The scale of the transformation is vast: from being fragmented and country-specific, Novartis now has a single global structure, 100% automation from the company-to-banks-to-clearing, standardised processes and global KPIs to monitor performance and encourage constant improvement.
Photo of Brice Zimmerman, Novartis, Brigitta Keller, Citi and Philippe Crolus, Novartis.
Head Treasury Control & Reporting
Novartis AG is a multinational pharmaceutical company based in Basel, Switzerland. Novartis Group companies employ approximately 135,000 full-time-equivalent associates and sell products in more than 150 countries around the world.
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In respect of cash management, Novartis had a fragmented, decentralised landscape without standardised global processes or technology. The company worked with scores of banks around the world, had no single point of contact with these banks, and used multiple different systems for bank reconciliation, including Excel. These internal and external challenges meant the company had limited visibility and control, and payments were executed using multiple methods and instruments (even in similar circumstances).
“There was no standardisation of systems around the world and limited automation of payment and daily cash management processes,” says Brice Zimmermann, Head Treasury Control & Reporting. “As well as being inefficient, these arrangements were challenging from a compliance perspective: they involved numerous manual processes, especially in relation to the use of cheques in the US, for example.”
Novartis began a financial transformation project that aimed to bring best-in-class processes, structures and technology to treasury, and implement a single global platform. The decision was prompted by three main factors. Firstly, the company wanted to unlock cash at country level and lower the cost of local funding needs. Secondly, increased volatility and uncertainty in money markets required Novartis to enhance its FX and cash forecasting capabilities. Thirdly, Novartis recognised that the large number of bank providers that it worked with limited its control of bank counterparty risk and resulted in higher bank fees for the group as a whole.
At a global level, Novartis made a number of strategic decisions, including the adoption of the bank agnostic ISO XML format, and the use of SWIFT messages to communicate with all banks.
To achieve its cash management goals, Novartis adopted an in-house bank model to implement cash pools by region and currency in order to centralise its cash positions. In Africa/Middle East where ‘payment on behalf of’ and cash pools managed by a non-resident entity are not currently possible, including in some countries in Asia and the Americas, Novartis implemented a Payment Factory Light (PFL) concept.
Novartis conducted an extended pilot for five entities in three countries – Malaysia, Korea and the Philippines – in 2014 before going live in January 2015. By the end of April 2015, the PFL will service 50 entities spread across 35 countries, in addition to the affiliates located in the nine countries already covered by the POB solution (totalling an implementation in 44 countries).
In addition, Novartis implemented SAP In-House Cash globally across the Group.
Best practice and innovation:
Novartis’ Finance Transformation Programme was completed in less than 18 months, though including the Americas (with one of its most important markets, the US) – Middle East, Africa as well as Asia, one of the most complex regions.
The scale of the transformation is vast: from being fragmented and country-specific, Novartis now has a single global structure, 100% automation from the company-to-banks-to-clearing, standardised processes, and global KPIs to monitor performance and encourage constant improvement.
“Taking a holistic approach, in bringing technology and process flow together resulted in a ‘Blueprint’ – signed off by tax, legal and compliance – that could be applied to all of Novartis businesses and markets,” Brice Zimmermann explains. “Without the effective use of technology it would have been impossible to implement an in-house bank, payment factory, inter-company netting using the in-house bank structure (and an enhanced process for cheques in the US) in such a short period across 50 entities in 35 countries, including China. Moreover, technology is critical to the solution’s ongoing operations: unlike many of its peers, Novartis has no regional treasury centre – just four FTEs run its new in-house bank,payment factory and the compliance function globally.”
Reduced reliance on bank credit lines.
Reduction in bank charges.
Time taken to implement solution and realise benefits.
Foreign exchange gain(s).