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Gilles BogaertManaging Director, Finance
Pierre PringuetChief Executive Offi cer
Dear colleagues,
Performance management has always been a key element in Pernod Ricard’s culture, decentralized business model and way of working. It has allowed to deliver consistently strong results over time, with a good level of predictability.
That said, it has been mainly focused on profi t. We need to enlarge our P&L culture to a true cash and value creation culture, among the whole group, beyond the fi nance function. Clearly, the best way to generate cash is to grow the top line and then the bottom line. But there are many other parameters that also have to be monitored.
Cash generation is the main criteria used by investors for the valuation of our company. It is also required to reduce the debt (still at a high level), ease our refi nancing needs and generate the headroom to allow investments and, in the future, potential acquisitions.
We are clearly not starting from scratch. But there is signifi cant room for improvement in cash forecasts accuracy, in cash performance monitoring and, above all, in the activation of the cash levers at all levels and in all areas of the organization.
As a consequence, cash management has been one of the key projects among the Agility global initiative. one of the deliverables is the cash toolkit, a good practices handbook (prepared by people from all areas) that will allow all functions to better understand cash generation cycles and drivers to boost our performance.
A cash toolkit by function has been sent to all CEos with a guideline to cascade it down to the respective functional departments.
As CFos, you will play a key role to drive these initiatives in your respective businesses, educate people on cash and make sure the cash toolkit is actually used by all departments. You will benefi t from the support of the International Treasury Department.
We are now at the end of the second phase of Agility 2, delivering the tools to you to raise our game in our approach to cash generation. The key to success is now to ensure a closer link to the business and your active involvement in pursuing the implementation of the recommendations and good practices you will fi nd in the cash toolkit.
Best wishes
Edito
Pernod Ricard / Cash Management / 1
Why ?The Cash Toolkit was created to meet two key objectives:
• improve commitment to cash generation across pernod ricard and make cash a subject shared and understood by all company functions,
• activate cash optimization levers and monitor improvements with relevant kpis.
What ? The Cash Toolkit is a cross-functional good practices handbook that links each company function with related cycles that have a direct impact on cash generation. It includes a checklist of operating levers that can be activated to stimulate cash generation, as well as relevant KPIs to monitor changes over time.In order to facilitate the use of the Cash Toolkit, two versions have been prepared, including the same good practices, but presented differently.
• The Cash Toolkit by function => sub-booklets “Purchasing / Marketing”, “Sales”, “Supply Chain" and “Finance” to be distributed separately to the corresponding departments.
• The Cash Toolkit by process cycle => full Cash Toolkit presenting the entire process cycles perspective "Purchase to Pay", "order to Cash", "Forecast to Fulfill" and "Treasury operations".
Cash Toolkitby function
Cash Toolkitby process cycle
(for CFOs)
Pernod Ricard / Cash Management / 2
CashToolKitCash Management
Fin
an
CE
April 2011
EX
EC
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su
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ar
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CashToolKitCash Management
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in
CashToolKitCash Management
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sa
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CashToolKitCash Management
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pu
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CashToolKitCash Management
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Pernod Ricard / Cash optimization / 4
ExEcutivE summarythE cash ToolkiT
in three keys questions
Pernod Ricard / Cash Management / 3
Who ?Cash Toolkit by function
CEos of all Pernod Ricard affiliates receive a Cash Toolkit by function and are responsible for its deployment to the relevant departments: the CEo is the sponsor of this project within the affiliate. Practically, the CEo cascades the appropriate section of the Cash Toolkit to his Management Committee. Each Management Committee member is then expected to push down the document into his team, enabling the good practices to be spread and become part of the normal way of working.
The Cash Toolkit by process cycle
CFos of all Pernod Ricard affiliates receive a Cash Toolkit by process cycle and are responsible for ensuring that the relevant operating levers are properly activated across the different departments. The CFo coordinates the implementation of local initiatives, assists and supports the other departments: the CFo is the driver of this project within the affiliate.
Pernod Ricard / Cash Management / 4
how ?The Cash Toolkit is structured according to two different perspectives:
The process view (e.g. “Purchase to Pay”, “order to Cash”, “Forecast to Fulfill”, “Treasury operations”) to show how the different company functions should work together to achieve high level targets.
Cash Toolkit process cycle structure
Detailed good practices
Pernod Ricard / Cash Management / 23PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYDiversify supplier relationship
based on risk and impact
oBJECTivEs
• Increase profits and cash flow for non critical items
• Diversify supply risk
kEy pErFormanCE inDiCaTors OR aNaLYsis
Definition: The quadrants of the kraljic matrix can be described as follows
• Non-critical items: small quantity baseline, wide supplier range
• Leverage items: small quantity baseline, many suppliers, big order quantity / volume
• Bottleneck items: multiple suppliers, critical for value chain / production
• Strategic items: few suppliers, own business depends on them
gooD praCTiCEs
Classify supplier relationship ◗ analyze your relationship with each of your suppliers and classify this relationship in terms of impact on profit and supply risk ◗ Give each supplier a classification and fill in the purchase portfolio matrix (Kraljic Matrix) ◗ implement and monitor the portfolio matrix
Take appropriate action with regards to each quadrant ◗ Non-critical items: optimize the processing of purchasing and exploit the competition between your suppliers ◗ Leverage item: use your purchasing power and competition to optimize purchase terms ◗ Bottleneck items: define and manage safety stock level, manage proper delivery frequency, identify suppliers for item substitution ◗ Strategic items: optimize the relationship with those suppliers and consider strategic partnerships as well as back-up
solutions to ensure availability of critical items
non-critical items
Effi cient processing
Bottleneck items
Volume assurance
leverage items
Exploitation of purchasing power
strategic items
Diversify, balance or exploit
Impa
ct o
n pr
ofi t
Supply risk
Purchase portfolio matrix (Kraljix Matrix)
Pernod Ricard / Cash Management / 22PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYperform a/B/C purchases
category optimization
oBJECTivEs
• Assess cash opportunities to partner efficiently with your purchasing team (tariffs, rebates, payment terms, etc.)
• Standardize payment terms to optimize working capital
• Streamline suppliers portfolio
kEy pErFormanCE inDiCaTors OR aNaLYsis
kpi: a/B/C analysis example
• Weight of the top 350 vs. low 1,500 suppliers in 8mFY10 (total suppliers: 2,912)
Definition: The a/B/C categories are defined as follows A: 80% purchases from 20% of all suppliersB: 15% from 30% C: 5% from 50%
gooD praCTiCEs
Ensuring efficiency of supplier base ◗ Perform a/B/c purchases analysis to determine potential optimization of the supplier / purchases base
(see KPi box for further explanation) ◗ Ensure that your purchasing team is involved in order to
• provide expertise in the sourcing and procurement processes for category a and B• negotiate proper payment terms
◗ assess the opportunity to streamline the category c supplier portfolio ◗ Ensure that budget holders apply to standard terms for all category c suppliers
top 350 suppliersRemaining supplierssmallest 1,500 suppliers
9%
1%
90%
16%
29%
55%Top 350 suppliersRemaining suppliersSmallest 1,500 suppliers
Weight of the top 350 vs. Low 1,500 suppliers in 8mFY10 (total suppliers: 2,912)
Share of the €79.9m purchase Share of 15,972 invoices received
Share of the €79.9m purchasesin value
Share of 15,972 invoices receivedin number of invoices
Pernod Ricard / Cash Management / 21PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYregister and control contractual
terms in vendor master data
oBJECTivEs • Ensure that suppliers contractual terms recorded in ERP system are updated to reflect the real contractual payment terms
• optimize cash flow forecast
• Reduce risk of automatic early payment or cash payment
• Align payment date versus due date
• Reduce cost of payment processing by higher standardization
kEy pErFormanCE inDiCaTors OR aNaLYsis
• Number and share of supplier master data with an incomplete set of contract terms
• structure of contractual payment terms (see example chart):
• % of payment terms structure < 30 days in ERP or procurement tool
gooD praCTiCEs
use one single supplier database ◗create one single supplier database and one account set up per vendor ◗Define a procedure to create and to update master data related to the vendor: contact details, payment terms, etc. ◗consider using a workflow when creating or updating vendor master data involving relevant departments (i.e. finance, legal, marketing) ◗ Establish Electronic Data interchange (EDi) with major suppliers wherever possible with access to suppliers’ product references and tariffs ◗create a vendor portal for vendor to access own account
Ensuring all payment terms are set in your system ◗ Once a year, run a report to determine that all payment terms are set in your system and perform test to ensure that they
are in line with actual contractual terms and conditions negotiated with suppliers ◗ On a yearly basis the contracts terms registered in the vendor master should be reviewed and different payment terms
compared to standard payment terms should received and approval from the purchasing and financial department ◗ Proper categorization of supplier type (e.g., cash vs. negotiated.)
Cash payment exposure ◗ at the beginning of each semester, run a report focused on suppliers with “cash” contractual terms and perform test to
avoid cash payments by default whereas delay of payment where negotiated with suppliers
Nb of invoices 8mFY10
Nb of invoices FY09
Cumulated value 8mFY10
Cumulated value FY09
NB
of in
voic
es
€ in
mill
ions
Others EOM
45 days EOM
60 days 60 days
10th EOM on 31 days
EOM 30 days
net net 30 days Cash
8000 7000 6000 5000 4000 3000 2000 1000
0
60
50
40
30
20
10
0
cumulated value FY09 cumulated value 8mFY10Nb of invoices FY09 Nb of invoices 8mFY10
overview of purchase invoices by contractual term
of payment over FY09 and 8mFY10
EnaBling proCEssEs anD sysTEms
• Negotiate with vendor
• Maintain vendor master data
• Process purchase orders
• Receive goods and services
• Process invoices
• Process payments
• Manage AP & process period end
• Negotiate with customers orders
• Manage credit
• Maintain customer master data
• Process orders
• Process invoices
• Process receipts
• Manage collection & disputes
• Manage AR & process period end
• Maintain stock master data
• Manage Brand Company forecast & planning
• Manage Market Company forecast & planning
• Manage orders from Market Companies to Brand Companies
• Manage goods in storage
• Manage production
• Manage distribution & returns
• Manage inventory & period end closing
orderto Cash
Treasuryoperations
purchaseto pay
Forecast to Fulfill
• Liquidity management
• Intercompany financing
• 4 week cash forecasting
• Cash-in / Cash-out forecasting
• Banking
• Netting
• Foreign Exchange
Pernod Ricard / Cash Management / 5
process cycle
Pernod Ricard / Cash Management / 17Pernod Ricard / Cash Management / 17
PURCHASE To pay
Table of contents
• PURCHASING • FINANCE • MARKETING
negotiate with vendor
• Consider the scope of the purchasing function, and relevant rules and procedures (e.g. bidding, contracts, etc.)
• use standardized payment terms and align multiple payment terms from a single supplier
• optimize payments cycle by negotiating longer payment terms or early payment discounts based on business needs
maintain vendor master data
• register and control contractual terms in vendor master data
• perform a/B/C purchases category optimization
• Diversify supplier relationship based on risk and impact
process purchase orders
• ask the supplier to indicate the purchase order number as well as a breakdown of services on the invoice
• manage a maximum number of purchases orders in procurement tool or Enterprise resource planning (Erp)
• automate purchase order processing and use enabling technologies
receive goods and services
• integration between procurement tool and accounting system
• only accept goods / services receipt corresponding to an outstanding purchase order
process invoices
• manage a single entry point for invoices
• Ensure supply has corresponding purchase order to match the invoice
• Consider more effective billing mechanisms
process payments
• plan periodic payment campaigns (use a payment schedule) to optimize Days payable outstanding (Dpo)
• implement controls to prevent early payments
• integrate accounts payable system with banking system
manage a/p & process period end
• perform inventory and valuation of claims for provisions
• perform an annual review of actual payment terms versus contract payment terms
• monitor accounts payable (a/p) ageing balance
• Compare actual with target Dpo
good practices for marketing
• negotiate with vendors and formalize of the business relationship
• implement follow-up and monitor procedures regarding budget versus actual spend
••
•
•
•••
••
process step
responsible company function(recipient of the good practice)
list of good practices per process step
ExEcutivE summarythE cash ToolkiT
how is it structured?
The company function view (e.g. “Purchasing/Marketing”, “Sales”, “Supply Chain”, “Finance”) to emphasize whose is the responsibility for the management of the Good Practice. Each department receives only the related section of Cash Toolkit.
Example of a table of contents for one process cycle
Pernod Ricard / Cash Management / 6
thE cash ToolkiThow is a good practice presented?
Each page presents one good practice and provides (1) information on the objectives, (2) a detailed description of activities to be performed when implementing, (3) corresponding Key Performance Indicators (KPIs) to assess the impact over the time.
Example of a good practice
Pernod Ricard / Cash Management / 18PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYConsider the scope of the purchasing
function, and relevant rules and procedures (e.g. bidding, contracts, etc.)
oBJECTivEs
• optimize cash generation by leveraging the PR Purchasing organization
kEy pErFormanCE inDiCaTors OR aNaLYsis
Benchmark
• 5% possible savings in purchases linked to the extension of the purchasing function and the appliance of a tendering process
kpis
• Number of purchasing categories (e.g. wet or dry goods) managed by your purchasing team / total number of your purchasing categories
• Purchasing turnover managed by your purchasing team / total purchasing turnover of your entity
• Number of purchase orders related to purchasing contracts / total number of purchase orders
• Number of catalogs available for your budget holder
gooD praCTiCEs
Empower the purchasing organization ◗ connect your purchasing team with holding and regional teams to manage efficiently and leverage existing purchasing
contracts ◗ consult your regional legal or finance department before signing contracts ◗ consider purchasing categories which could be managed at regional level (cross-countries) ◗ assess market opportunities to coordinate purchasing contracts and procurement processes (cross-entities)
refine the scope of services of your purchasing team ◗ assess the coverage of your purchases supported by your local purchasing team ◗ consider new purchasing categories which could be sourced and procured by your purchasing team ◗ Monitor the level of savings with your purchasing team ◗ Define procedures and provide catalogs in order to authorize budget holders to manage independently some of their purchasing
Communicate the purchasing rules to your budget holders ◗ Remind the points of contact for each purchasing categories to your budget holders (holding, region, your entity) ◗ communicate the appropriate purchasing authorization and delegation to your budget holders ◗ set-up common savings and compliance to payment terms objectives to budget holders and purchasing team ◗ sign contracts with key suppliers whenever possible, in order to:
• clearly state terms of agreement between vendors & PR affiliate and,• Mitigate the risk of disputes (timing of the price revisions / agreed payment terms / respective responsibility in case of quality issue / detailed description of the technical spec. for raw material, etc.)
◗ implement bidding processes when possible, in particular for Point of sales (POs) vendors and suppliers of services (media, PR, training, consultants, etc.)
good practice
objectives of the particular good practice
recommended list of kpis
Detailed activitiesto be performed
process step of each good practice is highlighted
responsible Company Function(recipient of the good practice)
The purpose of the Executive Summary is to provide CEos and CFo a simplified checklist of the key good practices to be implemented for every process cycle, as well as a suggestion of the main Key Performance Indicators (KPIs).
We recommend that CEos, CFos and other involved departments periodically review the implementation status of the good practices and monitor the KPIs.
Implementation of the relevant good practices contributes to optimization of the affiliate cash generation, and therefore to a continuous improvement in the group Net Debt / EBITDA ratio.
Working CapiTal lEvErs
DrivE opTimal Cash ConvErsion CyClE
Procurement of services, and the payment of those services (The Accounts Payable Cycle)
Functions:• Purchasing
• Marketing
• Budget holders in other departments
• Finance
Sales cycle, from the development of customer relationships to the receipt of cash (The Accounts Receivable Cycle)
ordering raw materials and inventory to fulfill product demand, to the management, and reporting of inventory
orderto Cash
purchaseto pay
Forecast to Fulfill
Cash optimization and the best utilization of working capital that considers the impact of the cycles on Purchase to Pay, order to Cash, Forecast to Fulfill, plus a strong centralized treasury process that facilitates debt minimization
Functions:• account Management
• Field Management
• sales administration
• Finance
Functions:• Demand Planning
• Logistics
• industrial
• Finance
Functions:• Finance
ExEcutivE summaryoverview
Pernod Ricard / Cash Management / 8
Treasuryoperations
ExEcutivE summarypurchase to pay (accounts payable Cycle)
• optimize payments cycle to maximize your business liquidity: - Negotiate longer payment terms or early payment discounts based on business needs - Plan periodic payment campaigns (use a payment schedule)
• Maintain vendor master data by ensuring that contractual terms are current
• Ensure that all invoices have one single point of entry
• Monitor accounts payable (A/P) ageing balance
• Compare actual with target Days Payable out-standing (DPo)
• Consider the scope of the purchasing function and its impact on working capital needs
• Manage a maximum number of purchase orders in procurement tool or Enterprise Resource Planning (ERP)
DirECT Cash impaCT inDirECT Cash impaCT
+180 days90-180 days0-90 daysnot impaired and not due
Payable vs. DPO
DPO Non group FY 10/11
DPO Non group FY 09/10
Trade payables Non group FY 10/11
Trade payables Non group FY 09/10
EUR
mill
ion
Day
s
Aug Sep
Oct
Nov Dec
BUD D
ec Jan Feb
Mar Apr May Jun
LE Ju
nBU
D Jun
90
80
70
60
50
40
30
20
10
0
140
120
100
80
60
40
20
0
Payables vs. DPo
not impaired and not due
0-90 days
90-180 days
+180 days
'000
EU
R
BUD
FC
Jun
10
May
10
Apr
10
Mar
10
Feb
10
Jan
10
Dec
10
Nov
10
Oct
10
Sep
10
Aug
10
Jun
09
May
09
Apr
09
Mar
09
Feb
09
Jan
09
Dec
08
Nov
08
Oct
08
Sep
08
Aug
08
Jun
08
May
08
Apr
08
1000
900
800
700
600
500
400
300
200
100
0
Aged Accounts Payables
significant kpis
Pernod Ricard / Cash Management / 9
trade payables Non group FY 10/11 trade payables Non group FY 09/10 DPO Non group FY 09/10DPO Non group FY 10/11
ExEcutivE summaryorder to Cash (accounts receivable Cycle)
Pernod Ricard / Cash Management / 10
• optimize receipts cycle to maximize your business liquidity: - Standardize and renegotiate payment terms with customers - Consider factoring to manage cash vs. working capital
• Analyze aged accounts receivables
• Implement formal dispute resolution mechanism
• Compare actual versus target Receivables & Days Sales outstanding (DSo)
• Partner with (larger) customers to streamline ordering, receipt and payment process
• Set-up credit policies and define credit limits for all customers
• Create effective automated controls to prevent staff from overriding set credit limits
• Register customer master data in your sales & distribution tool or Enterprise Resource Planning (ERP)
• Manage 100% of orders in Sales Administration tool or ERP
DirECT Cash impaCT inDirECT Cash impaCT
significant kpis
+180 days90-180 days0-90 daysnot impaired and not due
Receivables vs. DSo
Aged Accounts Receivable
not impaired and not due
0-90 days
90-180 days
+180 days
'000
EU
R
BUD
FC
Jun
10
May
10
Apr
10
Mar
10
Feb
10
Jan
10
Dec
10
Nov
10
Oct
10
Sep
10
Aug
10
Jun
09
May
09
Apr
09
Mar
09
Feb
09
Jan
09
Dec
08
Nov
08
Oct
08
Sep
08
Aug
08
Jun
08
May
08
Apr
08
1000
900
800
700
600
500
400
300
200
100
0
Receivables vs. DSO
DSO (before Factoring) Non group FY 10/11
DSO (before Factoring)Non group FY 09/10
Trade receivables (before Factoring)Non group FY 10/11
Trade receivables (before Factoring)Non group FY 09/10
EUR
mill
ion
Day
s
Aug Sep
Oct
Nov Dec
BUD D
ec Jan Feb
Mar Apr May Jun
LE Ju
nBU
D Jun
50
40
45
35
30
25
20
15
10
5
0
30
25
20
15
10
5
0
trade receivables (before Factoring) Non group FY 10/11trade receivables (before Factoring) Non group FY 09/10 DsO (before Factoring) Non group FY 09/10DsO (before Factoring) Non group FY 10/11
ExEcutivE summaryForecast to Fulfi ll (inventory management)
Pernod Ricard / Cash Management / 11
• Standardize and rationalize product portfolio
• Calculate seasonality influences
• Develop policies and procedures for goods storage and handling
• Perform regular physical inventory count and ensure the posting of inventory differences in your warehouse/inventory management and accounting
• Compare actual versus target Days Inventory on-hand (DIo)
• Calculate and monitor inventory carrying/ holding costs
• Maintain stock master data
• Design and deploy processes to manage stock and forecast for new products or end of life products
• Coordinate large promotion orders from retailer to Market Company (MC) and Brand Company (BC)
• Use an inventory tracking process
DirECT Cash impaCT inDirECT Cash impaCT
• Value of slow moving inventory including obso-lescence
• Evolution of number of Stock Keeping Units (SKUs)
other kpis
EUR
mill
ion
days
BUDLE
Oct
11
BUD D
ec 1
1
Sep
11
Aug 1
1
Jun 1
1
May
11
Apr 1
1
Mar
11
Feb
11
Jan 1
1
Dec 1
0
Nov
10
Oct
10
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
0
Inventory vs. DIO
Trade goods - non group
Trade goods - group
Finished goods
Other inventories
Non aged wet goods
Dry goods
significant kpi
Inventory vs. DIo
trade goods - non group trade goods - group Finished goodsOther inventoriesNon aged wet goodsDry goods
ExEcutivE summaryTreasury operations
Pernod Ricard / Cash Management / 12
• Concentrate cash with Corporate Treasury as soon as possible
• Calculate a global cash position on a daily basis
• Perform cash-in / cash-out forecasting
• Make every effort to join the netting system, and utilize it to offset all agreed intercompany balances each month
• No external borrowing facilities are to be established without approval from Corporate Treasury
• Bank only with the core financing banks for cash management purposes
• Entities should investigate how to integrate the group financing process (cash pool, treasury convention, etc.)
