0-Executive summary V4 - Coorpacademy · Chief Executive Ofﬁ cer ... decentralized business model...

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)


CashToolKitCash Management

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Pernod Ricard / Cash optimization / 4

ExEcutivE summarythE cash ToolkiT

in three keys questions


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.


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)



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


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



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


• 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


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


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



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


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)

Chivas

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


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


Trade payables Non group FY 10/11


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


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)


• 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


significant kpis


Receivables vs. DSo

Aged Accounts Receivable


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


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)


• 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


• 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


• 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


• 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

ExEcutivE summarynotes


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


PurchasingMarketing


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

••

•

•

•••

••



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.)



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


• 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



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


• 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



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


• 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



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.)


• Streamline suppliers portfolio


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



PURCHASE TO PAYDiversify supplier relationship

based on risk and impact

obJEctiVEs

• Increase profits and cash flow for non critical items

• Diversify supply risk


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)



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


• 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



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


• 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



PURCHASE TO PAYAutomate purchase order processing

and use enabling technologies

obJEctiVEs

• Increase control on purchases orders

• Efficient purchase order process

• Increase profits and cash


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



PURCHASE TO PAYintegration between

procurement tool and accounting system

obJEctiVEs

• Ensure the completeness of accruals to improve the accuracy of cash forecasting


• 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



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


• 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



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


• 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



PURCHASE TO PAYEnsure supply has corresponding

purchase order to match the invoice

obJEctiVEs

• Increase control on purchasing process

• Improve cash flow forecasting


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



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.)


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



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


• 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



PURCHASE TO PAYimplement controls

to prevent early payments

obJEctiVEs

• Optimize cash flow and forecasting

• Control payment process


• 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 ?


invoice received and same as Po ?


Payment date same as invoice ?


Y Y Y Y

Adm

inis

trat

orC

ashi

er

N N N N



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


• 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



PURCHASE TO PAYPerform inventory and valuation

of claims for provisions

obJEctiVEs

• Improve cash flow management and forecasting

• Improve closing process


• 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



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


• 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



PURCHASE TO PAYMonitor accounts payable (A/P)

ageing balance

obJEctiVEs

• Improve cash flow management and forecasting

• Improve closing process


• 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


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



PURCHASE TO PAYcompare actual vs. target

Days Payable outstanding (DPo)

obJEctiVEs

• Monitor the DPO trend to ensure that targets are met

• Optimize working capital


• 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





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



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.)


• 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



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


• 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

PURCHASE TO PAYnotes


Jameson

Order to CashSales cycle, from the development of customer relationships to the receipt of cash (The Accounts Receivable Cycle)

toolkit

split

by

Function


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



ORDER TO CASHoffer differentiated

payment methods

obJeCtives

• Assess the efficiency and effectiveness of payment methods applied to customers


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%



ORDER TO CASHnegotiate

automated remittance

obJeCtives

• Enhance the cash forecasting accuracy by reducing the lead time to process the receipts


• 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



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


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



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


• 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



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


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



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


• 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



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


• 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



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


• 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



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


• 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



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


• 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



ORDER TO CASHanalyze customer portfolio

obJeCtives


• Streamline the invoice process to improve your cash forecasting


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



ORDER TO CASHprovide electronic and/or

automated ordering

obJeCtives

• Smooth your Days Sales Outstanding (DSO) level with less erratic ordering

• Reduce process cycle time


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



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


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



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


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



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


• 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



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.)


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



ORDER TO CASHsend invoice early in the process

(at receipt or confirmation)

obJeCtives

• Optimize cash flow and its forecasting


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



ORDER TO CASHautomate reconciliation

of payments with invoices

obJeCtives

• Automate balancing of open items

• Reduce cycle times

• Improve period-end closing


• 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



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


• 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



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


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



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



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


• 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



ORDER TO CASHprovide collection and operations staff

incentives for collection / dunning

obJeCtives

• Lower the overdue level and improve cash forecasting with efficient incentives schemes


• 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.)



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


• 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



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


• 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



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


• 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



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


• Accounts receivable ageing balance (see example chart)


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


Ageing Balance in EUR



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


• 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



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

ORDER TO CASHnotes


Ballantine's

FORECAST to FULFILLOrdering raw materials and inventory to fulfill product demand, to the management, and reporting of inventory


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


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



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


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



FORECAST TO FULFILLcontrol logistic attributes

of items with serial and revision numbers

obJEctIVEs

• Maintain up to date ‘logistics attributes’ to better manage inventory


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



FORECAST TO FULFILLconsider all inventory levels

obJEctIVEs

• Ensure a clear and real-time visibility of volumes and number of SKUs within stocks


• 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



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


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



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


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



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


• Percentage of obsolete stock (in value)


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



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


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



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



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



• 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



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


• Number of backorders, stock outs and markdowns




• 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



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


• 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



FORECAST TO FULFILLManage end of life / new / discount

products

obJEctIVEs

• Determine the best inventory distribution between end of life / new / discount products


• 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



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



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


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



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


kpIs

• Days sales in inventory

• Safety stock and obsolete inventory as a percentage of cost of sales and of the inventory balance


• Days Inventory Cover for Export (DIC BO)


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



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


• Delivery time (order > frozen period > delivery)





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



FORECAST TO FULFILLDevelop policies and procedures

for goods storage and handling

obJEctIVEs

• Define standard processes among all inventory sites


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



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


ALL

BC MC



FORECAST TO FULFILLperform regular cycle counts

obJEctIVEs

• Perform and optimize stock monitoring (physical checks and valuations)


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


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



FORECAST TO FULFILLAssess package size

against customer demand

obJEctIVEs

• Optimize inventory management and reduce volume of low-margin finished products


• Number of SKUs



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



FORECAST TO FULFILLEvaluate stock costs versus

‘mass production’ savings

obJEctIVEs

• Balance inventory cost and service in optimum way


• 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



FORECAST TO FULFILLDetermine optimal delivery

frequencies and quantities

obJEctIVEs

• Find balance between reducing number of deliveries and offering high flexibility to customer


• 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



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


• 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



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


• 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



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


• 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



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


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



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


• 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



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


• 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


FORECAST TO FULFILLNotes

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


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


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


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



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


• 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



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)


• % 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



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


• 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



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


• 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



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


• % 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


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


• 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%

TREASURY OPERATIONSnotes


OTHERS

Perrier Jouët


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

OTHERSNotes


APPENDIXProcedures & recommended methodsTreasury Operations

Jacob's Creek


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


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


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


the non-automated treasury convention

Withdraw excessfunds and fund

shortages

Loans and borrowing notification


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


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


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


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:


• BNP Paribas Factor• Open A/R report

• CA CIB offer notice or BNPPF subrogation notice

• Servicer report

• Bank buy report and summary



Prepare / Estimate / Send weekly report of open

A/R items

Reconcile Buy Report and charges

Contractual monthly signed original

documents


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:


• BNP Paribas Factor



Daily

Automatic transferof cash from collection

account to banks

Manual transfer of cash from the affiliate

bank account


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


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

APPENDIXNotes


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