Singapore
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.
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:
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.
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:
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.
“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.