• Communicate immediately all non-functional currency invoices above €350k (outside of net-ting system) to Corporate Treasury front-office via e-Treasury
DirECT Cash impaCT inDirECT Cash impaCT
• Cash Forecast vs. Actual
• Foreign Exchange (FX) results on current op-erations
other kpis
significant kpi
Cash Position
cash - Non GroupGross Debt - Non GroupDebt/cash GroupNet Debt total
300
200
100
0
-100
-200
-300
-400
-500
-600
-700
Aug 08
Sep 0
8
Oct 08
Nov 08
Dec 08
Jan 09
Feb 0
9
Mar 09
Apr 09
Aug 09
Sep 0
9
Oct 09
Nov 09
Dec 09
Jan 10
Feb 1
0
Mar 10
Apr 10
May 09
Jun 09
Cash Position
Cash - Non GroupGross Debt - Non GroupDebt/Cash GroupNet Debt Total
PURCHASE to PAYProcurement of services, and the payment of those services (The Accounts Payable Cycle)
Ricard
EnAbling ProcEssEs Purchasing and Finance• Negotiate with vendor• Maintain vendor master data• Process purchase orders• Receive goods and services• Process invoices• Process payments• Manage Accounts Payable & process period end
orderto cash
treasury operations
Purchaseto Pay
Forecast to Fulfill
toolkits
bY FunctionPurchase to Pay • Negotiate with vendor• Maintain vendor master data• Process purchase orders• Receive goods and services
sales
Financesupply chain
Purchase to Pay • Negotiate with vendor• Maintain vendor master data• Receive goods and services• Process invoices• Process payments• Manage Accounts Payable & process period end
toolkit
split
by
cycle
toolkit
split
by
Function
PURCHASE TO PAYAccounts PAYAblE cYclE
Pernod Ricard / Cash Management / 16
PurchasingMarketing
Pernod Ricard / Cash Management / 17Pernod Ricard / Cash Management / 17
PURCHASE to PAY
table of contents
• PURCHASING • FINANCE • MARKETING
negotiate with vendor
• consider the scope of the purchasing function, and relevant rules and procedures (e.g. bidding, contracts, etc.)
• use standardized payment terms and align multiple payment terms from a single supplier
• optimize payments cycle by negotiating longer payment terms or early payment discounts based on business needs
Maintain vendor master data
• register and control contractual terms in vendor master data
• Perform A/b/c purchases category optimization
• Diversify supplier relationship based on risk and impact
Process purchase orders
• Ask the supplier to indicate the purchase order number as well as a breakdown of services on the invoice
• Manage a maximum number of purchases orders in procurement tool or Enterprise resource Planning (ErP)
• Automate purchase order processing and use enabling technologies
receive goods and services
• integration between procurement tool and accounting system
• only accept goods / services receipt corresponding to an outstanding purchase order
Process invoices
• Manage a single entry point for invoices
• Ensure supply has corresponding purchase order to match the invoice
• consider more effective billing mechanisms
Process payments
• Plan periodic payment campaigns (use a payment schedule) to optimize Days Payable outstanding (DPo)
• implement controls to prevent early payments
• integrate accounts payable system with banking system
Manage A/P & process period end
• Perform inventory and valuation of claims for provisions
• Perform an annual review of actual payment terms versus contract payment terms
• Monitor accounts payable (A/P) ageing balance
• compare actual with target DPo
good Practices for Marketing
• negotiate with vendors and formalize of the business relationship
• implement follow-up and monitor procedures regarding budget versus actual spend
••
•
•
•••
••
Pernod Ricard / Cash Management / 18PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYconsider the scope of the purchasing
function, and relevant rules and procedures (e.g. bidding, contracts, etc.)
obJEctiVEs
• Optimize cash generation by leveraging the PR Purchasing organization
kEY PErForMAncE inDicAtors OR ANALYSIS
benchmark
• 5% possible savings in purchases linked to the extension of the purchasing function and the appliance of a tendering process
kPis
• Number of purchasing categories (e.g. wet or dry goods) managed by your purchasing team / total number of your purchasing categories
• Purchasing turnover managed by your purchasing team / total purchasing turnover of your entity
• Number of purchase orders related to purchasing contracts / total number of purchase orders
• Number of catalogs available for your budget holder
gooD PrActicEs
Empower the purchasing organization ◗ Connect your purchasing team with holding and regional teams to manage efficiently and leverage existing purchasing
contracts ◗ Consult your regional legal or finance department before signing contracts ◗ Consider purchasing categories which could be managed at regional level (cross-countries) ◗ Assess market opportunities to coordinate purchasing contracts and procurement processes (cross-entities)
refine the scope of services of your purchasing team ◗ Assess the coverage of your purchases supported by your local purchasing team ◗ Consider new purchasing categories which could be sourced and procured by your purchasing team ◗ Monitor the level of savings with your purchasing team ◗ Define procedures and provide catalogs in order to authorize budget holders to manage independently some of their purchasing
communicate the purchasing rules to your budget holders ◗ Remind the points of contact for each purchasing categories to your budget holders (holding, region, your entity) ◗ Communicate the appropriate purchasing authorization and delegation to your budget holders ◗ Set-up common savings and compliance to payment terms objectives to budget holders and purchasing team ◗ Sign contracts with key suppliers whenever possible, in order to:
• Clearly state terms of agreement between vendors & PR affiliate and,• Mitigate the risk of disputes (timing of the price revisions / agreed payment terms / respective responsibility in case of quality issue / detailed description of the technical spec. for raw material, etc.)
◗ Implement bidding processes when possible, in particular for Point of Sales (POS) vendors and suppliers of services (media, PR, training, consultants, etc.)
Pernod Ricard / Cash Management / 19PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYuse standardized payment terms and align multiple payment terms
from a single supplier
obJEctiVEs
• Monitor and align trade terms
• Optimize working capital and cash conversion
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number of payment terms (see example chart)
63%
16%
30 days net
Immediatelydue net
5%: 256 suppliers
15%: 96 suppliers
80% of volume34 suppliers
Target group forrenegotiation
• Number of payment terms per supplier and potential opportunities for improvement via negotiations
gooD PrActicEs
standardize and align payment terms ◗ Analyze at least once a year the number of payment terms per supplier and the reason for different payment terms ◗ Ensure that standard terms are stored centrally ◗ Determine the potential working capital improvement ◗ Define and communicate standard terms of payment ◗ Renegotiate the payment terms starting with suppliers promising the biggest improvement potential and negotiate towards
the favorable payment term ◗ Purchasing and accounting systems apply to standard terms
Pernod Ricard / Cash Management / 20PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYoptimize payments cycle by negotiating longer payment terms or early payment
discounts based on business needs
obJEctiVEs
• Optimize payments cycle
• Improve payment terms
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number and purchase volume of suppliers with whom longer payment terms by paying a premium makes sense (see example chart)
gooD PrActicEs
consider the payment terms before ordering and include finance in the discussions
consider negotiation of longer payment terms by paying a premium or early payment with a respective discount, based on the optimal terms for your business ◗ Identify suppliers with whom longer payment terms (by paying a premium) or early payment discounts can be negotiated ◗ Select items for which a premium could be paid to obtain longer payment terms ◗ Assess / consider the trade-off regarding Earnings Before Interest and Taxes (EBIT) vs. the cost of working capital ◗ Negotiate longer payment terms or early payment with selected vendors
Opportunity in [Currency]sOpportunity in [Currency]
Val
ue
Supp
lier
5
Supp
lier
4
Supp
lier
3
Supp
lier
2
Supp
lier
1
20000
15000
10000
5000
0
Pernod Ricard / Cash Management / 21PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYregister and control contractual
terms in vendor master data
obJEctiVEs • Ensure that suppliers contractual terms recorded in ERP system are updated to reflect the real contractual payment terms
• Optimize cash flow forecast
• Reduce risk of automatic early payment or cash payment
• Align payment date versus due date
• Reduce cost of payment processing by higher standardization
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number and share of supplier master data with an incomplete set of contract terms
• Structure of contractual payment terms (see example chart):
• % of payment terms structure < 30 days in ERP or procurement tool
gooD PrActicEs
use one single supplier database ◗Create one single supplier database and one account set up per vendor ◗Define a procedure to create and to update master data related to the vendor: contact details, payment terms, etc. ◗Consider using a workflow when creating or updating vendor master data involving relevant departments (i.e. finance, legal, marketing) ◗ Establish Electronic Data Interchange (EDI) with major suppliers wherever possible with access to suppliers’ product references and tariffs ◗Create a vendor portal for vendor to access own account
Ensuring all payment terms are set in your system ◗ Once a year, run a report to determine that all payment terms are set in your system and perform test to ensure that they
are in line with actual contractual terms and conditions negotiated with suppliers ◗ On a yearly basis the contracts terms registered in the vendor master should be reviewed and different payment terms
compared to standard payment terms should received and approval from the purchasing and financial department ◗ Proper categorization of supplier type (e.g., cash vs. negotiated.)
cash payment exposure ◗ At the beginning of each semester, run a report focused on suppliers with “cash” contractual terms and perform test to
avoid cash payments by default whereas delay of payment where negotiated with suppliers
Nb of invoices 8mFY10
Nb of invoices FY09
Cumulated value 8mFY10
Cumulated value FY09
NB
of in
voic
es
€ in
mill
ions
Others EOM
45 days EOM
60 days 60 days
10th EOM on 31 days
EOM 30 days
net net 30 days Cash
8000 7000 6000 5000 4000 3000 2000 1000
0
60
50
40
30
20
10
0
Cumulated value FY09 Cumulated value 8mFY10Nb of invoices FY09 Nb of invoices 8mFY10
Overview of purchase invoices by contractual term
of payment over FY09 and 8mFY10
Pernod Ricard / Cash Management / 22PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYPerform A/b/c purchases
category optimization
obJEctiVEs
• Assess cash opportunities to partner efficiently with your purchasing team (tariffs, rebates, payment terms, etc.)
• Standardize payment terms to optimize working capital
• Streamline suppliers portfolio
kEY PErForMAncE inDicAtors OR ANALYSIS
kPi: A/b/c analysis example
• Weight of the top 350 vs. low 1,500 suppliers in 8mFY10 (total suppliers: 2,912)
Definition: the A/b/c categories are defined as follows A: 80% purchases from 20% of all suppliersB: 15% from 30% C: 5% from 50%
gooD PrActicEs
Ensuring efficiency of supplier base ◗ Perform A/B/C purchases analysis to determine potential optimization of the supplier / purchases base
(see KPI box for further explanation) ◗ Ensure that your purchasing team is involved in order to
• provide expertise in the sourcing and procurement processes for category A and B• negotiate proper payment terms
◗ Assess the opportunity to streamline the category C supplier portfolio ◗ Ensure that budget holders apply to standard terms for all category C suppliers
Top 350 suppliersRemaining suppliersSmallest 1,500 suppliers
9%
1%
90%
16%
29%
55%Top 350 suppliersRemaining suppliersSmallest 1,500 suppliers
Weight of the top 350 vs. Low 1,500 suppliers in 8mFY10 (total suppliers: 2,912)
Share of the €79.9m purchase Share of 15,972 invoices received
Share of the €79.9m purchasesin value
Share of 15,972 invoices receivedin number of invoices
Pernod Ricard / Cash Management / 23PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYDiversify supplier relationship
based on risk and impact
obJEctiVEs
• Increase profits and cash flow for non critical items
• Diversify supply risk
kEY PErForMAncE inDicAtors OR ANALYSIS
Definition: the quadrants of the kraljic Matrix can be described as follows
• Non-critical items: small quantity baseline, wide supplier range
• Leverage items: small quantity baseline, many suppliers, big order quantity / volume
• Bottleneck items: multiple suppliers, critical for value chain / production
• Strategic items: few suppliers, own business depends on them
gooD PrActicEs
classify supplier relationship ◗ Analyze your relationship with each of your suppliers and classify this relationship in terms of impact on profit and supply risk ◗ Give each supplier a classification and fill in the purchase portfolio matrix (Kraljic Matrix) ◗ Implement and monitor the portfolio matrix
take appropriate action with regards to each quadrant ◗ Non-critical items: optimize the processing of purchasing and exploit the competition between your suppliers ◗ Leverage item: use your purchasing power and competition to optimize purchase terms ◗ Bottleneck items: define and manage safety stock level, manage proper delivery frequency, identify suppliers for item substitution ◗ Strategic items: optimize the relationship with those suppliers and consider strategic partnerships as well as back-up
solutions to ensure availability of critical items
non-critical items
Efficient processing
bottleneck items
Volume assurance
leverage items
Exploitation of purchasing power
strategic items
Diversify, balance or exploit
Impa
ct o
n pr
ofit
Supply risk
Purchase portfolio matrix (Kraljix Matrix)
Pernod Ricard / Cash Management / 24PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYAsk the supplier to indicate the
purchase order number as well as a breakdown of services on the invoice
obJEctiVEs
• Increase control on purchase orders
• Increase efficiency of accounts payable (A/P) process
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number and share of invoices i.e. open items that could not be matched to a purchase order (see example chart)
Invoices matched
Invoices not matched
Vol
umes
Apr Mar Feb Jan
20000
15000
10000
5000
0
• Number and share of items posted to a suspense account
gooD PrActicEs
contact suppliers ◗ Contact every supplier not indicating the purchase order number on the invoice and communicate the wish for indication ◗ Ensure that the format can be recognized ◗ Consider refusing the payment if the supplier does not cooperate
breakdown of services on the invoice ◗ Ask the supplier to provide a breakdown of services (e.g. per service type, progress) or cost types (e.g. fees, traveling costs,
etc.) on the invoice in order to properly match the service performed to the invoice. This reduces the risk of overpayment or fraud
Invoices not matchedInvoices matched
Pernod Ricard / Cash Management / 25PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYManage a maximum number
of purchase orders in procurement tool or ErP
obJEctiVEs
• Ensure that purchase orders are compliant with purchasing terms and conditions
• Ensure the completeness of commitments to improve cash forecasting
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number of requisitions approved vs. number of purchase orders (see example chart)
40%60%
10% requisitions, not approved
90% requisitions, approved
• Number of requisitions approved vs. total number of requisitions
• Number of blanket orders
gooD PrActicEs
set-up requisition approval levels ◗ Define rules & responsibilities with regards to requisitions
integration of materials management ◗ Integrate purchasing with materials management to improve inventory levels
blanket orders ◗ Make proper use of blanket orders with key suppliers
Monitoring and controlling purchase orders ◗ Ensure that 80% to 90% of your purchase orders are recorded in your procurement tool / Enterprise Resource Planning
(ERP) to obtain a clear view of the overall number and value of purchase commitments
Purchase orders with approved requisitionPurchasee orders without requisition
Pernod Ricard / Cash Management / 26PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYAutomate purchase order processing
and use enabling technologies
obJEctiVEs
• Increase control on purchases orders
• Efficient purchase order process
• Increase profits and cash
kEY PErForMAncE inDicAtors OR ANALYSIS
Definition
• Electronic Data Interchange (EDI) can be formally defined as ‘the transfer of structured data, by agreed message standards, from one computer system to another without human intervention'
• E-ordering: electronic ordering is the sending of purchase orders ‘by electronic means’, i.e. transmission or making available to the recipient and storage using electronic equipment for processing (including digital compression) and storage of data
kPis
• Time spent to approve purchase orders
• Number of people with authorization to approve purchase orders
• Share of purchase orders being transferred electronically
• Number of suppliers using EDI
• Number of available online catalogues
gooD PrActicEs
Automate purchase orders processing ◗ Define the scope of employees being able to create and approve purchase orders ◗ Define the workflow and authorization limits ◗ Consider workflow functionalities of your procurement tool or Enterprise Resource Planning (ERP) to support
the approval process
consider the use of enabling technologies ◗ Encourage the use of EDI with key suppliers to accelerate the processing time ◗ Consider e-ordering for remaining suppliers ◗ Implement online catalog for key suppliers to allow more informed purchasing decisions to be taken
Pernod Ricard / Cash Management / 27PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYintegration between
procurement tool and accounting system
obJEctiVEs
• Ensure the completeness of accruals to improve the accuracy of cash forecasting
kEY PErForMAncE inDicAtors OR ANALYSIS
• Purchase orders receipt of the period vs. total number of purchases orders in progress (see example chart)
Vol
umes
Total PO in progress
PO receivedfor the period
200
150
100
50
0
gooD PrActicEs
Accruals ◗ Ensure that goods or services receipt is evaluated in the procurement tool and updates the accounting system ◗ Ensure that a procedure for the posting of accruals exists ◗ Consider configuring your systems to create an accrual automatically at the goods / services receipt
Pernod Ricard / Cash Management / 28PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYonly accept goods / services
receipt corresponding to an outstanding purchase order
obJEctiVEs
• Ensure that receipt of goods or services are compliant with the purchase order
• Increase accuracy of accruals and cash forecasting
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number of rejected deliveries (see example chart)
rejected deliveries
Num
ber
Q4 2010
Q3 2010
Q2 2010
Q1 2010 2009 2008
2500
2000
1500
1000
500
0
• Number, value and share of approved variances, purchase order vs. goods/services receipt
gooD PrActicEs
Match the goods/services receipt to an open purchase order ◗ Ensure that deliveries (in terms of quantity) have been ordered and requisitioned ◗ Consider configuring your system to require an open purchase order to post the goods / services receipt ◗ Reject deliveries where no corresponding purchase order exists
tolerance limits ◗ Define tolerance limits for quantities and prices to prohibit unreasonable variances
Approval ◗ Create an automatic workflow for the approval of variances and posting with a missing purchase order
Rejected deliveries
Pernod Ricard / Cash Management / 29PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYManage a single
entry point for invoices
obJEctiVEs
• Ensure the completeness of reception, storage and entry of all invoices
• Prohibit duplicate invoice processing and payments
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number of locations / departments being able to post invoices
• Invoices processed per day
gooD PrActicEs
single entry point ◗ Define, construct and communicate a single entry point, managed by the accounts payable department ◗ Ensure that a delivery address and a unique invoice address is communicated while ordering ◗ Identify suppliers not indicating the purchase order number on their invoice and communicate the matter to your purchasing
function
Define approval process ◗ Define the scope of employees being able to approve invoices ◗ Implement a formal communications process (workflow) of invoices across multiple departments such as finance, legal
and marketing ◗ Define the authorization approach ◗ Apply escalation procedures or guidelines around payment limits
Assess the opportunity to use enabling technology ◗ Consider scanning invoices to manage invoice processing and archiving and to maintain one repository for paper invoices ◗ Consider an automatic workflow to process (scanned) invoices to reduce the time spent until the invoice is approved
and posted in the system with respect to your approval process
Avoid double payment ◗ Verify if your accounts payable system has a facility to recognize duplicate invoices to prevent duplicate payment
Pernod Ricard / Cash Management / 30PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYEnsure supply has corresponding
purchase order to match the invoice
obJEctiVEs
• Increase control on purchasing process
• Improve cash flow forecasting
kEY PErForMAncE inDicAtors OR ANALYSIS
Definition
• 2-way-match describes the process of verifying that purchase order and invoice information matches within accepted tolerance levels. The two-way match is based on the following criteria matching: invoice price = order price and quantity billed = quantity ordered
• 3-way-match verifies additionally to the 2-way-match if the quantity billed is equal to the quantity received
kPi
• Number and share of invoices• without goods / services receipt• without purchase order• without goods / services receipt and missing purchase order
gooD PrActicEs
Match the incoming invoice to… ◗ the purchase order and compare quantity and prices (2-way-match) and ◗ to the goods / services receipt and compare its quantities (3-way-match)
consider implementing preventive and/or detective controls ◗ Configure your procurement tool or Enterprise Resource Planning (ERP) to require an open purchase order to post the
goods / services received ◗ Monitor cases where the 2 or 3-way match was not possible and analyse root causes
Pernod Ricard / Cash Management / 31PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYconsider more effective
billing mechanisms
obJEctiVEs
• Streamline invoicing and payment process
• Optimize payment terms negotiation outcome
• Improve operational expenditure benefits (e-invoicing avoids some costs: paper, mailing etc.)
