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Sun icrosystems

Corporate practic e

Centering Sun sGlobal Payments

The workstation maker harnessesele troni automation to support amore productive finance function.

To help increase revenue per employee as part of a company-wide effort,Sun Microsystems' finance function isseeking to reduce its costs by onethird and shift resources from accounting se rvi ce s t o va lu e -a ddin g bu s in esspartnering. Treasury ' s role in the earlystages of this initiative is to streamline

global cash management and integratetreasury support services such as payment and collections processing.

Project background

Sun segregates the finance function into two basic areas :

account ing se rv ices -e .g . ,financial accounting, disbursements , receivables processing, cashapp lications , commissions accounting

business partnering-e.g. , finan

cial analysis, medium range andstrategic pi ann i ng, customer/vendorinterface , credit , channel management.

Consolidating accounting services,Sun believes, will reduce cost throughec on o mi es of sca le a nd fre e time forbusiness partner ing act1v1t1es .Financial support services, those oftreasury, will be managed fr om fouraccounting service centers in differentt ime zones: the Americas; Europe,Middle East, Africa ; Asia/Australia;and japan.

Treasury will assist the accountingfunction in standardizing businesspractices , processes , and systems on aglobal basis. One focal point of theseefforts is the cash management area,where a decentralized, multi-bank,multi-system structure is beingreplaced with a more centralizedframework that takes advantage of

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available automat e d banking systems .These automated systems wi II belinked to , and integrated with paymentand collections. Payment processinginformation will be captured electronically and transmitted using EDI-technology on the same day as the transactions are executed. This process willbecome easier as paper-based transactions give way to the electronic commerce of the near future .

The treasury support model

Sun ' s Treasury Support Model hasthe following objectives:

a utom a te d , c o st- e ffi c ient coll ections and disbursements pro c ess e s tosupport its centralized accounting

centers a single standard interface

Sun s Headcount ProductivityFisca l Yea r Reve nu es Empl o yees

1992 3 .6 bn 1 2,8 1219 93 4.3 bn 1 3,2531994 7 bn 1 3,282

Reve nu e/ Emplo yee

2 80 ,00 0325,000353,000

between collections and accountsreceivable systems and accountspayable systems and disbursements

consolidated banking relationships to increase service, reduce bankcharges, and reduce management ofmultiple banks

increase net investment return onglobal financial portfolio and reduceborr owi n g costs throu gh : sp ee din g th ereceipt of funds globally , standardizing the platform and payment methodof disbursements , and improving themanagement of accounts receivable.

Taking a US model globally: Themodel Sun is using globally is one thathas been developed in the US andCanada, where they are usin g onebank as a concentration bank andfunnelling all remittances and payments through it in their variousforms . In addition to executing transactions , the concentration bank sendsan e lectronic transmission report backto Sun in EDI ANSI format, including,for example, what payments came in,

in what form, along with the necessary remittance advice.

Bank o f America and its globalbanking systems network will h e lplink Sun ' s electronic commerce sys-tems with suppliers and customers , aswell as Sun operations worldwide .Regional interfaces via the accountingservice c e nt e rs h ave b ee n d ete rminedto be the most efficient.

In a single-currency environment likethe US, this is relatively easy to handle , notes Abdul Premji , a vice president with Bank of America's globalpayments group , it ' s either a paperbased remittance that goes into a lock-bo x, o r it ' s a wi r e tr a nsfe r o n th e AC Hside. The b a nk proces s ing the payments only needs capabilities to trans

mit all the information back to thecomp a ny in a timely fashion and in a

format that can automatical lyupdate their receivables/payablessystem.

