Kellogg's places eggs in one basket

When it took Kelloggs'' treasurers an average of three weeks to find out just how much was in their bank accounts, they knew something had to be done.

When Peter Goldsworthy was appointed director of financial planning of Kellogg's Asia Pacific, some wondered why. Goldsworthy was the financial controller of a small cereal company that Kellogg's took over in Australia, with limited treasury experience. But Kellogg's had a bigger agenda in mind for Goldsworthy, namely the implementation of significant changes in Kellogg's treasury operations in the Asia Pacific region.

"Kellogg's wanted someone who knew about business, how it worked, and importantly, they wanted someone who knew how to implement ideas that worked now and not just iná10 years time," says Goldsworthy.

The scene

When Goldsworthy took over, Kellogg's Asia Pacific operations were working under a decentralized, fragmented structure. Kellogg's had grown organically with big business units in Australia, China, Korea, India, and Japan. This decentralized structure led to relationships with 25 banks, and 50 different bank accounts across the region. Two years ago, Kellogg's took on substantial amounts of debt, a cereal price war, and signed a global deal with Oracle to implement enterprise resource planning (ERP) systems on a business-by-business basis. And so the focus came back on cash management.

The goals

"When asked how much money we in the Asia Pacific region had in the bank, I had to say that I didn't know, and that it would take on average three weeks to find out," Goldsworthy admits rather sheepishly. "For example in Korea, where we had numerous local bank relationships, we had to wait 3 months for statements from that country."

Thus a new treasury structure had to be set up with the short term goals of consolidating banking process, increasing visibility of banking information and standardizing bank terms and conditions. In the long run, the treasury structure had to support netting, pooling and an appropriate structure for setting up a shared service center (SSC).

"Basically, we wanted one relationship with one bank who could do all that," says Goldsworthy.

The criteria

Kellogg's then set out selection criteria. "We wanted a global bank with Asia Pacific reach.áA lot of banks say they are global, but in reality, they only had relationships with local banks in many countries. We need a representative office in our bigger centers. Secondly, we were looking for technical expertise and flexibility. And lastly, appropriate service levels,"ásays Goldsworthy.

"Surprisingly, I thought that that price would be an issue, but all the banks were very competitive. Service instead was the single biggest issue," he adds. Service was such a high priority that Kellogg's set out a performance matrix, in writing, and presented it to the chosen bank.

"Implementation was the hardest thing"

Getting internal buy-in from the CFOs was crucial to the success of the new structure. "You do need someone at top level to push these things through, and you need to over-communicate," says Goldsworthy. "And don't let the bank leave the agenda. Especially during the RFP (request for proposal) process, inevitably, they will be keen to push their own products because it makes it easier for them."

What was achieved?

The receipts process was semi-outsourced. In Australia, for example, receipts were sent to a central mailbox and then collected, processed by the bank, and the money deposited in the central bank account. More than 50% of Kellogg's larger customers still pay by paper checks, and this has inhibited the e-enabling of the process. Kellogg's itself only stopped using paper checks as of April 1. Electronic funds transfer is now used for bulk payments, and this process has been linked with Kelloggs' ERP system.

Account visibility across the region has also improved, although Kellogg's in Japan is still working with a local bank. In addition, pooling and netting is now possible because of the use of a global bank.

The future

Will Kellogg's move to a full SSC? Goldsworthy doesn't think that it is appropriate for now. "We just don't have the economies of scale. Not like the operations in Europe. This was an arduous and costly process, and not just monetarily. We will have to see."

Goldsworthy was speaking recently at the Eurofinance cash and treasury management conference in Singapore.

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