Best Working Capital Management Solution Highly Commended: Sanofi S.A.

Published: Apr 2021


Photo of Jackson Xu, Sanofi S.A.

Jackson Xu

Regional Treasurer, Asia

Sanofi is dedicated to supporting people through their health challenges. Sanofi is a global biopharmaceutical company focused on human health. Sanofi prevents illness with vaccines, provides innovative treatments to fight pain and ease suffering. Sanofi stands by the few who suffer from rare diseases and the millions with long-term chronic conditions.

With more than 100,000 people in 100 countries, Sanofi is transforming scientific innovation into healthcare solutions around the globe. Sanofi, Empowering Life.

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Sanofi’s ‘play to win’ strategy crucial for working capital goals

The challenge

Sanofi has a ‘play to win’ global strategy to drive innovation and growth and was looking to solve two crucial challenges.

Firstly, supported by senior management, it wanted to improve its capital structure to drive an increase in its annual free cash flow by approximately 50% by 2022.

Second was working capital management and with the APAC region contributing 18% of global sales, it was crucial to develop a detailed plan for driving the above target. The treasury team needed to look for dependable options to generate sustainable long-term free cash flows with working capital improvement solutions without leveraging debt.

The solution

Sanofi’s APAC treasury team created a cash flow committee with joint senior sponsorship of business, finance and treasury. The company’s bank, Citi, collaborated with the team to provide advisory on best practices in working capital management and advise how peers were navigating this crucial area.

Its working capital transformation strategy comprised two pillars:

Internal business metrics improvement

Sanofi’s team targeted host-to-host integration with banks to standardise payment initiation timelines and processes for all markets, gaining control of cash flow forecasting. The company also benefitted from automation, standardisation and elimination of manual processes to reduce risks inherent in previous country-specific processes.

This was crucial in improving payment processes, providing clarity on cash outflow which guided the team on DPO improvement measures.

The project was led with a razor-sharp focus on execution and was completed in record time, resulting in significant quantitative working hour savings and improvement in risks and control.

Sanofi also reviewed its cash application process to reduce working hours involved in reconciliation.

Sanofi ran regular reviews focused on identifying opportunities to optimise cash across the entire cycle of procurement, inventory, payables and receivables. The company established a priority of deploying digitalisation and AI to reduce inventory by an average of 18 days.

Treasury is leading the cash flow committee with all internal stakeholders for working capital optimisation and is also partnering with internal stakeholders to run the crucial Customer Payment Terms Optimisation (CPTO) project.

Partnering with banks for a targeted free cash flow generation

Sanofi worked very closely with a multi-disciplinary team set up by treasury across sales, procurement, business and operations teams to jointly focus on improving accounts receivables (AR) and accounts payables (AP) by:

  • Improving DPOs by extending payable terms with suppliers targeting weighted average payment terms (WAPT) increase.
  • Monetising accounts receivables on a non-recourse basis under the CPTO project.

A deep-dive exercise of AP/AR identified:

  • Key strategic suppliers which could be targeted for a DPO extension across APAC.
  • Suppliers which could potentially accept cards for B2B procurement flows.
  • Patterns in AR in each market.

Best practice and innovation

Putting growth of business first and positive stakeholder management were key, as was the decision to introduce metrics as a means of quantitative measurement.

The team mutually agreed metrics such as DPO, DSO, free cash flow and operating efficiency goals, and the frequency and methodology of measurement upfront. These metrics were then tracked regularly ensuring the team was moving in the right direction.

Key benefits

  • Scalable initiative and flexible solutions.
  • The cash conversion cycle was reduced by 10% in 12-18 months due to these initiatives. Given the size and scale of Sanofi, this represents highly significant savings for the organisation. With 11% improvement in working capital through the supply chain programme contributing to 15% of free cash flow generation and €800m by the AR purchase programme.

“We set out to put business priorities first and adopt a ‘Day 1 Digital’ strategy. This ensured the full benefits of technology were realised. These efforts ensured organisation-wide support and sponsorship – truly a ‘One Sanofi’ approach through our play to win strategy,” says Jackson Xu, Regional Treasurer, Asia.

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Parag Bidarkar

Regional Solution Sales, APAC, Treasury and Trade Solutions

Sanofi and Citi benefit from a common vision on improved digitisation and automation with a core goal to generate direct positive impact on the underlying business. We benefitted from the methodical approach the Sanofi team brought to the table. With a clear set of projects and time-linked initiatives, both Sanofi and Citi teams were focused on delivering the targeted objectives. Our solution leveraged the technological investments Citi has done in the last 18-24 months to better deliver efficiencies on quicker cash application and thereby reducing its days sales outstanding. The Sanofi team’s clear business-first approach enabled them to have maximum benefit in the largest markets.

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