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Best Working Capital

Management Solution

Pfizer Inc.

New York, US

Working Capital Team

Improved cash conversion cycle feeds straight through to bottom line

Company profile

Pfizer Inc. is a research-based global biopharmaceutical company. The company is engaged in the discovery,

development and manufacture of healthcare products. Its global portfolio includes medicines and vaccines, as well

as consumer healthcare products. As of 31


December 2016, the company sold its products in over 125 countries.

The challenge

To identify opportunities to improve the cash conversion cycle (CCC)

and cash flow generation without adversely impacting the income

statement. With an increasingly challenging operating environment,

Pfizer saw an opportunity to increase its focus on working capital

management (WCM) and to improve cash flow generation in parallel

with a continued focus on P&L.

In an effort to determine a baseline, Pfizer conducted a benchmarking

analysis on working capital metrics across the biopharmaceutical

space, which compared Pfizer against several of its large-cap peers.

A team, sponsored by its CFO and led by corporate treasury,

was mobilised.

The solution

Pfizer established five workstreams to focus on the key areas within

WCM. Each of the workstreams brainstormed actions and solutions

for their respective areas, prioritising those initiatives with a focus on

maximising improvement to the CCC and/or improving cash flow

generation (noting that the VAT and other working capital

workstreams do not directly impact the CCC calculation).

Accounts receivable:

Pfizer moved from fourth quartile versus its

peers to first quartile between 2010 and 2016 in an adverse mix

environment. This substantial improvement is directly attributable

to operational improvements on collections and terms. Pfizer

implemented best in class collections practices across the world,

including Europe where pharmaceutical companies have faced

challenges due to the financial crisis. The team proactively

partnered with governments and hospitals in order to ensure past

due, receivables were collected from these markets.

Accounts payable:

improvements to their DPO were made

possible due to:

Improvement of supplier payment terms.

Shift of payment trigger from invoice date to receipt date.

Reduction in payment-run frequencies.

Availability of operating data and metrics due to rollout of a

global SAP.

Implementation of a treasury-led supply chain financing

programme, which benefits both Pfizer and its suppliers.


Pfizer Global Supply (PGS) established and continues

inventory optimisation initiatives across the supply chain, making

improvements to its gross inventory balance. The focus ranges

from procured raw materials at manufacturing facilities all the way

through to finished goods. In addition, PGS implemented

organisation and process change enabling end-to-end supply

chain orchestration for all of Pfizer’s major brands. All of Pfizer’s

supply chain processes are built upon its growing SAP footprint

and are “aimed at ensuring the right product, in the right place, at

the right time and at the right cost for the patient,” explains Keenan.

Value-added tax and other working capital:

Pfizer has been

optimising other areas of the balance sheet including indirect taxes/

VAT, prepaids, non-trade receivables, rebates and accruals.

Initiatives implemented by the company that resulted in the

improvement include, but are not limited to, recovery of VAT

receivables from international markets, reduction of prepaids globally

and improved collections of non-trade receivables and rebates.

Best practice and innovation

The project management team compiles and distributes a monthly

dashboard to finance leadership which monitors various working

capital key performance indicators (KPIs) to ensure they

are improving.

Pfizer’s inventory workstream uses several systems including the

Global Market Exchange (GMX) system to analyse SKU-based

inventory pricing, SAP Business Insights to review brand specific

demand and supply analytics and Tableau for data visualisation on their

supply chain performance. Any key business decisions that could have

implications on working capital are considered before being finalised.

Key benefits

Improved the CCC by 25.2 days to 77.1 days from 102.2

days (from 2010 to 2016).

Generated approximately US$1.5bn of incremental cash

flow in 2016.

P&L benefits.

Roger Fleischmann, J.P. Morgan, Beth Blumenfeld, Arijit Dasgupta and Sylvia Malone, Pfizer,

Steven Elms, Citi, Chris Jameson, Bank of America Merrill Lynch, Simon Knightbridge, Pfizer

and Steve Payne, EY

10 | treasurytoday Adam Smith Awards © August 2017