How Bristol Myers Squibb overhauled working capital to fund its future

BMS engaged the EY-Parthenon Working Capital practice to help implement a cash leadership office (CLO) as the centerpiece of its cash management makeover. The CLO is needed because, as a large organization such as BMS grows, processes that affect cash flow become more complex, decision-making tends to become more decentralized, and it becomes challenging to establish the controls and visibility that are necessary to get different departments working toward the same goal, consistently.

While the CLO is designed to eventually oversee all things cash for the whole enterprise, BMS chose a step-by-step approach, starting with several priority functions: Procurement, Accounts Payable, Commercial, Supply Chain and Treasury. The changes establish disciplined cash flow performance monitoring and governance in order-to-cash, procure-to-pay and inventory processes. The program aims to generate additional free cash flow from operations and ultimately improve total shareholder return.

In terms of technology, the transformation had two major objectives: to streamline Treasury processes with advanced automation and to accelerate capabilities to create bold and innovative solutions through a major upgrade of data and analytics.

By accurately forecasting cash flows and managing liquidity, the CLO supports the organization in navigating the long and often unpredictable timelines associated with bringing new drugs to market. This financial foresight allows the company to make strategic decisions, such as pursuing acquisitions, entering new markets or investing in innovative technologies.

Thus, a critical function of the CLO is to “oversee all things cash” and to embed cash flow incentives and accountability throughout the relevant business functions and processes, explained Gerardo Gonzalez, EY-Parthenon Principal, Ernst & Young LLP, who led the engagement team. “We were able to establish a high level of trust, operating with BMS’s financial priorities in mind, teaming with the Treasury team and interacting with third parties,” he said.

Gonzalez noted that, while goals that benefit cash flow — such as extending payment terms for supplies and services and shortening payment collection terms for delivered products — seem obvious, the decision-making levers that affect cash flow are numerous, embedded in diverse parts of the company, and may be closely guarded by the teams that own them.

Despite setting goals designed to benefit the whole firm, the far-reaching cash flow improvement program quickly ran into an example of the type of organizational complexity — internal resistance — that can disrupt a well-intentioned program, such as when Sales or Procurement functions are used to being able to make concessions about timing of payments to win sales or get better deals. A strong free cash flow policy must be supported by a cash culture throughout affected parts of the organization.

When Treasury and the EY-Parthenon team were able to demonstrate the clear cash flow benefits through a yearlong sample assessment, objections fell away, and the critical culture overhaul went ahead.

“These kinds of changes are difficult for a big organization like BMS because it involves a shift in mindset and culture, but it is what we do on a regular basis,” Gonzalez said. “It’s not just a story of the balance sheet and cash flow. We are a people business — people and cash.”

Despite the progress, Ramos-Alves notes that a culture transformation of this magnitude takes time and continuous effort. “I can’t say we have a culture that fully understands the importance of cash,” she said. “I can say we are on a journey to educate the company cross-functionally about the importance of working capital, of cash flow generation.”

“The CLO and related improvements provide BMS with a cash management engine that it did not have before, with appropriate controls over cash management levers and the ability to sustainably identify cash flow improvement opportunities,” Ramos-Alves said. She noted that the project helped the company make a quantum leap in process improvement and achieve a continuous change in mindset, shifting from a P&L-centric toward a cash-focused organization.

“The project helped us create a framework around working capital. The EY-Parthenon team helped us build it from the ground up,” she said. “It gave us more discipline around what we need to do to tackle some areas and helped us identify what the opportunities were. With these metrics, we can track progress and adjust when things aren’t moving as expected, to get the results we need.”

The CLO is already delivering value, helping optimize hundreds of millions of dollars of free cash flow since its inception and focusing on procure-to-pay as a priority. Ramos-Alves also noted that, based on the results so far, the organization plans to expand the scope of the CLO.

“One of the outstanding characteristics of BMS Treasury is its recognition and relentless focus on optimizing and generating cash flow to support the sourcing of innovative and effective life-saving medicines to patients,” said Gonzalez.

The work continues as BMS has engaged the EY-Parthenon team to help with the next stage of the CLO rollout: integrating global supply chain processes into the program.