Despite the best efforts of enterprise resource planning (ERP) system vendors, TMS are well positioned to maintain their primacy as an FX management tool.
ERP is a business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back-office functions related to technology, services and human resources – including treasury.
As a result, ERP has to be implemented across an organization, which is a substantial commitment in terms of time and money.
| ERP treasury modules simply don’t offer the flexibility…|
Corporate TMS is a software application that automates the steps required to manage cash flow, providing analysis of processes such as cash management and cash pooling as well as FX.
The findings of EY’s 2014 TMS survey would suggest TMS is the best tool for managing FX. The vast majority (90%) of respondents to the survey said they were satisfied with the FX trading function, making it one of the most highly regarded front-office TMS functions.
Paul Bramwell, senior vice-president treasury solutions at financial software vendor SunGard, describes treasury management solutions as flexible and capable of being configured and reconfigured to layer hedging strategies on top of underlying data – an attractive proposition in the current EM FX climate.
He says there is a common misconception that the treasury module of an ERP system should be the ideal platform for managing FX exposures, as the vast majority of information needed to accurately identify exposures will be natively held within the system.
The problem is that it is very unusual for a company to have a single, global version of an ERP system.
“When we have seen organizations move to their ERP solutions’ treasury module, it is usually in response to a wider initiative within the organization to focus on one technology platform and support model for its IT staff,” says Bramwell.
“But with the advent of private and public cloud hosting [where businesses access shared computing resources online] and the growth in software-as-a-service [a model that allows businesses to pay for software applications only when they need or use them], this is declining in importance.”
Organizations that buy into an ERP treasury module are vested for the long haul and historically end up relying heavily on home-grown spreadsheets and other workarounds, suggests Justin Brimfield, chief marketing officer and executive vice-president of corporate strategy at treasury and risk management solutions provider Reval.
|TMS modules offered by ERP vendors have a strong play only in those firms that are already using the vendor’s system|
James O’Neill, Celent
However, not everyone is prepared to write off ERP as an FX management tool.
Bob Stark, vice-president of strategy at corporate treasury solutions provider Kyriba, reckons combining TMS and ERP provides the optimum structure for FX hedging programmes, explaining that ERP systems contain a lot of data – both from a balance-sheet perspective and in terms of outgoing payments and receivables – that is valuable for any treasurer trying to assess their exposures.
A small number of corporates use ERP for decision making and FX trading, although Stark acknowledges the percentage of businesses running treasury through their ERP system would be in the low single digits.
“Treasurers need to be able to assess their exposures and link them to hedges and execute and manage their FX contracts, and ERP treasury modules simply don’t offer the flexibility to support these types of functions,” he says.
A leading standalone TMS system and a TMS module from one of the leading ERP vendors will both do a good job of providing a reasonable range of FX capabilities, particularly in relation to routine transactional FX requirements such as the payment of invoices in a foreign currency, suggests James O’Neill, senior analyst at research firm Celent.
“However, TMS modules offered by ERP vendors have a strong play only in those firms that are already using the vendor’s system,” he observes. “For firms with more complex currency hedging needs, I would give a nod to the capabilities of some of the standalone TMS vendors, particularly those that also have strong capital markets capabilities.”
|Paul Bramwell, SunGard|
Stark says it is unlikely that FX functionality will become a strategic focus for ERP vendors.
“FX and associated workflow is a major element of treasury management systems, but ERP is a different market,” he says. “In addition, ERP systems are highly customized and can take 18 months to implement – treasury typically doesn’t have the budget, time or even inclination to think about that type of project.”
However, Christian Mnich, SAP’s director of solution management treasury, says there are substantial benefits to using ERP systems for FX management.
“During an FX trade, ERP systems allow users to manage other aspects of the trade, such as correspondence and back-office operations as well as the payment and integration to accounting,” he says.
“An ERP system can also link to a dealing platform, enabling the whole company to benefit from the bank/Swift interface that has already been established for payment processes.”
In addition, ERP treasury modules should be more efficient as they create automated calls to action based on defined events, concludes Kevin Grant, executive board member at financial software provider Hanse Orga.