kEY PErForMAncE inDicAtors OR ANALYSIS
Definition
• Electronic invoicing is the sending of invoices ‘by electronic means’ so that the recipient can read, store or process within their system
kPi
• Number of invoices received per supplier (see example chart)
Number of invoices
Num
ber
of in
voic
es
Supp
lier 1
1
Supp
lier 1
0
Supp
lier 9
Supp
lier 8
Supp
lier 7
Supp
lier 6
Supp
lier 5
Supp
lier 4
Supp
lier 3
Supp
lier 2
Supp
lier 1
400
350
300
250
200
150
100
50
0
Most invoices are received from supplier 6 and 9: E-invoicing from these suppliers would bring the most advantages
gooD PrActicEs
consider electronic invoicing ◗ Analyze which suppliers could be suitable to request e.g. suppliers from whom the most invoices are received ◗ Consider the possibility to implement e-invoicing between affiliates ◗ Contact these suppliers and discuss the possibility for e-invoicing ◗ Make sure to consider relevant legal and tax requirements for e-invoicing ◗ In case of implementation, ensure that e-invoices are properly archived
consider self-billing ◗ Analyze which suppliers could be suitable for self billing; the most trusted and long-term suppliers are eligible for this ◗ Ensure that the reception area works properly in terms of incoming goods inspection ◗ Contact these suppliers and negotiate agreements on self billing, point out the advantages for suppliers ◗ If possible, combine self billing with e-ordering to fully automate the process (even less handling and less errors)
Number of invoices
Most invoices are received from supplier 6 and 9: E-invoicing from these suppliers would bring the most advantages
Pernod Ricard / Cash Management / 32PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYPlan periodic payment campaigns
(use a payment schedule) to optimize Days Payable outstanding (DPo)
obJEctiVEs
• Smooth and optimize cash outflows and forecasting
• Use favorable payment methods
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number, share and volume of payments per period that• are paid according to its due date• could be grouped and paid according to a defined schedule
gooD PrActicEs
Define payment campaigns ◗ Define a schedule for payment campaigns (twice a month) ◗ Negotiate periodic invoicing (e.g. blanket order), combining various orders received ◗ Analyze the breakdown of the different payment methods
Monitor results of payment campaigns ◗ Monitor the impact on the DPO and cash flow forecast ◗ Monitor and inform the payment method used after every campaign
Analyze current status of used payment methods ◗ Create a list of all payment methods in use ◗ Analyze which suppliers can be paid by using a favorable payment method
negotiate towards favorable payment methods ◗ Reduce check payments and negotiate towards electronic payments processing ◗ Avoid petty cash payments to reduce administration costs and potential fraud ◗ Negotiate the favorable payment method ◗ Monitor on a regular basis if favorable payment methods are used
Pernod Ricard / Cash Management / 33PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYimplement controls
to prevent early payments
obJEctiVEs
• Optimize cash flow and forecasting
• Control payment process
kEY PErForMAncE inDicAtors OR ANALYSIS
• Actual amount of early payments
• Early payments value and early volume in terms of number of invoices to be managed on a monthly basis
• Example of process:
gooD PrActicEs
Analyze existing controls (measures / activities) to prevent early payments ◗ Analyze the early payment purchase value and volume and identify root causes to determine if the amount could be
decreased in the future ◗ Analyze existing controls such as segregation of duties or system configurations
implement controls to prevent early payments, e.g. ◗ Ensure segregation of duties between the accounts payable (A/P) department (invoice processing) and Treasury or other
departments processing the payment, e.g. access or change of A/P master data files should not be permitted for employees processing payments ◗ Ensure that the accounts payable system determines the due date automatically according to the payment terms ◗ Analyze on a regular basis if early payments still occur and find root causes ◗ Formalize the controls by communicating them internally with clear roles & responsibilities and automating them in your
systems
Authorize and execute
payment
Preparepayment
Purchase order (Po) available ?
contact Administrator
goods received and same as Po ?
contact Administrator
invoice received and same as Po ?
contact Administrator
Payment date same as invoice ?
contact Administrator
Y Y Y Y
Adm
inis
trat
orC
ashi
er
N N N N
Pernod Ricard / Cash Management / 34PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYintegrate accounts payable system
with the banking system
obJEctiVEs
• Increase transparency over payments processing
• Reduce the risk of manipulation and fraud
• Automatic balancing of open items
kEY PErForMAncE inDicAtors OR ANALYSIS
• Time spent to balance open items after the receipt of the bank statement
• Example of an in-house regional payment factory:
PaymentsCompany
SystemBanking
Operating Parameters
Reporting
Corporate Treasury
In-HouseBank
Reporting
External Payments
Remittance Info
Bank(s)
Suppliers
Reporting
Cash Settlements Centre
gooD PrActicEs
interface your accounts payable systems with the banking system regarding the in- and outflow of information ◗ Streamline the format and process of your electronic payments processing ◗ Interface the two systems to avoid the usage of portable drives/discs ◗ Consider processing the electronic bank statement ◗ Analyze if your system can process an electronic bank statement to balance open accounts payable items automatically
Workflow for payment authorization ◗Create an automatic workflow for the authorization of payments to reduce the time spent until the payment is processed at the bank ◗ Depending on the payment volume, define authorization limits and configure your workflow system accordingly ◗ Limit the number of people having access to that system
Payment factory ◗ Consider building regional payment factories allowing to net and bundle payments, lowering the number of transactions and
related transaction costs as well as to streamline the payment process
Pernod Ricard / Cash Management / 35PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYPerform inventory and valuation
of claims for provisions
obJEctiVEs
• Improve cash flow management and forecasting
• Improve closing process
kEY PErForMAncE inDicAtors OR ANALYSIS
• Number, share and value of claims per supplier (see example chart)
Number of Claims
Number of PO
Num
ber
of
Supplier 6 Supplier 5 Supplier 4 Supplier 3 Supplier 2 Supplier 1
150
100
50
0
• Development of provisions
• Time to prepare the period-end closing
gooD PrActicEs
Estimation of provisions (managed by accounting) ◗ Perform inventory and valuation of claims for provisions ◗ Analyze root causes to reduce the number of claims ◗ Ensure all goods and services received are invoiced and accrued (e.g. enter all receipts to enable accounts payable to match
all outstanding invoices)
Number of PONumber of Claims
Pernod Ricard / Cash Management / 36PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYPerform an annual review
of actual payment terms versus contract payment terms
obJEctiVEs
• Reduce risk of early payment
• Optimize payment date vs. due date
kEY PErForMAncE inDicAtors OR ANALYSIS
• Actual Days Payable Outstanding (DPO) vs. master date, target DPO and working capital potential (see example chart)
Master data DPO/Target DPO
Actual DPO
Potential WC
W/C
Impr
ovem
ent
('000
EU
R) D
PO (D
ays)
Supp
lier 1
0
Supp
lier 9
Supp
lier 8
Supp
lier 7
Supp
lier 6
Supp
lier 5
Supp
lier 4
Supp
lier 3
Supp
lier 2
Supp
lier 1
100 90 80 70 60 50 40 30 20 10 0
100 90 80 70 60 50 40 30 20 10 0
30
60 60 60 60
90
60 60 60 60
29 22 15
12
50 52
9
43
28
4 7 8 9 9 9 14
16
28
48
97
gooD PrActicEs
Periodically analyze payment terms ◗ Make sure the actual invoice terms are aligned with the terms as stated in the contract ◗ Register contract terms in the supplier master data (refer to: "Register contract terms in vendor master data") ◗ Make a periodic analysis (minimum once a year) of actual invoice terms versus contract terms (for example: see chart) ◗ Determine how many invoices (and at which value) have been paid before the standard terms due date ◗ Determine the working capital improvement potential ◗ Take appropriate action (e.g. by registering schedule payment terms in the master data)
Potential WCActual DPO Master data DPO/ Target DPO
Pernod Ricard / Cash Management / 37PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYMonitor accounts payable (A/P)
ageing balance
obJEctiVEs
• Improve cash flow management and forecasting
• Improve closing process
kEY PErForMAncE inDicAtors OR ANALYSIS
• A/P ageing balance (see example chart)
gooD PrActicEs
Ageing balance ◗ Ensure that due dates are derived or entered when an invoice is posted ◗ Configure your system to be able to retrieve an ageing balance for accounts payable ◗ Analyze the root causes for items that have not been paid in a reasonable time frame ◗ Monitor the A/P ageing balance on a regular basis
Aged Accounts Payable
not impaired and not due
0-90 days
90-180 days
+180 days
'000
EU
R
BUD
FC
Jun
10
May
10
Apr
10
Mar
10
Feb
10
Jan
10
Dec
10
Nov
10
Oct
10
Sep
10
Aug
10
Jun
09
May
09
Apr
09
Mar
09
Feb
09
Jan
09
Dec
08
Nov
08
Oct
08
Sep
08
Aug
08
Jun
08
May
08
Apr
08
1000
900
800
700
600
500
400
300
200
100
0
+180 days90-180 days0-90 daysNot impaired and not due
Pernod Ricard / Cash Management / 38PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYcompare actual vs. target
Days Payable outstanding (DPo)
obJEctiVEs
• Monitor the DPO trend to ensure that targets are met
• Optimize working capital
kEY PErForMAncE inDicAtors OR ANALYSIS
• Payables vs. DPO (see example chart)
gooD PrActicEs
cash Dashboard ◗ Issue a Cash Dashboard in each reporting period ◗ Compare the actual vs. target accounts payable balance & DPO ◗ Analyze the reasons of changing A/P balance compared to last month ◗ Determine whether differences can be optimized ◗ Take appropriate action if targets cannot be met
Payables vs. DPO
Trade payables Non group FY 10/11 Trade payables Non group FY 09/10 DPO Non group FY 09/10DPO Non group FY 10/11
Payable vs. DPO
DPO Non group FY 10/11
DPO Non group FY 09/10
Trade payables Non group FY 10/11
Trade payables Non group FY 09/10
EUR
mill
ion
Day
s
Aug Sep
Oct
Nov Dec
BUD D
ec Jan Feb
Mar Apr May Jun
LE Ju
nBU
D Jun
90
80
70
60
50
40
30
20
10
0
140
120
100
80
60
40
20
0
Pernod Ricard / Cash Management / 39PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYnegotiate with vendors
and formalize the business relationship
obJEctiVEs
• Provide Marketing team with some key and simplified guidelines in order to ensure a purchasing process (media, PR event, etc.) consistent with the company policy exists
• Mentioned good practices apply also to all other budget holders (budget in structure costs) who can engage the company resources directly (training, consultant fees, PR, etc.)
