How to overcome the obstacles. Outsourcing Your Cash Management

Transcription

1 How to overcome the obstacles Outsourcing Your Cash Management

2 Contents 1 Why Outsource? The outsourcing decision is one of the most fundamental in modern business 3 Typical Considerations Seven considerations that apply to cash management 5 F.E.A.R. of Outsourcing Failure, Execution, Abrogation, Results 7 Case Study: ATM Deployer A project management timeline designed to directly address specific concerns 12 In Summary The Cash Management Solutions (CMS) Approach

3 Why Outsource? A critical decision that offers significant benefits. An abundance of debate and analysis has been produced in relation to the outsourcing decision, demonstrating how fundamental it is to any modern business. Two elements must be weighed up, the selection of the activities to be outsourced and the right partners to manage them. Traditionally, companies outsource non-core activities for a variety of generic reasons, including: Reducing operating and regulatory costs Increasing cost control Obtaining enhanced capacity Outsourcing has evolved towards strategic value-adding partnerships. Reasons to outsource have evolved over time as the purpose and benefits of outsourcing have become better understood. Whilst traditional benefits emphasise short term cost reductions, convenience and reduced headcount, more far-sighted benefits have further enhanced the role of outsourcing. More sophisticated management practice focuses on value-adding partnerships that deliver optimal results. With this approach, the rationale for outsourcing is extended to include: improving core business processes, reducing risk, and improving access to expertise - all contributing towards the ultimate aim of increasing the overall value add. In summary, the traditional benefits of outsourcing are complimented by more strategic rationale: Achieving process optimisation Releasing internal capabilities and capacity 1

4 The role of outsourcing in cash management. The purpose of a cash management function is to balance the cost of cash against the impact it has on consumer service. This balance need not be a conflict because the optimum management of cash can achieve both cost savings and increased availability of cash to meet demand. The successful outsourcing of cash management can truly add value through process automation, enhanced management information, gaining industry insight and improved supplier management all of which can release internal capabilities and capacity for core business activities. Characteristics of an effective cash management outsource partner. The specific complexities of cash management, combined with the prevalence of outsourced cash in transit (CIT) and cash processing, make cash management an attractive function to outsource. A successful outsourcing provider must be able to combine on-the-ground knowledge of the intricacies of individual sites with a deep understanding of the underlying trends. To achieve this, specialist experience is required to construct bespoke demand models to optimise forecasts. An attractive cash management outsource partner is likely to: Be committed to a strong partnership approach in order to achieve results Reduce the overall risk Allow for a focus on core business Provide in-depth expertise The Value Added through outsourcing cash management. Cash Management Solutions (CMS) provides an outsourced service by utilising the skills of a team of mathematicians to provide human insight into cash requirements. Our unique expertise combined with proprietary software bespoke to each client offers a tailored solution to the outsourcing challenge. The following benefits have been realised by companies outsourcing to CMS: Improved cash availability - up to 99.8% Reduced cash balances - e.g. by approx. 30% Reduced overall cash management costs - typically 33% Process improvements - head office cost reductions & productivity improvements Management information - real time, comprehensive and historical reporting 24/7 2

5 Typical Considerations As outsourcing is such an important decision, it is helpful to identify a set of considerations that will typically be presented when assessing options. These identify potential risks and can help mitigate their likelihood and impact. Cash Management Solutions (CMS) has identified seven typical considerations. Here they are presented in turn, along with how they apply to cash management. Vendor Selection The risk associated with engaging an inappropriate outsource service partner necessitates an exacting selection process. Particular risks that are presented by an inappropriate partner include: insufficient category-specific experience; personnel lacking relevant skills; weak financial resources; and sub-standard physical & systems infrastructure. These could each undermine a service provider s ability to adequately fulfil their outsource promise. Risk mitigation: Rigorous testing and due diligence must be undertaken on potential outsource service partners to assess their specific cash management expertise and credentials. Strategic Risk When any outsourcing decision is made, the business strategy is exposed to some extent. For instance, when dealing with cash management, if the process of managing ATMs is outsourced wholesale, the third party may be presented with conflicts of interest for example, when an amoured car company is providing the service, controlling costs may conflict with a need to generate income from service fees. Risk mitigation: Ensuring the alignment of strategic and commercial interests between the business and it s outsource partner increases the likelihood of success. This is achieved by using a truly independent, cash management provider with no conflicts of interest. Regulatory Compliance The possibility that outsourcing partners don t comply with best practice and established industry body requirements can represent serious reputational and market threats, particularly for financial services institutions. The off-shoring of services can pose high risks in this regard, particularly to territories with an immature regulatory environment. Risk mitigation: A specialist supplier, familiar with the ever-evolving nature of national and international regulations, is more likely to adhere to best practice demonstrating credibility via appropriate accreditation, a proven track record and an established code of conduct. 3

