Published: May 18, 2011
Since its first incorporation 35 years ago, international fashion retailer Orsay has become a leader in its field, with a strong brand image and a powerful network of 580 stores in 22 countries across western and eastern Europe. Headquartered in Willstätt, Germany, the company also has a regional headquarters in Wroclaw, Poland, where purchasing is handled, and sourcing locations in Shanghai and Hong Kong. The company’s rapid growth had resulted in some fragmentation in its financial processes. Under the leadership of Arnaud Barth, Group Treasurer, Orsay sought to transform its treasury operations to achieve greater efficiency in the short term, and to position the company for future growth. In this article, Arnaud Barth describes some of his experiences in delivering on these objectives.
I joined Orsay in 2009 with a view to delivering three key initiatives: FX hedging coverage, cash flow forecasting and cash management. It quickly became clear that these elements were closely related, all based on reliable banking partners, efficient technology and skilled resources. At that stage, every legal entity was responsible for its own cash and FX exposure management, including relationships with partner banks. We recognised that this was not an optimal arrangement, as we lacked economies of scale, such as in payments processing, and could not leverage standardised technology. For example, every business unit had to develop interfaces to its bank(s) in different formats, which replicated costs, reduced control and expended valuable resources. This business and technology infrastructure created particular challenges during a high growth period for the company with significant geographic expansion.
We therefore launched a project with a variety of goals. Firstly, we aimed to enhance the central view of cash across the business. Secondly, we needed to optimise our cash position, and take greater advantage of the cash surpluses in the business. Thirdly, we wanted to maximise our use of technical and human resources across the business. As a first step, we performed a global analysis of our needs, and issued a request for proposal (RFP) to a selection of core banking partners. We then submitted our proposals to the board at the end of the first quarter, 2010.We had various criteria for selecting a bank: firstly, the bank had to be willing to share Orsay’s risk by offering credit; secondly, we wanted not only a service provider, but a bank that could partner us across all aspects of our banking business. Consequently, our banks had to provide the range of services we required, in the relevant countries, but also to demonstrate their interest in enhancing our business in the long term.Based on our analysis of potential banks, we selected four banks, with Societe Generale as our primary banking partner.
We had had a long, positive relationship with Societe Generale, and we were impressed by the quality of customer service delivery. We work with the bank in Germany, where we are headquartered, and Poland, which is a core market for us, with a large number of shops in the country, and our regional headquarters and purchasing centre based in Wroclaw. As we expand in the future, it is our intention to work with Societe Generale wherever it is possible to do so.[[[PAGE]]]
We are implementing a unique solution for cash and treasury management across the company based on Kyriba, which is made available via SaaS (software as a service) so we do not need to install the system physically at Orsay. The system supports our FX exposure management, cash management and cash flow forecasting which therefore provides a single repository for data storage, integrated processing and consistent reporting. The vendor also acts as a SWIFT service bureau. By implementing SWIFTNet, our aim is to achieve a secure, standard interface for payment processing, irrespective of which banking counterparty we connect to. In doing so, we are achieving our current connectivity objectives, but also implementing the right framework for future growth.
We are now in the final stages of implementation of our cash pooling solution (figure 1). As we are headquartered in Germany, we have a euro cash pool in Germany with Societe Generale that covers all countries in both western and eastern Europe, except for Ukraine. Our new cash management structures are supported by an innovative technology infrastructure. Although we have two processing centres in Germany (for western Europe) and Poland (for eastern Europe) our aim was to implement a single communication channel to our banks, closely integrated with our internal systems.An important element of the project across all three components, FX exposure management; cash management, and cash flow forecasting, has been the way that we operate internally. We therefore worked towards centralising our internal activities more effectively, and enhancing communication. One person within each accounting team is now responsible for treasury-related activities, who in turn works with treasury, to advise us of cash flow and foreign currency needs, so we are able to enforce a consistent approach to cash and FX exposure management. Enhancing this has also enabled us to improve our cash flow forecasting. We can now position our cash at a currency level, which is important in making our currency hedging decisions, and vital for both forecasting and calculating group results.
As we are only now going live on our new cash management arrangements, we are only now starting to see the benefits. For example, although we have not yet derived full advantage from greater centralisation of cash, we are now able to take advantage of greater economies of scale for bank charges as we have rationalised our banking partners; in addition, we have already improved our intercompany payments significantly by implementing an in-house bank. An important change in our cash management philosophy is that treasury can now give direction to the overall cash cycle to avoid net surpluses in one country and deficits in another, enabling a more strategic approach to cash and liquidity management.
We have had a very positive project experience, and look forward to realising the full range of benefits that our business transformation will deliver. There are inevitably challenges with a project of this scale and complexity, but these are issues which many companies have to address. For example, collecting the project documentation can be cumbersome, particularly as there were multiple strands to our project, so we needed to gain input from various places. Having sought this input, we had to make sure that none of these departments suffered a loss of service from treasury, or indirectly from our banks, during a period of transition. An important element in the success of our project, and in particular our choice of banks, was to engage in early discussions with potential banking partners, in order to discuss our objectives, and to find ideas on how we could deliver on them. Although time-consuming, this was a very valuable process, allowing us to bring together the various strands of the project into a cohesive framework, formulate a realistic project plan and maintain board support. Furthermore, by remaining close to our banks and asking for their advice throughout the course of the project, we have been able to take advantage of new opportunities. For example, we had originally anticipated that Austria would be excluded from our cash pool, but changes to the regulatory environment meant that we could include our accounts in Austria. Societe Generale was flexible and proactive in scoping and delivering on the project in the light of these changes. In addition, as a small team with limited resources, it was both efficient and reassuring to have a single point of contact, who is able to co-ordinate resources and expertise from the bank.
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