kEY PErForMAncE inDicAtors OR ANALYSIS
• N/A
gooD PrActicEs
negotiate with vendors and formalize the business relationship ◗ Implement a bidding process when the negotiation with the vendors is local (challenge your vendors even though the
relationship has existed for a long time) ◗ Ask your finance department some guidance regarding the payment terms before making an agreement with the supplier
(advance payments should be limited to very specific situations) ◗ Formalize the key partnerships with contracts and involve your legal department ◗ Follow the rules and approval process of your business when creating and/or updating master data related to the vendors
(name, address, contact point, payment term, etc.) ◗ Establish some clear and objective criteria for accepting the rendered services
Follow-up ◗ Prepare and communicate every quarter a summary of the next 3 months activities / action plans and related budgets for
all the brands (timeline) ◗ Monitor your Advertising & Promotion (A&P) budget by project (budget / schedule / progress) and appoint one single
responsible person for every project even though the project is cross-functional (e.g. marketing + trade marketing) ◗ The internal rules of the game to reallocate the saving at the end of a given project to another project should be discussed
and agreed with your finance department ◗ For the in progress action plans, liaise with your finance department to make sure the end of month accruals are consistent
with the real progress ◗ Make sure the received invoices are communicated to the accounting department in a timely manner. Posting the invoices
does not prevent from blocking the payment (in that case an information to your accounting / treasury department is needed) ◗ Ask the supplier to provide a breakdown of services (e.g. per service type, progress, etc.) or cost types (e.g. fees, traveling
costs) on the invoice and ask for back-up if needed (e.g. travel & expenses spending) ◗ Point of Sales material should be followed as an inventory (at least in quantity)
MARKETING
Pernod Ricard / Cash Management / 40PURCHASING FINANCE
Negotiate with vendorMaintain vendor master dataProcess purchase ordersReceive goods and servicesProcess invoicesProcess paymentsManage A/P & process period end
PURCHASE TO PAYimplement follow-up
and monitor procedures regarding budget versus actual spend
obJEctiVEs
• Provide the on-trade team with some key and simplified guidelines in order to ensure that the cash impact of the busi-ness decision to support iconic / image venues or outlets are considered in the business decision
kEY PErForMAncE inDicAtors OR ANALYSIS
• Return On Invesment (ROI) analysis
gooD PrActicEs
negotiation ◗ When a decision to support an iconic / image venue or outlet is made, assess the opportunity of drafting a contract
mentioning the expected counterparty for your entity (volumes target, listing new products, party sponsorships, bar styling, etc.) with the support of your legal counsel or team ◗ If the support is granted through the payment of a dedicated Trade Advertising & Promotion (A&P) budget, the cash-out
should be phased as much as possible (e.g. payment in one single exhibition at the beginning of a 1 year engagement should be avoided) ◗ If the support is granted through some longer payments terms (in case of direct sales to venues / outlets), your internal
credit policy rules apply ◗ When the counterpart is tangible and measurable, a Return On Investment (ROI) style analysis is needed (ask your finance
team to support you) ◗ Prior to beginning the negotiation process regarding payment terms with new or ongoing vendors, make sure you are
compliant with your entity's internal policy. If an exception exists, follow the proper approval process
Follow-up ◗ The progress of the commitments of the venue / outlet should be monitored on a regular basis till the termination of
the contract or the agreement
MARKETING
Jameson
Order to CashSales cycle, from the development of customer relationships to the receipt of cash (The Accounts Receivable Cycle)
toolkit
split
by
Function
Pernod Ricard / Cash Management / 44
ORDER TO CASHaCCounts ReCeivable CyCle
enabling pRoCesses
sales and Finance• Negotiate with client• Manage credit• Maintain client master data• Process orders• Process invoices• Process receipts• Manage collection & disputes• Manage AR & process period end
orderto Cash
treasury operations
purchaseto pay
Forecast to Fulfill
toolkits
by FunCtion
order to Cash • Negotiate with client• Manage credit• Maintain client master data• Process orders• Process invoices• Manage collection & disputes
sales
Finance
purchasingMarketing
supply Chain
order to Cash • Negotiate with client• Manage credit• Maintain client master data• Process receipts• Manage collection & disputes• Manage AR & process period end
toolkit
split
by
Cycle
Pernod Ricard / Cash Management / 45• SALES • FINANCE
••••••
••••
••
•
•
••
•
Order to Cash
table of contents
negotiate with customers
• Minimize the total of payment terms and conditions offered• Offer differentiated payment methods• Negotiate automated remittance• Align payment terms with customer importance• Renegotiate payment terms with small customers• Partner with (larger) customers to streamline ordering, receipt and payment process
Manage credit order
• Set-up credit policies and define credit limits per customer category• Create effective automated controls to prevent staff from overriding set credit limits• Relate payment terms with credit rating
• Consider accounts receivable credit insurance
Maintain customer master data
• Register customer master data in your sales & distribution tool or ERP
• Analyze customer portfolio
process orders
• Provide electronic and/or automate ordering• Manage 100% of orders in Sales Administration tool or ERP• Offer Automatic Stock Replenishment (ASR) or Vendor Managed Inventory (VMI) to key customers
• Hold repeat orders (or block deliveries) if invoices are more then X days overdue
process invoices
• Consider electronic data interchange (EDI) to invoice key customers
• Send invoice early in the process (at order receipt or confirmation)
process receipts
• Automate reconciliation of payments with invoices
• Consider providing online access to customer accounts and invoices in order to ease and accelerate payments
Manage collection & disputes
• Diversify your follow-up procedures• Implement formal dispute resolution• Assign collectors to specific customers
• Provide collection and operations staff incentives for collection / dunning
Manage a/R & process period end
• Consider bad debts write-off and related tax reimbursement• Review invoice terms versus contractual terms• Analyze suspense accounts to ensure all received payments are allocated and to be invoiced orders are invoiced• Analyze ageing accounts receivable• Compare actual versus target receivables & Days Sales Outstanding (DSO)
Pernod Ricard / Cash Management / 46SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHMinimize the total of payment
terms and conditions offered
obJeCtives
• Improve working capital by optimizing the payment terms and conditions
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Number of payment terms and conditions offered
gooD pRaCtiCes
payment terms and conditions ◗ Assess the opportunity to harmonize date of payment conditions for on-trade customers, and for large off-trade customers
and their affiliates ◗ ensure that your trade terms and conditions allow your entity to require prompt payments in case of suspicion of customer
payment default ◗ Consider the trade-off between earnings Before Interest and Taxes (eBIT) and working capital to implement (by exception)
early payments agreements for large customers ◗ Consider offering to your large customers online access to their detailed balance account in order to ease and accelerate
their payments ◗ Where the sales force is incentivized from cash collections, provide days Sales Outstanding (dSO) to help them set key
payment term targets and collection cycles
Pernod Ricard / Cash Management / 47SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHoffer differentiated
payment methods
obJeCtives
• Assess the efficiency and effectiveness of payment methods applied to customers
key peRFoRManCe inDiCatoRs Or ANALYSIS
VolumeValue
Volume and value of invoices by payment methods
EFT Credit Card Check
100%
80%
60%
40%
20%
0%
gooD pRaCtiCes
Differentiate between payment methods used ◗ Assess the most efficient payment methods ◗ determine the ranking of preferred methods
effective / efficient payment methods ◗ Analyze the volume and value of invoices per payment method at least once a year ◗ determine which methods should be added, based on customer feedback ◗ determine which methods are most effective / efficient for your operating company: try to make this method more
attractive to customers ◗ Take appropriate actions accordingly
VolumeValue
Volume and value of invoices by payment methods
volume value in k
Payment methods
VolumeCumulative
Volume%
Cumulative %
ValueCumulative
Value%
Cumulative %
Check 98,098 98,098 89% 89% 255,098 255,098 54% 54%
Credit Card 8,551 106,649 8% 97% 140,987 396,085 30% 84%
EFT 3,409 110,058 3% 100% 77,987 474,072 16% 100%
Total 110,058 100% 474,072 100%
Pernod Ricard / Cash Management / 48SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHnegotiate
automated remittance
obJeCtives
• Enhance the cash forecasting accuracy by reducing the lead time to process the receipts
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Volume and value of invoices by payment methods (see example graph)
VolumeValue
EFT Credit card remittance Automated Check
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
gooD pRaCtiCes
automated remittance ◗ Investigate current payment methods used per customer ◗ determine which customer(s) would be suitable for automated remittance payments ◗ Contact these customers and negotiate automated remittance ◗ Arrange automated remittance payments with bank
VolumeValue
Pernod Ricard / Cash Management / 49SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHalign payment terms
with customer importance
obJeCtives
• Improve the Days Sales Outstanding (DSO) with an alignment of payment terms depending on customer segment
key peRFoRManCe inDiCatoRs Or ANALYSIS
Definition
• dSO is a measure of the average number of days that an entity takes to collect revenue after a sale has been made
kpis
• dSO (see example chart):
Day
s
D C B A
90 80 70 60 50 40 30 20 10 0
63 60 61 63
12 23
13 11
75 83 74 74
Actual DSO
Target DSO
Target DSO/terms arepractically the samefor each segment
• exemplary definition of customer categories:• Category A: large customers• Category B: medium customers• Category C: small customers• Category d: inactive customers
gooD pRaCtiCes
payment terms ◗ Analyze the customer categories ◗ review the actual and target dSO per customer segment at least once a year ◗ determine whether the target dSO is adequately related to the customer’s relevance (customer segment) ◗ determine the gaps between actual and target dSO / term per segment ◗ If needed: take appropriate action to better align terms with customer segments and payment behavior
Actual dSOTarget dSO
Target DSO / terms arepractically the samefor each segment
Pernod Ricard / Cash Management / 50SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHRenegotiate payment terms
with small customers
obJeCtives
• Improve the Days Sales Outstanding (DSO) on the small customer segment by reducing payment terms to the minimum
• Ensure that exceptions are reflected by sales with higher margins
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Current terms, small customers (see example chart)
• renegotiated terms, small customers (see example chart)
'000
EU
R
Total 60 EOM 60 Net 45 EOM 30 EOM 30 Net Cash
3 000
2 000
1 000
0
607
475
16
2 28
79
6
2 97
7
1 95
8
75
19 19
2
659
74 Sales
Target W/C
'000
EU
R
Total 60 EOM 60 Net 45 EOM 30 EOM 30 Net Cash
3 000
2 000
1 000
0
1 95
8
Sales
Target W/C
376
0 0 2
280
87
6 0 0 19
734
74
2 15
0
2 97
7
gooD pRaCtiCes
payment terms with small customers ◗ Analyze the sales and payment terms for the smaller customers at least once a year ◗ determine where the largest improvement potential is ◗ Leverage your power as a supplier to negotiate better terms with these smaller customers
Current Terms Small customers
SalesTarget W/C
Renegotiated Terms Small customers
eOM: end Of Month
SalesTarget W/C
eOM: end Of Month
Pernod Ricard / Cash Management / 51SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHpartner with (larger) customers
to streamline ordering, receipt and payment process
obJeCtives
• Improve cash generation by developing partnership approaches with our large customers, and using enabling technologies where appropriate
• Ease the cash forecasting exercise with better completeness and reduced lead time to manage the volume of transactions of large customers
• Improve working capital with stock reduction initiatives
key peRFoRManCe inDiCatoRs Or ANALYSIS
kpi
• Scope of stock managed through partnership / total stock
Definition
• electronic data Interchange (edI) can be formally defined as ‘the transfer of structured data, by agreed message standards, from one computer system to another without human intervention’
• Automatic Stock replenishment (ASr) is an online system which produces automatically an order and an invoice each scheduled period with agreed levels of stock (minimum and maximum)
• Vendor Managed Inventory (VMI) is a process where the vendor creates orders for their customers based on demand information that they receive from the customer. The vendor and customer are bound by an agreement which determines inventory levels, fill rates and costs. This arrangement can improve supply chain performance by reducing inventories and eliminating stock-out situations
• Cross docking: unloading one truck and loading of another truck without putting the goods into an interim storage (commissioning according to customers needs)
gooD pRaCtiCes
Develop partnership approaches ◗ define common strategy and planning of promotions to reduce out of stock and to increase sales ◗ define common strategy and planning of new product launch to secure the related forecasted sales ◗ Consider cross-docking initiatives to streamline your distribution network and reduce your level of stock ◗ Assess opportunities to optimize deliveries (frequency, transportation optimization) ◗ Consider Multi-Manufacturers / Multi-Customers logistics to reduce the level of stock
use enabling technologies ◗ Consider the implementation of edI for orders, invoices and payment flows to speed-up the lead time to manage information ◗ Consider ASr or VMI initiatives to reduce the stock level of your customers ◗ Consider data synchronization initiatives of product master data to reduce error and disputes ◗ Consider providing online access to detailed balance accounts and invoices to your customers to ease and accelerate
their payments
Pernod Ricard / Cash Management / 52SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHset-up credit policies and define
credit limits per customer category
obJeCtives
• Secure and improve cash generation by granting credit limits to your customers according to their ratings
key peRFoRManCe inDiCatoRs Or ANALYSIS
• days sales credit granted / days sales outstanding (by customer or by rating)
gooD pRaCtiCes
Credit rating and credit limits of your customers ◗ Segment customers by importance and payment history and manage their credit terms accordingly ◗ Set customer credit limits in accordance with credit ratings when available; consider the opportunity to automate
the integration of published credit ratings directly into your customer master data ◗ When public rating is unavailable, use internal data to develop credit rating indicators for your clients ◗ Set collection rules in accordance with credit ratings (refer to: “Manage collection & disputes”) ◗ establish formal credit check for all new customers ◗ review and refine at least once a year the credit ratings granted to your customers
implement a cross-functional credit approach ◗ ensure up-front involvement of credit personnel in teams whose decisions may have downstream credit implications ◗ Physically locate credit managers with sales and marketing managers to enable close coordination
Pernod Ricard / Cash Management / 53SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHCreate effective automated
controls to prevent staff from overriding set credit limits
obJeCtives
• Ensure that customers are served and delivered only if their credit limit is respected
• Manage efficiently the customer stock position financed by the entity
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Customers exceeding credit limits with new orders (see example chart)
gooD pRaCtiCes
prevent staff from overriding credit limits ◗ determine credit limits per customer ◗ Investigate whether the order intake registration system supports comparison of customers outstanding invoices with credit limit ◗ Flag customer orders as ‘credit limit exceeding’ when processed, remind customers of the credit limit granted and the
outstanding balance ◗ Set system to release customer orders only after the check: credit limit > current balance of outstanding invoices + new orders ◗ establish credit management reporting by exception
Outstanding balance currentOutstanding balance with new orderCredit limit
Clients exceeding credit limits with new orders
Day
s
Client 10 Client 9 Client 8 Client 7 Client 6 Client 5 Client 4 Client 3 Client 2 Client 1
300
250
200
150
100
50
0
Outstanding balance current
Outstanding balance with new order
Credit limit
Pernod Ricard / Cash Management / 54SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHRelate payment terms
with credit rating
obJeCtives
• Improve the Days Sales Outstanding (DSO) and decrease risk by adjusting payment terms related to credit rating
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Maximum payment term and overdue days per credit rating category (see example chart)
average days overdue days
days
High Medium Low
70
60
50
40
30
20
10
0
gooD pRaCtiCes
◗ relate the maximum payment term and/or payment method to client’s credit ratings• For example: require full payment prior to delivery from customers with the lowest credit ratings
◗ Periodically review the average overdue days per credit rating category ◗ If needed: adjust the maximum payment term and/or payment method for certain categories
days average days overdue
Pernod Ricard / Cash Management / 55SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHConsider accounts
receivable credit insurance
obJeCtives
• Secure your business against customers insolvency, bad debts, overdue, commercial risks and political risks
• Optimize your cash flow requirements
• Lower your bad debt provision
• Reduce the cost of bad debts
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Cost of insurance / Cost of [insolvency, bad debts, overdue, commercial and political proven risks]
gooD pRaCtiCes
accounts receivable credit insurance ◗ Consider credit insurance company offerings in your business scope ◗ Contact audit at holding to verify if the group insurance policy may cover your customers ◗ Assess the trade-off between the cost of insurance and your current and potential costs related to customer insolvency,
bad debts, overdue, commercial risks and political risks ◗ define the criteria determining when a customer or segment of your business should be insured ◗ Assess the opportunity to implement a procedure with the insurance 3rd party to challenge the rating of specific customers
Pernod Ricard / Cash Management / 56SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHRegister customer master data in
your sales & distribution tool or eRp
obJeCtives
• Reduce the customer complaints related to master data inaccuracy (address, tariffs, rebates, etc.)
• Improve the collection process with proper system setup of credit and collection rules for each customer
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Number of customer complaints related to master data
• Total costs of customer complaints related to master data
gooD pRaCtiCes
Customer master data ◗ define rules of organization and processes in place to govern your master data ◗ define a procedure to create and to update master data related to customers:
• Contact details• Trade terms• discount policy• Credit level and credit risk rating• Collection rules (if automated)
◗ review and refine customer master data at least once a year
Pernod Ricard / Cash Management / 57SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHanalyze customer portfolio
obJeCtives
• Standardize payment terms to optimize working capital
• Streamline the invoice process to improve your cash forecasting
key peRFoRManCe inDiCatoRs Or ANALYSIS
kpi (see example chart for on-trade customers)
Cat. #1Cat. #2
Sales 150 m€ Transaction 100,000
Definition: Customer pareto analysis• Category #1 : 20% of customers represent 80% of Sales• Category #2 : 80% of customers represent 20% of Sales
gooD pRaCtiCes
ensure efficiency of customer base ◗ Perform customer Pareto Analysis (see KPI box for further explanation) to determine potential optimization of the
customer / sales base ◗ ensure the payment terms granted to category #1 customers reflect a sustainable and profitable level of partnership ◗ ensure that standardized trade terms are applied to category #2 customers ◗ Assess opportunity to streamline the number of sales transactions in each customer category to improve the lead time
of invoice processing
Cat. #1Cat. #2
Weight of Cat.#1 vs. Cat.#2 On-Trade customers
Sales 150 m€ Transaction 100,000
Pernod Ricard / Cash Management / 58SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHprovide electronic and/or
automated ordering
obJeCtives
• Smooth your Days Sales Outstanding (DSO) level with less erratic ordering
• Reduce process cycle time
key peRFoRManCe inDiCatoRs Or ANALYSIS
Definition
• electronic data Interchange (edI) can be formally defined as ‘the transfer of structured data, by agreed message standards, from one computer system to another without human intervention‘
kpis
• Customer ordering pattern (see example graph)
To FromCustomer ordering pattern in one year
time
time
Customer ordering pattern in one year
time
quan
tity
quan
tity
Pernod Ricard Customer
days No.
Customerinventory - usage
CustomerOrder
Order receiptProcessing
Gooddelivery
Invoicing
• Ordering methods in use
gooD pRaCtiCes
negotiate with customers◗ Partner with customers to determine needs for deliveries in quantity and timing, consider whether ordering can be done automatically ◗ re-negotiate delivery, payment terms and service offering ◗ ensure processes at the customer and at Pernod ricard are adjusted to fit and use the same information, order quantities,
timing and quality ◗ Balance the ordering across the month in order to avoid the end of month bottleneck (non optimized logistic costs / no
time left for an in depth credit analysis if needed, etc.)
Consider electronic data exchange ◗ Analyze your number of orders per customer and per ordering method, e.g. Letter, Fax, Phone, e-mail, edI ◗ Investigate possibilities for electronic ordering for simple transactional / repetitive products ◗ Automated ordering: investigate patterns in ordering moments and quantities for large customers; understand their business
and production cycle, obtain insight in their inventory levels and (production) forecasts
Pernod Ricard / Cash Management / 59SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHManage 100% of orders
in sales administration tool or enterprise Resource planning (eRp)
obJeCtives
• Ensure that sales orders are compliant with trade terms, conditions, credit policies and rules
• Ensure planning reliability, completeness of sales orders to improve cash forecasting
key peRFoRManCe inDiCatoRs Or ANALYSIS
kpis
• Number, share and value of orders not managed in the systems
• Number and value of accepted sales orders from customers with an overdue balance
gooD pRaCtiCes
Monitor and control sales orders ◗ ensure that 100% of your sales orders are recorded in your sales administration tool or erP to obtain a clear view about
the overall number and value ◗ Verify if your sales order administration tool is able to recognize duplicate sales orders to prevent duplicate production /
delivery / invoicing ◗ Check that sales amount is lower than the credit limit ◗ Block sales if credit limits are exceeded ◗ ensure following an escalation process
integration with accounting system ◗ Integrate information from your accounting system to prevent the acceptance of orders from customers with overdue
invoices / payments
integration of materials management ◗ Integrate sales administration with materials management to improve inventory levels and the ability to supply
Pernod Ricard / Cash Management / 60SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHoffer automatic stock Replenishment (asR) or vendor Managed inventory
(vMi) to key customers
obJeCtives
• Reduce the level of stock by a set of rules and technologies enabling continuous replenishment
• Reduce the cost of deduction related to out of stock
• Reduce the cost of delivery with optimized transportation
• Reduce the cost of handling with optimized order planning and preparation
key peRFoRManCe inDiCatoRs Or ANALYSIS
kpi
• Key customer days Inventory On-hand (dIO)
Definition
• Automatic Stock replenishment (ASr) is an online system which produces automatically an order and an invoice each scheduled period with agreed levels of stock (minimum and maximum)
• Vendor Managed Inventory (VMI) is a process where the vendor creates orders for their customers based on demand information that they receive from the customer. The vendor and customer are bound by an agreement which determines inventory levels, fill rates and costs. This arrangement can improve supply chain performance but reducing inventories and eliminating stock-out situations
gooD pRaCtiCes
◗ Assess the opportunity to offer Automatic Stock replenishment (ASr) or Vendor Managed Inventory (VMI) to your key customers (see definitions)
For customers with asR or vMi ◗ define and implement a procedure for optimizing the transportation of an agreed level of ordered quantities within
the best transport conditions ◗ define and implement a procedure for smoothing the handling of orders in the distribution centers ◗ define and implement a procedure in order to proactively propose substitution products in case of out of stock
Pernod Ricard / Cash Management / 61SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHhold repeat orders
(or block deliveries) if invoices are more then X days overdue
obJeCtives
• Increase controls pertaining to the sales order process
• Avoid accepting sales orders from customers with overdue items
• Improve cash collection
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Number of customer master data set without a credit limit (see example chart)
Num
ber
of c
usto
mer
s
C DCCC CC BB B BBB A AAA AA
450
400
350
300
250
200
150
100
50
0
Total number of customers
Customers w/o credit limit
• Overdue days per customer credit rating category
gooD pRaCtiCes
Communication with sales department ◗ ensure that the sales department is informed about customers with overdue items of more than [x] days
Define exception rules ◗ define a rule (including roles & responsibilities) if a sales order has to be placed in spite of one or more overdue items, e.g.
strategically important customers
system configuration ◗ Consider adjusting your sales and distribution system so that the sales employee is notified if he/she wants to enter a sales
order for a customer with overdue invoices of more than [x] days
Total number of customers Customers w/o credit limit
Pernod Ricard / Cash Management / 62SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHConsider electronic data interchange
(eDi) to invoice key customers
obJeCtives
• Reduce process cycle time
• Streamline invoicing process
• Improve operational expenditure benefits (avoid costs such as: paper, mailing etc.)
