Why Foreign Exchange Rates Matter In Your Oracle ERP
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In Part 1 of our 3 part webinar series, SmartDog Services Oracle Expert Klery FOX and OANDA FOREX Expert Natsha Lala show you how fluctuations in exchange rates affect your bottom line.
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Why Foreign Exchange Rates Matter In Your Oracle ERP
- 1. Why FX Matters To Your Business Natasha Lala, General Manager Solutions For Business Klery Fox, Practice Director Oracle Applications
- 2. AGENDA • What is FX? • How does it impact businesses? • Best Practices for FX data • Global process considerations • Enterprise-wide technology considerations • A game plan for strategic change
- 3. WHAT IS FX?
- 4. Foreign exchange is a 5.3 trillion dollar a day market Larger than all equities markets *combined* FX= $5.3 Trillion NYSE = $26 BillionNASDAQ = $18 BillionTSE = $13 Billion
- 5. 39% 53% 9% Reporting dealers (interbank market, primary market makers) Other financial institutions (regional banks, hedge funds) Non-financial customers (corporates) Source: 2013 BIS Report: Triennial Central Bank Survey Who are the main participants?
- 6. 90 seconds of EUR/USD Over 22,000 quotes Source: OANDA fxTrade tick-by-tick data OTC-ness leads to rate disparity
- 7. HOW DOES IT IMPACT BUSINESSES?
- 8. Source: FiREapps 2015 Q1 Corporate Earnings Currency Impact Report 0 5 10 15 20 25 30 35 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Billions (USD) North America Europe 31.69 20.18 8.0 3.91 7.45 57% higher than Q4 2014 4 times higher than Q1 2014 Negative impact to NA/EU corporates $31.68 billion in Q1 2015
- 9. Source: www.oanda.com/currency/historical-rates/ Can expect the same in Q2, with “Grexit” creating extreme volatility
- 10. Source: OANDA Historical Currency Converter 2015 Where do businesses use FX data?
- 11. Reporting • Often only discovered at month-end when distraction of wrong numbers is most impactful for Finance to correct • Can result in needing to restate financial results Pricing • Off-market pricing for clients who are savvy about price checking creates distrust • Potentially leaving revenue on the table Bad data creates impact
- 12. 1. Human error – Risk of “cut-and-paste” error 2. Lack of auditability – Not easy to determine source/date – Risk of fraud 3. Lack of consistency – Different rates used by different people Lack of controls with manual processes
- 13. Clients, Sales Team EURHQ, Clients, Sales Team USD € $ (Jan 1) $ (Jan 16) $ (Jan 31) Revenues 5,000,000.00 6,071,500.00 5,858,500.000 5,660,500.00 Operating Expenses 2,000,000.00 2,428,600.00 2,343,400.000 2,264,200.00 Operating Cash Flow 3,000,000.00 3,642,900.00 3,515,100.00 3,396,300.00 How do I determine the impact, if any? Follow sales cycle…
- 14. BEST PRACTICES FOR FX
- 15. • Find FX transactions/translations in financial reporting • Follow your sales/product life cycle across borders • Use a reputable source • Reduce cutting and pasting • Consistently apply rates • Create an audit trail Best practices for FX
- 16. • OANDA is trusted by “The Big 4” accounting firms, taxation authorities, and companies worldwide. OANDA Rates® are the globally recognized standard for accurate exchange rates data so you can have complete confidence in your numbers. • OANDA owns the world’s most comprehensive and flexible FX data that will meet your firm’s accounting needs, with 190 currencies tracked by-the-second over the past 20 years. Get an accurate data source Best practices for FX …it starts with good data
- 17. • OANDA owns the world’s most comprehensive and flexible FX data that will meet your firm’s accounting needs, choose the periods, values, decimals and standards suited to your business from OANDA and the European Central Bank. • Easy-to-integrate REST API with CSV, XML, JSON outputs. Automate your process Best practices for FX …it starts with good data
- 20. AGENDA • Global process considerations • Enterprise-wide technology considerations • A game plan for strategic change
- 21. Front-office: • Marketing • Sales • Customer Mgmt. Operations: • Manufacturing • Supply Chain • Order Fulfillment • Service Delivery Business Unit: • Vision & Strategy • Product/ Service Development • Continuous Improvement Back-office: • Finance • Procurement • Human Capital Mgmt. • IT Global functions and business processes have abundant connections to Fx …
- 22. … yet there is rarely a single approach or mechanism in place, and often many layers of different, enabling technology exist … Why isn’t our enterprise technology already handling this? 1. Lack of Fx standardization mandate or global policy enforcement 2. Frequent M&A w/ lagging post- merger integration efforts 3. Inadequate project team understanding or communication of Fx standards or automation opportunities 4. Innate differences in how different planning, transaction, and reporting tools are selected and/ or structured for Fx mgmt.
