Globalizing Finance at Future Electronics
Joe Prudente, Vice President of Worldwide Credit, Future Electronics Corporation
Future is a 40-year-old company with 150 offices in 41 countries – it is the 3rd biggest electronic component distributor in the world.
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SSON: Joe - could you start by giving us an overview of Future Electronics? How many finance and accounting shared service centers does Future have and in which regions?
Joe Prudente: We have three main service centers for our Finance Operation. Our world headquarters are in Montreal so the majority of our finance organization is based there. Our European hub is in London and our Asian hub is in Singapore. Those are our three main finance centers and from those finance hubs we run the credit operation. We have staff in Boston and Montreal who service both North and South America. Our Asian credit offices are in Singapore and we have another in Hong Kong, due to the language differences in China. In Europe, our main office is based in London. We have people in every country based on the language requirements for every country. We service all of Middle-Eastern Europe out of various locations throughout Europe.
SSON: What challenges were you experiencing in finance credit before bringing a solution on board?
JP: We had a lack of consistency in how we approached day-to-day routine jobs. Everybody was experienced but had a different way of performing the credit functions. Thus everyone had a different approach to collections and credit analysis, none of which was wrong, but certain areas were more efficient that others. So the results were dramatically different. The differences can be attributed to regional differences: each office had a different way of processing work. The three main issues were: a lack of consistency; the large number of employees; and the fact that staff was inefficient in some of our routine procedures.
SSON: How were you managing this across the global offices and what were the key challenges?
JP: I’ve been at Future for 18 years now. I initially started as the US credit manager. When we made the decision to bring SunGard on board, back in 1997/1998, I was only responsible for the US office. After we implemented SunGard we started getting great results and that was how I started to get involved with implementing it in Europe and Asia. When I went to Europe and Asia to evaluate our credit operations over there, it looked like we were running three separate companies in terms of the way they handled credit and finance. Everybody used completely different methods and systems. As I was the person they were now reporting to and I had handled the implementation in North America, I knew how SunGard operated and it became obvious that we needed to do the same thing in other places. The challenge was convincing the people in those places that they needed to adapt to a more efficient process and buy into the concept of automation. That was probably the biggest challenge: rolling out the software to Europe and Asia and getting our staff more in line with what we did corporately. Now we have one way of managing credit and it’s very consistent, but it wasn’t always like that. The adoption of the staff was one of the biggest challenges we had.
SSON: Did you benchmark against similar organizations or follow leading industry examples before building a business case to bring this technology on board?
JP: We belong to a number of trade groups, thus we were aware that the technology was out there and that other people were using it. But we really didn’t look at what other organizations were doing. We knew we were growing at 20-25% a year in North America, thus we needed a way to limit the amount of people we added to the finance department. We also knew we had to introduce automation of processes. Then we started to evaluate different credit programs. In the end we settled on SunGard, but we didn’t benchmark against other companies. We had an idea of what we wanted, shopped around and bought it.
SSON: You implemented AvantGard in North America before extending into Europe and Asia – how long did this global implementation take?
JP: In North America we ran SunGard AvantGard for three to four years before we moved it to Europe and Asia. Within those three to four years we probably spent a year learning the software and then another year tweaking it. Two years in, we were getting excellent results. It took another year to convince everybody that the program really works and that we needed to explore it outside the US. It took us about four years from the time we bought the licenses, and got the servers and the IT components, to roll out the system to Asia and Europe. Then it took us a year to fully implement it. We provided training to all the different offices across the globe. It was a lot of work but well worth it.
SSON: Having implemented AvantGard – what have the main benefits been? How has productivity increased - firstly in North America and then in Europe and Asia?
JP: As I mentioned before, we had three different credit departments. Now, I feel like we have one and I attribute that to the fact that we all now have the same system, policies and procedures. We were able to keep or even reduce the number of employees because they work in a much more efficient way now. As you grow as a company, it becomes very important to limit the amount of people you employ. We’ve grown by maybe six to seven times and I haven’t increased my staff proportionately. The number of employees was actually reduced due to technology.