key peRFoRManCe inDiCatoRs Or ANALYSIS
Definition
• electronic data Interchange (edI) can be formally defined as ‘the transfer of structured data, by agreed message standards, from one computer system to another without human intervention‘
kpi
• Number of invoices per customer (see example chart)
Num
ber
of In
voic
es
300
Most invoices are sent to customers 3 and 5.EDI exchange with these customerscould bring the most advantages
200
100
0
Customer
1
Customer
2
Customer
3
Customer
4
Customer
5
Customer
6
Customer
7
gooD pRaCtiCes
Consider electronic data exchange ◗ Analyze which customers could be suitable e.g. customers to whom the most invoices are sent ◗ ensure that necessary software and equipment are available, administered and can be handled by staff
negotiate with customers ◗ Contact those customers and discuss the possibility for edI ◗ Make sure to consider relevant legal and tax requirements for edI ◗ In case of implementation, ensure that e-invoices are properly archived
Most invoices are sent to customers 3 and 5.edI exchange with these customers could bring the most advantages
Pernod Ricard / Cash Management / 63SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHsend invoice early in the process
(at receipt or confirmation)
obJeCtives
• Optimize cash flow and its forecasting
key peRFoRManCe inDiCatoRs Or ANALYSIS
example of analysis
• A set of sales orders is recorded Friday, September 30
• Standard payment terms are 30 days end of month
• Invoicing process is carried-out by night batch• As a result, your invoices will possibly be invoiced on Monday, October 3 and you will receive cash at the end of November (instead of end of October if invoices had been issued on Friday, September 30)
gooD pRaCtiCes
portfolio of sales orders ◗ Analyze your portfolio of sales orders and check whether there are some end of month sales orders that could be invoiced
in the current accounting period ◗ Consider invoicing at the receipt or confirmation of the sales order with regards to cash collection - while respecting the
trade terms ◗ Consider this practice to be managed by exception
Pernod Ricard / Cash Management / 64SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHautomate reconciliation
of payments with invoices
obJeCtives
• Automate balancing of open items
• Reduce cycle times
• Improve period-end closing
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Average time to balance open accounts receivable items
• Average number of items not balanced in the 1st attempt
• Suspense account balance per month (target: zero balance)
gooD pRaCtiCes
ensure the possibility for automatic reconciliation ◗ ensure that your customers notice all invoice details and are encouraged to provide the details (e.g. invoice number)
when placing the payment order, enabling you to reconcile the corresponding open item ◗ Manage in a timely manner the returns done / requested by the customers and post the relevant accounting entries
electronic bank statement ◗ Consider the automatic reconciliation of the electronic bank statement and account receivable ◗ define posting rules for respective business transaction codes (depend on bank) to manage the postings
to the sub- and/or general ledger
suspense account ◗ ensure that items that could not be reconciled in the 1st attempt are posted to a defined suspense account
optimize check receipts ◗ Assess the opportunity to implement an automated cash posting process
Pernod Ricard / Cash Management / 65SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHConsider providing online access
to customer accounts and invoices in order to ease and accelerate payments
obJeCtives
• Give real time access to your customers to their detailed account in order for them to communicate to you the features of their next payment
• Improve the lead time of payment process for large customer
• Improve cash forecasting with better visibility on client's promises of payment
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Number of customer with a real time access to their detailed balance account
• Number of Accounts receivables (A/r) transactions processed with real time access to detailed balance account / total number of A/r transactions
• Value of payment processed with real time access to detailed balance account / total value of payment
gooD pRaCtiCes
partner with your customer ◗ Assess your large customer portfolio to select those which could be interested by this service ◗ Consider to develop an Internet Portal allowing key customers to check their detailed balance account and providing
your Accounts receivable (A/r) team the features of their next payment
system and process enhancement ◗ define the procedure to send detailed balance accounts and invoices received (i.e. file format) ◗ Assess opportunity to automate the allocation between accounts receivable and detailed proposal of payment made
by the customer
Pernod Ricard / Cash Management / 66SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHDiversify your follow-up procedures
obJeCtives
• Lower the overdue level with a proactive collection process made by operations and finance teams supported by technology
key peRFoRManCe inDiCatoRs Or ANALYSIS
By customer segment (see example chart):
• Number of slow paying customers / Total number of customers
• Number of dunning letters sent by month
• Number and value of deductions (by type)
gooD pRaCtiCes
Monitor accounts receivable and ageing balance ◗ Prepare and communicate accounts receivable and ageing balances reporting to sales and finance teams
(for instance off-trade and on-trade reporting)
Collection policy / procedure ◗ define a procedure to track and call slow paying customers before the due date ◗ establish a standard collection policy / procedure (per customer segment and/or per customer credit rating category) including:
• dunning letter • Collection calls • escalation process ◗ establish a cross-functional process to assign deductions related to disputes to the responsible department (Finance, Sales, Logistics) ◗ Use accounts receivable and collection outcome to develop a payment profile and credit rating for each customer ◗ Periodically assess the overdue value per customer segment and determine whether the system based collection
procedures are still up-to-date and correctly prioritized ◗ For markets with multiple customers, leverage the sales condition to stimulate the collection (e.g. balance the existing
Allowances and discounts (A&d) scheme between volumes related A&d and collection related A&d)
Consider using enabling technology ◗ Automate these standard procedures in a Workflow and/or enterprise resource Planning (erP) system
Value of overdue invoices per customer segment
x €
1.00
0
E D C B A
70
60
50
40
30
20
10
0
Value of overdue invoices per customer segments
Business rules for A/R collection system-based
Customer segment
Remind before due date?
Remind after due date
Contacted by
Automated notification to
First dunning letter
etc.
A Y 1 day after Sales Sales & Finance 1 week after
B Y 1 day after Sales Sales & Finance 1 week after
C N 1 day after Sales Sales & Finance 3 days after
d N 1 day after Finance Sales & Finance 3 days after
e N 1 day after Finance Sales & Finance 3 days after
Pernod Ricard / Cash Management / 67SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHImplement formal dispute resolution
OBJECTIVES
• Decrease the Days Sales Outstanding (DSO) by reducing the throughput time to manage and solve complaints
KEY PERFORMANCE INDICATORS OR ANALYSIS
• Throughput time per compliant and days overdue on related invoices
Complaints Throughput
time (days)Complaint 1 3Complaint 2 21Complaint 3 14Complaint 4 1Complaint 5 7Complaint 6 35Complaint 7 19Complaint 8 8Complaint 9 20Complaint 10 5Complaint 11 7Average 12,7
• Disputes by Volume
Missing PO
Other
Incorrect Bill- To Address
Pricing IncorrectIncorrect Ship-To Address
Incorrect PO
Incorrect Discount
Incorrect ProductIncorrect Tax
GOOD PRACTICES
Dispute resolution ◗ Implement a formal and system based (online) dispute resolution process (that includes an escalation methodology),
enabling you to resolve disputes faster and gather management information about disputes more easily ◗ Periodically measure
• the disputes per category (by volume and/or value)• the throughput time of solving complaints
◗ Determine the root causes for the most important categories ◗ Determine the effect of this throughput time on the DSO (overdue days on the invoices related to the complaint)
Throughput time per compliant and days overdue on related invoices
Day
s
Compla
int 11
Compla
int 10
Compla
int 9
Compla
int 8
Compla
int 7
Compla
int 6
Compla
int 5
Compla
int 4
Compla
int 3
Compla
int 2
Compla
int 1
50
40
30
20
10
0
Throughput timeDays overdue on related invoices
Throughput timeDays overdue on related invoices
Throughput time per compliant and days overdue on related invoices
Pernod Ricard / Cash Management / 68SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHassign collectors
to specific customers
obJeCtives
• Lower the overdue level with a client-oriented team
• Improve cash forecasting with accurate client's promises to pay
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Number and value of client’s promises to pay
gooD pRaCtiCes
◗ Organize and balance your customers portfolio to create ‘collection segments’: by customer type (Off-Trade and On-Trade), by size (Large, Small), and by level of risk ◗ Assign dedicated collectors to ‘collection segments’ ◗ Connect dedicated collectors with sales and logistics teams ◗ Consider software packages implementation to manage the follow-up of customers and their related accounts,
and to assign collection activities to collectors according to your procedures
Pernod Ricard / Cash Management / 69SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHprovide collection and operations staff
incentives for collection / dunning
obJeCtives
• Lower the overdue level and improve cash forecasting with efficient incentives schemes
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Number and value of client’s promises to pay
• Number of days delinquent
• Number and value of deductions
gooD pRaCtiCes
◗ define incentives schemes for sales and collection staff depending on customer types (On-Trade / Off-Trade) to manage:• Overdue (collection and sales staff)• Promises to pay (collection and sales staff)• deductions (collection, sales and logistics staff)
◗ Implement a cross-functional monthly report to share progress and benefits of collection activities (days Sales Outstanding (dSO), ageing balance, etc.) ◗ Implement a communication process between sales and credit enabling the credit team to have quick feedback from
the field in case of a change in the situation of a customer with potential credit implications (loss of distribution license, tax investigation, etc.)
Pernod Ricard / Cash Management / 70SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHConsider bad debts write-off
and related tax reimbursement
obJeCtives
• Improve monitoring of accounts receivables and cash collection
• Optimize cash flow management and forecasting
key peRFoRManCe inDiCatoRs Or ANALYSIS
• development of bad debts (see example chart)
In t
hous
and
[Cur
renc
y]
600
500
400
300
200
100
0
Bad debtsCash inflow from bad debts
May Apr Mar Feb Jan
• Potential tax reimbursement
gooD pRaCtiCes
posting bad debts ◗ In consideration of your applicable accounting standard, divide your bad debts from your accounts receivable in a separate
balance sheet item ◗ Monitor your bad debts regarding particular reasons causing a write-off and ensure its posting at the next period-end closing ◗ Monitor your bad debts regarding particular reasons causing tax reimbursements such as insolvency or limitation of claim
obtain tax reimbursements ◗ Submit necessary documentation to your financial authorities to obtain tax reimbursements
Bad debtsCash inflow from bad debts
Pernod Ricard / Cash Management / 71SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHReview invoice terms vs. contractual terms
obJeCtives
• Ensure that customer contractual terms recorded in your system are updated to reflect the real contractual payment terms
• Optimize collection date versus due date
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Customers getting invoices in which the payment term exceeds the contractually agreed payment terms and working capital improvement potential (see example chart)
61
3030
60
39
30
70
8
60
8
68
61
87
6166
6161 64
61
30
Master DSO
Invoice DSO
Potential WC
W/C
Impr
ovem
ent
('000
EU
R)
DSO
(Days)
Custo
mer
200
030
Custo
mer
100
534
Custo
mer
100
230
Custo
mer
100
466
Custo
mer
190
136
Custo
mer
210
123
Custo
mer
100
455
Custo
mer
100
543
Custo
mer
100
520
Custo
mer
100
526
40
35
30
25
20
15
10
5
0
100 90 80 70 60 50 40 30 20 10 0 2244568141533
gooD pRaCtiCes
◗ Include all contractual payment terms in the customer master data file ◗ Make sure the actual invoice terms are aligned with the terms as stated in the contract (as stated in the customer master
data file) ◗ Make a periodic analysis of actual invoice terms versus contract terms (for example: see example chart) ◗ determine how many invoices (and at which value) have been issued with a due date above the standard terms ◗ determine the working capital improvement potential ◗ Take appropriate action (e.g. by implementing extra controls)
Potential WCInvoice dSOMaster dSO
Pernod Ricard / Cash Management / 72SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHanalyze suspense accounts to ensure
all received payments are allocated and to be invoiced orders are invoiced
obJeCtives
• Improve open item management of accounts receivable
• Optimize period-end closing and cash flow forecasting
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Average time to clear the suspense account
• Average number of items not balanced in the 1st attempt
• Suspense account balance per month (target: zero balance)
gooD pRaCtiCes
provide account details on invoices ◗ ensure that your customers notice all invoice details and are encouraged to provide the details (e.g. invoice number) when
placing the payment order enabling you to balance the corresponding open item
analyze your suspense account ◗ Analyze items that could not be matched to an open accounts receivable item and find out root causes ◗ Consider contacting customers whose payments (i.e. items) could not be matched to an open item repeatedly and encour-
age them to provide invoice details while placing the payment order
account clearing ◗ ensure that items on the suspense account are cleared before the next period-end closing
Pernod Ricard / Cash Management / 73SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHanalyze ageing accounts receivable
obJeCtives
• Improve the Days Sales Outstanding (DSO) by strengthening and focusing your collection effort on specific customer segments / customers
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Accounts receivable ageing balance (see example chart)
not impaired and not due
0-90 days
90-180 days
+180 days
'000
EU
R
BUD
FC
Jun
10
May
10
Apr
10
Mar
10
Feb
10
Jan
10
Dec
10
Nov
10
Oct
10
Sep
10
Aug
10
Jun
09
May
09
Apr
09
Mar
09
Feb
09
Jan
09
Dec
08
Nov
08
Oct
08
Sep
08
Aug
08
Jun
08
May
08
Apr
08
1000
900
800
700
600
500
400
300
200
100
0
gooD pRaCtiCes
analyze ageing balance ◗ Issue a non-Group accounts receivable ageing balance each reporting period by customer segments
(i.e. On-Trade and Off-Trade) ◗ Analyze your Group accounts receivable by due date and check that your company complies with intercompany policy ◗ Monitor the development and outliers of each ageing category ◗ determine the root cause analysis with a cross-functional approach ◗ Take appropriate action with accounts receivables, sales and logistics staff accordingly ◗ Consider and forecast the proportion of aged accounts receivables that might impact your profit and loss account
(write-off) as well as cash and cash forecasting respectively
leverage your information system ◗ Configure your system in order to be able to retrieve an ageing balance for accounts receivable on demand ◗ ensure that customer master data contains payment terms to derive a due date when an invoice is issued
+180 days90-180 days0-90 daysnot impaired and not due
Ageing Balance in EUR
Pernod Ricard / Cash Management / 74SALES FINANCE
Negotiate with customersManage creditMaintain customer master dataProcess ordersProcess invoicesProcess receiptsManage collection & disputesManage A/R & process period end
ORDER TO CASHCompare actual versus
target receivables & Days sales outstanding (Dso)
obJeCtives
• Monitor the DSO trend to ensure the target will be reached
• Consider factoring extension to improve DSO
key peRFoRManCe inDiCatoRs Or ANALYSIS
• Balance of accounts receivables vs. days sales outstanding (dSO) (see example chart)Receivables vs. DSO
DSO (before Factoring) Non group FY 10/11
DSO (before Factoring)Non group FY 09/10
Trade receivables (before Factoring)Non group FY 10/11
Trade receivables (before Factoring)Non group FY 09/10
EUR
mill
ion
Day
s
Aug Sep
Oct
Nov Dec
BUD D
ec Jan Feb
Mar Apr May Jun
LE Ju
nBU
D Jun
50
40
45
35
30
25
20
15
10
5
0
30
25
20
15
10
5
0
gooD pRaCtiCes
Cash Dashboard implementation ◗ Issue the Cash dashboard for each reporting period ◗ Compare the actual versus the target receivables & dSO ◗ Analyze the average differences and the outliers (e.g. specific customers) and determine the root causes
optimize working capital ◗ Compare your dSO with your payment cycle (e.g. excise tax)
impact of factoring ◗ Analyze the impact of factoring on Non-Group dSO ◗ determine whether the differences can be reduced ◗ Take appropriate action accordingly
Receivables vs. DSO
Trade receivables (before Factoring) Non group FY 09/10Trade receivables (before Factoring) Non group FY 10/11dSO (before Factoring) Non group FY 09/10dSO (before Factoring) Non group FY 10/11
Ballantine's
FORECAST to FULFILLOrdering raw materials and inventory to fulfill product demand, to the management, and reporting of inventory
Pernod Ricard / Cash Management / 78
FORECAST TO FULFILLINVENtoRY MANAGEMENt
ENAbLING pRocEssEs
supply chain and Finance• Maintain stock master data• Manage Brand Company (BC) forecast & planning• Manage Market Company (MC) forecast & planning• Manage orders from MC to BC• Manage goods in storage• Manage production• Manage distribution & returns• Manage inventory & period end closing
orderto cash
treasury operations
purchaseto pay
Forecast to Fulfill
tooLkIts bY
FUNctIoN
Forecast to Fulfill • Maintain stock master data• Manage Brand Company• Manage Market Company (MC) • Manage orders from MC to BC• Manage goods in storage• Manage production• Manage distribution & returns
sales
Finance
purchasingMarketing
supply chain
Forecast to Fulfill • Manage inventory & period end closing
toolkit
split
by
cycle
toolkit
split
by
Function
ALL
BC MC
ALL: All types of Companiesbc: Brand CompaniesMc: Market Companies
FORECAST to FULFILL
table of contents
Pernod Ricard / Cash Management / 79
Maintain stock master data
• Use consistent master data for all sites (unique SKUs coding)• Integrate master data with Sales & Operation Planning (SOP) and accounting• Control logistics attributes of items with serial and revision numbers
• Consider all inventory levels
Manage brand company forecast & planning
• Standardize product portfolio• Design and deploy processes to manage stock and demand planning for new products or end of life products
• Consider to recycle excess e.g. maturing stocks
Manage Market company forecast & planning
• Rationalize product portfolio• Calculate seasonality influences• Design and deploy processes to manage demand planning for large promotion and events• Design and deploy processes to manage stock and demand planning for new products or end of life products• Consider to recycle excess e.g. finished products, Point of Sales (POS)
• Manage end of life / new / discount products
Manage orders from Market companies to brand companies
• Consider the use of a replenishment tool (finished products for MC)• Deploy EDI (electronic data interchange) and customer collaborative process• Define stock security level in distribution center to calculate replenishment
• Coordinate large promotion orders from retailer to MC and BC
Manage goods in storage
• Develop policies and procedures for goods storage and handling• Use an inventory tracking process
• Perform regular cycle counts
Manage production
• Assess package size against customer demand
• Evaluate stock costs versus ‘mass production’ savings
Manage distribution & returns
• Determine optimal delivery frequencies and quantities
• Set-up a formal process for goods returned
Manage inventory & period end closing
• Actively assess and sell off obsolete / slow moving stock• Perform regular inventory counts aligning physical count to records, supported by proper reconciliation procedures• Determine the net realizable value of your inventory goods• Compare actual versus target Days Inventory On-hand (DIO)• Calculate and monitor inventory carrying /holding costs
• FINANCE
•
• SUPPLy ChAIN
Pernod Ricard / Cash Management / 80SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLUse consistent master data
for all sites (unique skUs coding)
obJEctIVEs
• Manage communication around master data between Brand Company (BC) and Market Company (MC)
• Accurately record the physical existence and location of stock items
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
Definition
• SKU, Stock Keeping Unit: warehousing item that is unique because of some characteristics (such as brand, size, color, model) and must be stored and accounted for separately from other items. Every SKU is assigned a unique identification number
kpI
• Total number of SKUs per location
GooD pRActIcEs
Manage items’ characteristics ◗ Complete an identification form for each SKU, recording volume characteristics to better manage inventories ◗ Share product nomenclature (BC, MC, retailers, etc.) ◗ Periodically review all SKUs and resolve issues
Manage visibility on items’ quantities ◗ Share stock availability information ◗ Establish the warehouse as a knowledge center for efficient consumer response with real-time inventory information
ALL
BC MC
Pernod Ricard / Cash Management / 81SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLIntegrate master data
with sales & operation planning (sop) and accounting
obJEctIVEs
• Better synchronize supply with demand and avoid stock excess
• Improve the visibility of stocks level for other user departments, such as the sales department especially for promotions
• Provide up to date and accurate information for the management of inventory and to satisfy statutory reporting
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
kpI
• Level of inventory per SKU
Example illustration
GooD pRActIcEs
Manage visibility on stocks ◗ Gather best available data to link sales tracking with production planning ◗ Use SOP to support lean supply strategy: as a strong, comprehensive planning tool, SOP serves as an ideal support for lean
strategies to balance future demand and supply ◗ Ensure coherence between budgetary process based on subfamilies and forecasts based on SKU
Manage stocks within distribution centers ◗ Centralize stocks of producer distribution centers ◗ Implement different types of stocks: for example, inventory to replenish ‘usual’ sales and safety stock to replenish
unexpected sales
S&OPDecisionDatabase
Analysis
ERP and OtherTransactionnal
Databases
ManagerialDecision Making
Descriptive Models• forecasting• data mining• management accounting• others
Data Extractionand Transformation
Supply Chain NetworkOptimization Model
ALL
BC MC
Pernod Ricard / Cash Management / 82SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLcontrol logistic attributes
of items with serial and revision numbers
obJEctIVEs
• Maintain up to date ‘logistics attributes’ to better manage inventory
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
kpI
• Rate of slow-moving inventory
AZ 23456 001 344 001
Referenceof item
Logistics attributesfor example : 001 = pallets002 = picking box…
GooD pRActIcEs
Logistics attributes management ◗ Define specific logistics attributes for each type of packaging (pallets, lots, picking box, etc.)
