Treasury departments have a big appetite for information, but too often the result is data silos that hamper effective liquidity management. A single, enterprise-wide platform can unlock real benefits.
Treasury data used by corporates in day-to-day operations for strategic decision-making has always come from diverse sources. The rise of big data has made extracting information most relevant to the business a major challenge. The danger of diversity is that data silos can form too easily around each specific type of data or data source platform. Silos that developed within major financial institutions were cited as contributing to the global financial crisis.
The problem with data silos
Data relied on by treasury departments comes from various sources, many highly specialized. They include treasury management systems, trade finance systems, receivables financing, purchase-to-pay (P2P), FX platforms, collateral management and electronic invoicing (e-invoicing).
The specific nature of each can too easily thwart corporate treasury's aim of end-to-end visibility across all activities and structured information to automate reconciliation processes. Instead, data silos result in opaqueness over cash positions, exposure, risk and the financial supply chain, while treasury teams get bogged down in the tasks of consolidating data, updating reports and correcting errors.
For commodity-intensive corporates, any type of information bottleneck impedes cooperation and transparency, resulting in uninformed decision-making. Treasury needs to be able to access correct and relevant data, subject it to advanced analytics and then "slice and dice" it to ascertain how a specific transaction affects their liquidity risk.
Information silos pose a particular danger for companies dependent on purchasing raw materials for the manufacturing process, where lack of visibility creates unnecessary commodity, currency and credit risk. Corporates are acutely aware of how volatile currency and commodity pricing can be, while uncertainty is added to by events ranging from extreme weather to political and economic instability.
Commodity price volatility can have a significant impact on a company's performance, and the price of key materials, such as oil, have periodically undergone sharp rises and falls. Gold, traditionally the "safe haven" commodity for cautious investors, currently trades at levels well below those of its peak price in 2011. Even the decline in oil prices from mid-2014 wasn't uniformly good news, according to The Economist. Projects to develop alternative sources of fuel were shelved and automobile industry initiatives to produce smaller vehicles rather than "gas guzzlers" lost impetus. With global economic growth rates now at their strongest, upward pressure on the price of many key commodities looks set to resume.
Enterprise risk management and streamlining cash management
Having remained little more than a concept for many years, solutions that can deliver an enterprise-wide view of risk are now increasingly being pursued by more astute corporates as it promotes a holistic view of risk across the organization and information can be shared freely across all departments.
The value of a solution that can provide an enterprise-wide view of risk was underlined at the start of the 2010s. Many manufacturers were tested in 2011; a year marked by particularly severe natural catastrophes, as noted by The Huffington Post. The earthquake and tsunami that struck Japan in March disrupted the supply chain for major industries such as computers, electronics and automobiles. As they were starting to recover, severe floods in Thailand compounded the damage, reports Kettering University.
However, the effects were not entirely negative as they encouraged more joined-up thinking among corporates. Five years on, the Kumamoto quake in April 2016 again hit Toyota, Sony and Honda, which this time swiftly identified which of their suppliers were impacted and quickly organized sourcing from an alternative supplier.
The benefits of cloud-based platforms
The breaking down of data silos has been further assisted by the development of cloud computing, enabling the combining of different data on a single platform. Among the benefits are improved transparency, the ability of departments and individuals to access relevant data in real time, more agile and accurate decision-making and a higher standard of risk management.
Companies can, of course, also help themselves by profiling their unstructured data to establish exactly what data they have, where it is stored and how its accessibility can be improved. They can then use cloud-based applications to share their organized and structured data. At the same time, by encouraging greater liaison between treasury and other departments, opening up communication channels and sharing common goals across the organization, they can help overcome the mindset that encourages silos to develop.
Eliminating data and information silos
Many hopes now attaching to the development of blockchain and other emerging technologies focus on the expectation that they will eliminate data and information siloing. Among those likely anticipating major benefits from blockchain is the global energy industry, where major players such as BP regard it as providing them with a different way to work with other partners. According to Platts.com, areas where it is expected to produce major benefits include supply chain management and managing invoices.
Companies in the U.S. crude sector have already been testing blockchain-related initiatives, with the focus on improving invoice reconciliation and forming an information warehouse that enables trading partners to more easily track information and dispense with the lengthy email chains typically relied on to underscore the execution of deals. Adding algorithms such as artificial intelligence (AI) and predictive analytics to the core data can produce even more focused insights and improved decision-making for treasury.
Fortunately for treasury, technology is steadily improving as an ever-changing regulatory, market and political environment continues to produce new challenges in having a global real-time view of liquidity risk and managing it effectively. The potential impact of an escalating trade war between the world's two largest economies underline the fact that the challenge is unlikely to become any simpler in the foreseeable future, but data and information silos should soon be consigned to history.
To learn more about how Openlink Solutions can work to improve ROI and streamline operations in your business, contact us for a free consultation or no obligation demo.