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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