Sun Microsystems

Corporate practice

Centering Sun's
Global Payments
The workstation-maker harnesses
electronic automation to support a
more productive finance function.

To help increase revenue per employee as part of a company-wide effort,

Sun Microsystems' finance function is
seeking to reduce its costs by one
third and shift resources from accounting servi ces to va lu e-adding bu sin ess
partnering. Treasury' s role in the early
stages of this initiative is to streamline
global cash management and integrate
treasury support services such as payment and collections processing.

available automated banking systems .

These automated systems wi II be
linked to, and integrated with payment
and collections. Payment processing
information will be captured electronically and transmitted using EDI-technology on the same day as the transactions are executed. This process will
become easier as paper-based transactions give way to the "electronic commerce" of the near future .

The treasury support model

Sun ' s "Treasury Support Model" has
the following objectives:
autom ated, cost-effi c ient coll ections and disbursements processes to
support its centralized accounting
centers
a single standard interface

Sun's Headcount Productivity

Project background
Sun segregates the finance function into two basic areas :
accounting services-e.g., ~
financial accounting, disbursements, receivables processing, cash
app lications, commissions accounting
business partnering-e.g. , financial analysis, medium range and
strategic pi ann i ng, customer/vendor
interface, credit , channel management.
Consolidating accounting services,
Sun believes, will reduce cost through
econ omi es of sca le and free time for
business partnering act1v1t1es .
Financial support services, those of
treasury, will be managed from four
accounting service centers in different
time zones: the Americas; Europe,
Middle East, Africa ; Asia/Australia;
and japan.
Treasury will assist the accounting
function in standardizing business
practices, processes, and systems on a
global basis. One focal point of these
efforts is the cash management area,
where a decentralized, multi-bank,
multi-system structure is being
replaced with a more centralized
framework that takes advantage of
4

Fi sca l Yea r

Revenues Empl oyees Revenue/Employee

1992
1993
1994

$3 .6 bn
$4.3 bn
$4. 7 bn

12,812
13,253
13,282

$280,000
$325,000
$353,000

between collections and accounts

receivable systems and accounts
payable systems and disbursements
consolidated banking relationships to increase service, reduce bank
charges, and reduce management of
multiple banks
increase net investment return on
global financial portfolio and reduce
borrowing costs throu gh : speedin g th e
receipt of funds globally, standardizing the platform and payment method
of disbursements, and improving the
management of accounts receivable.
Taking a US model globally: The
model Sun is using globally is one that
has been developed in the US and
Canada, where they are usin g one
bank as a "concentration" bank and
funnelling all remittances and payments through it in their various
forms . In addition to executing transactions, the concentration bank sends
an electronic transmission report back
to Sun in EDI ANSI format, including,
for example, what payments came in,

in what form, along with the necessary remittance advice.

Bank of America and its global
banking systems network will he lp
link Sun ' s "electronic commerce" systems with suppliers and customers, as
well as Sun operations worldwide .
Regional interfaces via the accounting
service centers have been determined
to be the most efficient.
In a single-currency environment like
the US, "this is relatively easy to handle," notes Abdul Premji , a vice president with Bank of America's global
payments group, "it' s either a paperbased remittance that goes into a lockbox, or it' s a wire transfer o n the AC Hside." The bank processing the payments only needs capabilities to transmit all the information back to the
company in a timely fashion and in a
format that can automatically
update their receivables/payables
system.
Outside North America, the
model is more difficult to implement. According to Michele
Takei , one of the treasury project
managers at Sun, the problem
areas can be outlined as follows:
a lack of consistent information
reportin g of ACH and money transfer
transactions outside North America
a lack of lockbox/receivables processing operations outside North
America
the wide variety of collection
mechanisms around the world
t he lack of co nso lid ated, auto mated information reporting
time zones.
In tackling these issues, two uncertainties are particularly troubling to
Sun ' s treasury. First, it is difficult to
determine whether the automation of
non-North American collections of
checks or automation of receipts from
wires will be the most cost-efficient
solution. Second, its goal of achi eving
same-day updates of accounts receivable ledgers (as the receipt of payment)
may prove difficult in some areas.
Japan, where 20% of Sun ' s business is
done, posed special problems.
Treasury's proposed solutions at this
Intern ational Treasurer/ Febru ary 20, 1995

