people who knew the system. It was difficult for Tesco’s IT department to provide this type of support, which needed to focus more on large-scale applications directly related to the services that the company provides to its customers. Consequently, Treasury’s proposal to outsource the hosting of its IT infrastructure met with little resistance, and the IT department was able to advise on how to avoid problems that had been encountered with previous outsourcing arrangements. Having reviewed different outsourcing options, the decision was taken to expand the relationship with SunGard which now provides hosting services to Tesco.

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