Outside North America, themodel is more difficult to implement . Accord ing to Miche leTakei , one of the treasury projectmanagers at Sun, the problem

areas can be outlined a s follows: a la ck of consistent information

reportin g of ACH and money transfer

transactions outside North America a lack of lockbox/receivables pro

cessing operations outs ide NorthAmerica

the wide variety of col lect ionmechanisms around the worl

t he lac k of co nso lid ate d , a u to m ated information reporting

time zones.In tackling these issues, two uncer

t in ties re p rticul rly troubling toSun ' s treasury. First , it is difficult todetermine whether the automation ofnon-North American collections ofchecks or automation of receipts fromwires will be the most cost-efficientsolution. Second , its goal of achi e vingsame-day updates of accounts receivable ledgers as the receipt of payment)may prove diff icul t in some areas.Japan , where 20 % of Sun ' s busin e ss isdone , posed special problems.

Treasury's proposed solutions at this

Int e rn a tional Treas ur e r/ Fe bru a ry 2 0 , 1 99

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point fa ll int o thr ee categor ies: a new data capture platform - Sun

is mi g ra tin g to a n Oracle acco untsp aya bl e prod u ct, w hi c h i s PC /Window s-b ase d and hi g hly flex ib le;thi s acco untin g packa ge will re place

th e variety of pack ages b e in g us e dcurrent ly a t Sun sites wor ldw ide , c reat ing a hom oge nou s syste ms ne two rk

ce ntra lized dat a translation- us ingBank of America to consolidate thedata on th e bank side and transl a te itinto EDI, Sun relies o n a valu e -addednetwork in O hio to transm it the data,wh ich is fe d into Sun ' s comp ut e rs inMilpit as , Californ ia ; there it is clownlo aded into its glob al account ing network

r eg ion a l disbursements - th eacco untin g se rvice centers wi ll fac il itate ce nt r a lize d proce ss in g in eac htime zo n e; they wi ll a lso in t e rfacewith the b a nking co n ce nt r ation network that wi ll co nsist of a co ncentration bank a t a regional ce nt e withlink s to reg io nal acco un t s in eac hcountry cl ea rin g center.

Following the lines o cash manage-ment The prob lems compan ies runinto w he n th ey try to a utom a te backoffice AP/A R functions on a globa l o r

re gio nal basis a re very simil a r to tho seon the cash management s id e. Eachco untry h as s lightly different ways o fmaking p ay ment a nd ea c h h as itsow n clearin g system. Also , autom ation sys tem s have to accommodatemu ltip le b a nk s.

Bank of Am e ri ca, while i t has apre se nce in Europe , it is not a re tailbank in Europe . Thu s Sun , or anyother co mp a ny rece iving hundreds ofc hec ks eac h week w ill nee d a loca lrepos itory b ank to deposit those funds .

Bank of mer i c h s su ggeste dUS-style , loc k -b o x serv ice to Sun ,where instead of customers send in gpayment to t he m a t their loca l office,they send it to Bank of Amer ica'sbran c h in the lo ca l clearin g cente r oreven di r ec tly to one in London. Thisis sim il ar to typic a l p a n-Europeancas h concentratio n sc he m es .

Overcomin g the obstacles in Europ eis not without cost According to Mr.

International Treas u re r/ Febr uary 20, 1995

Premji , compan ies should expect topay as mu c h as 7-8 tim es w h at a b ankc har ges for lock-box process ing in theUS. Th e pe r item c ha rges w ill fall asmore compa ni es impl e m e nt s imil a rprograms a nd vo lum e rises in Europe ,

but it probably wi ll not reac h the co nce ntr at io n of vo lum e th a t US systemse nj o y.

Benefits With thi s th r ee -pron geda ppro ac h, Sun hop es to duplic a te thebenefits ac hi eve d in th e US , wh e retransmission of EDI d a ta started inOctober 993 and now a utomat es theproc ess ing of 80% of a ll transactions.Sun 's US cas h ap pl i ca tion s functionhas r e duced h eaclcount from 9 to 3peop le ov e r the co urs e of th e prog ram . It a lso h as re du ced ave rageacco un t s receivab le days sa les o utstanding (DSO ) by .5 cla ys .

