Case Study
Philips
gtnews reported Philips’ major reorganization of disparate systems into a single payments factory between 1998 and 2004.1 In 1999 the first replacement system was implemented near Philips’ main office at Eindhoven in the Netherlands. In the second year 40 sites were replaced, and in the third year a further 100. In each instance, replacing the local facilities did not necessarily entail removal of their payment systems. Six years after the project’s commencement, 630 sites around the world had migrated to the new global payments factory platform, which was processing 70,000 payments per month.
A range of benefits was gained from consolidating payments into a payments factory. For example, it is believed that a typical company with annual revenues of around $1 billion would save over 1% of its costs per year (i.e. $10 million per annum through such consolidation. Certainly, the Philips case study bears this out, with savings of around 50 staff, bank fees and netting fees down by almost €7 million per annum, and systems maintenance savings of around €1 million per annum.
Other benefits include:
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Real-time management of all cash and netting positions.
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An accurate picture of risk and liquidity.
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Improved bank relationships and transaction management.
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More effective negotiation of cross-border positions and currency transactions.
What Next?
After the implementation of a payments factory, which focuses on consolidation, costs savings, and a centralized platform, most firms develop more sophisticated functions of risk management. This means that new processes and functions are integrated into the core system, for example real-time cash management reporting. This requires even more focus on technology, as the integration required across many different systems, formats, and services—both internal and external, including the banks—is considerable.
Therefore, most firms would partner with technology organizations, and possibly their number one global bank partner, to implement this range of services. Following this, the more information services and reporting a corporate can provide to its treasury, finance, and end-user population the better.
Making It Happen
Any organization considering the implementation of a payments factory should take the proven path of consolidation by following these steps:
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Consider the costs of processing payments based upon the range of systems and processes involved and discuss with senior management the rationale for maintaining such a range;
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Agree to move towards a payments factory approach and invite key providers of such services to discuss what would be involved;
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Based upon the firms you invite to discuss this with your firm, identify up to six organizations that may be appropriate to deliver a payments factory solution;
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Ask each firm to outline the approach they would take and then invite two or three to prepare a formal proposal;
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Review each proposal and ensure that:
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they clearly articulate how they will identify the global structure of payments processes across the corporation;
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they explicitly identify how they will audit the systems, software and platforms involved including their age, resilience and compatibilities, or incompatibilities;
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the benefits and issues of consolidation are clear;
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you are comfortable they can do the job and have strong references to prove they have worked with similar organizations to your own.
As long as all of the above are clear and proven, select an organization to work with and make it happen.
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