Winner of the 2015 Treasury & Risk Alexander Hamilton Awards
Silver Award Winner – Technology Excellence Category
In 2010, Cummins was emerging from the recession with a relentless focus on growth and profitability. At the same time, the company’s finance executives were also methodically improving their processes in pursuit of operational excellence and financial reporting compliance. That’s when the CFO and treasurer began to scrutinize Cummins’ equipment lease management program.
At the time, Cummins was using Microsoft Excel spreadsheets and a defunct software product to manage leases. The company lacked visibility into the global leasing portfolio. Leasing was an orphaned process, cutting across several departments and global in scope but without a real owner.
Equipment leasing at Cummins is highly decentralized. Local budget owners decide whether to lease or buy. Treasury had built a lease vs. buy spreadsheet, but it was not used consistently nor were the rates updated frequently. Stakeholders were likely making poor economic decisions. Furthermore, the company could not measure the economic performance of the portfolio.
Benefits and ROI
From Cummins Equipment Lease Management Program
- Reduced Cost of Equipment Leases: Through the automated RFP process, over 73 competitive sourcing events have been completed in 26 countries. The new competitive model yields with an average cost of savings 8% per lease.
- Better Lease Portfolio Management: Evergreen payments as a percentage of total annual payments (excluding termination fees) dropped from 18 percent at program inception to an average of 8.5 percent in subsequent years. The “unplanned/unintended” portion of spend dropped by more than half.
- Ready for New Lease Accounting Standard: Cummins has also removed the uncertainty of transitioning to the new lease accounting standard. The software will make the appropriate calculations for the current standard and the new standard, enabling Cummins to generate parallel reporting.