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Campbell Soup's cutting-edge cash management.

At Campbell Soup, a trim treasury management department is pushing technology and allying with banks. The team's philosophy? "Do better what we already do well."

Downsizing is one of the most frequently used words in American business today. Treasury management departments are in the process of shrinking. We're all being asked to do more with less, to work smarter.

Campbell Soup Company is no exception. But we've managed to stay one step ahead of the process by making a commitment to state-of-the-art treasury management systems. For example, when the company reduced its corporate headquarters staff by more than 20 percent in 1990, the treasury operations weren't affected. Why not? Since 1985, we've been restructuring our department to be more efficient and cost effective, automating numerous functions and adjusting our staffing.

In treasury management, the size of the company and the degree to which it's centralized determine how much specialization and automation a firm can justify. We manage the more than $5-billion domestic cash flow for Campbell Soup and its subsidiaries, including Pepperidge Farm, Vlasic Foods, and Godiva Chocolatier, controlling all the cash centrally from our corporate headquarters in Camden, New Jersey. We also manage Campbell's Delaware holding companies from an office in Newark, Delaware.

Because we manage cash centrally but have decentralized accounts payable and payroll at the plant level, we have an unusually high number of cash accounting transactions. We're responsible for short-term investing, short-term borrowing, cash management, bank risk management, bank relationship management, and accounting for the Delaware subsidaries. We do all this with a staff of seven in the treasury management department: the director of treasury operations, the manager of cash and banking, the manager of cash operations, the controller (in Delaware), a cash management analyst (in Delaware), and two clerical assistants, one for cash operations and one for cash management. We all report to the treasurer.

AUTOMATION TO THE RESCUE

In the mid-1980s, Campbell's treasury management department was more of a cash accounting organization than a treasury management department. We were literally drowning in paperwork. We had more than 40 locations that processed their own accounts payable and weekly payroll checks which meant we funded more than 80 accounts and manually tracked the daily clearings of each.

We used zero balance accounts, or ZBAs, to control the cash movements centrally. But recording and reconciling the cash accounting consumed a lot of our time. And we spent a considerable amount of overtime just closing the cash ledgers at the end of each month. Also, because each location had cash on its ledgers, we used checks to settle the more than 1,300 intercompany and interplant transactions each month. Finally, we had more than 30 lockbox accounts to concentrate cash from and to reconcile with each subsidiary's accounts receivable department.

Today, we've automated every function under our control. Here's a list of some of those systems and the benefits of each for us:

Treasury Management System

We're on our fourth generation of treasury management systems. We have two PC-based treasury workstations, one at our corporate office and another for our Delaware operation.

The system provides the treasury management department with modern, versatile tools to assist in information management, reporting, and cash accounting. The system's modules are fully integrated, and the flow of data between them is entirely automatic. The system is configured to automate these specific functions:

* Retrieve same-day and previous-day data directly from our banks.

* Store bank-reported data in a controlled data base for both current and historical reporting.

* Generate cash and general ledger transactions from both bank-reported and manually entered transactions.

* Produce user-defined reports so we can create custom data extracts from data we maintain in the treasury management system.

The corporate treasury management system, which is on a local area network (LAN), has increased our productivity tremendously. It not only supplies us with the information we need to better manage and control our cash resource; it makes our month-end accounting closing a virtual non-event. Although we don't yet have a remote area network (RAN) for Delaware, we can still control all cash movements from our Delaware operation at our corporate office in New Jersey.

Domestic Netting System

To eliminate the many cash management and accounting problems associated with using cash for intercompany and interplant settlements, we asked one of our cash management banks to modify its international netting system so we could use it strictly for domestic netting. We now have 80 locations on this system.

The netting system begins when each location enters payable information through a PC prior to our monthly settlement date. The system then calculates one net position for each participant and produces reports on what's owed or what will be received. The system forces participation from all locations on scheduled dates by allowing anyone on the system to review what others on the system are entering. This improves the cash management department's control over the process and greatly simplifies the accounting. The system also reduces banking expenses and eliminates float from our own checks deposited locally. The system nets to zero by debiting or crediting all locations' notes receivable and payable at our Delaware finance company.

Our accounting organization has also found many other benefits of the system. We now have fewer intercompany accounting errors, and funds move through the ACH (automated clearing house) system (described below), which is less expensive than issuing checks and eliminates float.

