Fast-tracking procurement transformation at Prisma Medios de Pago
- Case Study
Following a large private equity deal, Efficio supported the procurement transformation at Prisma Medios de Pago, after its acquisition.
Bringing their world-class experience in the payments industry, Efficio were engaged to help advance Prisma’s procurement capability to create sustainable value and rapidly meet savings targets, despite an unstable economic and political environment of high inflation and volatile exchange rates.
Global private equity firm, Advent International, acquired 51% of Prisma in early 2019 with an objective to achieve rapid in-year savings and implement an efficient, strategic procurement target operating model. Bringing deep industry experience and extensive knowledge of the supply base, Efficio is working to achieve 13% run-rate savings on the addressable spend, with over 70% of the savings having already been delivered within the first 5 months of engagement.
Born in 2014 from the merger of the two main payments companies in Argentina with more than 35 years of experience, Prisma is now Argentina’s leading payments company. Following its acquisition by Advent International, in-year savings, sustained procurement efficiency improvement and the implementation of a best-in-class procurement function became the key focus.
Impressed by its strong market position in Argentina across the payments value chain, Advent International acquired the majority stake of Prisma from a consortium of the 14 major banks in Argentina and Visa International. The aim was to accelerate the company’s development by investing in next generation products, exploring cost optimisation opportunities and a strategic expansion path. Prisma’s procurement function applied a more traditional, transactional buying process focusing on price re-negotiations due to high inflation when, with the arrival of the new shareholders, it became clear that a strategic sourcing approach would achieve sustainable procurement savings.
However, these goals were difficult to attain in the Argentine economic environment, with a 40% inflation rate and an extremely volatile USD-exchange rate. Prisma was in a good position despite this with most of the revenue immediately adjusting with inflation due to its commission scheme. However, prices of vendors were not immediately adjusted, which posed problems with their supply chain.
Prisma required a less complex procurement operating model - one that applied strategic sourcing principles and category management processes, as well as an elevated position in the business
to enable effective interaction with key stakeholders. Efficio’s directive was to achieve quick in-year savings, generate long-term efficiencies and leave behind a procurement function, which guarantees savings sustainability, as well as continuity of the permanent search for further procurement efficiencies.
Efficio has been a change agent across several business functions, helping us achieve significant savings beyond our expectations
Following the initial opportunity assessment, Efficio defined the categories that had the biggest savings potential and found prospective savings of around 11-14% across all spend categories. A team were then deployed to Buenos Aires to realise these with a commitment to exceed consulting costs by in-year savings in 2019.
Quick-wins were key to guarantee in-year savings. Efficio launched competitive tenders in each category, introducing new suppliers from different geographies with new technologies. Part of the spend was negotiated in USD, making the target easy to define in absolute value. However, the rest was negotiated in local currency, which was a challenge due to the 40%-plus inflation rate, and sudden devaluation of the Argentine peso by 20-40% both in 2018 and 2019
Efficio tackled this by using the inflation and the FX-rate projections of the Central Bank of Argentina to project the savings until the end of 2020, defining the target according to these projections. Efficio then adjusted this applying historical indexes to alter the prices in each given category (e.g. labour-intensive services were adjusted with wage inflation, etc.) Benchmarks from earlier projects in the same payment processing industry were used to help re-negotiate prices with key global suppliers, e.g. POS terminal manufacturers.
To enhance cost savings, Prisma needed to apply less transactional buying and be more strategic, with a tighter category alignment and strategic sourcing process. To enable this, Efficio collaborated with Prisma to develop a less complex operating model based on streamlined procurement processes, clear approval policies and a gated strategic sourcing process
The project is ongoing; however, interim results have already exceeded expectations. So far, Efficio and Prisma have:
- Signed off 70% of the savings target within 5 months of the 9-month programme. All savings are adjusted with inflation and the volatile exchange rate, and are on track to achieve the original savings target
- Achieved in-year savings 30% beyond target
- Repositioned the procurement function by developing strong relationships with key business stakeholders, enabling Prisma’s procurement to become rapidly involved in all strategic sourcing initiatives
- Designed a target operating model in line with Prisma’s requirements for a less complex system with a gated strategic sourcing process
To ensure these results are sustained, Efficio implemented together with Prisma’s procurement, two safeguards to protect savings, including:
- A process to follow up the real and projected rates on a monthly basis, with an adjustment of the baseline when necessary
- Defining the percentage of spend in Argentine pesos instead of using absolute values