Cash & Liquidity Management

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Using Financial Supply Chain Management to Support Working Capital at Tech Data Corporation Tech Data is a low-margin business with the cost of goods more than 95% of sales revenue. It is therefore vital for senior executives to find ways to preserve margins and retain the firmís competitive edge. There are a variety of factors which can affect margins - for example, inefficiencies in the physical, information or financial supply chain. Tech Data actively manages its financial supply chain in order to maintain working capital. The company avoids using financial institutions wherever possible, reducing interest costs and thereby creating benefits for its suppliers, customers and shareholders. Tech Data has provided roughly $600m of net cash through its operating activities over the past three years and sales have increased by almost $3bn. Treasury has had a major part to play in this business transformation. For example, by extracting liquidity by working the finan- cial supply chain harder, Tech Dataís net interest supply chain expense fell by $13.4m or almost 50% in 2007 without compromising its customers or suppliers.

Using Financial Supply Chain Management to Support Working Capital at Tech Data Corporation

by Helen Sanders, Editor

Tech Data Corporation is one of the world’s largest distributors of technology products from leading IT hardware and software producers. Since its formation in 1974, Tech Data now serves more than 100,000 IT solution providers in over 100 countries. Every day, these value-added resellers depend on Tech Data to support the technology needs of end users cost-effectively, including small and medium businesses, large enterprises and government agencies. Ranked 105th in the Fortune 500, Tech Data generated $23.4 billion in net sales for its fiscal year ended January 31, 2008.

The Importance of Margins

Tech Data is a low-margin business with the cost of goods more than 95% of sales revenue. It is therefore vital for senior executives to find ways to preserve margins and retain the firm’s competitive edge. There are a variety of factors which can affect margins - for example, inefficiencies in the physical, information or financial supply chain.

There are a variety of factors which can effect margins - for example, inefficiencies in the physical, information or financial supply chain.

Tech Data actively manages its financial supply chain in order to maintain working capital. The company avoids using financial institutions wherever possible, reducing interest costs and thereby creating benefits for its suppliers, customers and shareholders. Tech Data has provided roughly $600m of net cash through its operating activities over the past three years and sales have increased by almost $3bn. Treasury has had a major part to play in this business transformation. For example, by extracting liquidity by working the financial supply chain harder, Tech Data’s net interest expense fell by $13.4m or almost 50% in 2007 without compromising its customers or suppliers.

Executive Information System

Tech Data’s Treasury has achieved this in a variety of ways. As Wayne Whitaker, Director of International Treasury explains,

“First, we needed to increase our visibility over cash balances, funding needs, and FX exposures across the business. To do this, we implemented an executive information system (EIS), which comprises two elements: cash and FX exposures. The solution is now used across our subsidiaries to gather and analyse data in a consistent and timely way. We now have substantially greater visibility than before, with very little increase in the workload for our subsidiaries. They were already producing this data and using it to manage their own business activities. It takes them only a few minutes to report information to us.”

Cash Management

As well as enhancing its ability to view cash positions and FX exposures, Treasury also wanted to gain better control over the company’s current cash position. For example, in Europe, cash had been dispersed across a variety of banks and accounts in each country, so it was difficult to identify and manage the net position. To address this, the decision was made to select a pan-European cash management bank and implement a physical cash pool in countries with euro cash balances (fig 1).

This solution has proved extremely effective. The number of accounts and bank relationships, which the company needs to maintain, has fallen dramatically so cash is now more visible and accessible to Treasury. In the past, intercompany loans were maintained manually through an in-house bank, but the cash pool has enabled Tech Data to automate many of the intercompany loan processes.

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