Here we explain how Sandvik has successfully reengineered and centralized its trade finance processing and the provision of the related advisory services with the implementation of our automated multibank corporate solution, COR-TF. We describe the underlying business issues, main elements of the selection and implementation project, and then detail the tangible benefits achieved. We conclude with a series of practical recommendations for managing similar projects.
Choosing A Solution
Sandvik’s Credit Advisory Function
Swedish engineering group Sandvik’s Credit Payment Advisory operation is located in Stockholm. The team’s main task is to support Sandvik’s sales operations with the appropriate choice of payment terms, forms and instruments. As a part of Sandvik Financial Services, it is responsible for the global processes, execution and the provision of expert advice in Trade Finance. The Trade Finance instruments and operations employed by Sandvik include Letters of Credit (Import and Export) – ‘L/Cs’, Documentary Collections and Bank Guarantees – as well as Project and Export Finance transactions. The instruments used conform to industry norms.
The business processes performed by the Credit Payment Advisory group include maintaining the relationships and negotiating Trade Finance terms and guarantee limits with selected banks, implementing and handling global bank and parent guarantee application and approval processes, and the overall reporting of Trade Finance products. The group additionally provides expert advice and training on guarantee and payment terms on business transactions.
“The project to centralize the handling of the business and optimize the risk structure was initiated with Sandvik Credit as the global process owner. This concept would enable a uniform way of managing guarantees and risks to be defined and put in place.”
The Trade Finance Project: Origin, Scope and Objectives
Sandvik is a large company, with a complex set up with respect to the way in which the business is run and conducted. In the area of Trade Finance, the company identified the need to implement common business processes, terms and tools when handling guarantees. This standardization was required and looked upon as a part of a new business model going forward. Accordingly, a project was initiated to identify and deliver a new, automated solution in support of the new business model. In order to achieve a successful result, the project needed to focus both on defining the necessary changes to be made in the business processes, and on selecting and implementing an IT tool to support the centralized processes. A Trade Finance Bank project to reduce the number of banks to gain better control of terms had been initiated earlier; however the handling processes, follow-up and reporting still depended on the banks’ own processes and systems, or on manual work. A more robust in-house solution was needed.
The project to centralize the handling of the business and optimize the risk structure was initiated with Sandvik Credit as the global process owner. This concept would enable a uniform way of managing guarantees and risks to be defined and put in place. This would in turn lead to less work for Sandvik as well as for the banks, and to the establishment of a centralized point of contact between Sandvik and its banks, to enhance the control environment. Additionally, the new centralized set-up required fee management – and that needed to be supported by the new solution.
Having the new global system solution in operation, with electronic approvals and limit management in place, would allow higher levels of speed, flexibility and accuracy in processes and terms, resulting in lower costs, significant reduction of operational tasks and risks and better control, as well as managing all transactions (internally and externally) in one system, so that the business processes would be transparent and traceable.
Project emphasis was placed on bank and parent company Guarantee handling; however other instruments – Collections, Export Letters of Credit, Import Letters of Credit and Incoming Guarantees – are all part of Sandvik Credit Payment Advisory’s responsibilities, and so the intention was to implement system support for these at a later stage.
The Solution Selection Process
The Sandvik team initially identified a group of seven competing vendors, from which five companies were selected for a more detailed evaluation of their solutions.
The project team used the following methodology to select its preferred solution:
- Conducting workshops to define the required new business process
- Listing of the functional requirements of the new IT system to support the new business process
- Composing an RFP, and sending it to the potential vendors
- Evaluating the RFP responses, and analyzing how each fitted the requirements, and defining the extent of any gaps that were found
- Inviting the vendors to demonstrate their solutions; analyzing now well in practice each fitted Sandvik’s requirements, and defining any gaps
- Conducting reference meetings.
On completion, the competing solutions were evaluated in total, based on weighted scorings of the following factors:
- Business fit: How closely the solution fitted to the business requirements, with emphasis on the solution’s capabilities to support Sandvik’s global processes
- IT strategic fit: How well the solution fitted Sandvik’s overall IT strategy and strategic landscape
- Cost: the total cost of ownership
- Reference: the quality of external client references
Surecomp was the successful vendor. Its ‘COR-TF’ multi-bank Trade Finance system scored best in the comparative evaluation, and its functionality addressed all the instruments required by Sandvik.
The contract was signed on 1st October 2013.
Choosing A Solution
The project ran for six months, from December 2013 to May 2014.
The COR-TF business modules that were to be implemented were:
- Bank and Parent Company Guarantees
- Incoming Guarantees
- Export L/Cs
- Import L/Cs.
The Sandvik project plan reflected a very tough implementation schedule, to fulfill our specific constraints and requirements.
Besides the usual implementation support/training/workshops, Sandvik requested a significant range of customizations which Surecomp had to deliver to complete delivery in line with Sandvik’s business objectives. These included:
- Enhancements regarding the status of Export L/Cs
- Enhancements regarding amendments for Export L/Cs, making it possible to put changes in a separate queue for the decision to reject or approve
- The possibility to enter a request for amendment to an Export L/C in COR-TF
- Improved limit management, for example the ability to see the amount limit that is presently in a “planned” stage (meaning applied for, but not yet approved); and also the possibility to let end users select the limit – although Sandvik Credit always retains the right to change the chosen limit
- The possibility to have a sequential order for transaction approval, and the ability to add approvers in a workflow that has already been initiated
- “Pocket calculator” decision support functionality for end users, giving the facility to quickly enter basic information about a Guarantee, to obtain a future prognosis of the total cost
- The possibility to handle long beneficiary names – this is not supported by the SWIFT system, but a possible “work-around” was found
- Changes in the user interface, for example to enable changing labels in the forms in COR-TF.