We were able to get better qualitative results, especially in Europe and Asia, like improved cash flow, lower DSO, etc. All the usual metrics are much better than they used to be. Most of our big customers are global; they are very well-known Fortune 500 customers. They might be based in Phoenix and now all of a sudden they have sites in China and Europe. They don’t care where you are based, they want to be treated the same way regardless of whether they are in Europe, Asia or North America. Now we have global visibility and a global customer base and through the SunGard products we do manage customers on a global basis. We have global credit lines and global collection teams, regardless of whether the customers are in China, Budapest, Hungary or Phoenix, Arizona. Most of these companies actually have their payables in India, regardless of where we are shipping the products to.
For some customers, we have 200 separate bill-tos for one company. We make one collection call to those 200 bill-tos and it doesn’t matter whether the collection team is in Singapore or Boston, we manage the global customer in a global way. We know exactly what the total receivables for our big customers are. It’s not split between Europe, North America and Asia anymore: now we know what that customer owes us. This is very important from an exposure and a collection standpoint.
SSON: Because you are dealing with Asia and Europe and dealing with things like credit, finance etc. are you happy to manage any compliance issues between the different countries?
JP: In the US, the Patriot Act is obviously a very big compliance issue. In fact, every part of the world is different, that’s obviously why we have staff in different parts of the world because the compliance issues vary.
I obviously don’t understand all of the compliance issues in Europe and Asia, but I have senior staff who have been working with compliance issues in those particular continents for 25 years. We also have a compliance director within Future Electronics who is well-versed on everything that needs to happen. An example: in the US we have the Patriot Act, which is an anti-terrorism act, whereby you have to get customers to sign specific statements. Thus, when a customer buys a product we need to have a firm understanding of what the product will be used for. We also have a list of do-not-ship to countries we cannot provide electronic products to. This aspect is managed internally by a compliance group in Montreal.
SSON: In relation to tax laws, obviously there are different tax laws between different continents and countries, how does that affect you?
JP: We have a fairly large tax presence in each hub I’ve mentioned. But we have a tax department where it’s all automated. If we bill a customer in Germany the VAT is built into our system and it drives all the processes we have.
SSON: Obviously that is a concern for people when they are implementing a new technology globally?
JP: It’s a huge concern. The VAT in Europe is so complex. We have just moved our European warehouse to Leipzig, Germany from Hayes, UK and it had significant VAT implications. We have a well-experienced tax department in London, Singapore and Montreal that is fully up to speed with what needs to happen from a compliance standpoint, thus billing the right amounts - but it’s somewhat complex.
SSON: How has productivity increased with implementing SunGard?
JP: My senior staff, myself and my managers evaluated our processes and said, "how do we want to treat these customers?" With a large collection staff everybody had a different start time - when they would contact the customer - and followed different steps during the collection process. So what we did is we came up with very specific steps that needed to be followed for the collection routines. Thus what the software does is it guides those employees through those routines.
Everybody now starts at the same point. There are clearly defined collection steps, which the system almost forces people to follow. In the past, some customers would never be called. The employees would just email the customers. The creation of these routines or collection rules are driven by a system that prompts you to follow steps. This has really made a big difference; it made people much more efficient and we have a greater consistency.
Previously, staff made notes on their system, but now the system automatically records key strokes. Now we know that this person spoke with customer A, that it was a three-minute phone call and that they promised $10,000. This factor improves productivity and cuts the time it would usually take to process the record since the AvantGard system records this automatically. It automatically resets follow-ups and it automatically deletes the customer from the queue if the customer has paid. A typical day for my employees would be: they come in and look at the AvantGard queue and it tells them how many calls, emails and faxes they have to work on for that day. Now they can send 30 emails at once. Previously they had to send 30 emails all separately.
