Each CTQ area was assigned to a team that includes a vice president and a director. Each team is responsible for making improvements in that area. Team members are recruited from whichever part of the company has most control over that process, so in addition to finance, areas like sales, operations and human resources are involved. In an effort to drive accountability, treasury tried to divvy up the areas so that teams were dealing with factors within their control. For example, working capital management is divided into Days Sales Outstanding (DSOs), Days of Supply and Days Payable Outstanding. In turn, each is subdivided, with individual components assigned to a business owner. The component of DSO that deals with the terms offered to customers is the responsibility of the sales teams, as is another component of DSO, linearity, which relates to the date during a quarter that sales are booked.

Sun also worked out how to divide the total number of Days Sales Outstanding among the six components. "For each of the six, there are days associated," Govil says. "You add up the days and you get the total DSO. When people talk about making improvements, we can quantify those and know what kind of impact they have on overall DSO."

Govil acknowledges that efforts to improve cash flow sometimes conflict with the priorities of other parts of the business. For example, the services business would like to have as many spare parts as possible to provide the best service to customers. "However, that would have a terrible impact on cash. We would tie up a lot of cash in inventory," Govil says. "So one challenge was getting everybody at Sun focused on cash and why cash is important."

Treasury was responsible for liquidity management and worked on centralizing more of the cash at subsidiaries to invest it at a better rate. "We moved $412 million from our subsidiaries to the centralized entity from which we invest, which resulted in [a gain of] $4.9 million, based on 120 basis points of incremental yield," Govil says. Treasury also came up with a dashboard that let each CTQ team track its progress. It reviews the dashboard quarterly, focusing on targets that have not been met.

The effort to improve Sun's cash flow is "enterprise-wide and cross-functional," says Govil. "In order to be successful, it requires people to step up from different parts of the organization, not just finance." He says the project's success reflects the fact that its champion, Mick Murray, Sun's treasurer and vice president of global financial services, has unusually broad responsibilities for a treasurer, including the invoice-to-collect and procure-to-pay functions, and worked in many different areas of Sun before becoming treasurer.

Sun's work is just beginning, Govil says. While the cash conversion cycle has fallen from 52 days to 40, "it would be good to get this to zero or to negative, so there's a long way to go," he says.

Lucent Technologies Inc.

With 200 subsidiaries in more than 80 countries, the treasury at Lucent Technologies Inc. wanted to manage the company's cash on a consolidated basis, but was stymied by the requirements of the tax and accounting departments that every transaction be recorded at the subsidiary level. It saw an in-house bank as a way to resolve that dilemma and, at the same time, automate and standardize the work associated with individual transactions.

While treasury came up with the in-house bank idea, the project required the cooperation of a number of other departments. By the same token, the benefits from implementing the in-house bank weren't limited to finance. "When we started, it was just a treasury thing–we were looking to do our job better," says Fred Schacknies, director of the in-house bank and financial risk management. "But we realized that in order to do our job better, we'd need to work with other parts of the business on similar challenges they were facing."

The project was accomplished in stages. First, Lucent implemented a global treasury management system from Trema, called Finance KIT, that supports straight-through processing. Then, it put in place an in-house bank, using a pilot version of new Trema technology, to provide cashless settlement for 33 Lucent subsidiaries.

In April 2002, Lucent's treasury switched on the system's basic tools, which enabled functions like trading. It started to use the cash management capabilities in January 2003. And in January 2004, after three years of hard work, the first transactions on the in-house bank were completed.

Lucent's subsidiaries now have a set of internal accounts that they use to make payments, transfer funds or execute foreign exchange trades and hedges with the in-house bank. The 33 subsidiaries that participate in the in-house bank are responsible for 75% of Lucent's transaction flow. Journal entries occur automatically and the in-house bank manages Lucent's foreign exchange and liquidity in aggregate.

