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Knorr-Bremse significantly reduced banking fees through an EY service – without affecting business relationships with its banks.
The better the question
With banking relationships growing decentralized over decades, Knorr-Bremse Head of Treasury Kai Gloystein decided to have a closer look.
For an average customer, there is not much to gain when it comes to banking fees. Occasionally, you may be able to convince your bank advisor to waive withdrawal fees or incurred costs. However, the savings you might realize through this route will only roughly be equivalent to the cost of a decent lunch.
When Kai Gloystein, Knorr-Bremse’s Head of Treasury, launched a global “banking fee rationalization” project at the Munich-based braking systems manufacturer, he knew he was venturing into complicated territory.
This was because costs and services are typically negotiated separately between the bank and each country subsidiary of the corporation. Standardized packages, such as the private current account, hardly exist. Conditions are usually set once and then rarely questioned or updated. Knorr-Bremse, like most multinational corporations, has a tangled web of relationships with banks all over the world — a landscape that is highly diverse and hard to grasp from a central corporate perspective. Gloystein knew this, and he wanted to centralize and consolidate it.
"Contracts with commercial banks almost inevitably give rise to a certain amount of uncontrolled growth. We wanted to analyze our historically grown landscape of banking relationships and look for potential to be more efficient and leaner — working with the complete map, so to say," Gloystein said.
While it is easy to suggest cutting banking fees as a solution, Knorr-Bremse's size makes it a challenging task, as the company has subsidiaries in over 100 locations spread over more than 30 countries.
Gloystein’s team assessed that a comprehensive review of existing bank contracts would involve hundreds of business accounts worldwide and tens of thousands of transactions between Knorr-Bremse and its core and subsidiary banks. Hidden in these transactions were indications of incorrectly billed, high, unnecessary or otherwise reducible bank charges.
To cope with the analytical workload beyond manual work and the use of in-house resources, Gloystein leveraged an EY service developed precisely for this purpose.
The better the answer
To generate savings, an international team paired technology with sensitivity for existing relationships.
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Read moreIn 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.
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.
"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.
The better the world works
Had EY found no potential to save money, Knorr-Bremse would have paid nothing.
Overall, Knorr-Bremse relied on its cordial relationships with major and subsidiary banks to compare, sift and negotiate banking fees, covering almost every aspect of corporate banking.
A detailed review of the expense documents enabled the team to reimburse commissions related to bank guarantees, for example. As well as reducing traditional, transaction-based bank fees, the team was also able to reduce foreign exchange spreads. Knorr-Bremse analyzed and successfully negotiated overdraft fees, commissions for bank guarantees and margins for foreign exchange transfers. The Knorr-Bremse and EY teams left hardly a stone unturned in the search for more transparency, more insight and more cash.
After a large part of the measurable results were realized within three months, other banks and negotiations followed step by step.
"Our approach is designed for quick wins at the beginning, so that we can realize savings immediately. In this case, after a quarter of a year, about 80 percent of the results were realized. The remaining 20 percent followed,” Schmidt said.
Upon project debrief, the bottom line stated a cost reduction of around 35% of the annual banking fee for Knorr-Bremse. Even the optimists of the working group were positively surprised by the impact generated.
"I can only congratulate the team for their incredibly methodical, technologically demanding and extremely successful work. We had not expected cost savings and transparency gains of this size. We improved our negotiating position with our core banks without our business relationships suffering,” Gloystein said.
According to Gloystein, his company is now working even more closely and trustingly with its banking partners.
"The successful analysis and optimization project at Knorr-Bremse shows that technology opens a new door for us to help companies function a little bit better or leaner in an even deeper, more comprehensive and result-oriented way. We also see in this project that, despite all the technology, it is still people who interact with each other and challenge each other for the best solution," says Thomas Schmidt from the EY team.
A key takeaway from this case study is that complex analysis and efficiency initiatives are no longer a question of armies of consultants and narrowly defined cost-benefit considerations. In the case of Knorr-Bremse's banking fees, it was not possible to quantify or calculate outcomes before the onset of research. Hence, there was a risk for Knorr-Bremse of paying for services that might deliver no measurable results at all.
That is why Schmidt and the EY team proposed a new, more client-centric business model for business consulting.
"The EY service we implemented here had little risk for Knorr-Bremse, as we offered a value-based pricing model that is still somewhat unusual for consulting firms. In essence, if we had found nothing, Knorr-Bremse would have paid nothing. Our team was rewarded based on the value our services created, not according to the hours our people spent," says Schmidt.
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