Solectron Corporation-a global contract manufacturer for name-brand computer and electronics companies-needed to improve the management of its accounts receivable in order to increase cash flow and reduce working capital financing costs. In late 2002, Solectron deployed Emagia Cash Inflow Manager as a means of automating and streamlining all aspects of its cash collection process. Using Emagia has resulted in immediate cash efficiencies, measurable productivity gains, improved cash flow as well as effective, accurate cash reporting and forecasting.
The Challenge
Fueled by demand for its contract manufacturing services, Solectron became one of Silicon Valley's fastest growing companies in the late 1990s. Understandably, investments in financial system infrastructures, such as cash flow management systems, took a back seat to accommodating fast growth. As the business climate shifted to slower growth, however, Solectron management turned to operational efficiency and disciplined cost cutting. One area identified as a source of untapped profitability improvement was cash collections processes.
Solectron Senior Vice President Guy Rabbat was tapped to figure out how to optimize cash flow management as a means of driving more profits out of the company's $12.2 billion annual revenue stream. "By predictably accelerating the velocity at which cash flows into the company, Solectron can reduce its borrowings, pay less interest, reduce its foreign currency exposure, and collect interest on the extra cash," said Rabbat.
Rabbat's team examined Solectron's entire global accounts receivable system and identified several major deficiencies in credit and collections:
- Even the most rudimentary collections task, such as resending an invoice to a customer was time-consuming and labor-intensive. Invoices had to be printed and then manually faxed to the customer. In most cases, collectors did not have access to invoice records in the data system, and had to ask managers to print copies of original invoices to substantiate a collection request.
- Solectron could not integrate data from its disparate ERP systems to create a "global" view of customer account portfolios. Many customers work with Solectron on more than one manufacturing project, often involving multiple operating companies around the world. For example, a single customer might have 30 accounts, both active and inactive. Without a global view of customer accounts, it was impossible for Solectron to determine which customers were the most profitable, which were current or behind on payments, etc.
- Collectors lacked reporting and analysis tools, making cash collections forecasts challenging. For example, it took an entire day to pull the necessary data for an A/R aging report, so these crucial reports were run just once a week, limiting their usefulness. Additionally, valuable time was wasted pursuing customers for invoices that were, in some cases, already paid.
- Accounts receivable departments were spread across multiple geographies, exposed to different currency environments, and dependent on a mixture of ERP systems and legacy back-office financial packages. Faced with inadequate system functionality and the inability to extract timely cash flow-related information, the finance staff had developed workarounds using Excel spreadsheets to provide cash forecasts and other basic reports. All of this seriously weakened the internal control structure of the organization and hampered cash collections and forecasting.
"We needed to get a better handle on our cash flow processes so we could generate accurate cash forecasts," said Jack Pacheco, CFO, Solectron Technology Solutions Business Unit. "We also wanted a solution that would slice and dice and analyze our customer portfolios, allowing us to manage a single customer's total exposure across all our different operating companies."
The Emagia Solution
Solectron evaluated several leading cash flow management solutions. Despite having previously implemented a competitive product to Emagia in one division, the search ended with Emagia being selected as the worldwide standard. Emagia met Solectron's needs with:
End-to-End Cash Flow Management Functionality - Emagia delivered comprehensive functionality in all areas of receivables and cash inflow management, including portfolio analysis, collector productivity, cash forecasting, and workflow-enabled dispute resolution.
ERP Integration - Emagia provided standard adapters for integration with Solectron's multiple ERP systems. Emagia also delivered custom interfaces that offer dynamic real-time access into the most current state of a customer's collection status, including cash receipts and adjustments information.
Rapid Implementation - Emagia's structured implementation methodology, and Enterprise Application Integration Kits for back-end ERP systems, kept the implementation short and within budget.
The Bottom-line Impact
With Emagia, Solectron can once again aggressively pursue market share and top line growth without compromising cash conversion efficiency and impeding working capital.
Collections agents now have timely electronic access to all the data and documentation they need. With a single mouse click, agents can send invoices directly from their desktop to customers via fax or email. No more duplicate printing of invoice copies, no more dialing fax machines, and no more customers dodging payments by hiding behind lack of documentation.
"Accounts receivables collectors log on to the Emagia Workbench when they arrive at the office in the morning, and then they work in Emagia all day long instead of jumping from system to system," said Val Plotkin, Credit Manager. "Emagia presents critical data from the ERP systems in a consistent layout and structure, giving both collectors and their managers instantaneous access to real-time information on receivables, customers, aging, cash forecasts, and more-all in one place."
Emagia's dynamic reporting module, for instance, is so easy to use that A/R aging reports, which formerly ran once a week, are now run every single day. According to Guy Rabbat, Emagia's software solution has optimized the efficiency of the entire receivables process, "and dramatically improved our ability to control collections." Rabbat estimates that, on average, Emagia has doubled the productivity of Solectron's employees in credit and collections by relieving them of performing repetitive administrative activities.
These productivity gains enabled a reduction in finance department headcount, which currently saves Solectron approximately $1 million per year. Even more importantly, Solectron has succeeded in freeing significant amounts of cash from its receivables since implementing Emagia software in 2002. Solectron saves an additional $14 million per year by reducing interest payments on its working capital financing.
"Fully half of all our revenue-six billion dollars a year-flows through Emagia software," said Guy Rabbat. "We have implemented Emagia in North America and Europe, and we are currently rolling Emagia out to the various Solectron operating companies in Asia. The bottom line is that Emagia is not only a powerful cash flow productivity tool at the departmental level, but is also an incredible profit generator at the enterprise level."