Manage items ◗ Ensure each item within inventory has a serial number and/or revision number ◗ Communicate about the number of items per pallet and number of items by pallet board ◗ Ensure that you can track promotions with the appropriate attributes
consider using enabler technology ◗ Use bar-coding technology to facilitate the use of satellite networks and internet access to determine the exact location
of materials throughout the supply chain
ALL
BC MC
Illustration of logistics attributes
Pernod Ricard / Cash Management / 83SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLconsider all inventory levels
obJEctIVEs
• Ensure a clear and real-time visibility of volumes and number of SKUs within stocks
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Inventory related costs: warehouse cost, cost of capital, stock-out costs
GooD pRActIcEs
Inventory visibility ◗ Consolidate all inventory data within the whole group (distribution centers, production centers, outstanding products, etc.)
to encourage Just in Time delivery ◗ Leverage visibility systems to manage inventory in transit ◗ Use an integrated platform that captures all inventory data from multiple systems and analyze the collective data for better
inventory management ◗ When ordering, investigate availability and delivery time of the required goods ◗ Calculate related costs from external purchase order compared to local inventory, taking into account all related costs (e.g.
transport costs, handling costs, labor costs, warehousing costs, etc.) ◗ Place purchase order based on outcome of the calculation
ALL
BC MC
Pernod Ricard / Cash Management / 84SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLstandardize product portfolio
obJEctIVEs
• Offer to MC an optimized range of products adapted to local markets
• Increase turnover made with MC
• Optimize costs of goods sold
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
Growth-share matrix
Dogs
Question Marks
Market Share
Mar
ket
Gro
wth
Low
Low High
Hig
h
Cash Cows
Star
• Stars: high-growth products competing in markets where they are relatively strong compared with the competition
• Cash cows: low-growth products with a relatively high market share. These are mature, successful businesses with relatively little need for investment
• Dogs: products that have low relative share in unattractive low-growth markets. Dogs may generate enough cash to breakeven, but they are rarely, if ever, worth investing in
• Question marks: products with low market share but which operate in higher markets. They have potential, but may require substantial investment in order to grow market share
kpI• Number of existing references of products for each brand
GooD pRActIcEs
Evaluate product portfolio ◗ Understand competitive dynamics, identify industry trends, customers' changing needs, potential market disruptions, and
determine which current products customers prefer and why ◗ Analyze product portfolio from a Brand Company perspective based on market share and market growth using a matrix
(see definition) with 2 dimensions:• On the horizontal axis: relative market share - this serves as a measure of products’ strength in the market• On the vertical axis: market growth rate - this provides a measure of market attractiveness
standardize product portfolio ◗ Consider opportunities to standardize your products portfolio (e.g. format, size, labeling, flavor, etc.) ◗ Coordinate product portfolio standardization initiatives across the Group ◗ Look for enabling technologies that can help deliver standardization and lower the cost of goods sold ◗ Measure product value and portfolio performance on a frequent basis
ALL
BC MC
Pernod Ricard / Cash Management / 85SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDesign and deploy processes
to manage stock and demand planning for new products or end of life products
obJEctIVEs
• Better manage inventories between new products and end of life products
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
product Life cycle curve
Sales
Introduction
Growth
MaturityDecline
Time
kpIs
• Forecast Accuracy (FA)
• Number of backorders, stock outs and markdowns
• Finished Goods Stock for Export (STK BO)
• Distribution of inventories between end of life, new and flagship products
GooD pRActIcEs
set-up demand planning system ◗ Create an integrated demand forecast for sales and production, readily accessible and easily readable for all relevant parties ◗ Choose the right forecasting models for the right market and product position (forecast may differ for different life-cycle
phases in sales process: introduction, growth, maturity, decline) ◗ Establish a systematic and frequent forecasting and planning cadence
track forecast performance ◗ Establish a regular schedule for monitoring forecast accuracy ◗ Set priorities based on product revenue and forecasting difficulty ◗ Set error thresholds to trigger forecast revision ◗ Calculate the impact of forecasting error in terms of lost sales opportunities ◗ Analyze forecast performance for cause-and-effect relationships between marketing strategies and sales results
ALL
BC MC
Pernod Ricard / Cash Management / 86SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLconsider to recycle excess
e.g. maturing stocks
obJEctIVEs
• Find trade-off between cost of inventory for excess of products taking into account their sales forecasts and the possibility to reuse the excess of products
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Percentage of obsolete stock (in value)
• Distribution of inventories between end of life, new and flagship products
GooD pRActIcEs
obsolete and slow moving stock ◗ Determine the definition of obsolete / slow moving stock (e.g. inventory replaced by an alternative and rendered unusable
or diminished in value) ◗ Evaluate the amount of product which could be recycled ◗ Share data among all production sites ◗ Communicate about recycle processes ◗ Consider all the possible ways to reuse excess of products
ALL
BC MC
Pernod Ricard / Cash Management / 87SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLRationalize product portfolio
obJEctIVEs
• Offer to customers ranges of products adapted to local markets
• Manage product portfolio to fit to market fluctuations and demand
• Increase turnover made with customers
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
Growth-share matrix
• Stars: high-growth products competing in markets where they are relatively strong compared with the competition
• Cash cows: low-growth products with a relatively high market share. These are mature, successful businesses with relatively little need for investment
• Dogs: products that have low relative share in unattractive low-growth markets. Dogs may generate enough cash to breakeven, but they are rarely, if ever, worth investing in
• Question marks: products with low market share but which operate in higher markets. They have potential, but may require substantial investment in order to grow market share
kpI
• Number of existing SKUs (existing = stock >0)
GooD pRActIcEs
Evaluate product portfolio ◗ Understand competitive dynamics, identify industry trends, customers' changing needs, potential market disruptions, and
determine which current products customers prefer and why ◗ Analyze product portfolio from a Marketing Company perspective based on market share and market growth using a
matrix (see definition) with 2 dimensions:• On the horizontal axis: relative market share - this serves as a measure of product’s strength in the market• On the vertical axis: market growth rate - this provides a measure of market attractiveness
Rationalize product portfolio ◗ Consider opportunities to rationalize your products portfolio ◗ Coordinate product portfolio rationalization initiatives across the Market Company ◗ Look for enabling technologies that can help deliver rationalization ◗ Measure product value and portfolio performance on a frequent basis
Dogs
Question Marks
Market Share
Mar
ket
Gro
wth
Low
Low High
Hig
h
Cash Cows
Star
ALL
BC MC
Pernod Ricard / Cash Management / 88SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLcalculate seasonality influences
obJEctIVEs
• Improve forecasts accuracy integrating seasonal impact
DEFINItIoN & ILLUstRAtIoN
Definition
• COS, cost of sales: the cost of purchasing raw materials and manufacturing finished products. Equal to the beginning inventory plus the cost of goods purchased during some period minus the ending inventory. Also called Cost Of Goods Sold (COGS)
Illustration
Inventory Euro
COGS Euro
dec 2
005
nov 2
005
oct 2
005
sep
2005
aug 2
005
jul 2
005
jun 2
005
may
200
5
apr 2
005
mar
200
5
feb 2
005
jan 2
005
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
There is a clear seasonal demand pattern, with peak steadily growing towards June and a second peak in autumn
Inventory does not seem to be affected by seasonality. The highest stock is found in March
➜ Working capital can be lowered by tuning the inventory better to the seasonal demand patters
GooD pRActIcEs
Implement a demand planning and sales and operation planning process ◗ Make an analysis of the COS (Cost of Sales) versus the inventory ◗ Identify factors influencing demand (weather, climate change, etc.) ◗ Determine the seasonality pattern for COS (in addition, seasonal indexes can be calculated) ◗ Discuss seasonality pattern with various disciplines: sales, production, logistics, purchasing, etc. ◗ Determine whether the seasonality patterns can be used to further optimize inventories ◗ Gather and cumulate national forecasts to identify ‘average’ forecasts and apply them to countries without forecasting services
Inventory EuroCOGS Euro
ALL
BC MC
Pernod Ricard / Cash Management / 89SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDesign and deploy processes to manage demand planning
for large promotion and events
obJEctIVEs
• Design a clear process to better define forecast for promotion and events, identify roles and responsibilities
• Improve communication among all various disciplines
• Implement demand planning and sales and operation planning process
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Forecast Accuracy (FA)
• Finished Goods Stock for Distribution (STK DS)
GooD pRActIcEs
Implicate all stakeholders in the demand planning process ◗ Integrate marketing promotion planning with the demand planning process ◗ Bring finance, sales, marketing, distribution and manufacturing into the demand planning process ◗ Give sales people the resources to develop forecasts and develop the use of confidence ratings to gauge the confidence
of their estimate ◗ Reward the accuracy of promotion planning ◗ Develop systems that allow sales people to refine the planning, thereby accelerating purchases that would otherwise delay
or impede on-time delivery
communicate on demand planning ◗ Build short-term demand planning on sales force activity, for example tracking the completed steps in the sales process for
a given month (contact made with key decision-makers, presentations made, proposals delivered, etc.) ◗ Prepare intermediate-term forecasts to guide sales, marketing, and resource-allocation planning ◗ Communicate Point of Sales (POS) data via weekly report in order to enable retailers to improve the accuracy of their
forecasting efforts
ALL
BC MC
Pernod Ricard / Cash Management / 90SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDesign and deploy processes
to manage stock and demand planning for new products or end of life products
obJEctIVEs
• Better manage inventories between new products and end of life products
• Implement demand planning and sales and operation planning process
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Number of backorders, stock outs and markdowns
• Forecast Accuracy (FA)
• Distribution of inventories between end of life, new and flagship products
• Finished Goods Stock for Distribution (STK DS)
• Days Inventory Cover for Distribution (DIC DS)
GooD pRActIcEs
Implicate all stakeholders in forecasting process ◗ Assess the impact of cultural differences on demand forecasting ◗ Bring finance, sales, marketing, distribution and manufacturing into the forecasting process ◗ Set up regular communication with the sales staff and suppliers ◗ Integrate if possible major customer within the new product development process
Use historical data to evaluate new products sales forecasts ◗ Calculate standard production cost by utilizing software that houses historical data to develop current trends
ALL
BC MC
Pernod Ricard / Cash Management / 91SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLconsider to recycle excess e.g. finished
products, point of sales (pos)
obJEctIVEs
• Find trade-off between cost of inventory for excess of products taking into account their sales forecasts and the possibility to reuse the excess of products
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Percentage of obsolete stock
• Distribution of inventories between end of life products, new products, flagship products, etc.
GooD pRActIcEs
obsolete and slow moving stock ◗ Determine the definition of obsolete / slow moving stock (e.g. inventory replaced by an alternative and rendered unusable
or diminished in value) ◗ Evaluate the amount of product which could be recycled ◗ Share data among all distribution sites ◗ Communicate about recycle processes ◗ Consider all the possible ways to reuse excess of products
ALL
BC MC
Pernod Ricard / Cash Management / 92SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLManage end of life / new / discount
products
obJEctIVEs
• Determine the best inventory distribution between end of life / new / discount products
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Distribution of inventories between end of life products, new products, flagship products, etc.
Illustration: evaluate cost of inventory vs sales amounts
Product groups
Sales amount by products
$ in
mill
ions
60
50
40
30
20
10
0
53.1 0.4 0.5 0.7 0.9 1.0 1.1 1.1 1.2 1.8
2.4 6.2
35.8
2006 C9 F1
Not Clas
sified C23
Flagsh
ip B1New F3
End o
f life M3 D2
2007
GooD pRActIcEs
Evaluate inventory distribution ◗ Determine the definition of obsolete / slow moving stock (e.g. inventory replaced by an alternative and rendered unusable
or diminished in value) ◗ Investigate value of obsolete / slow moving stock as percentage of total stock value per stock keeping unit ◗ Analyze the average differences and the outliers and determine the root causes ◗ Determine whether the outliers can be reduced ◗ Take appropriate action accordingly
C9 B1New
Flagsh
ipF1 E2 B2N/A K F3 F2
End o
f life C8
C23 C6 D2
10
0
2
4
6
8
120%
0%
40%
20%
60%
80%
100%
Cost of inventory by product
$ in
mill
ions
Cumulative
Cost of inventory by productSales amount by products
$Cumulative
ALL
BC MC
Pernod Ricard / Cash Management / 93SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLconsider the use
of a replenishment tool (finished products for Market companies)
obJEctIVEs
• Optimize turnover rate reducing stock levels and supply costs
• Implement demand planning
• Implement project CONNECT
ILLUstRAtIoN
Definition: Economic or optimum order Quantity
Order Quantity
‘Economic Order Quantity’ (EOQ)or ‘Optimum Order Quantity’
The order replenishment frequency depend on the orderreplenishment quantity
Carrying Cost
Total Cost
Order Cost
Cos
t
Time
Qua
ntity
inIn
vent
ory
ReorderPoint
EOQ
GooD pRActIcEs
Adjust demand forecasts using a replenishment tool ◗ Use historical data to automatically identify recurring demand ◗ Set up replenishment alerts based on historical data ◗ Measure automatically demand trend ◗ When needed, apply seasonal influence model to forecast demand ◗ Use automatic demand forecasts models
Define replenishment characteristics ◗ Measure automatically the variability of the demand, and use these data to weight the stock security level ◗ Define manually the delivery cycle within the tool ◗ Define automatically the ‘Optimum Order Quantity’ based on parameters provided by the supply chain department
(ordering cost, stock cost, etc.) ◗ Define automatically and by item the stock level ◗ Define service level with sales department and enter it manually in the tool
ALL
BC MC
Pernod Ricard / Cash Management / 94SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDeploy EDI
(electronic data interchange) and customer collaborative process
obJEctIVEs
• Optimize stocks distribution between Market Company (MC) stocks and Brand Company (BC) stocks
• Implement project CONNECT
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
Definition
• Electronic Data Interchange (EDI) can be formally defined as ‘the transfer of structured data, by agreed message standards, from one computer system to another without human intervention‘
kpIs
• Percentage of orders done via EDI
• Number of suppliers or customers using EDI
GooD pRActIcEs
consider the use of EDI with internal and external distributors ◗ Implement a supply chain software system able to coordinate all orders and inventory levels and which is able to alert
manager in case of danger of a stock shortage ◗ Improve order accuracy by using EDI ◗ Shorten ordering process eliminating conversion of work orders and manual control by coordinating and standardizing
orders
set up strong partnerships with internal and external distributors ◗ Create or improve partnerships between MC and BC for planning and replenishing inventory, focus the collective efforts to
optimize performance:• Share information and collaborate in planning• Maintain a data warehouse as a common source of information• Establish common business objectives and process rules• Use shared data for joint decision making• Set joint goals and performance targets
ALL
BC MC
Pernod Ricard / Cash Management / 95SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDefine stock security level
in distribution center to calculate replenishment
obJEctIVEs
• Manage stocks and avoid stock-out or over-stocks in Brand Company (BC) and Market Company (MC) warehouses
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
kpIs
• Days sales in inventory
• Safety stock and obsolete inventory as a percentage of cost of sales and of the inventory balance
• Finished Goods Stock for Distribution (STK DS)
• Days Inventory Cover for Export (DIC BO)
• Days Inventory Cover for Distribution (DIC DS)
Illustration: security stock Vs. level
GooD pRActIcEs
Evaluation of stock security levels ◗ Consolidate view on inventory data in order to obtain a clear view on consolidated security stock level ◗ Evaluate all costs related to stock management (fix costs, handling costs, taxes, etc.) ◗ Communicate with shareholders in order to understand their need and establish stock security level in order to satisfy
service level and reduce stock costs ◗ Evaluate the best alternative between having high level of security stock to ensure high service level and reducing inventory costs
Security stock vs service level
ALL
BC MC
Security Stock
Illustrationfor a small varianceof demand
99 98 97 96 95 94 93 92 91 90 80 70 60 50
35
30
25
20
15
10
5
0 % Service level
Qua
ntity
Pernod Ricard / Cash Management / 96SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLcoordinate large promotion orders
from retailer to Mc and bc
obJEctIVEs
• Facilitate communication between retailers, Market Company (MC) and Brand Company (BC)
• Offer clear visibility of customer demand throughout the supply chain
• Adjust production planning to promotion operations in a flexible way
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Delivery time (order > frozen period > delivery)
• Forecast Accuracy (FA)
• Days Inventory Cover for Distribution (DIC DS)
• Days Inventory Cover for Export (DIC BO)
• Finished Goods Stock for Distribution (STK DS)
GooD pRActIcEs
Define promotion planning ◗ Decide where best to package promotions (Market or Brand Company) ◗ Use customer demands to drive inventory promotion planning ◗ Use an order management system built upon the information available on raw material timing, production flow, work in
process and finished goods inventory levels – ensuring that orders will be filled on the date promised
Assess inventory on hand to manage promotion ◗ Set up the latest tracking technology to manage inventory while still in transit: allocate the inventory right en route ◗ The combined use of inventory tracking systems, advance planning systems, and communication tools enables companies to
direct inventory delivery from trucks, planes, or ships straight to the end consumer ◗ Managing and allocating inventory in transit reduces the number of days that inventory sits in a warehouse (commonly
referred to as "days of inventory") and shortens lead times to customers
communicate on promotion planning ◗ Establish both operational and ordering timetables, keeping up-to-date operations allows to update shipping date reports
to impacted departments (e.g. sales and marketing) ◗ Set job priorities to maximize limited resources ◗ Perform a supply base management practices
ALL
BC MC
Pernod Ricard / Cash Management / 97SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDevelop policies and procedures
for goods storage and handling
obJEctIVEs
• Define standard processes among all inventory sites
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
Definition
• Warehouse Management System (WMS): primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, put away and picking. The systems also direct and optimize stock put away based on real-time information about the status of bin utilization
kpIs
• Days sales in inventory
• Percentage of OTIF (number of orders delivered by Brand Company (BC) to Market Company (MC) in full on time / total number of orders)
GooD pRActIcEs
Warehouse process improvement ◗ Redesign the block layout to optimize the product flow involving all department concerned (engineering, IT, finance,
marketing, customer service, purchasing, manufacturing, and warehouse-operations) ◗ Apply ergonomic principles to fit warehouse design to different types of workers ◗ Use a WMS to best allocate warehouse resources ◗ Benchmark current warehouse operations to establish targets for improvement: how many times is a given item handled as
it moves? Are traffic patterns confused? How long does it take for an operator to store an item once it has been received? … ◗ Minimize materials-handling events at each stage of the warehousing process
Warehouse information management ◗ Form guidelines on how the warehouse layout should facilitate warehousing operations, what information support the
warehouse needs, and who will provide that support ◗ Seize every opportunity to practice virtual warehousing for just-in-time (JIT) delivery, for example direct delivery or cross-docking
slotting optimization ◗ Use optimal slotting logic to direct the put-away and picking of inventory and practice multiple-order picking (for example,
batch picking, cluster picking, or wave picking) ◗ Periodically review customer orders and inventory mix to adjust slotting priorities and be sure that the slotting logic
accurately reflects current order fulfillment priorities
Ensure that service level agreements with supply chain 3rd parties include such Good practices
ALL
BC MC
Pernod Ricard / Cash Management / 98SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLUse an inventory tracking process
obJEctIVEs
• Increase visibility on inventory, reduce non value-added inventory, prevent unnecessary reordering of materials and reduce obsolete stocks
DEFINItIoN & ILLUstRAtIoN
Definition
• Radio Frequency Identification Technology (RFID): technology that incorporates the use of electromagnetic or electrostatic coupling in the radio frequency (RF) portion of the electromagnetic spectrum to uniquely identify an object, animal, or person. RFID is coming into increasing use in industry as an alternative to the bar code
GooD pRActIcEs
consider the use of tracking technologies ◗ Consider the use of automated inventory data capture with radio frequency identification technology (RFID) ◗ Integrate inventory data from across the enterprise ◗ Consider the use manage-by-exception or event management systems to highlight unusual inventory activity ◗ Consider the use of bar coding and Radio Frequency technologies:
• Ensure scanners and barcodes, printers and WMS are compatible• Consider the use of Handheld Scanners, or Hands-free Scanners or Bar code readers
Ensure that service level agreements with supply chain 3rd parties include such Good practices
ALL
BC MC
Pernod Ricard / Cash Management / 99SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLperform regular cycle counts
obJEctIVEs
• Perform and optimize stock monitoring (physical checks and valuations)
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
kpIs
• Inventory turns by stock category
• Safety stock and obsolete inventory as a percentage of cost of sales and as a percentage of the inventory balance
• Stock value (by brand)
Illustration of Abc analysis
GooD pRActIcEs
perform regular Abc analysis (based on sales quantities) ◗ Classify inventory by quantity of sales: create A, B, and C categories of SKUs, in which the A category contains the fastest-
moving SKUs, the B items are medium movers, and the C category consists of the slowest-moving items ◗ Adopt management approaches that are appropriate for the value and turnover of the inventory and manage inventories
based on their impact on the company's operations: fast-moving A inventory, for example, can be carried in smaller quantities and replenished more frequently. And the slow-moving C items need not be cycle-counted as frequently as the A items
Differentiate cycle counts ◗ Perform cycle-count inventory by classification ◗ Identify and eliminate obsolete and low-value, slow-moving inventory on a regular basis
Ensure that service level agreements with supply chain 3rd parties include such Good practices
Review point of sale (pos) material in stock ◗ Implement a follow-up in inventory (at least in quantity, not necessarily in value) of the POS material
optimize duty paid stock ◗ For Market Companies, optimize the balance between duty free and duty paid stocks
ALL
BC MC
Group C Group B Group A
Cumulative percent of items
Cum
ulat
ive
perc
ent
usag
e
100 90 80 70 60 50 40 30 20 10
100
90
80
70
60
50
40
30
20
10
0
Illustration of ABC analysis
Pernod Ricard / Cash Management / 100SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLAssess package size
against customer demand
obJEctIVEs
• Optimize inventory management and reduce volume of low-margin finished products
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Number of SKUs
• Days Inventory Cover for Distribution (DIC DS)
• Days Inventory Cover for Export (DIC BO)
GooD pRActIcEs
optimize package size and/or items within warehouses ◗ (Periodically) review the average package size inventory of finished products versus average sales per product group ◗ Focus your review on what produces the most part of the contribution / benefit ◗ Determine which package size inventories are relatively high and /or low ◗ Take appropriate action, taking into account the risk of stock-outs ◗ Optimize number of finished products: optimize number of specifications to reduce stock items
ALL
BC MC
Pernod Ricard / Cash Management / 101SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLEvaluate stock costs versus
‘mass production’ savings
obJEctIVEs
• Balance inventory cost and service in optimum way
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Inventory level
• Frequency of production runs (i.e. average time between 2 runs)
GooD pRActIcEs
optimize replenishment ◗ Agree with each supplier the optimum order quantity for each raw material ◗ Make sure the Enterprise Resource Planning (ERP) system has the correct parameters (for calculating carrying / holding
cost and order cost) ◗ Use the optimum order quantity as a guideline for purchasing raw materials ◗ Use the optimum order quantity in combination with the optimum reorder point to maintain correct stock levels
optimize manufacturing process ◗ Increase the flexibility of the manufacturing process and ensure employees can easily switch between internal orders
ALL
BC MC
Pernod Ricard / Cash Management / 102SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDetermine optimal delivery
frequencies and quantities
obJEctIVEs
• Find balance between reducing number of deliveries and offering high flexibility to customer
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Average order cycle time (from customer order to delivery date)
• Number of customer complaints
• Injury rate (number of deliveries with damage / total number of deliveries)
GooD pRActIcEs
optimize truck loading ◗ Improve the coordination of warehouse staging and loading with transportation availability and performance ◗ Load trucks with multiple types of flows, for example flows for stocks and for cross-docks
optimize deliveries ◗ Use trailers with tie rings to separate loads destined for different customers ◗ Use translucent roof to enhance visibility and reduce injury rates and claims costs
ALL
BC MC
Pernod Ricard / Cash Management / 103SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLset-up a formal process
for goods returned
obJEctIVEs
• Optimize route to market costs
• Optimize returned goods process management
• Improve tracking of returned goods
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Number of goods returned
• Characteristics of goods returned (SKU, volume, cause of return, etc.)
