How data analytics helped a firm save significantly | EY
In mid-2020, Gloystein assembled an international team of treasury experts from both Knorr-Bremse and EY teams. The team’s task was to dig through contract terms, invoices and billing documentation, as well as banking fee benchmarks.
Sitting at the virtual conference table were also Thomas Schmidt, Partner, SAP Treasury Consulting, Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, and Hemal H Shah, Partner, Consulting, Ernst & Young LLP — two EY professionals experienced in the technological aspects of the mission at hand: to search, find, re-negotiate and save money.
“We brought an experienced EY team onboard to support us technologically and to dive deep into finding optimization potential, as well as to support negotiations with our commercial banks,” Gloystein said.
Schmidt, once a banker himself, said the task involves more than just running the numbers. “The basic idea of banking fee rationalization is not pure cost-cutting against the banks. Knorr-Bremse wanted to update processes, create transparency, and work more closely and efficiently with its commercial banks. Even when challenging fees, sensitivity for relationships that operate on trust is key,” Schmidt said.
Wallet sizing
The process began with “wallet sizing” — the creation of an overview of benefits, interest rates, run-times and other parameters. It was followed by a target-performance review of where conditions and fees were longer up to date, such as after company acquisitions.
“A lot of the initial work for Knorr-Bremse was massive number crunching,” Schmidt said. “We prepared and formatted all the data, then used a data engine developed by us to find entry points we could use for pointing out savings potential or commencing renegotiations right away.”
Benchmarking, or comparisons to other companies and industry standards, is vital to the effectiveness of such an exercise. According to Schmidt and the EY team – and against general assumptions – benchmarking externally with public sources or comparable companies is not nearly as important as benchmarking fee structures internally within the company.
Formalizing internal benchmarking
“Internal benchmarking is often carried out only superficially, especially if data processing power is limited. This is where we take a data-driven look at whether different business units unknowingly have contracts with the same bank. Frequently, this knowledge alone can provide bargaining power in negotiations or can allow contracts to be bundled together,” Schmidt said.
“Internal benchmarking can also show where company division A pays higher fees for the same service compared to company division B. This may sound trivial, but it is actually a job for which you have to trace processes down to contract details, technical processes and input forms line by line to discover potential for improvement and prepare solid re-negotiation arguments,” Schmidt said.
Following their tech-driven model, the EY and Knorr-Bremse teams collected, sorted and then negotiated the banking fees over a period of six months. So far, reality had deviated significantly from expectations.