- 23. Global complexity + fragmentation = reduced efficiency/ effectiveness that can materially distract personnel or misstate results To develop an effective, sustainable Fx strategy, an organization needs to: 1. Leverage a single, reputable source of truth for Fx rates 2. Centralize and standardize the administration process for Fx rates 3. Standardize how rounding/ precision is applied and calculated 4. Systematically apply and handle multiple acctg./ reporting views 5. Enable leaders and personnel to plan, transact, report and analyze information in their native functional currency Organizations cannot standardize or automate what they don’t fully understand. - why to focus on it - what to standardize or automate with technology - how to automate it - which parts of the business to include - available internal/ external resources - the delivery model that best supports the objectives
- 24. Let’s get started. Contact SmartDog: Email: info@smartdogservices.com Phone: (512 279-2524 Q&A Learn More Blog.SmartDogServices.com Oanda.com/rates Contact Oanda: Email: Phone:
Editor's Notes
- So what is FX? For most people, foreign exchange is something we only think about when we go on vacation to another country and need to buy local currency. It’s not something that businesses often pay attention to, until it bites them in the butt. But the truth is, if you have staff in other countries, or customers, or vendors or suppliers, this impacts you. And if you are building systems or applications for clients with any kind of cross border element (hint: which is almost everyone) this impacts you. So what are the important things to know about FX? First, the size of it. The 5.3 trillion dollars-a-day size of it. To put this in perspective, think of the stock exchange with the largest daily volume. That’s the New York Stock Exchange, which trades 23 billion a day. A drop in the ocean compared to FX. Add all of the equity exchanges together, and you still haven’t touched FX
- Getting an exchange rate may seem easy (and actually it is, but getting a good one is hard). We’re going to look under the covers and see what the FX market looks like. This represents a 90 second slice of what we look at when assessing the market. Each colour represents each of the liquidity partners. There are a lot of banks on here, who shall remain nameless but I guarantee you have your money with at least one of these guys. In looking at this, who has the right price? By looking at this at a 50,000 foot view you can divine the price. But if you zoom in, every one of these lines is off market at some point. And this is just in 90 seconds. To make sense of this chaos, you need a fancy set of algorithms that processes this firehose of data in real time, takes out the garbage, builds a market consensus, and delivers a market rate in milliseconds. Just so you know, most exchange rate providers are just looking at one of these lines.
- In Q4 of last year, publicly traded US and European companies lost a combined 20 billion dollars due to FX. That was a direct hit to the top and bottom line (and Earnings per share) for those companies. In Q1 of this year, the trend continued in an even more alarming direction.
- So we know that foreign exchange can have a material impact, but how are companies actually using FX data inside their businesses? OANDA has been providing free currency data for 20 years on the internet and have amassed some interesting statistics from our millions of monthly visitors. The main use is for reporting, which is not surprising at all. What I find interesting is the large percentages of businesses using this data for pricing or risk management. That tells me that more businesses are understanding how fx impacts their operations.
- If a company has figured out that they should use fx data to make decisions in their business, it’s important to get good data. Garbage in, garbage out after all.
- And finally, having obtained good data, the last mistake we see people make is not automating the ingestion and distribution of those rates in their business
- Where does your data come from? When you get audited, who’s rates are they going to use as a reference?
- And automating this doesn’t have to be hard or mysterious, my friends at smartdog have already solved this problem I am thrilled to working with a partner like smart dog who is at the forefront of understanding how deeply FX matters to their clients and making it that much easier to avoid the risks of unreliable data. So let me hand it back to Klery who can walk you through how smart dog makes this easy for EBS clients.