The FTP consists of various enabling and functional work streams. One of the main pillars is the treasury and cash management work stream. This work stream has implemented an in-house bank (IHB) in Europe, which holds the master accounts of all currencies. These are embedded in a zero balance physical cash pooling structure. This initiative, which comprises some 150 legal entities, was completed in 2011/2012.
In 2013, Novartis began implementing a payment factory which will undertake payments-on-behalf-of (POBOs) all of these entities. In 2014, the concept will be rolled out in Asia and the Americas. Since the technical solution is based on SAP, specialists in the field of the respective SAP modules like In-house Cash (IHC) and Bank Communication Manager (BCM) had to be recruited. These specialists come from various external consulting firms that have a proven track record of implementation in the respective areas. As far as the number of banks are concerned, Novartis has consolidated from more than 50 in Europe to three core cash management banks: BNP Paribas, HSBC and UBS.
As Peter Zumkeller, Manager FTP, explains, “from a technical point of view, the challenge was to implement the same solution across various divisional SAP systems and then to link these various systems to the core system. In addition, we have streamlined processes, workflows and file formats. A new system of general ledger (GL) and clearing accounts has been implemented across the various divisions, which allows for an automated cash application and consistent cash forecasting.”
Common file formats and a centralised routing of these files via SWIFT enables a seamless fit of the order-to-cash (O2C) and requisition-to-pay (R2P) processes into the financial service centres, which are implemented at the same time.
To implement a new set-up for approximately 150 legal entities in Europe requires a lot of change management. Each country was operating with different domestic banking partners and technical solutions. Change management therefore was not only related to technical aspects but also to external stakeholders such as customers and vendors. Benefits include:
Reduced reliance on local bank credit lines – Novartis consolidated down from 50 banks, many providing local credit facilities, to three core banks. This enabled them to leverage the parent funding facility rather than funding at affiliate level, providing more favourable interest rates.
Reduction in bank charges – Novartis was able to migrate to a pan-European pricing structure. While the level of savings was different from country to country (some countries even had to accept increased charges), overall, the company was a net gainer.
Productivity gains – all non-straight through processes (STP) were reviewed including the elimination of cheque issuance.
Process efficiencies – the driving force was the removal of manual intervention and the use of SAP. The IHB, payment factory and SWIFT have delivered common formats and automated connectivity to the local banks. Along with this came a reduction of effort spent on operational cash management at local level.
As Brice Zimmermann, Head of Treasury Control and Reporting, concludes: “Sole channel to all banks is SWIFT. All payment files will be in the ISO-XML format. This has the very positive side-effect that the introduction of the IHB and the payment factory will also make us Single Euro Payments Area (SEPA)-compliant before February 2014.”