Sun Microsystems
point fa ll into three categor ies:
a new data capture platform- Sun
is mi gratin g to an Oracle acco unts
p aya bl e prod u ct, w hi c h i s PC/
Windows-b ased and hi ghly f lex ib le;
thi s accounting package will replace
th e variety of pack ages bein g used
currently at Sun sites worldw id e, creating a homogenou s syste ms netwo rk
centralized data translation- usin g
Bank of America to consolidate the
data on th e bank side, and transl ate it
into EDI , Sun relies on a valu e-added
network in O hio to transm it the data,
wh ich is fed into Sun ' s comp uters in
Milpitas, Californ ia; there it is clown loaded into its global accountin g network
reg i on al disbursements- th e
accountin g se rvice centers wi ll fac ili tate ce ntrali ze d process in g in eac h
time zo ne; they wi ll also interface
with the banking co nce ntration network that wi ll consist of a co ncentration bank at a regional ce nte1 with
link s to reg io nal acco unts in eac h
country cl ea ring center.
Following the lines of cash management: The prob lems compan ies run
into w hen th ey try to automate backoffice AP/A R functions on a globa l or
regional basis are very simil ar to those
on the cash management sid e. Each
co untry has slightly different ways of
making p ay ment and eac h has its
ow n clearin g system. Also , autom ation sys tem s have to accommodate
mu ltiple banks.
Bank of Ame ri ca, while i t has a
prese nce in Europe, it is not a retail
bank in Europe . Thu s, Sun , or any
other company rece ivin g hundreds of
chec ks each week w ill need a loca l
repository bank to deposit those funds .
Bank of America has suggested a
US-style, l ock -bo x serv i ce to Sun ,
where instead of customers send in g
payment to them at their loca l office,
they send it to Bank of Amer i ca's
bran ch in the loca l clearin g center or
even directl y to one in London. This
is sim il ar to typic al pan-European
cas h concentratio n sc hemes .
Overcoming the obstacles in Europe
is not without cost According to Mr.
International Treasurer/ February 20, 1995

Premji , compan ies should expect to

pay as mu ch as 7-8 tim es w hat a bank
charges for lock-box process in g in the
US. Th e per item charges w ill fall as
more compa ni es impl ement simil ar
programs and vo lum e rises in Europe,
but it probably wi ll not reach the co nce ntration of vo lum e th at US systems
enjoy.
Benefits: With t hi s three-pron ged
approach, Sun hopes to duplicate the
benefits ac hi eved in th e US , whe re
transmission of EDI d ata started in
October 1993 and now automates the
process in g of 80% of all transactions.
Sun 's US cas h ap pli cation s function
has reduced heaclcount from 9 to 3
peop le ov er the co urs e of th e program . It al so has redu ced ave rage
acco unts receivab le days sa les o utstanding (DSO) by 1 .5 cla ys .
In Canada, Sun is currentl y set up to
rece ive EDI fi les and w ill have automated daily upd ates to its accounts
receivable ledger by th e end of this
month.
With Canada comp leted, Sun w ill
foc us o n max imizin g the benefits in
Europ e w here th e O racle syste m is
beginning to be in stall ed.
Some of the be nefits cl ea rl y are comin g from leve rag in g bank back-office
tec hn ology . "W e are takin g away th e
more mundane elements of th eir backoffice,'' notes Bank of Amer ica ' s Mr.
Premji, " no longe1 does so meone have
to open an enve lope, deposit a check,
and enter t he payment details into
the ir account ing system. "

Success factors
Ms. Takei , who presented a summary
of Sun 's project at a recent TMA EDI
Conference, lays o ut th e traditional
success factors: Set cl ea r project goals
and get an inter nal bu y-in , from a
stron g se nior management comm itment to everyo ne on the local leve l.
Also , as co mpl ete ce ntrali zation is
unobtain ab le- at least in the nea rterm stages of such a program - even
at the region al-l evel, it is important to
have loc al, co un try-l eve l payment
processin g altern atives .

Mr. Premji stresses the importance

of internal coo rdin ation and bu y-in as
parti c ularl y important for success .
Most co mpani es co uld have th e prelimin ary stage s of suc h a pro gram
impl emented in 2-3 month s, he says
-that is, if th ey conduct the pre liminary intern al work first
Part of th e internal process is getting
comfortab le w ith ava il able technology
and educating the re leva nt f i nance
areas so they can become involved in
the discussion . "You don't necessa ril y
nee d to imp ose a global co mp anywide system," says Mr. Premj i, " as
mu ch as yo u need each unit w ithin
the compan y to und erstand th at su ch
a program is to thei r ben efit. " It must
be in their in terest to integrate th eir
loca l banking and accounting systems
into th e globa l framewo rk. They also
ca n prov ide in sight into how suc h a
globa l framework ca n best be co nstru cted within the co ntext of a company' s pa 1ticul ar business.
Indeed, on e of th e thin gs Sun wou ld
h ave don e differentl y, if it h ad to
resta rt its program , accordin g to Ms .
Takei, is to in clud e all th e pl ayers in
the process earli er in the game.
Compani es ca n start by getting th em
to id enti fy th e num erous so urces of
payment in formation they receive both
interna ll y and from banks. Often they
can eas ily rationalize th e numb er of
sou rces. N ext , th ey sho uld seek to
understand in whi ch format the information shou ld be received in order to
be fed directly into their local accountin g system.
Most accounti ng systems tod ay have
some sort of EDI-interface bui l t in ,
notes Mr. Premji. Yet, most co mpani es do not use th em, beca use th ey
do not perceive a need, or have not
yet implemented a program to do so.
Often, he says, th e initi ative to sta rt is
bein g driven by th e treas ury department, where ava il abl e technology is
bein g utili zed to automate and rationali ze b ank int erfac es. Thi s sa m e
pro cess is then simp ly ex tend ed to
othe r areas of the compa ny and to customers and suppli ers, many of w hom
will be und ergoin g similar processes.
5