GooD pRActIcEs
optimize deliveries ◗ Find a balance between reducing number of deliveries and offering high flexibility to customers
optimize returned goods process management ◗ Draw a flowchart of the current process for handling returns ◗ Analyze the chart and determine where it can / must be improved, to shorten and simplify the process ◗ If needed, adjust the process for handling returns ◗ Formalize the new process by communicating it internally (incl. clear roles and responsibilities) and externally ◗ Track specific reasons for deficiencies and classify them using a Pareto analysis ◗ Form action teams to root out the underlying reasons and address them in future shipments
ALL
BC MC
Pernod Ricard / Cash Management / 104SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLActively assess and sell off
obsolete / slow moving stock
obJEctIVEs
• Minimize the obsolete / slow moving stock
• Reduce the impact on your profit & loss account
• Optimize cash and its forecasting
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Obsolete stock as percentage of total stock (see example chart)
City 8
City 7
City 6 City 5 City 2 City 3 City 4 City 1
Obsolete stock as % of total stock
Stock value per factory
% o
f obs
olet
e st
ock
€ 900,000€ 650,000 € 400,000€150,000
35
30
25
20
15
10
5
0
GooD pRActIcEs
Assess obsolete / slow moving stock ◗ Investigate value of obsolete / slow moving stock as percentage of total stock value per stock category / stock keeping unit ◗ Determine the value of accruals for obsolescence and review the relevance with Supply Chain ◗ Challenge Supply Chain to review the action plan to recycle slow moving stock
consider recycling point of sales (pos) stocks with specialized 3rd party
Obsolete stock as % of total stock
ALL
BC MC
Pernod Ricard / Cash Management / 105SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLperform regular physical inventory counts
aligning physical count to records, supported by proper reconciliation procedures
obJEctIVEs
• Increase control on inventory
• Manage the impact on profit & loss account and working capital due to inventory differences
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Quantity and value of inventory differences (positive/negative)• per financial year and stock category (see example chart)• per warehouse or• per SKU
Val
ue
othersAgeingspirits Wine
Non agedwet goods
DryGoods
0
-10 000
-20 000
-30 000
-40 000
20102009
GooD pRActIcEs
physical inventory count procedure ◗ Ensure that a physical inventory count procedure exits and was communicated at every inventory managing entity ◗ Ensure that the procedure covers all stock categories (including Point of Sale material) and provides a methodology
regarding the count of each stock category ◗ Ensure that the physical inventory count procedure is conducted according to the local and international accounting
requirements ◗ Prepare and archive relevant documentation ◗ Analyze the average differences and the outliers (e.g. specific stock category) and determine the root causes
p&L impact and working capital ◗ Consider the impact on the profit & loss account as well as on your working capital ◗ Take appropriate action accordingly
Reconciliation of warehouse/inventory management and accounting ◗ Ensure that inventory differences are posted in your warehouse / inventory management as well as in accounting ◗ Resolve differences between warehouse / inventory management (quantity) and accounting (value = quantity * item price)
on a regular basis (e.g. monthly)
20102009
ALL
BC MC
Pernod Ricard / Cash Management / 106SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLDetermine the net realizable value
(NRV) of your inventory goods
obJEctIVEs
• Evaluate inventory goods from a market perspective
• Manage the impact on profit & loss account and working capital
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
Definition
• Net realizable value (NRV) is defined as the expected selling price in the ordinary course of business minus the cost necessary for completion and disposal
kpI
• Comparison of the NRV with your cost of sales (COS)
GooD pRActIcEs
◗ Ensure not to over- or understate the value of your inventory goods ◗ Compare the NRV of your inventory goods with its COS to determine if there is a need for a write-off ◗ Align this approach with other depreciation methods such as slow moving and obsolete stock
ALL
BC MC
Pernod Ricard / Cash Management / 107SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLcompare actual versus target Days
Inventory on-hand (DIo)
obJEctIVEs
• Optimize inventory level per inventory category
• Monitor the DIO trend to ensure the target will be reached
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Development of inventories per inventory category vs. DIO
EUR
mill
ion
days
BUDLE
Oct
11
BUD D
ec 1
1
Sep
11
Aug 1
1
Jun 1
1
May
11
Apr 1
1
Mar
11
Feb
11
Jan 1
1
Dec 1
0
Nov
10
Oct
10
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
0
Inventory vs. DIO
Trade goods - non group
Trade goods - group
Finished goods
Other inventories
Non aged wet goods
Dry goods
GooD pRActIcEs
cash Dashboard implementation ◗ Issue the Cash Dashboard for each reporting period ◗ Compare the actual versus the target DIO ◗ Analyze the average differences and the outliers (e.g. specific stock category) and determine the root causes ◗ Analyze the breakdown of stock categories ◗ Consider the impact of slow moving / obsolete stock on your profit & loss account as well as on working capital ◗ Take appropriate action accordingly
Inventory vs. DIO
ALL
BC MC
Trade goods - non group Trade goods - group Finished goodsOther inventoriesNon aged wet goodsDry goods
Pernod Ricard / Cash Management / 108SUPPLy ChAIN FINANCE
Maintain stock master dataManage BC forecast & planningManage MC forecast & planningManage orders from MC to BCManage goods in storageManage productionManage distribution & returnsManage inventory & period end closing
FORECAST TO FULFILLcalculate and monitor inventory
carrying / holding costs
obJEctIVEs
• Optimize holdings costs of each stock category
• Manage safety stock level vs. its holding costs
• Improve cash flow and cash forecasting
kEY pERFoRMANcE INDIcAtoRs OR ANALYSIS
• Inventory balance per stock category, product groups
• Cost of goods sold (GOGS) vs. inventory carrying costs per material (see example chart)
Day
s
Materia
l 1
Materia
l 2
Materia
l 3
Materia
l 4
Materia
l 5
Materia
l 6
Materia
l 7
Materia
l 8
Materia
l 9
Materia
l 10
700
600
500
400
300
200
100
0
CoGSActual inventory carrying costsTarget inventory carrying costs (25% of CoGS)
GooD pRActIcEs
carrying / holding costs (excluding maturing inventories) ◗ Periodically make an inventory carrying cost analysis; make a classification of material / product groups ◗ Determine which products have relatively high inventory carrying costs ◗ Take appropriate action when needed to decrease (safety) inventory levels for specific product groups ◗ Communicate inventory carrying cost per material / product group to create internal awareness
COGS versus inventory carrying costs per material
COGSActual inventory carrying costsTarget inventory carrying costs (25% of COGS)
ALL
BC MC
Martell
TREASURY opEraTionsCash optimization and the best utilization of working capital that considers the impact of the cycles on Purchase to Pay, Order to Cash, Forecast to Fulfill, plus a strong centralized treasury process that facilitates debt minimization
Toolkit
split
by
Function
Toolkit
split
by
Cycle
TREASURY OPERATIONS
Pernod Ricard / Cash Management / 112
Enabling proCEssEs
orderto Cash
Treasury operations
purchaseto pay
Forecast to Fulfill
Finance• Liquidity management• Intercompany financing• 4 week cash forecasting• Cash-in / cash out forecasting• Banking• Netting• Foreign Exchange
ToolkiTs by
FunCTion
sales
Finance
purchasingMarketing
supply Chain
Treasury operations• Liquidity management• Intercompany financing• 4 week cash forecasting• Cash-in / cash out forecasting• Banking• Netting• Foreign Exchange
TREASURY OPERATIONSTable of contents
Pernod Ricard / Cash Management / 113
Liquidity management
• Concentrate cash with Corporate Treasury as soon as possible
• Calculate a global cash position on a daily basis
• Leverage the cash forecasting to determine cash shortage or surplus
Intercompany financing
• No external borrowing facilities are to be established without approval from Corporate Treasury
• Entities should investigate how to integrate the group financing process (cash pool, treasury convention, etc.)
4 week cash forecasting
• Improving short-term cash forecasting accuracy
• 4 week cash forecasting development
Cash-in / cash-out forecasting
• Perform Cash-in / cash-out forecasting according to the model
Banking
• Bank only with the core financing banks for cash management purposes
• Minimize the number of bank accounts and banking relationships(Contact Corporate Treasury whenever considering a new banking relationship)
• Utilize Zero Balance Accounts for all collection and disbursement accounts
• Segregate cash management activities from accounting
Netting
• Entities not using the netting system should research if they can legally participate
• Utilize the netting system to offset all intercompany agreed balances every month
FX risk management of external and intercompany exposures
• No FX hedges are to be performed by an entity without specific authorization from Corporate Treasury
• Non-functional currency invoices above €350k (outside of netting system) should be communicated to Corporate Treasury on an immediate basis via e-Treasury
• Compare budget vs. actual at budgeted FX rates using Prisma to understand the full impact of FX fluctuations
• Brand Companies should invoice within the group in distributor’s currency, where possible
• Distributors should invoice in their local currency, where possible
Pernod Ricard / Cash Management / 114
Liquidity managementIntercompany fi nancing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONSliquidity management
obJECTiVEs
• PR liquidity objectives are to:• Maintain sufficient liquidity and available funds to meet ongoing daily cash needs• Minimize financial costs by pooling the cash, controlling float time and limiting payment costs• Minimize the expense on borrowed funds• Ensure availability of funds and minimize risk on short term investments, where applicable
kEy pErForManCE inDiCaTors OR ANALYSIS
• Frequency of overdraft for local subsidiaries (Brand and Market Companies)
• Quarterly average local overdraft / cash balances
• Average balance of overnight investments sweeps, interest earned
gooD praCTiCEs
Daily liquidity management ◗ Calculate a global cash position on a daily basis ◗ Leverage the cash forecasting to determine cash shortage or surplus and borrow / invest from Corporate Treasury accordingly ◗ Establish Zero Balance Account (ZBA) feature on all collection and payment accounts, where possible ◗ Establish target balances for accounts where ZBA is not possible ◗ Analyze historical cash flows annually to determine minimum monthly balance requirements for each account. If a balance
never drops below a certain amount that amount is likely to be excess cash and should be moved to the cash pool or upstreamed
Cash concentration ◗ Borrow and invest funds with Corporate Treasury wherever possible as that will result in maximum interest savings on debt
for the group overall ◗ Enroll in the automated or non-automated treasury convention
• If automatic cash pooling is not possible, participate manually in cash concentration (treasury convention if possible) – See next page. Review liquidity position at least weekly to identify excess funds to send to PR Finance• If cash convention is not available, contact Corporate Treasury for guidance and other relevant departments if needed
◗ Identify appropriate investment funds for cash sweeps and establish an overnight sweep on all concentration accounts where automatic cash pooling is not possible. Contact Corporate Treasury on advice regarding cash investment options
Excess Cash Balance
Cash Balance
Target Balance
31 Jan24 Jan17 Jan13 Jan3 Jan
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Excess Cash Balance
Pernod Ricard / Cash Management / 115
Liquidity managementIntercompany fi nancing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONSintercompany fi nancing
obJECTiVEs
• Corporate Treasury provides affiliates with intercompany funding and to help affiliates:• Simplify the process around receiving financing and reducing borrowing costs• Avoid FX and interest rate exposure
kEy pErForManCE inDiCaTors OR ANALYSIS
• Frequency of overdraft positions in local subsidiaries (Brand and Market Companies)
• Quarterly average local overdraft / cash balances
gooD praCTiCEs
Funding rules ◗ Affiliates participating in the cash pool will automatically be funded for any cash shortage ◗ Companies not in the cash pool or part of the treasury convention should request all funding from Corporate Treasury in
the form of intercompany loans ◗ No external borrowing facilities are to be established without approval from Corporate Treasury. Corporate Treasury will
oversee issuance of all external debt and manage interest rate risk on a corporate level
Enroll in intercompany funding ◗ Entities that are not part of the cash pool or treasury convention should research if they can participate in the
intercompany loan process ◗ Contact Corporate Treasury directly to establish intercompany loan agreements
request funding ◗ Utilize e-Treasury as a mean to request funds (72 hours before) ◗ Funds should be requested three days in advance to ensure availability
Pernod Ricard / Cash Management / 116
Liquidity managementIntercompany fi nancing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONS4 week cash forecasting
obJECTiVEs
• PR forecasting objectives are to establish and maintain accurate cash forecasting processes in order to:• Provide information for business decision making on capital and operational expenses• Minimize the level of excess cash while maintaining liquidity• Maximize the pay down of external debt and reduce interest expense (the best use of PR group cash)
kEy pErForManCE inDiCaTors OR ANALYSIS
• % large receipts / disbursements missed in the forecasting process
• Cash forecasted vs. actual for each reporting unit: number of months within 20% variance range and improving
• Timeliness of forecasting completion with a target of 90% on time for a given business unit per year, and 100% at month and year end
gooD praCTiCEs
improve short-term cash forecasting accuracy ◗ Roll out a “cash culture” management initiative which would include policies and principles surrounding timeliness and
accuracy of business unit forecasts ◗ Where there are exceptions to principles and policies (e.g. a last minute funding need or need to hold excess cash),
mandate notification of the CFO ◗ Perform monthly variance analysis of actual vs. forecast and research causes to fine tune the forecasting process, focusing
first on big items ◗ Compile historical cash flow result in a single spreadsheet or database and analyze these results to identify cash flow
patterns such as monthly seasonality, weekly customer payment trends, daily customer payment trends, etc.