6 Security Outsourcing requires sizeable examination of the risks associated with the security of stock, data and intellectual property. Protecting these assets from unauthorised access, modification, destruction, disclosure and misuse is a key challenge when operating a cash management system. Risk mitigation: Concerns must be directly addressed with all processes documented and integration between organisations defined from the outset. Legal The legal complexity of outsourcing arrangements can be especially daunting and can represent a significant cost in implementation. Furthermore the ability to enforce contractual terms across legal jurisdictions must be considered. Risk mitigation: An experienced, specialist cash management provider will be familiar with such concerns. A clear, fair and transparent contract from the provider will develop the service into more of a partnership and ultimately, a better working relationship. Business Continuity The implementation of outsourced cash management has its own challenges and requires careful roll-out planning to ensure operations are not adversely affected. Risk mitigation: Proven knowledge and credentials of implementing new cash management systems is a key component, as experience is so vital to preparing for, minimising the impact of, and eliminating teething issues. Exit Strategy In much the same way as any roll-out plan must be comprehensive, so must any exit plan. Risk mitigation: There needs to be provision for the smooth transition away from an outsourced serviced ensuring operational continuity. 4

7 F.E.A.R. of Outsourcing When contemplating outsourcing options, a business must acknowledge the concerns that can be generated by such a fundamental decision. Whilst the benefits of outsourcing, both traditional and strategic, can be substantial as discussed in the previous section - considerations such as perceived loss of control must be addressed. Cash Management Solutions (CMS) has identified four steps that can assist businesses in overcoming any obstacles to outsourcing. The four steps will also assist businesses in assessing the suitability of a particular outsource service partner and will help identify the benefits of an outsourcing arrangement. The four steps are represented by the acronym F.E.A.R. By looking at each constituent of F.E.A.R., the case for the outsourcing of cash management can be appraised methodically. Failure Execution Abrogation Results 5

8 Failure To mitigate against the risks of failure, providers must evidence credibility. CMS uses five key pillars to provide affirmation of integrity: A track record of over 20 years Rigorous IT & financial due diligence Detailed references from current clients Desktop simulations before any contract initiation Blind Pilots to prove the predictive power of bespoke models Execution To alleviate any concerns regarding the ability of the provider to manage the business as usual operation and, more specifically, to ensure smooth function during implementation, a close working partnership must be developed. To ensure this, CMS utilises the following to ensure an effective launch: Phased roll-out to minimise the impact of teething problems Agreed milestones throughout implementation process to measure progress Data visibility throughout the process to ensure transparency, enabling quick identification of any potential issues Abrogation By using flexible contracts, CMS addresses the risk of on-going unfavourable arrangements: Results Tightly monitored SLA s/kpi s, agreed within the partnership and transparent at all times An exit plan to ensure there is clarity in any transfer back of control to prevent operations being adversely affected CMS commercial arrangements are linked to specified performance indicators. For instance, fees can be related to actual savings delivered to align the interests of both parties: Simulations (Desktop/Blind) KPI s Speedy ROI 6

9 Case Study : ATM Deployer Here you will find the timeline for the implementation of an outsourced cash management service for an ATM deployer. The majority of the time taken between initial discussions and the live date was the review period, where the necessary due diligence, contractual discussions and simulations were run. Once the client was satisfied and the project received the green light, operational implementation was relatively quick and real savings began to be achieved within 8 weeks. 1) Review In the inital review stage, the client provided information on withdrawals, replenishments, balances and supply chain costs. Short interviews were conducted with relevant personnel and models built for each site in the sample. Simulations were run on each site and performance against actuals was presented for client review. 2) Implementation CMS worked with the client to develop and agree a step-by-step migration plan, complete with milestones and measures of success. Weekly steering meetings were held with both parties, moving to daily in the final weeks of the implementation, ensuring a fully transparent process. A critical part of the migration included the transfer of data, including how and when this would be achieved - CMS was flexible with regards to file formats and structures. Implementation itself involved developing systems bespoke to the client s needs, testing models, testing processes and system training. At each milestone, the client made a go/no-go decision to ensure they were comfortable with the process. 7