There was a lot of inefficiency in the collection process previously, but what we tried to improve on was productivity. Technology has really changed the game on the process side of the business. In today’s world, a customer can get an email and an attachment within seconds of requesting it. The time between processes has been improved by technology. We are managing it a lot better. Routine processes are done very quickly, staff has a lot more time to devote to other things and it shows in the results.
SSON: Who else did you consider partnering with and why did you choose to go with Sunguard?
JP: Back then, which was 12 years ago, we got a number of players in. One was E-credit. There weren’t really too many providers who could do what we were looking for.
SSON: You’ve been with SunGard for 12 years now. How do you find customer service? Obviously, things need to be improved or enhanced and things can break?
JP: We’ve always had a good relationship with SunGard. SunGard bought GetPaid 4 years ago, GetPaid is a company we originally partnered with thirteen years ago and we’ve always had a very good experience with GetPaid. We did experience a few trials and tribulations as could be expected with all things complex. But they’ve always been available to us and I do feel like they listen to us, because that is the basis of a good relationship. We tell them we need to do this and we need to do that, we have a lot of unique requirements; but what we are requesting is going to be valuable to all of their other customers as well. They listen to us and ask what it is we want them to do.
SSON: Can you give SSON readers an idea of the transition period while implementing this software? What were the main challenges – how long did it take to override them? You mentioned people issues in Europe and Asia?
JP: Initially, you start working with your IT department, or whoever runs your MIS group. It takes dedicated resources from an IT perspective to work with SunGard to implement the process, get a dedicated server, new software and hardware and someone who manages it. It takes a little time in order to get used to the process. We needed to get in some expertise for this product from a technical perspective. It took us six months to a year to really understand the uploads, the downloads and the server, and when something went wrong, what we had to do to reset it. There was about a year of trial and error. It was a combination of us not doing the right thing from a technical perspective or sometimes SunGard needed to change their products a little. It was probably shared frustration. After a year, it was pretty much up and running. Then you just need to deal with the user adoption problem - you have to convince people.
My job was to be a cheerleader. I had to convince people to use the system. You need to sell the process and system to the staff. We have 77 users on the system. You have to ensure that you are doing a good job in terms of training and feedback. We held monthly workshops and feedback sessions which helped a lot. That part of it has to be managed very closely. That’s probably the biggest challenge you have in getting the ultimate end users to adapt. We had some experienced people who had been doing finance for 20 years who didn’t believe they needed a new system. The first year was tough on the users, but you are introducing a different method that is much more efficient in the long run. They have to learn something new and anything new is usually met with a bit of skepticism. As a manager you really have to manage the adoption process, by providing training and getting intimately involved. You have to address concerns, get feedback from the staff and tweak it. We probably made minor changes to the system every couple of months based on feedback we got from the staff.
SSON: We are seeing the back-end of a recession – how has the electronics market been hit and how did your shared service centers adapt to these changes – thus helping the organization?
JP: Back in October/November 2008, we saw a big downturn so if you were building anything with electronic components then you just stopped buying components, because there was so much inventory and so we saw a huge drop in sales and in activity, which everyone experienced across the globe. We really saw a drop over that eight-to-nine month period. A lot of our customers had cash flow problems and there were a lot of issues with the ability to pay - a lot of customers went bankrupt. Through a number of steps, we did manage to keep our cashflow healthy. We had tight collection routines. We have a credit analysis package that is also very efficient; it provides an early warning when we do credit scoring. Within three to six months prior to these customers having problems, we were able to either reduce our exposure, or reduce our terms with those clients. We actually had a better bad debt experience during that period than we had had the year before. We were able to cut our bad debt expense through efficiency and early warning signs and reduced to credit scoring. The fact that people weren’t buying as much actually helped us in that specific time frame. I think we made it through that tough 2008-2009 stretch very well. Again, we are doing great right now - our business is booming which is a real positive. Our bad debt expense was 30 % less than it was a year before which in effect means that in 2009 we wrote off 30 % less then we did in 2008.