Implementing the in-house bank cut the number of inter-entity cash transfers that Lucent's treasury makes by 97% and reduced the volume of such transfers by 67%. It also increased the company's pooled cash by $250 million, generating improved interest.

Schacknies says Lucent's experience so far suggests that it's on track to realize annual savings of $4 million from such sources as reductions in bank fees and the elimination of six redundant systems and some outsourcing expenses. The work on the in-house bank also turned out to be a good preparation for complying with Section 404 of Sarbanes-Oxley, and it laid the groundwork for other improvements that Lucent is now putting in place, like a sales commissionaire model that should free up working capital.

Schacknies admits that it was difficult to design a new system at the same time that Lucent was reorganizing the processes underlying the system. "The main paradox of any type of system implementation is that you only get true value out of rolling out a new system when you do so to implement a change in the underlying way you do business," he says. "But as you change the underlying business, it makes it that much more difficult to identify what the requirements of the system are going to be. You're managing two simultaneous and interrelated sets of changes."

one more line?

CASH MANAGEMENT – Silver

Diebold Inc.

Working capital management is traditionally a challenge for treasurers because they have little or no influence over some of the processes that matter most, like accounts receivable. For Diebold Inc.'s treasury–intent on improving cash flow and working capital–the solution seemed clear: wrest control of the entire order-to-cash process, including billing, credit and collections, and re-engineer it. The result–substantial increases in cash flow and equally impressive reductions in Days Sales Outstanding–proved treasury's point.

Timothy McDannold, vice president and assistant treasurer at Diebold, says treasury reorganized the collection group to let staffers spend more time contacting customers to resolve disputes, in part by eliminating or automating nonessential work. Treasury set up a scorecard for each collections team and employee and posted everyone's results every week. Posting those key measurements "had a tremendous impact on collections and focused people on reducing accounts receivables balances aged over 60 days," McDannold says. Treasury also worked with other departments to make bills easier for customers to understand.

The key to treasury's success has been showing other departments how the changes necessary to bring about improvements will benefit their area and Diebold as a whole, McDannold says. "Everybody wants to make things better." And things are better: Accounts receivable over 60 days old fell 49%, from $55 million in August 2002 to $28 million in December 2003, and DSOs declined by 13 days from August 2002 to August 2004. One unexpected benefit was a drop in turnover among order-to-cash staff, to 1% from 40%, which McDannold attributes to treasury's effort to involve the staff in the changes. "We wanted to treat everyone as professionals, and we tapped into a gold mine of ideas from our associates," he says. "By listening and implementing these ideas, morale dramatically improved."

CASH MANAGEMENT – Bronze

U.S. Postal Service

Robert Pedersen, vice president and treasurer of the U.S. Postal Service, doesn't care about float anymore when there are so many cost efficiencies to be gained by electronic payment. With its vigorous campaign to get the 1.6 million customers that use its postage meters to pay electronically, the Postal Service is saving substantial sums on lockbox costs, since electronic payments cost less to process than paper checks. At the same time, it is winning points with customers, who save not only money but time by paying electronically. "We're making it as easy as possible to do business with us," says Pedersen.

Before treasury started proselytizing for electronic payments, more than 80% of customers paid by check when adding postage to their meters. Customers that needed to add postage quickly often used expedited mail, which not only cost them more money but meant the Postal Service was charged exception processing fees by its lockbox. So treasury mounted a communications effort, PostageNow(R), to educate both customers and postal employees. It developed materials, including brochures, a Web site, an award-winning video and a CD with PDF files of PostageNow instructions. The materials were mailed directly to some customers, but were also distributed by the Post Office's sales force as well as the sales forces of the companies that provide the meters.

The percentage of customers paying with ACH debits or credits rose to 48.0% in 2004 from 17.6% in 2000, and the Postal Service's average cost per lockbox transaction has tumbled to 72 cents from a high of $1.26. The Postal Service realized annual savings of $2.4 million in 2003 and expects further savings of at least $500,000 in FY 2004.