A major U.S.-based car manufacturer expanded its global scope and transformed its finance function with our automotive finance services.
With procurement, finance and accounting happening everywhere from Detroit to Bangalore, Barcelona, Manila and elsewhere, the car maker used several of our automotive finance services to streamline its operations.
Procurement: Driving Change
The car company’s global procurement organization wanted to reduce costs, increase efficiency and improve accuracy. But their buyers were overburdened and they relied excessively on temp labor. Also, their processes were redundant and their product specifications too complex, resulting in frequent contract input errors. A lack of process performance measures and standardized processes made it hard for the procurement organization to see just how bad things were.
Our offshore solution for direct and indirect procurement and supplier quality helped us improve workflow processes and enable cost reductions on an annual basis. We processed low-dollar, high-volume indirect purchases, and more than 90% of direct purchasing contracts. Through economies of scale and globally standardized processes, we helped reduce costs 58% and reduce input errors on purchasing contracts.
Collections Improve Cash Flow
The car manufacturer consistently saw aging receivables for its India operations rise above 40%. Not only that, but the high trend in open items over 90 days for that business negatively affected their Day Sales Outstanding (DSO) and created cash flow problems. They needed to identify what was causing this trend, and put an end to it.
Our Finance and Accounting experts applied Six Sigma methodology to evaluate the car maker’s India operations. We used root cause analysis to categorize the client’s aged debit balances in India as controllable or uncontrollable. Then we clearly defined improvement milestones, including more frequent customer follow-up from monthly to weekly, aggressive tracking of open items and their resolution, and measuring project effectiveness through variance analysis, ratio analysis and hypothesis testing.
We’re happy to report that our automotive finance services helped the client see an 88% reduction in aging customer balance (>90 days) in India. It also reduced the number of open aged items 99%, and substantially improved cash flow and DSO.
Increasing First Pass Yield 95%
There were several things wrong with the auto manufacturer’s cash allocation process. Unallocated cash items couldn’t be cleared at first instance; they depended on allocation actions performed by other parties, without visibility or dependence. They had 65% First Pass Yield in allocations, at a cost of $262 million. 18% of receipts allocated between two and five days. And a complex pricing practice resulted in a lack of control in ensuring a timely and accurate price update, which should be audited with the register at least monthly.
Our automotive finance solution helped standardize the workflow for all involved parties, which simplified the automaker’s pricing practice and prepayment process. We collected and analyzed 4,500 cash entries and analyzed the root case to address the main 80% of cash entries. We also helped empower the cash allocation team in dispute resolution, and cleared the prepayment process at time of contract and sales order generation.
The results? We helped increase First Pass Yield from 65% to 95%. Cash receipts cleared within five days. With preventive action early in the process, less resources were needed in business units to solve allocation issues; we reduced rework and extra time needed to review pending receipts. Our automotive finance services also helped improve accuracy in balance composition to facilitate overdue management. Also, service levels improved for cash deposits cleared in zero to 1 day, and less touch points were required to allocate cash entries.
Reducing Record-to-Report Variance 99.26%
The same automaker wanted to minimize the volume of Record-to-Report variance items. They hoped to create a reconciliation pool in order to improve and standardize their reconciliations process and eliminate variance items.
We created a robust escalation process, and implemented and standardized accountancy and reconciliations processes. Part of our automotive finance solution involved developing a single tool for desk procedures, manuals, reconciliations and reporting.
As a result, the car maker reduced variance by 99.26% in open items older than 60 days. They also saved money by standardizing processes for different client locations. Monthly reconciliations are performed in compliance with client deadlines and policies. Customized reporting is based on client needs. After headcount reduction and segregation of duties for audit compliance, our client now sees process improvements in accounts payable & receivable, tax, treasury and general ledger.