Whitepapers

A 2010 look at how principles of quality and efficiency from the manufacturing world apply to treasury and finance's in pursuit of more efficient and effective FX risk management practices

This white paper explores how Lean manufacturing principles apply to foreign exchange exposure management practices, and how companies can benefit from applying an automated, process-driven approach to managing FX risk.

In December 2009 for the first time in a year, a majority of executives polled in a Mckinsey global survey said they expected consumer demands for goods to rise. Offering relatively positive views of the economy,respondents said they were now able to make longer term strategic plans. The biggest obstacle they expected to face as they looked ahead; heightened currency volatility. Nowhere was this truer than in the manufacturing sector, where over half of companies surveyed said that foreign exchange has an “extreme” or “very significant” impact on their profits.

Today, manufacturing companies are well poised to tackle foreign exchange risk and related costs. That’s because they have already developed processes and discipline within their organizations that they can leverage to achieve greater visibility to their foreign currency exposure and to make better, faster risk mitigation decisions. Manufacturers first adopted these principles and processes where they needed them most: on the manufacturing floor. Revisiting Henry Ford’s flow production assembly line model, Kiichiro Toyota created the Toyota Production System (TPS) model, which propelled Toyota and Japanese industry into a new age of productivity and global competitiveness. Toyota’s ideas have since been widely embraced;translated into concepts like Lean production and Six Sigma; they are now common in global manufacturing.

Companies and consultants who have demonstrated success using these approaches to target eliminate wasteful processes and improve quality have extended them to other industries and other disciplines. 
A growing number of companies in the U.S. are beginning to take a closer look at the principles of Lean and how they can help improve the costly, inefficient and often ineffective FX exposure management processes typical of most organizations today. By taking a methodical and disciplined approach, they are able to significantly reduce the time and effort spent aggregating, validating and analyzing foreign currency data to make better risk mitigation decisions. Equally important, they create visibility to the entire process and support an environment that makes continuous improvement possible.

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