Goodyear’s new tracks for cross-currency liquidity
Goodyear’s treasury team has partnered with Deutsche Bank to introduce an automated cross-currency liquidity structure. flow explores how this new solution helps the treasury team reduce operational risk, while bolstering operational efficiencies
With origins dating back to Charles Goodyear’s discovery of the vulcanisation process in 1839, the Goodyear Tire & Rubber Company was established in 1898 with 13 workers producing bicycle and carriage tyres. Today, Goodyear has grown to become the largest tyre manufacturer in the US and the third largest globally – with annual sales in excess of US$15bn and a global footprint stretching across the Americas, EMEA and Asia Pacific.
Stating its corporate goal as that of delivering “sustainable revenue and profit growth while increasing the value of our brand”, the company has facilities around the world. In addition to its Goodyear-branded tyres, it produces other famous international brand names such as Dunlop, Kelly, Fulda, Sava and Debica as well as rubber products and polymers.
Like many of its industry peers, Goodyear has done much to ensure ethical standards are maintained in its supply chain; by introducing risk-based assessment of the raw materials sources and countries of origin in its supply chain, regular supplier audits, a supplier code of conduct and an emphasis on reliable sourcing.
On its website, the company pledges that “to do our part to reduce tire supply-related issues like human rights violations, land grabbing and deforestation, Goodyear is actively working toward selecting more sustainable materials that deliver the same product quality and performance – if not better – and selecting suppliers who uphold fair working conditions, sustainable harvesting practices and share our values.”
Goodyear has likewise transformed its treasury operations. In 2019, the company partnered with Deutsche Bank to implement a new automated cross-currency liquidity structure for its EMEA treasury team.
Through this process, Goodyear’s cash positions on master accounts in multiple currencies are automatically converted into EUR at the end of each day – using FX swaps to manage and increase EUR liquidity. This allows the company to free up trapped liquidity and use previously idle balances to repay debt and reduce the costs involved in drawing upon its revolving credit facility (RCF). At the same time, the solution has helped to reduce the workload of the regional treasury team.
How did Goodyear get into the position to implement this innovative structure, and what steps did it take along the way?
Sustainable revenue and profit growth while increasing the value of our brand
Taking the first steps
The treasury transformation first got underway in 2008, when Goodyear started to rethink its EMEA cash management structure. The plan was to create a more standardised, leaner structure that gave greater control to the Luxembourg-based EMEA Treasury team. The key building blocks of the solution were:
- adopting SAP’s Bank Communication Manager as the preferred communication channel for the company’s core banks in EMEA;
- rationalising enterprise resource planning (ERP) touchpoints so that the whole region ran the same version of SAP;
- the migration to XML messaging; and
- payments “on behalf”
In terms of liquidity, Goodyear opted for zero-balancing in the EMEA region, whereby end of day balances are concentrated on separate master accounts on a currency-by-currency basis. This was combined with an SAP In-House Cash (IHC) module, which allowed Goodyear to fully automate the accounting, interest calculation and payment on behalf. While these changes proved effective one piece of the puzzle was still missing: FX positions on these master accounts continued to be handled by the EMEA Treasury on a manual basis.
Looking to complete its treasury journey, Goodyear sought a more efficient and automated approach for the overlay liquidity structure in 2019. The team compared the positives and negatives of a cross currency notional pool, compared with a new solution based on robotics and automated overnight swaps. Taking into account risk and balance-sheet considerations, Goodyear’s Treasury team decided to opt for the second solution.
A best-practice solution
How exactly does the solution work? Each day, Deutsche Bank and other partner banks send MT942 information to Deutsche Bank’s MCCC (Multi Currency Cash Concentration) engine. These MT942 statements come from multiple source accounts across the region before the cash has been concentrated into a master account. Like most automated solutions, the MCCC engine was created to deal with a high volume of FX information and to initiate repetitive actions, based on parameters that each client can set for themselves.
Based on information from intraday statements, the engine calculates the amount available in each currency to be swapped overnight. This calculation takes into account a certain threshold – pre-agreed with the Goodyear Treasury team – that is left on each master account as a buffer for potential outgoing payments later that day. The time at which the intraday information is sent depends on the clearing cycle of each currency (which ensures the maximal number of transactions has been booked) and the cut-off times for moving the cash physically within the same day.
Once the available positions are known (they can be both short or long, as the solutions works in both directions, much like a cover and a sweep), the engine suggests the amount to be swapped per currency at pre-agreed conditions. Goodyear then approves or rejects the suggested FX swap, after which the engine books and settles the transaction automatically (both internally within Deutsche Bank and externally within the partner banks). While the engine can work without this approval, Goodyear prefers to maintain additional controls and to anticipate larger movements that are expected, but that have not yet been booked on the current account.
Currently, the new automated liquidity management solution encompasses the following currencies: EUR, USD, GBP, CHF, CZK, HUF, PL, SEK, NOK and DKK. Going forward, Deutsche Bank and Goodyear are jointly investigating additional currencies that could be added to the structure in order to further leverage benefits.
Reaping the rewards
Leveraging workflow automation to optimise processes has increasingly become a priority in recent years and this solution – using it for cross-currency liquidity management purposes in combination with robotics – represents an innovative and effective step on that path. By allowing a robotic solution to take on the heavy lifting, this “better, yet faster” solution is not only reducing the number of mistakes, but also means less manual effort for the treasury team – allowing them to work in a better control environment and to focus on other critical processes. In addition, the solution has unlocked unused liquidity for extra debt repayment, which would have previously been too cumbersome and time-consuming for the treasury team to manually mobilise.
The benefits are being seen throughout the treasury department. For example, Deutsche Bank’s solution is helping to facilitate the automation of accounting by creating uniform inputs into the accounting system. For Goodyear, these direct and indirect benefits make Deutsche Bank’s solution the icing on the cake for their EMEA cash management structure.
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