Our net savings from this system alone are more than $400,000 a year.

Account Analysis System

We use a PC-based spreadsheet package to review and analyze our major account analysis statements. This system helps us monitor and control our banking fees and balances.

Right now, we're piloting a new software package that allows us to transmit the account analysis information directly from our banks. If it works, we'll eliminate our manual data entry from the analysis statements.

Wire Transfer System

With our wire transfer system, we can immediately transmit both repetitive and free-form wire transfers. The system has several levels of security and a data base for ABA (American Bank Association) numbers. In the treasury management department, we require all wire transfers to be initiated from this system. And we initiate all wire transfers from one bank, so we have to negotiate only one wire transfer agreement.

ACH System

We use this system to issue electronic one-day payments through an automated clearing house for third-party and intercompany transfers. We also use it to pay certain tax bills that require electronic payments. The ACH system is efficient and less expensive than issuing checks or wire transfers. For Campbell Soup, a wire transfer costs $7; an ACH transaction costs 8 cents.

Bank Relationship System

We also have an automated system for tracking all of Campbell's bank accounts and associated information, such as individual signers and the purpose of an account. This bank relationship system generates all bank correspondence for opening and closing accounts and for changing signing authority for any account. With several hundred accounts on the system, we can produce a report annually for all locations and verify the data, which greatly simplifies the process.

Commercial Paper System

Both of Campbell's commercial paper dealers are electronically linked to our issuing and paying agent. Our commercial paper system controls and releases, at the instruction of the treasury management department, our book-entry commercial paper. It also calculates our interest expense accruals for each accounting period. We're finding the system reduces Campbell's fees and cuts down on our manual tasks.

NEW STRATEGIES

We also have other automated systems for documentary letters of credit, foreign exchange drafts, and bank credit ratings. But the point is not that we've automated all these functions; the point is we've changed our culture to always look for ways to do better what we already do well.

For example, we meet annually with several of our large cash management banks to discuss our objectives in treasury management at Campbell Soup for the upcoming year. We also talk about each bank's list of projects for product development. We're looking for pilot projects we may be able to work on together. If we discover the bank is developing or improving a product we may be able to use, we ask to take part in the project--so we get the benefit of being the first to use a potentially profitable product and the bank gets a chance to test that product on us.

Our domestic netting system was developed through the pilot approach. And this year we have three pilot projects on our objectives list, including a new wire transfer system that uses encryption to secure transmitted information. These meetings with our banks are usually the most productive of any bank meetings we schedule. The key is for the department to stay focused on our mission, which is "to develop systems and strategies that ensure the most effective utilization, control, and security of our cash resources." Treasury management should return more in benefits than it costs to run.

In Campbell Soup's treasury management department, we're pleased that the changes we've made are saving the company millions of dollars a year. We've reduced our banking expenses dramatically since 1985 (see the figure below), improved our cash flows, reduced the risk to our cash resources, and at the same time cut our staff in half.

To us, this is a success story. But the real story is still unfolding. Treasury management everywhere is changing, evolving. We're no longer concerned with just cash, float, and bank fees. Today's treasury management team must work with all the organizations within the company that affect working capital or that have information the team can use to better manage that capital. And we must be in a position to determine the treasurer's role in this evolution. With such a state-of-the-art melding of all the cash management functions, who ultimately will control the integrated systems?

I recently looked back at our departmental goals for 1989. Here's part of that project list:

* Hire a consultant to do a lockbox study.

* Hire a consultant to do a disbursement study.

* Continue our efforts to consolidate banks.

* Reduce our banking fees.

The projects all involved the treasury department and our banks. Compare that list to the list of projects for our department in 1992:

* Participate in a company-wide task force to reduce working capital.

* Start an electronic data interchange pilot to pay certain vendors electronically through our accounts payable system.

* Work with Campbell's sales organization to evaluate the effect on sales of offering further discounts for receiving electronic payments.

Every project for 1992 involves not only banks but organizations within the company that aren't part of treasury management. In the future, successful companies will integrate all their financial systems. And Campbell's automation and restructuring of its treasury management organization in the 1980s has positioned the company for what's ahead.

[Mr. Moss is director of treasury operations at Campbell Soup Company in Camden, New Jersey.]
COPYRIGHT 1992 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Cash Management
Author:Moss, James D.
Publication:Financial Executive
Date:Sep 1, 1992
Words:1817
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