Cash forecasting at Ingka Group, the largest franchisee of the IKEA brand, is now brighter thanks to a custom-designed solution that was developed in just eight months.
Ingka Group, the Dutch holding company for IKEA Retail that also has shopping centres and investments under its umbrella, has applied AI to its cash flow forecasting gaining a Silver accolade at the TMI Awards 2023 in the Best AI category for its use of ML algorithms.
The AI application deployed by Ingka Group delivers real-time insights that enhance its overall cash management across its diverse global footprint.
Traditional methodologies previously relied on manual data entry into Excel spreadsheets, with significant assumptions that could lead to human errors and inaccuracies. But by harnessing human expertise allied to AI in its new custom-designed solution, Ingka Group now has a faster, more efficient, data-led, accurate tool. It was developed in-house in just eight months.
The AI benefits from tapping human knowledge inputs during the set-up to help the application understand the various operational, investment and financing cash flow drivers, as well as the unique intricacies of the firm’s businesses and investment portfolio.
Avoiding garbage in, garbage out
An important part of the project was to enhance interdepartmental relationships to help treasury access all the relevant data the forecast relies upon. A detailed assessment of historical data was then fed into the AI to ensure the spectre of garbage in, garbage out was avoided during its establishment.
Sophisticated forecasting techniques such as statistical models, scenario analysis, and ML algorithms were deployed to improve the company’s cash forecasting accuracy and pattern-spotting capabilities. Already 55 scenarios, based on different parameters and assumptions, have been identified to help Ingka Group plan better.
Financial trends, customer behaviours, investment patterns, and economic indicators were fed in to establish a good base from which the AI can learn and build upon in the future. As the AI plugs into more and more real-time data, it then compares this with historical norms and segment-specific information to make Ingka Group more risk aware and on the front foot in optimising its assets.
As Guzmán Chavert Posa, Cash & FX Forecast Team Leader, Group Treasury, Ingka Group, says: “The capacity to process vast amounts of data enables the business to make well-informed decisions and swiftly respond to changing economic situations, enhancing agility.”
Enhancing performance
More accurate and timely forecasts can:
Address cash flow challenges such as trapped cash, FX and other risks
Optimise investments
Release working capital
The new AI application has become the backbone of Ingka Group’s IHB operations, helping it efficiently manage the organisation’s cash, liquidity, and financial risks. Automated data entry and calculations reduce the risk of manual errors as well as increasing efficiency.
Adaptability to meet future volatility challenges has also been enhanced. “AI-based cash flow forecasting models can adapt and learn from new data, making them more flexible in handling changing business environments,” says Chavert Posa. “As economic conditions, customer preferences, and market dynamics shift, the AI model can continuously update its predictions, enhancing the ongoing accuracy of the forecasts.”
An in-depth case study on this solution can be found in the 2023/24 edition of Journeys to Treasury, a comprehensive report produced by BNP Paribas, PwC, SAP, and the EACT.