10 PROJECT GREEN LIGHT Proof of Concept/ Savings Identified Blind Simulations Process Confirmation Month #1 Month #2 Month #3 Month #4 Month #5 Month #6 LIVE DATE Desktop Simulations Contractual/ Internal Discussions Data Migration/ Suppliers Informed Review Period Implementation 8

11 3) Day to Day Operations Throughout the partnership, the client has been in daily contact with the Relationship Manager and dedicated team, with full visibility of management information via an extensive reporting system. Management information is available via a range of devices. Whether it be examining.csv files delivered by , or watching a live monitoring dashboard on an ipad, CMS caters for all requirements. Management information reporting covers: Current balances Countbacks/rebanks Deliveries Cash outs In addition, all the above information can be broken down site-by-site, day-by-day, month-by-month. Here is a typical day-to-day operating process. CMS builds and maintains a unique model for every ATM in the network. CMS receives data from ATM host Orders sent to customer s cash centre and CIT provider The Order Process Extensive MI provided CMS communicates with CIT carrier to ensure smooth service Countback amounts analysed, CMS reconciles previous orders Closing balances calculated from daily supplier files 9

12 4) Results Through the utilisation of the methods described in sections 2 & 3 and construction of an efficient working partnership, the following results are typically achieved after 3 months: Reduced overall cash management costs of 33% Enabled a quicker expansion of ATM estate Cash availability now at 99.8% Allowed client to focus on core business The cost of cash is reduced significantly at full implementation due to superior forecasting techniques. This further reduces over time as scheduling is normalised and full details of individual site characteristics come to light (i.e. seasonal cycles and event specificities). Total CIT Monthly Budget CIT Monthly Budget CMS Implementation Month 10

13 Cost Per ATM Cost p/atm CMS Implementation Month Countbacks Percentage CMS Implementation Month

14 In Summary There are a variety of considerations applicable to the outsourcing of any business process and increasingly organisations are becoming more selective about which areas to outsource and to whom. This reflects increasing awareness of the strategic benefits of outsourcing that compliment the more traditional cost and capacity benefits. In this environment, service providers must become partners that directly assist with considerations presented to decision makers by outsourcing. The transition to an outsourced service will be smoother and the subsequent results greater, if the impediments to outsourcing are addressed directly and openly. Outsourcing Cash Management In today s market, the factors affecting the operation of cash management in the retail finance industry include: The increasing sophistication of forecasts and systems to meet the demands of complex estates The ubiquity of the outsourcing of CIT and the associated requirement to monitor providers performance The recognition of the potential conflict of interest in full network management solutions from supply chain companies The business model where fees are, to a certain extent, based on savings. This means that financial risks are transferred to the outsourcing partner These factors all promote a move away from full network management to organisations offering specialist, independent, cash management services that offer a greater commitment to a strategic partnership, in addition to cost savings and efficiencies. The CMS Approach to Outsourcing The typical considerations surrounding outsourcing, such as risk, security, legal implications and business continuity all contribute to the overall (and understandable) emotional fear that stems from a perceived loss of control. The approach of demonstrating competence with the client before implementation is the optimal method to address performance related risks. Allied with a combination of market-evidenced competency, foresight and commitment to a true partnership, organisations can cultivate a mutually advantageous outsourcing partnership. Cash management is an area where these fundamental principles can be applied. CMS has shown in our relationship with numerous global clients that significant benefits are readily achievable. Through a commitment to market expertise, CMS is able to offer significant competitive advantage and an outsourcing solution that creates true added value. 12

15 About the Authors This white paper was created by Brendan Doyle and Oliver Wood of Cash Management Solutions (CMS). CMS is an independent, privately owned company in which our employees are key stake holders. We are a global leader in outsourced cash management. We work with multi-national organisations, for whom we manage more than $20bn in cash annually, across 15,000 sites, in 25 countries worldwide. Brendan Doyle founded CMS in 1991 following his MBA at Manchester Business School. Since then, Brendan has gained over 20 years experience operating within the cash industry and has developed solutions for industry leading clients in 25 countries worldwide. Brendan is also a regular guest speaker at numerous conferences related to cash and payments, most recently speaking at industry events in Dubai and London during Oliver Wood, Investigative Analyst at CMS, comes from a European banking and corporate finance background. His role at CMS entails analysing emerging patterns of consumer cash demand and tracking movements in global currency markets. BDoyle@cashmanagement.co.uk OWood@cashmanagement.co.uk Copyright 2013 Cash Management Systems Ltd. All Rights Reserved Vanguard House, Sci-Tech Daresbury, Cheshire, WA4 4AB W: E: info@cashmanagement.co.uk T +44 (0)