short-term cash forecasting development ◗ Develop a detailed and rolling operational 4 week cash forecasting model in order to provide guidance in short-term
investing and borrowing decisions ◗ Utilize a Cash In – Cash Out methodology for cash forecasting and report the forecasts to Corporate Treasury based on
implemented Treasury guidelines e.g. LE2, LE4 ◗ Provide Corporate Treasury with the amount of excess cash that will be sent for investment or any foreseen cash shortage ◗ Inform Corporate Treasury of any significant changes to your cash forecast as soon as they become known
Pernod Ricard / Cash Management / 117
Liquidity managementIntercompany fi nancing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONS
Cash-in / cash-out (Ci-Co) forecasting
obJECTiVEs
• Improve accuracy of net debt forecast at group and entity level at closing dates (30th June and 31st December)
• Complement the existing forecast using the Free Cash Flow model
kEy pErForManCE inDiCaTors OR ANALYSIS
• Variance between net debt level as forecasted by the CI-CO model and actual net debt at closing dates (see example report)
gooD praCTiCEs
Define and approve Ci-Co model assumptions ◗ Define the model assumptions and ensure that relevant stakeholders agree to those assumptions ◗ Approve and document the final model assumptions
Ensure reliability of input data ◗ Analyze your input data on a regular basis for e.g. completeness, accuracy ◗ Conduct primary data improvement projects if the analysis has shown a need to take action
automate Ci-Co forecasting ◗ Minimize the level of manual input or adjustments ◗ Calculate / derive material items of the CI-CO forecast directly in your Enterprise Resource Planning (ERP) system
(requires a high level of system integration)
Forecasting frequency ◗ Consider increasing the forecasting frequency to stimulate positive effects according to the learning curve
GBP’m Jul-10 Aug-10 Total
OperatingOperating cash receipts - - - Other operating cash receipts - - -
Total operating cash receipts - - -
Goods, raw materials & other operating purchases - - - Payroll - - - Other taxes (net balance) - - - Corporate taxes (net balance) - - - Other operating cash payments - - -
Total operating cash payments - - -Total operating - - -
InvestingInvesting cash receipts - - - Dividends & other receipts from investments - - -
Total investing cash receipts - - -
Investing cash payments - - - Dividends paid & other payments from investments - - -
Total investing cash payments - - -Total investing - - -
FinancingInterest received - - -
Total cash receipts - - -
Interest paid - - -
Total cash payments - - -Total - - -
Opening net indebtness balance - - - Net CF - - - Closing net indebtness balance - - -
TESTING ENTITY; 2M direct CF forecast
Pernod Ricard / Cash Management / 118
Liquidity managementIntercompany fi nancing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONSbanking
obJECTiVEs
• PR banking objectives are to support affiliates payment and liquidity needs through:• Sourcing appropriate banking services• Maintaining strong controls and security of cash movements• Minimizing banking fees
kEy pErForManCE inDiCaTors OR ANALYSIS
• Balances in each bank account
• Unit price for each banking service as compared to third party benchmarks
• Variance between actual fees in bank statements vs. banking agreement
• Total banking fees by service type
gooD praCTiCEs
Establishing a bank account structure ◗ Utilize only the core financing banks for cash management purposes where possible ◗ Minimize the number of bank accounts and reduce banking relationships to preferred banks where possible ◗ Collect third party receipts through the use of the best local available channels and automated wherever applicable ◗ Utilize Zero Balance Accounts (ZBA) for all accounts where possible (automatic transfer to a concentration account)
bank monitoring ◗ Perform quarterly review of banking fees for accuracy and appropriateness of services and discontinue unnecessary
services ◗ Negotiate favorable banking fees and other conditions on a regular basis ◗ Close any dormant bank accounts
Establish controls over cash ◗ Follow Corporate Treasury guidelines for opening, closing, and modifying bank accounts ◗ Segregate cash management activities from accounting ◗ Track compliance with the cash bible, assess performance and inform appropriate personnel of cash management activity
Actual Banking fees
Bank Fees and Industry Average
Val
ue
HSBC SociétéGénérale
CréditLyonnais
80000
60000
40000
20000
0
Banking fees compared to industry average
Banking fees compared to industry average
Actual Banking feesBank Fees and Industry Average
Pernod Ricard / Cash Management / 119
Liquidity managementIntercompany fi nancing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONSnetting
obJECTiVEs
• Corporate Treasury provides affiliates with netting of intercompany payments to help affiliates:• Simplify the settlement of intercompany trade between Brand Companies (BC) and Market Companies (MC) and reduce payment fees• Hedge intercompany FX exposure to reduce risk
kEy pErForManCE inDiCaTors OR ANALYSIS
• % of intercompany invoices settled through netting vs. direct payments
• Number of adjustments between initial and final netting amounts
I/C invoices settled via netting
71% settled via netting
Directly settled I/C invoices
Usage of Netting System
June 2010
150
100
50
33
79
EUR
mill
ion
gooD praCTiCEs
Enroll in netting ◗ Entities not using the netting system should research if they are legally allowed to participate ◗ Entities enrolled in the netting should utilize the netting process to hedge FX exposure on intercompany receipts and
payables
Monthly netting practices ◗ Utilize the netting system to offset all intercompany agreed balances every month ◗ At the beginning of every month, run a report to determine all the invoices to be included in the netting this month, enter
the total by entity into the netting system and provide the report to Market Companies
Ensure netting is accurate ◗ Market Companies should reconcile the detailed report provided at the beginning of the netting period against their purchases
if an entity cannot use the netting system ◗ Entities not using the netting system should nevertheless ensure that intercompany payments are made on terms that are
consistent with the terms that would have been applied if the entity was participating in the netting system
Usage of Netting System
Pernod Ricard / Cash Management / 120
Liquidity managementIntercompany financing4 week cash forecastingCash-in / cash-out forecastingBankingNettingForeign Exchange
TREASURY OPERATIONSFX risk management of external
and intercompany exposures
obJECTiVEs
• Manage identified currency exposures and risks to minimize the effects of foreign currency fluctuations on the company’s financial results
• Centralize foreign currency exposures at Brand Company level through invoicing in distributor local currency
• Ensure derivative execution is managed centrally in a well controlled and cost efficient manner
kEy pErForManCE inDiCaTors OR ANALYSIS
• FX results on current operations (see example chart)
• Summary of hedging results - FX transaction exposure by type against outstanding FX hedges by currency
gooD praCTiCEs
governance / risk centralization / invoice currency ◗ Ensure the entity manages FX risk in the framework of the group Foreign Currency Policy ◗ Ensure the entity has a process in place to report and reconcile FX gains and losses every period ◗ Brand Companies should invoice within the group in distributor’s currency, except when this is not possible ◗ Distributors should invoice in their local currency, except when this is not possible ◗ Corporate Treasury should be consulted on any currency invoicing decision that may result in billing in a non-functional
currency
Trade management / FX risk management practices ◗ The treasury management system is used to track, report and value all derivative transactions ◗ Non-functional currency invoices above €350k that are outside of the netting system should be communicated
to Corporate Treasury on an immediate basis via e-Treasury ◗ All requests via e-Treasury require affiliate management approval; all requested fields should be completed including
notional amount, currency and value date ◗ All FX hedge transactions will be executed by Corporate Treasury (any exceptions must be approved by Corporate Treasury)
FX accounting and reporting ◗ A monthly report is prepared by Corporate Treasury and circulated that includes details on underlying exposure data
by currency and exposure type, net exposure position, outstanding derivatives and policy compliance
FX result on current operations EU
R m
illio
n
FY09 Q4/09 Q3/09 Q2/09 Q1/09
150
100
50
0
-50
15%
20%
10%
5%
0%
FX resultNet income%
FX result on current operations
FX resultNet income%
Pernod Ricard / Cash Management / 124
OTHERSConsider other elements
such as taxes or other assets
OBJECTIVES
• Periodically review asset base to identify cash improvement opportunities
• Periodically monitor cash improvement opportunities in tax
KEY PERFORMANCE INDICATORS OR ANALYSIS
• Periodic analysis and estimation of cash tax (CIT) through the tax reporting process
GOOD PRACTICES
Assets ◗ Review purchase / lease / hire decisions ◗ Identify non-core assets for disposal ◗ Review authorization controls
TaxAffiliate: ◗ Review direct and indirect tax payments to identify refunds and cash deferral opportunities (e.g. management of CIT
advance payment, etc.) ◗ Reduce timing to processing Value Added Tax (VAT) inputs ◗ In conjunction with the region / holding, review and optimize the tax basis considering the legal and tax requirements (e.g.
tax amortization, etc.) ◗ In the event of a tax reassessment, analyze (in conjunction with the region / holding) the timing benefit of making an appeal
compared to the interest / penalties of doing so ◗ To the extent it is possible and entails no additional risk, negotiate with authorities to optimize duties and rates
Region / Holding: ◗ In projects (and/or restructuring opportunities), the cash tax impact and timing should be part of the memo for approval
Pernod Ricard / Cash Management / 128
PRoCESS DESCRIPTIoN
Affi
liate
PR F
inan
ce
Consultation with PR Finance
ApprovalReceipt
of Request
Reference Documents
PR Finance determines which affiliates are to participate in the cash pool.Affiliates and PR Finance will determine availability of cash pooling service in country of operation. Affiliates will also consult legal and tax departments to ensure compliance with laws and regulations.PR Finance will obtain Treasurer’s approval for entity’s participation in the cash pool if all the legal guidelines are met.If legal guidelines are not met, refer to the other intra group funding procedures included in the following pages.Affiliates will need to complete the following documentation:• Letter adhesion to the cash pooling convention (Société Générale document)• Legal opinion if need be• Letter adhesion to the intra group contract for automated treasury centralization• Document needed to open a local bank account at Société GénéraleAffiliates will open a cash pool account linked with the pool scheme.PR Finance receives confirmation of account opening and acknowledgment of authorized signatures. They verify confirmation and records of account number (update of static data in the treasury system).Affiliates should designate relevant dedicated person.
• Intra-group contract for automated treasury centralisation
• Société Générale convention
APPENDIXAdmission into the Société Générale
Cash Pool in Euro
Preparation of documents
Execution Confirmation
Pernod Ricard / Cash Management / 129
PRoCESS DESCRIPTIoN
Affi
liate
PR F
inan
ce
xxx xxx xxx
xxx
xxx
MonthlyDaily by 12:00 CETDaily by 10:30 CET
Withdraw excess funds and fund shortages
Reporting Accounting
Reference Documents
Affiliates will provide PR Finance local collection / disbursement activity and cash levels on a daily basis by 10:30 Paris time. (via e-treasury).PR Finance will review the daily cash position and cash pool accounts provided by the affiliates. They will also determine cash available for affiliates in the cash pool.Identify net surplus or deficit and transfer it to the local Société Générale account.All surplus or deficits are zero balanced automaticallyLoans or deposits to affiliates outside the automated centralization system shall be decided on a case-by-case basis.PR Finance prepares reports for affiliates with intercompany loans and deposit balances, transactions and interest on the first banking day of the month. (directly available in e-treasury)Affiliates verify balances and interest and post Journal Entries of PR Finance and review reports.
• E-treasury report (bank statement)
APPENDIXProcedure to operate
the cash pool process (automatic)
Daily reporting of cash position
Review daily cash position & cash pool accounts
Pernod Ricard / Cash Management / 130
PRoCESS DESCRIPTIoN
Affi
liate
PR F
inan
ce
Expiry Date3 days before expiryMonth endValue Date2 Days in advance3 Days in advance
Accounting
ReportsAccounting
SettlementRoll over
notification
Loans and borrowing notification
Reference Documents
Affiliates will provide PR Finance with planned loans and deposit three business days in advance via e-Treasury.After validation by PR Finance, a confirmation is sent to the affiliate, providing: rate and interests to be paid at maturity.If affiliates have a cash surplus they will need to wire money to PR Finance at the agreed date and execute the wire in consideration of their local cut off.If affiliates have a shortage of funds, PR Finance will fund their account in consideration of the currency cut-off.PR Finance prepares reports for affiliates with intercompany loans, and (accrued) interest as from the first day of the transaction.Reports are available on e-Treasury (eT_Expiry).Affiliates should post journal entries.Affiliates should notify PR Finance 3 days before the maturity date, whether they roll the transaction and input the corresponding request in e-Treasury if need be.If affiliates have a payable they will need to pay back principal + interests to PR Finance at the expiry date and execute the wire in consideration of their local cut off.If affiliates have a receivable, PR Finance will their cash increased by the interests on their account in consideration of the currency cut-off.
• Intra-group contract for non-automated treasury c entralization
• eT_Expiry
• Deal confirmation
APPENDIXProcedure to operate
the non-automated treasury convention
Withdraw excessfunds and fund
shortages
Loans and borrowing notification
Pernod Ricard / Cash Management / 131
PRoCESS DESCRIPTIoN
Affi
liate
PR F
inan
ce
Reference Documents
Calculate net position
Accounting
Execute payment
Consolidate forecast
For each monthly period (“M”), each Subsidiary will enter projected intercompany invoices into e-Treasury no later than the fifth business day of each month M+1 (the “Forecast Netting Period”).Each entity should reconcile the netting report against their purchases (eT_Fcst Netting).PR Finance will use the projection to calculate all expected positions and enter into appropriate foreign exchange transactions on the market.On the first business day following the Forecast Netting Period, PR Finance shall notify each Subsidiary of the applicable conversion rate (based on the market rate) which will be deemed final for the Subsidiary. PR Finance shall be solely responsible for any subsequent variations of any conversion rates.Between the 6th business day and the 11th [business] day of the month M+1 (the “Final Netting Period”) each Subsidiary will enter the details of the actual intercompany invoices into e-Treasury.A Subsidiary may be allowed to exclude certain bills within a maximum period of 24 hours following this notification.PR Finance will deal all the relevant FX transactions with each subsidiary.PR Finance will calculate the final and net positions.On or prior to the first business day following the Final Netting Period, PR Finance shall notify each Subsidiary of the final and net positions to be paid.Report available on e-Treasury (eT_Etat de paiement final).Affiliates should post journal entries for both foreign invoices and hedging FX Forward dealt with PR Finance. Reports with FX Forward valuation available on e-Treasury (eT_Valuation IAS).Affiliates or PR Finance will execute a payment of the net amount on the date provided by PR Finance. This date will fall within the last ten business days of month M+2 (the “Payment Date”).
Notes:
• All days figures are business days, not calendar dates
• Invoicing occur during Month M
• In case of disputes between Subsidiaries on the amount of the invoice, subsidiaries are to resolve those disputes directly with each other
• Netting agreement
• Intra-group netting procedure document
• eT_Fcst netting
• eT_Etat de paiement final
• eT_Valuation IAS
APPENDIXProcedure to operate
the netting system
M+2 Day 15-30M+1 Day 12M+1 Day 6-11M+1 Day 6M+1 Day 1-5
Submit IC forecast
Reconcile Invoices
Provide FX conversion rate
to affiliates
Input invoices into
e-Treasury
Provide netposition to
affiliate
Pernod Ricard / Cash Management / 132
PRoCESS DESCRIPTIoN
Program Initiation
Notify Affiliates of terms
Sign contractObtain Insurance Policy if applicable
Apply to Bank for funding
Provide Funding Approval
PR Finance applies for terms and credit limits related to the factoring program. In addition, they determine the limits at Group and Affiliate level.CA CIB or BNPPF provide all credit terms, contractual limits, rules to participate, and customers who can participate with the corresponding customer credit limit that can be purchased.PR Finance and CA CIB / BNPPF notify Affiliates of their ability to participate, with contract, customer list and credit limits, fees, etc.Affiliate participates in the customization of the agreement through different areas:• Customer’s perimeter• Contract negotiation• IT implementation …Group broker negotiates credit insurance scopeAffiliate signs and returns a copy of the contract to PR Finance and CA CIB / BNPPFAffiliate obtains insurance policy where applicable and provides a copy to CA CIB / BNPPF.
PR F
inan
ceBa
nk
Notes:
• CA CIB securization program
• BNP Paribas Factor The decision to enter the securitization and factoring programs requires the approval of Corporate Treasury
Reference Documents
• Sample copy of the securitization and factoring agreement
• Sample of insurance policy agreement
APPENDIXProcedure to sell receivables
within the CA CIB• securitization and BNPPF• factoring programs
Affi
liate Program
Pre-assessmentand evaluation
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PRoCESS DESCRIPTIoN
Affi
liate
Reference Documents
AccountingFunding and reconciliationInvoices submission
Update A/R ledger, sign documents
Accountingand file
Determine Open to Buy
Weekly or monthly (depending on affiliate), the Affiliate prepares the detailed open A/R report for customers who participate in the program. The affiliate should estimate the buy position, fees, dilution and guarantee in order to determine the forecasted cash receipts and charges.The Affiliate provides to CA CIB offer notice or BNPPF subrogation notice and the servicer report summarizing:1. Total invoices / credit memos2. Payment to CA CIB / BNPPF3. Estimated dilution amountCA CIB / BNPPF receive the report and determine the “buy” position. The bank also calculates all fees, etc., then returns the file electronically to the Affiliate. Included are:1. Buy position2. Guarantee fee3. Dilution4. Excess / Shortfall (in case of a gap between theoretical collection and the next payment)The Affiliate receives the file and reconciles the buy position, fees, and shortfall/excess.The accounts receivable ledger is updated for purchased items by customer and invoice.Accounting receives a copy of all reports to record the transactions in the General Ledger and a copy is maintained for records.A signed copy of the offer notice, part of the contractual agreement, is sent to CA CIB / BNPPF (original format and email).
Bank
Notes:
• CA CIB securization program
• BNP Paribas Factor• Open A/R report
• CA CIB offer notice or BNPPF subrogation notice
• Servicer report
• Bank buy report and summary
APPENDIXProcedure to sell receivables
within the CA CIB• securitization and BNPPF• factoring programs
Prepare / Estimate / Send weekly report of open
A/R items
Reconcile Buy Report and charges
Contractual monthly signed original
documents
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PRoCESS DESCRIPTIoN
Affi
liate Post cash receipts
from customersReconcile daily payment
New updated balance resets the previous one and post subrogation cash receipts determine the total outstanding receivables to be financedAutomatic transfer of cash from collection account (zero balance account) to banksManual transfer of cash from the affiliate bank account to banks.Reconcile the daily cash receipts to the daily payments and the report sent to CA CIB / BNPPF on a weekly (or monthly basis).
Notes:
• CA CIB securization program
• BNP Paribas Factor
APPENDIXProcedure to sell receivables
within the CA CIB• securitization and BNPPF• factoring programs
Daily
Automatic transferof cash from collection
account to banks
Manual transfer of cash from the affiliate
bank account
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PRoCESS DESCRIPTIoN
Reference Documents
Affi
liate
PR F
inan
ce
Analysis of FX exposure
Submit request by e-mail / phone / fax
Price request (i.e FX rate)
Accounting
Submit request in e-Treasury•
Affiliates analyze their FX exposure.Affiliates submit their request via e-Treasury.All requested fields should be completed including notional amount, currency and value date.In case affiliates are not connected to e-Treasury they submit their request via e-mail, phone or fax providing all necessary information including notional amount, currency and value date.PR Finance prices the hedge request (i.e. FX rate)For all trades over a certain threshold PR Finance will ensure a competitive bid.PR Finance executes the transactions.All FX hedge transactions will be executed with PR Finance (or approved counterparties if legally obliged to do so). No hedging is to be performed by individual affiliates without specific authorization from PR Finance.Deal validation by PR Finance.PR Finance provides affiliates with supporting accounting information of completed trades in a timely manner
• Deal confirmation
• eT_IAS Valuation
Notes:
• if affiliate is connected to e-Treasury
APPENDIXoperational procedure
for hedge requests
Execute transactionsand validate the deal
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Core banks are:
• Global banks eager to cover all local and corporate needs
• Banks to which a firm commitment has been provided to reward their participation through access to local affiliates cash management, local funding, foreign currency exchange and other side businesses
6 bookrunners with a final hold close to EUR 1000 million
• BNP Paribas, CA CIB, JP Morgan, Natixis, Royal Bank of Scotland, Société Générale
4 banks at EUR 500 million
• Bank of Tokyo Mitsubishi, CIC, SEB, Svenska Handelsbanken
8 banks between EUR 300 and 450 million
• EUR 450 million: ING
• EUR 400 million: Bank of Ireland, Deutsche Bank
• EUR 350 million: Santander
• EUR 300 million: Barclays, BBVA, HSBC, Rabobank
9 banks below EUR 200 million
• EUR 200 million: Bayern LB
• EUR 150 million: Intesa San Paolo, Mediobanca, Mizuho
• EUR 100 million: Scotiabank
• EUR 60 million: Bank of America
• EUR 50 million: Banesto
• EUR 40 million: Caya Madrid
• EUR 25 million: Westpac
Replacement of non participating banks to be organised as soon as practically feasible (e.g. Citi, Fortis, Unicredito, Commerzbank…)
Syndicated creditS: LIST oF CoRE BANkS