Published: April 01, 2011
Building our business with the highest levels of efficiency, performance and ethics is critical to the way that we work at Siemens. As Peter Löscher, President and Chief Executive Officer of Siemens AG emphasised in our annual report,
“Being a responsible company – this is what our foundation was built on, this is a core element of our values. Highest performance with highest ethics.”
This approach informs everything that we do, in the way that we interact with customers, suppliers, employees and the wider community. An essential means through which we achieve our performance and compliance objectives is through our Global Shared Services (GSS) group, which provides group-wide services in back office and financial processing to reduce business unit costs, create economies of scale and introduce consistent processing efficiency and control. Its activities include HR (payroll, pensions, recruitment and other HR support services), travel management, insurance, fleet, recruitment, order to cash (OTC) including cash allocation and credit services, purchase to pay, other accounting services and business process excellence
Our OTC function has undergone considerable evolution in recent years. First established in 1997 as a Service Line within a newly created Shared Services division in Siemens UK, we initially centralised accounts receivable (cash allocation), together with credit risk management and master data into one location in southern England, while credit control was co-located with key UK businesses in four other locations. In 2000, accounts receivable was relocated to the north of England, followed in 2003 by a move to Prague, Czech Republic. A small credit control representation was then also moved to Prague a year later. In 2007, as part of a major transformation project, accounts receivable and master data management was moved to Bangalore, India and credit control was centralised in one location in the North West, UK and the small Prague operation returned to the UK as part of this centralisation. The credit risk management team was then also moved to this same location.[[[PAGE]]]
The decision to relocate certain OTC functions from Prague to Bangalore was not an easy one to make, especially considering that our operation had only been in Prague for three years. However, we have been delighted with the results to date. Some of the factors that we believe contributed most to our success were:
In addition, a major factor in our success has been to foster strong relationships between our onshore and offshore entities, and foster relationships between the business and SSC.
This has involved visits, regular communication, a focus on mutual objectives and a culture of one team, as opposed to a divisive ‘them and us’ attitude. To this extent our visits to India invariably include some sort of sporting activity that involves their operational staff. This is always a highlight for them.
As for our UK based team, the goal at the start was clear – to create one ‘Centre of Excellence’. By centralising this activity, we have been able to increase standardisation and automation, streamline processes, and reduce costs and management time, while simultaneously delivering excellent results in terms of performance. At the same time, we achieved ‘World Class’ Customer and Employee satisfaction results.So we now have a central team for Credit Risk assessment and Credit Control in the UK enabling us to retain some degree of proximity to the business and our customers, whilst ensuring compliance with group-wide credit policies and general compliance. This team of 25 Credit Controllers and 5 Credit Analysts is responsible for managing credit and collections of around 175,000 invoices each year amounting to c. €4bn.
Our offshore team of 20 people in India create around 1,800 new customer accounts annually, and process 52,000 incoming payments, around 40,000 of which are electronic and the remaining 12,000 by cheque, as well as arranging settlement of inter-company debts.
In 2010, this UK Credit and Collections team won a Siemens Gold Award in recognition of the efficiencies and financial savings we have made
From our experience, activities that benefit from economies of scale are best located offshore, including tasks that are manually intensive and do not have a strong language dependency. Activities that require more direct customer knowledge or proximity, and/or require specialist skills tend to be better performed onshore, ideally close to the relevant business unit or customers. By transforming our OTC activities, we are positioned to support the business effectively both now and in the future, demonstrate industry best practices, and in turn increase customer satisfaction.
UK GSS OTC team supports most of our UK businesses. A worldwide ‘finance bundling’ project is currently under way which seeks to bundle and then streamline various finance activities, one of which is the topic of Receivables. This should see all Siemens businesses using shared services wherever appropriate by the end of our FY 2012, such as for allocation of cash to client accounts. One OTC related activity that typically remains locally-based across the Siemens world however is chasing collections, which is usually done by the business units. In the UK, however, we perform this centrally (as set out above), which has proved very successful. In 2010, this UK Credit and Collections team won a Siemens Gold Award in recognition of the efficiencies and financial savings we have made. For example, from September 2009 -2010, we reduced overdue debt by 48% and saw excellent cash flow results.[[[PAGE]]]
However, we recognise that there is always room to improve. The working relationship between our Onshore SSC department, the offshore SSC unit and the Siemens businesses that we serve is of critical importance, given how closely they all link in to the overall OTC process.We believed that our bad and aged debt levels could be reduced, and were conscious that certain tasks were duplicated by the business unit and SSC, with a number of manual tasks resulting in a higher than required level of overall resource. There was also a need to reduce the number of customer invoice disputes (which we regard as complaints).These issues have financial implications, create dissatisfaction amongst customers and can affect staff morale and damage trust between the business units and SSC.
So, after reviewing the potential for enhancing our business processes, reducing costs and improving performance metrics, we decided to embark on a specific ‘OTC Process Improvement’ project. So confident were we that we could improve our performance that the SSC agreed to put in place a resource at its own cost – the quid pro quo being that we wanted 20% of any financial benefits which would, in the main, be realised in the business via improved cash flow. This win-win approach was very positively accepted and certainly encouraged Key Stakeholder buy-in. We put in place a project delivery plan, firstly identifying a business partner - we ended up working with two businesses in parallel - and establishing the scope of the project with them. The second phase was to collect the necessary data, establish requirements at a local and SSC level, and define our objectives. Finally, we translated these into an action plan, focusing on the areas of activity that would deliver the most significant financial benefits and proceeded with project execution, a process that took 12-18 months.
We did this by looking at five key ‘Levers’ (see Fig. 2 above) that impact on the OTC process. Lever 1 was to look at how we could standardise our contracts, including considering best possible payment terms. This clearly had a significant impact on our sales and contract management teams, so it was important for senior management to remain fully engaged and help to address any potential issues. The second ‘Lever’ was to enhance the quality of our billing processes, by introducing greater automation, thereby reducing the incidence of errors and therefore invoice disputes.This in turn helped with improving the reliability of customer payment, Lever 3, combined with a more proactive approach to receivables management. Through Lever 4, we sought to deal with non-paying customers more quickly, by introducing a timelier, systematic approach to dispute management. This was supported by far more focused debt reviews between the SSC and the business unit, including reviews of outstanding disputes which the business had the responsibility to resolve. Non-resolution of these often impacted the ability of the SSC to collect other debts that were due from the same customer. Lever 5 is all about management buy-in and the finance directors involved themselves in every project review meeting, regularly communicating the importance of receivables management within their business unit – and even doing spot checks on individual accounts. This was key in terms of engagement from the business.
The outcomes of this project were considerable, with a €1m improvement in cost of capital in just these two business units over the first 18 months, with other advantages across the business, both quantitative and qualitative. Processes are now more efficient, automated and fit for purpose, with better communication and division of responsibility between the business units and SSC, ultimately resulting in financial gains and an improved customer experience.
From our experience, it is clear that there are very real benefits to be had by centralising the OTC process:
While there have been a variety of factors that have contributed to success, a culture of constant improvement and working together to achieve our objectives has been the most effective – and cheapest – element of our strategy.
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