Case Study: Varta Improves Creditor Payments and Account Reconciliation Through Automation
Varta Consumer Batteries, a subsidiary of Spectrum Brands (previously known as Rayovac), is one of the biggest battery producers in the world. Its European headquarters is based in Frankfurt am Main, Germany, and the company has 1,100 employees in 26 countries and generates a yearly turnover of €400m.
Varta’s product variety and innovation power are unique. It follows current equipment trends within the dynamic fast-moving consumer goods (FMCG) marketplace, and is fast and flexible in deploying the right mobile energy solution. Varta works in close co-operation with its trade partners and positions its products to meet consumer requirements.
In order to be able to sustain its dynamic business model, Varta recognised that it needed greater visibility over its cash flows across the Nordic region and looked to improve the management of creditor payments, account reconciliations, reconciliation of incoming payments, and communication/exchange of files across Sweden, Finland, Denmark and Norway.
Varta’s accounting department in the Ellwangen office managed the company accounts for the Nordic countries. The company identified two major objectives that drove its decision to change banking partners:
Varta decided to centralise its accounts for the four Scandinavian countries. There were 14 different payment methods in use, and only one country – Finland – was set up to run both deposits and withdrawals automatically, while the other countries ran these procedures manually. With just four people in the accounting department responsible for four different companies’ accounts, the workload was heavy. In the morning it took up to two hours to complete the books, time that the company – and accounting department – thought could be spent in a more strategic way.
Therefore, Varta decided to move from its former bank to one that could handle the four countries uniformly. The company wanted to make the processes easier and more efficient for the accounting department through an easy-access system to pay out and receive incoming payments with only one outgoing and one incoming format. It wanted to eliminate the manual work for Sweden, Norway and Denmark, and still have the same level of service that it received in Finland.
In 2006, after reviewing several large international banks, Varta chose Danske Bank because it could deal with incoming and outgoing payments automatically, plus ensure that the sister company in Germany had visibility over the accounts – something that its former bank could not offer. With Danske Bank’s solution, Varta could gain the visibility it needed across all branches and accounts via one accounting system.
In October 2007, Danske Bank approached Varta with a solution based on SAP standards. First, the bank presented the solution to the accounting department in Germany and then to the IT team. Danske Bank also had a strong reference customer Ineos (formerly known as Hydro Polymers), a Norwegian international energy company, and arranged a conference call with the project leader to provide input and feedback about his experience. Varta decided to go ahead with the SAP solution in December that same year. The technical implementation of the solution took approximately eight weeks.
Ellwangen Workshop: Bringing Together the Project Stakeholders
At the beginning of the implementation project, in June 2008, Danske Bank organised a two-day workshop in Ellwangen,Germany to bring together the accounting department, Varta’s IT team and the bank, as well as two SAP experts from India, in order to identify and define all the necessary messages for the four countries. Even though this was a ready-to-run, out-of-the-box solution, some customisation was needed for the 14 different payment methods to fully comply with Danske Bank’s EDIFACT format – and this was completed within two days.
During the workshop, all the details of the necessary fields were defined, slight adjustments made and test files sent to the bank to see whether it was possible for the bank to validate the file. The bank’s feedback was almost immediate, so Varta was quickly informed which fields were rejected.
Bringing together the IT team and the key users of the system meant that the solution was accepted by all constituent parts and any issues could be solved immediately. The workshop was also extremely useful for the IT team to understand the solution and how to maintain it in the future. All stakeholders agreed that this workshop is one of the main reasons for the project’s success.
Varta’s desire to use only one standard payment format meant that the SAP solution was the best fit and there were no major changes necessary. Additionally, the company already had in-house SAP knowledge, which would save it a lot of money now and in the future because the IT team would be able to implement and maintain the majority of the solution themselves. Because the solution is based on SAP standards, Varta’s IT team went into the project confident that it would work.
Varta felt that it was important to gain the functionality associated with SAP standards. The user’s daily routines, i.e. creating domestic and international payments in their bookkeeping system, are the same as before, but now they can make these payments in four different countries using the same format in SAP standards. When choosing this solution, Varta also had to calculate how much time it would spend on training employees to use it. With a SAP standard solution, the time needed for training is minimised.
A standard also reduces development time – if Varta needs to customise anything in the application, then the IT team knows what to do because it is a standard. In addition, the company knows that it won’t suddenly experience extra costs because it needs to change a payment method, etc.
The SAP solution supports Danske Bank’s outgoing payment types in the four Nordic countries, as well as a further four countries – Germany, Poland, UK and Ireland – which means the company could expand into those countries, if it chooses. It uses international standard messages MT101 and EDIFACT Paymul to support local standard payment types.
For the incoming format, Varta wanted to reconcile its financial accounts automatically in SAP, and the bank recommended Varta use SWIFT’s MT940 in SAP format. This format is supported in SAP standard from Version 4.6C, which means that Varta can now import and process its account statements electronically into SAP, and thereby saving time in reconciliation, etc.
To obtain full straight-through processing (STP), the communication between Varta and Danske Bank is automated. Before, the company transferred files back and forth to its bank manually; now it uses an FTP server. As soon as the bank has created the MT940 file, it automatically sends this file to Varta without any manual intervention. The procedure is the same for outgoing payment files containing creditor payments. When SAP creates a file using run, it is automatically placed on Varta’s File Transfer Protocol (FTP) server, and then the server automatically sends this file to Danske Bank for validation and further processing.
Automation has significantly eased the accounts department’s workload. It has given Varta more visibility over its payments, as well as increasing STP and decreasing the need for manual intervention, thereby reducing errors.
One of the biggest challenges was setting up the FTP communication and the security software. So, although the SAP solution solved many issues, the SAP part of the solution stopped when the accounting department uploaded the file to the server, which opened up a security issue for Varta. File encryption was not discussed as part of the project, yet it takes two or three days to write an encryption – and this burden fell on the shoulders of the company.
In order to do encryption, Varta needed special hardware, plus a small router, which meant that it became necessary to do some things by hand, reintroducing manual intervention. Ineos, the reference customer, also had the same problem and implemented a manual workaround, but Varta wanted a completely automatic process.
Another challenge was the loading of account statements. Varta has to separate these statements within their account numbers, which are compiled from compatible SAP systems. Currently, the company has to go over the data and correct it manually.
All stakeholders believe that the project is a success. Varta’s accounting department can download and automatically convert a file so that it can be seen in the SAP system. This takes about five to 10 minutes per day, whereas before it took close to an hour, depending on how many payments were received. So since implementing the solution, Varta has gone from spending 3-3.5 hours on payments per country per week to spending one hour weekly on all four countries.
There is also less risk because manual intervention is removed from the process. The accounting department can’t miss anything because the system is checking the invoice number and amount – and if the amount doesn’t fit with the amount in the file, then it doesn’t complete the payment. Every error is identified, down to €1.
Both Varta and Danske Bank believe that a long-term relationship includes identifying problems and improving the product. In terms of future projects, Danske Bank is keen to further co-operation within the field of SAP and is looking to implement another message in SAP. Varta has expressed an interest in Cremul, which is a multi-confirmation message sent from a payment institution to a creditor stating that their account has been credited with a specified amount.