Published: March 01, 2011
Founded in 1907 as a messenger company in the United States, UPS is now the world’s largest package delivery company and a leading global provider of specialised transportation and logistics services. Every day, more than 425,000 UPS employees manage the flow of goods, funds, and information to nearly 8 million customers in more than 215 countries and territories worldwide, supported by a network of over 95,000 vehicles and 216 UPS jet aircraft and 296 aircraft charters across over 1,800 operating facilities. Headquartered in Atlanta, Georgia, UPS’ revenues in 2009 reached $45.3bn with $3.7bn in free cash flow. The company is rated Aa3 by Moody’s and AA- by Standard and Poor’s.
Until 2002, UPS’ treasury organisation had essentially reflected a US company with international operations. We recognised we needed to undertake a major shift in vision and strategy, in order for UPS to build a world class treasury infrastructure around the globe. While establishing a new centralised infrastructure represented a significant organisational change, the business justification was compelling and senior management were highly supportive of our ambitions. At that time, we had a large number of banking partners and bank accounts, with limited visibility over cash and difficulties in accessing it. It was clearly recognised that cash was a valuable corporate asset, and by centralising control over cash management through global and regional treasury centres, treasury was in a far better position to protect this asset and to utilise it to enhance shareholder value.
Corporate treasury is now responsible for establishing a consistent strategy and policy across the group, while execution is conducted regionally in treasury centres in London, Singapore and Miami. By centralising cash management in this way, operating units no longer have to deal with liquidity, investment and borrowing issues, and only manage day-to-day account management, collections and supplier payments.
The business strategy is structured around four connected pillars (figure 1) of operational success: visibility and transparency; control; centralised liquidity management and information technology. This article outlines our approach in each of these key areas.
To enhance visibility and control over cash, we established a concentration account in each country, which then forms part of a global cross-currency, cross-border notional cash pool (figure 2). We have also reduced the total number of global bank accounts from over 2,500 to around 950, including concentration accounts. This has enabled us to manage authorities more efficiently as well as achieving greater visibility and control over cash. [[[PAGE]]]
In addition, to improve and standardise communication across the group, we designed and developed an intranet-based global treasury intranet portal, through which operating units and treasury can communicate. Although we considered various third-party treasury communication tools, these were too expensive and lacked the ability to customise functionality to our requirements. Initially, we used the portal as a central repository and reference point for group treasury policies and procedures, but subsequently its scope has been extended to forecasting and bank account management. For example, we have MT940 files imported into the portal daily for our bank accounts globally, which enables us to have timely visibility over group cash and enhances cash flow forecasting.
Implementing the global treasury intranet portal has been key to the success of our treasury and cash management strategy.
To operate effectively, treasury needed the authority to execute decisions and agreements on behalf of the group.Consequently, banking powers were delegated from the board to the regional treasury centres for relevant legal procedures such as concluding cash management contracts, credit agreements, setting up intercompany loans and opening or closing bank accounts.This enables us to be responsive to changing group requirements and act promptly.Regional treasury centres then sub-delegate signatory powers to managers of operating units for relevant local transactions such as supplier payments.
Implementing an efficient global cash pool has been critical to achieving many of the group’s strategic objectives in recent years. We now have 97.8% of global ‘poolable’ cash concentrated through the pool, which has enhanced our investment and liquidity management capabilities significantly. Asian currencies are now pooled on a same-day settlement basis, and only Canada and Latin America are T+1 (figure 3). We have financed acquisitions utilising cash pool funds, as opposed to relying on external financing that obviously comes at a cost. We were only in a position to do this as a direct result of being able to implement an efficient and accurate cash forecasting process within each of our subsidiary entities via the global treasury intranet portal.
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As this article has illustrated, implementing the global treasury intranet portal has been key to the success of our treasury and cash management strategy. As figure 4 demonstrates, we have focused on functionality, integration and security, so that the tool now provides leading edge capabilities to support our visibility, control and global liquidity management objectives.
Having implemented our global and regional treasury organisation, and achieved our visibility, control, automation and liquidity management objectives, we have been able to leverage the infrastructure to create additional value. For example,we have implemented a shared service centre (SSC) in Poland for centralised payments processing in Europe using SWIFTNet to integrate with our two payment banks for all types of payment, including manual payments such as cheques (figure 5). Having achieved considerable success in Europe, with more efficient, controlled and cost-effective processing, we are now rolling out a similar infrastructure in Asia.
Our achievements since commencing our treasury transformation project in 2002 have taken place gradually in line with changing business requirements and market conditions. We will continue this evolution to maximise the use of the tools we have in place, and position UPS for future growth. For example, we will continue to leverage our technology to drive process efficiencies, simplify account structures further as we rationalise our payments processing further, and consolidate regional banking relationships.Over the years, for example UPS has developed an important relationship with BNP Paribas in several of its home markets, and looks towards this bank to continue to build and improve efficiency. Furthermore, we recognise that our extensive global network, excellent credit rating, strong banking relationships, and highly sustainable business model places us in a unique position to support our global customer base through trade finance solutions.However the financial and business climate evolves in the future, we have the confidence that our business organisation is robust and positioned to take advantage of opportunities and manage challenges.
This article is based on the presentation by Ernie Caballero during the Cash Management University in November 2010.
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