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Supply chain finance models Part 1: bank-agnostic models, bank-funded and managed approaches

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So maybe you are efficient in your invoice handling process. What should you do next? GlaxoSmithKline has rolled out a global supply chain finance program with a global financial institution after successfully implementing e-invoicing programs in the US and UK.

In this session, Sean McDermott reveals how to:

- Fix your standard payment terms at 60 days or more whilst keeping suppliers happy
- Improve suppliers’ cash flow and help your working capital position even if you are in a slow-payer market
- Implement your supply chain finance program on a global scale

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Supply chain finance models Part 1: bank-agnostic models, bank-funded and managed approaches

  1. 1. Supply Chain Financing – Bank FundedSolutionStephen Kunz– Director of Corporate Finance, Working Capital LeadStephen.Kunz@gsk.comSean McDermott – Manager, North America Accounts Payable CBSSean.J.McDermott@gsk.com
  2. 2. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  3. 3. GlaxoSmithKline Mission
  4. 4. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  5. 5. Strategic priorities Our business is focused around the delivery of five strategic priorities, which aim to increase growth, reduce risk and improve our long term financial performance
  6. 6. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  7. 7. GSK Structure Working Capital Team CBS Finance HR Procure -ment Real IT Estate R North Europe Asia E G America Pacific I O N A L Business Service Centers G L O B A Business Process L Outsourcing
  8. 8. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  9. 9. Cash Cycle Performance - External View
  10. 10. Progress Versus Benchmarks - Ranked by 2010 Performance Days Inventory Outstanding Days Sales Outstanding Days Payable Outstanding Unilever 62 Unilever 31 Bristol Myers 55 Bristol Myers 92 Novo Nordisk 47 Unilever 47 AstraZeneca 98 Eli-Lilly 54 Sanofi 46 GSK 2011 43 Bayer 120 Merck-SGP 55 GSK 2011 Novartis 42 61 Roche 146 Bristol Myers 62 AstraZeneca 37 Novartis 161 161 AstraZeneca 66 Pfizer-Wyeth 37 Sanofi 186 Bayer 66 Bayer 36 GSK 2011 GSK 2010 190 Novartis 66 GSK 2010 29 192 GSK 2009 201 GSK 2010 66 GSK 2009 26 GSK 2008 203 Sanofi 67 Merck-SGP 26 Eli-Lilly 224 GSK 2009 70 Novo Nordisk 24 Merck-SGP 232 GSK 2008 75 Eli-Lilly 23 Pfizer-Wyeth 243 Roche 76 GSK 2008 21 Novo Nordisk 308 Pfizer-Wyeth 79 Roche 132010 Data from published reports and Citigroup Investment Research and Analysis 10
  11. 11. Evolution of Working Capital Efficiency 2008 – 2011 Dec-2008 Dec-2009 Dec-2010 Dec-2011 DSO 75 70 66 61 DPO 21 26 35 43 DIO 203 200 190 192 Total CCC 257 224 221 210 WCAP 34% 27% 23% 21% % of Sales
  12. 12. 2011 FY Investor / Analyst Results Presentation
  13. 13. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  14. 14. GSK - DPO Journey to Best in Class  Key Activities: DPO – Centralized Working Capital Team 50 –Procurement 45 –Finance 40 – Standard Terms 35 – Payment from Receipt of Invoice 30 – Contract Terms to Spend Actual 25 DPO – Supplier Rationalization 20 – Supply Chain Finance Program 15 10 5 0 2009 2010 2011
  15. 15. Keeping Your Business Partners Happy • Terms and Conditions.Communication • Payables Process. Streamlined • Efficient receipt and processing of Payables invoices. Operations • Supplier visibility of payment process. Multiple • Supply Chain Financing • Discounting Programs Solutions • Procurement Card Spend
  16. 16. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  17. 17. Supply Chain Financing - Bank Model Process E-Invoicing Portal Invoice Invoice Receipt and Submission Approval Supplier decides to accelerate payment and paid Invoice Data by bank Sent to BankSUPPLIERS Payment is made to bank based on suppliers terms. 17
  18. 18. Program Implementation • Internal Champions • Identify suppliers • Communicate Benefits: • Accelerate DSO Supplier • Alternative Source of liquidity at a potentially lower costEngagement • Manage cash flow needs • Collaboration required between all parties. • Agree Strategy • Complete Legal and Technology activities Supplier • Provide Training • Process overview.(internal)onboarding • Ensure internal process is well documented. • Monitor program suppliers Go Live
  19. 19. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  20. 20. Key Learning and Takeaways Learnings: – Ensure payables process is streamlined. – Key business partners need to be educated when their supplier moves onto the program. – Change in process rules internally must be identified – Change in company policy need to be communicated to bank. Takeaways: – Communication with you bank partner is critical. – Understanding at the operation teams who is the key contacts. – Ensure your suppliers are betting the benefit!
  21. 21. Agenda:GSK - Who we areStrategic prioritiesStructureExternal viewWorking capital programBank funded supply chain solutionLessons learnedQuestions
  22. 22.  Stephen Kunz– Director of Corporate Finance Working Capital Lead Stephen.Kunz@gsk.com Sean McDermott – Manager, North America Accounts Payable CBS Sean.J.McDermott@gsk.com

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