The project target was to achieve UAT (‘User Acceptance Testing’) by the end of January, 2014. With the required machines being just available from the middle of October, and with the Christmas holidays in between, this was a difficult objective. This tough project schedule included Sandvik’s requirement to go live with COR-TF by the middle of November using the Standard version of COR-TF, with as many of the customizations as possible included. The reason underlying this demanding timetable was connected with synchronizing with Sandvik Credit’s overall centralization and new process implementation project.
“The lead time for handling the application and for the closing of outstanding guarantees, as well as for reporting, is reduced by several days, meaning that more speed and reduced costs are realised in every step of the processes.”
Sandvik was able to start the User Acceptance Test in time, and went into production with COR-TF on 20th March, 2014, after a training session for the first pilot units using the system.
The roll-out of the live solution started in Europe. The pilot companies were two heavy users of Guarantees, with Sandvik Credit team members located in Finland and in also in Sweden. These companies had already started to use COR-TF in the Soft-Pilot, using version 5.1; and they were the first companies to be upgraded to version 6.0. At the same time, three more heavy users from companies in Sweden and Germany, representing several business areas, were introduced to join the project as pilot companies.
When the roll out is complete, there will be about 400 COR-TF users, mainly in Finance, but also in Sales Support, Order Processing and Logistics.
The COR-TF Trade Finance project has yielded a number of tangible benefits for Sandvik Credit Payment Advisory’s business operations:
- Centralization: A hybrid de-centralized/centralized process is in place, in line with the new standardized process model, with the implementation local input/operations and central financial decision taking plus the approval process.
- Real time reporting: all reports are centrally created and automatically distributed throughout the Group.
- e-Workflow: Definition of the general process for managing Guarantees and L/C administration, with clear definition of workflow elements for Sales/Logistics/Compliance and Finance.
- Approval Administration: There is now an organized process of approval administration, providing enhanced levels of control.
- Automation: Full handling of Bank Guarantees / Import/Export L/Cs through SWIFTNet; the delivery of automated internal communications; the historical data relating to all the required financial instrument types have been uploaded into COR-TF.
Business Benefits Achieved versus Project Objectives
The implemented governance, processes and tools supported by the system lead to the cost efficient and secure handling of all Guarantees, with approval steps and report control being transparent and traceable.
The automated solution lowers the operational risk compared to paper flow and the signing of paper documents.
The lead time for handling the application and for the closing of outstanding guarantees, as well as for reporting, is reduced by several days, meaning that more speed and reduced costs are realised in every step of the processes.
The ability to view and handle the Guarantees in a global bank-independent system, combined with centralized handling, creates benefits in cost savings as well as in overall control of the guarantee values and validities, and in the management of the limits and their terms.
As the other Trade Finance products such as Letters of Credit are included in the new system environment, full visibility, support and control of the entire set of Trade Finance flows are possible. This is essential to support the NWC initiatives and global risk control objectives.
We now have just a few things on our wish list that we will be discussing with Surecomp.
“Having the new global system solution in operation, with electronic approvals and limit management in place, would allow higher levels of speed, flexibility and accuracy in processes and terms, resulting in lower costs, significant reduction of operational tasks and risks and better control, as well as managing all transactions (internally and externally) in one system, so that the business processes would be transparent and traceable.”
We have a few recommendations for corporations who are planning or considering a Trade Finance project of a similar nature to ours at Sandvik Credit Payment Advisory.
Although the project was always (inevitably) tying up time and resources, the outcome with its carefully defined features to meet specific needs and objectives is worth the investment.
The amount of the Guarantees and other Trade Finance instruments is not necessarily the key factor to justify the need for system: rather, it is the ease of and access to controlling the limits, of handling the transactions and reporting, with the additional possibility to follow up the banks’ services in terms of costs and performance, which will together create benefits both in terms of cost savings and in effective operations.
It was important to work from the basic flows and map/draw the processes, steps and needs involved, from the limit management and counterparty settings to approval steps and transaction management, to reporting requirements. The solution we have implemented is not just an IT system: it is more the support tool that we use to manage Trade Finance instruments; thus thorough knowledge and expertise in the respective Trade Finance instruments is needed to run the project to achieve best results. The testing of the transactions and their workflows and the user roles in the system all helped to determine which specific enhancements were required in practice.
The production of customized manuals for the modules in the system and for training, also in general terms for the relevant Trade Finance instruments, are all success factors supporting the roll-out and easy management of the system.
In practice, the roll-out has been successful; certain benefits such as the ease of access to the system, the simple, smooth and transparent approval steps and reporting as well as the support for various features such as L/C opening instructions management and document preparation have been well received by the entities using the system.
It is important to take the issue of connectivity (to SWIFT in our case) into scope at an early stage, to gain most benefit from the system from the beginning. Connectivity to banks has been moving forward with SWIFT MT798 messaging becoming more available in practice.
Finally, various Trade Finance products may interact within the system, with all modules working together to support the linkage of the various transaction types, enabling better risk analysis and control to be achieved.
Sandvik is an engineering group with primary business operations in tooling, materials technology, mining and construction. It is headquartered in Stockholm, Sweden. It has about 47.000 employees, and operations in more than 130 countries. Invoiced sales in fiscal 2013 were MSEK 87,328 (approximately US$ 10.4 billion). For more information, visit their website.