In this engaging five-part series, we take a look at successful management accountants who are driving value-creation in leading global organisations.
In this article, we highlight the stories of Yang Yichao in China, Michael Tan in Malaysia and Sharon Flood in the UK.
Yang Yichao Creates Value in China
As CFO in the household and bodycare division in Greater China at global consumer goods company Sara Lee, Yang is using his CIMA qualification to design an innovative approach and deliver multi-million dollar savings.
“Traditional accounting focuses on the figures, but management accountancy shows you how to understand the story behind the numbers and to think from the business perspective,” he says.
“The emphasis is on getting the right information and using it the right way. Presenting information that is relevant and easy to understand is more important than creating fancy financial models.”
“When I first graduated from university, I worked for a bank but it just wasn’t for me,” Yang recalls. “The bank had very strict rules and I found myself drowning in procedures. The focus was on following the routine but I was more interested in how much you can contribute to a business.”
In 1996, he moved to a division of industrial gas suppliers, BOC, in Shanghai. At first, he worked on improving his skills in the technical side of accounting, such as reporting and modelling.
But it was not long before his boss told him that he would progress up the career ladder more quickly due to his skills and knowledge in finance and management.
Yang has initiated a number of innovative projects. As general manager of finance and administration at BOC’s China division, he saved the company more than US$1 million annually by devising what he calls a “virtual pooling treasury system.”
“China doesn’t allow non-financial organisations to borrow money from each other,” Yang explains. Because of this restriction, BOC couldn’t lend money to other entities in the same group.”
By the late 1990s, the scale of incoming business was increasing rapidly and the company found itself with surplus cash. But it was not able to use this surplus cash to support its newer offshoots.
“Working this way was time-consuming and expensive as the young companies were having to pay high interest rates on bank loans,” Yang recounts. “We had to find a solution.”
After talking to the banks, he came up with the idea of pooling the group’s surplus cash using an ‘entrustment loan’. After finding a bank that was willing to act as an intermediary, all 12 entities in the BOC group were put under an umbrella agreement with that bank.
Companies in the group with surplus cash then channelled money into a central pool, which was managed by the bank. The cash-strapped companies could borrowed money from this pool at a reduced interest rate. Interest earned on the cash pool meant that the group as a whole saved around 3.5% on inter-company loans.
During his time at BOC, US$30 million was used in inter-company borrowing – which in real terms means Yang saved the business around US$1 million.
Unsurprisingly, other businesses quickly caught on to the idea. “A lot of companies in China are following the same solution now,” he says. “Many banks have even developed standard software to handle this type of transaction.”
At Sara Lee
More recently, Yang has been busy developing more effective operations in his role as CFO at Sara Lee’s household and bodycare division for the Greater China division.
When he arrived in 2006, the company had two separate legal entities in China. “There was a duplication of costs and spending because the two companies were often selling the same products to the same customers,” he says.
At the same time, the profit-making company had to pay income tax while the loss-making company could not utilise its tax losses – as China does not allow tax consolidations in the same group.
Where many would have given up, innovative Yang looked sideways and saw an opportunity to save money. “We decided to consolidate some of the core functions into a new company which would act as a sole window facing our customers,” he says. “‘At the same time we centralised certain functions to create something like a shared services centre.”
Yang’s hard work has paid off and the project is now saving the company US$500,000 a year.
Michael Tan’s War on Waste
Through his War on Waste (WoW) initiative, CIMA-qualified Michael Tan delivered significant enhancements to his employer’s inventory management, manufacturing cycles, delivery times and overall return on investment capital. Tan is supply chain operations director at measurement equipment manufacturing company Agilent in Malaysia.
Between 2006 and 2009, he helped to improve efficiency in Agilent’s supply chain, which resulted in a 43% reduction in the manufacturing cycle and a reduction in inventory of US$44 million. The percentage of Agilent products delivered to customers within three weeks rose from 57% to 70%.
“With my training and experience, I can add value to the company wherever I go,” says Tan. “These [CIMA] subjects of strategic planning and decision-making have been extremely useful to me and have enabled me to give a different kind of value-add to the company.”
Formerly part of Hewlett-Packard, Agilent’s electronic measurement devices are sold to international names such as Samsung, Nokia, GlaxoSmithKline, Cisco, Hitachi and Motorola. Agilent’s diverse product portfolio spans communications, pharmaceuticals, life sciences, electronics and other market sectors.
The WoW initiative was a response to increasing competitive and internal pressures, says Tan. Agilent’s customers required shorter lead times and tighter pricing, and the company wanted a more streamlined operation poised for growth.
Tan established that, for the last quarter of 2006, order fulfilment lead times stood at 19 days, inventory was US$123 million, and the order-to-shipment delivery rate was 51%. He then delved into processes at Agilent and also up and down the supply chain to drive out these inefficiencies.
Key strategies included implementing a Lean Six Sigma culture throughout the workforce, re-engineering process flows, improving yields, and collaborating with suppliers and customers on planning, forecasting and replenishment.
The measures led to greater responsiveness: a decrease in order fulfilment lead times from 19 days to eight. The US$123 million inventory fell to US$79 million over three years and the order-to-shipment conversion rate rose from 51% to 60%, significantly improving return on investment capital.
The WoW initiative has also garnered industry recognition including an award for Supply Chain Operational Excellence from the US Supply Chain Council.
Sharon Flood Counts on the ‘CIMA Value’
In 2008-2009, the UK department store chain John Lewis undertook a strategic review of its home business. This was a key strength for the company in terms of customer advocacy and revenue/profitability. However, the home business was under constant attack from ‘value’ players and from retailers who offered what they claimed to be a more ‘convenient’ proposition than John Lewis’s 29 department stores.
The review was led by John Lewis’s merchandise director and the then finance director, Sharon Flood FCMA, working in partnership. (The FCMA designation is awarded by the Society of Management Accountants to a member who has demonstrated excellence in management accounting, among other qualities.)
Previous attempts had been hampered by the economics of the existing John Lewis operating model, which was based on the high footfall and sales densities associated with large catchments and destination locations. The lower footfall, more frequent visits of a smaller format would require a totally different operating and economic model.
As Flood explains: “The ‘CIMA Value” was provided by the finance team’s deep understanding of the operating economics of the business and how these benchmarked externally, together with their ability to work in close partnership with their colleagues throughout the project, from strategic idea to delivery in a real store format.”
“They succeeded in delivering the target economics by working flexibly, using many management accounting tools and techniques to trade-off the different risks and opportunities that emerged through the process.”
Capital costs were rigorously controlled and expensive ‘bespoke’ solutions were avoided. Staffing costs were also scrutinised and, where possible, support services were delivered through SLAs – service level agreements – with existing parts of the business.
Square footage allocation was optimised, with back-of-house space kept to a minimum. Each part of the assortment’s space allocation was reviewed, both for its role in the customer proposition and its financial benefits. The multi-channel opportunity was emphasised, particularly for ranges that would not be available in-store, such as fashion.
The first pilot store opened in the coastal town of Poole in the south of England in late 2009. It comfortably met expectations. A second store has now opened and further stores are planned.
Overall the new format is estimated to have the potential to deliver revenues in excess of £500 million and an internal rate of return of 11% to 18%. The project has also provided many efficiency opportunities for the existing store base and has provided a key strategic leverage for the growth of John Lewis.
About the Author
Irene Teng is Regional Director based in CIMA’s Kuala Lumpur office. She leads CIMA's strategy across ASEAN and Australasia, including student growth and related alliances and partnerships.