CASE STUDY FOR ARTHUR ANDERSEN
Energy Company X
A major U.S. energy company controlling the massive distribution of natural gas and electric power wanted to more closely monitor the flow of one of its own vital resources -- its cash flow.
Business Issue
Although the company had a profitable cash flow, an evaluation of balance sheets in comparison to other companies revealed there was room for improvement.
The company's money managers and accountants had no particular reason to question the company's cash flow. They realized, however, that the process itself hadn't been scrutinized in a number of years.
"They knew the company produced significant cash flow, but they weren't sure that the cash flow was optimal," explains Russell Pearson, Arthur Andersen senior manager. "They wanted someone to come in and take a quick overview of the cash flow, and determine whether there was any opportunity to make enhancements."
Money managers also realized an efficient cash flow would reduce the level of borrowing and debt, thus reducing interest costs. The company called Arthur Andersen for help.
Solution
Arthur Andersen used a combined team of Business Consulting and Tax professionals to begin the task with an initial assessment -- an eight-to-10 week project. They divided the analysis into four key business processes:
Within each cycle, consultants further examined sub-processes. In the revenue cycle, for example, they reviewed five key areas including customer set-up, measurement, billing, payment processing and payment collections.
A critical component of this phase was interviewing staff. "The purpose of the interviews was to gain an understanding of current processes, some of the statistics around the cash flow, how the company measures cash movements and timing of how these processes work," explains Pearson.
The result of the assessment was the identification of substantial opportunities, where the cash flow wasn't operating in the most optimal manner. The biggest improvements could be made in the revenue and disbursement cycle areas. Yet, the results showed substantial improvements could also be made to working capital including:
Arthur Andersen then worked with teams of employees to address the target improvement areas. The revenue area teams included ecommerce, billing and payment processing methods, alternative payment methods and credit follow-up. "These teams looked at developing business cases for solutions in their selected areas and how they could make changes to improve the working capital," says Pearson. Those cases would offer ways to get customers to pay quicker, including online bill paying, electronic data interface (EDI) technology for larger commercial customers and automatic payment schemes like debits through a customer's bank account.
Regarding a timeline, Arthur Andersen began meeting with the client in August 1999. The assessment phase continued from October - December 1999. Developing the business cases lasted from April - June 2000. Implementation is expected by the end of 2001.
Client Value Delivered
Once all solutions are fully implemented, the key benefits for the company will be easy to recognize because there will be incentives in place for customers to pay their bills sooner.
"If customers pay faster, then the working capital will flow more quickly and the company won't have as much money outstanding," says Pearson. "That means they'll have to borrow less to operate -- with less debt, too."
Additionally, the creation of a supply company will create substantial cash flow and tax improvements and provide the opportunity for streamlining future implementations of eProcurement solutions. Other benefits will include enhanced internal processes, resulting in reduced internal costs. Automatic and online payment schemes will reduce bill printing and mailing costs. Also, new performance measures will ensure that company managers will make future decisions to optimize cash flow. Annual savings are projected to be in the multi-million dollar range.