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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.
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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.
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Novartis’s 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.”
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Reduced reliance on bank credit lines.
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Reduction in bank charges.
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Cost savings.
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ROI.
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Time taken to implement solution and realise benefits.
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Productivity gains.
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Process efficiencies.
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Yield enhancement.
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Interest savings.
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Pricing enhancements.
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Foreign exchange gain(s).
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Risk removed/mitigated.
Brice Zimmerman, Novartis, Brigitta Keller, Citi and Philippe Crolus, Novartis
HIGHLY COMMENDED WINNER
Harnessing the Power of Technology
Novartis
Brice Zimmermann,
Head Treasury Control & Reporting
treasurytoday
Adam Smith Awards © August 2015 | 17