In Canada, Sun is c urr e ntl y set up torece ive EDI files and w ill have au tom a ted daily upd ates to its acco untsreceivable le d ge r by th e e nd of thismonth.

With Canada comp le ted, Sun w illfoc us o n m ax imizin g the be nef its inEurop e w h e re th e O racle syste m isbeg innin g to b e in sta lled.

Som e of the be nef its cl ea rly are co m

ing f rom l eve rag in g b a nk back -of f icetec hn ology . W e a re takin g away th emor e mundane e le m e nts of th e ir backof f ice,' ' no t es Bank of Amer ica ' s Mr.Premji , no longe1 do es so meo ne haveto op e n a n e nve lope, depo sit a check,a nd e nt e r t h e payment details intothe ir acco un t ing syste m.

uccess factors

Ms . Takei , who pr ese nt ed a summaryof Sun 's project at a rece nt TMA EDICo nf e re nc e lays o ut th e traditionalsuc cess factor s: Se t cl ea r project goalsa nd get an in t er n a l bu y -i n , from as tron g se nior m a n age m e nt comm itm e nt to e ve ryo ne o n the local leve l.Also , as co mp l ete ce nt r a lization isunobt a in ab l a t leas t in the n ea rterm stages of such a program - eve nat th e re gion a l-leve l, it is import a nt toh ave lo c a l, co un try-l eve l paymentprocessin g a lte rn a tives .

Sun icrosystems

Mr. Pr e mji stresses the import a nceof in t e rnal coo rdin at ion a nd bu y-in asp a rti c ularl y import a nt for su ccess .Mo st co mp a ni es co uld h ave th e prel imin a ry st age s of suc h a pr o g ramimpl e m e nt e d in 2-3 month s he says

t h a t is if th ey conduct th e pre liminary inte rn a l work first

Part of th e internal process is get tingcomfortab le w ith ava ilab le techno log ya nd educating the re l ev n t f i nancea reas so they ca n become in vo lved inthe discussion . You don't nec essa rilyn ee d to im p ose a g lob a l co mp a n ywide system, says Mr. Pr em j i, asmu c h as yo u n ee d eac h unit w ithinthe compan y to und e rstand th a t su cha pro gra m is to thei r ben ef it. It mustbe in their in terest to in t eg rate th e irlo ca l banking a nd acco untin g systemsin t o th e g loba l framewo rk. Th ey a lsoca n prov ide in s ight into ho w suc h ag lob a l framework ca n be s t b e co nstru c ted within the co ntext of a company ' s pa 1ticul ar business.

Ind ee d , on e of th e thin gs Sun wou ldh ave do n e differ e nt l y, i f it h a d toresta rt its program , accordin g to Ms .Ta ke i, is to in c lud e a ll th e pl aye rs inthe process ear lier in the ga me .

Comp anies ca n start by ge tting th em

to id e nti fy th e nu m e rous so ur ces ofpay me n t in form at ion t h ey rece ive bothinterna lly a nd from banks. Often theycan eas ily ra tionalize th e numb e r ofsou rces. N ex t , th ey s h o uld seek tound e rstand in wh i c h format the info r-m at ion shou ld be rece ived in orde r tobe fed directly into the ir l oc al acc ounting system.

Most accounti ng systems tod ay havesome sort of EDI-interf ace bu i l t in ,n otes Mr. Pr e mji. Yet, most co mpani es do not use th e m , beca us e th eydo not pe rce ive a need, or have notyet implemented a pro gra m to do so.

Often, he says th e initia tive to sta rt isbein g driv e n by th e treas ur y departm e nt , where ava ila bl e technology isbein g utili zed to a utomat e and rationali ze b a nk in t e rfac es. Th i s sa m epr o cess is then simp ly ex te nd ed toothe r areas of the compa ny a nd to cus-tomers a nd suppli e rs ma ny of w homwill be und e rgoin g s imilar proc esses.

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