Decentralization Vs Centralization of Purchases

Find out interesting insights with John Silverstein, CEO Liv Data

Moderated by Moderated by Sherry, financial technology consultant here at Hyperbots.

Don’t want to watch a video? Read the interview transcript below.

Sherry: Alright. So hello and welcome to all our viewers on CFO insights. I am Sherry, a financial technology consultant at hyperbots, and I’m very excited to have John Silverstein here with me, who is a seasoned finance executive, with over 2 decades of experience in leadership, roles with expertise across both Fortune 500 companies and hybrid startups. Thank you so much for joining us today, John. We will discuss the balance between centralized and decentralized procurement processes, and how artificial intelligence can enhance these approaches. Your insights will be valuable in understanding how organizations can optimize their procurement strategies. Let’s get right into it. Can you describe your organization’s current procurement structure and the rationale behind choosing a centralized, decentralized, or hybrid approach?

John Silverstein: Yeah, thank you. Sherry. So from a centralized, decentralized procurement strategy. It depends on the type of organization and the maturity of the organization. So if you’re in businesses that don’t do that much procurement, or it’s not a big cost item, and your cost items are more on the people side of things, and things like that. You may go with that decentralized process or if you’re a startup you’re often decentralized. But the sooner you can get to that centralized or figure out a way to consolidate or centralize, which we’ll talk about with AI and things that you can. You can put those procedures in place and put the right procurement process. It can allow for a decentralized process. That works but it’s typically over the last couple of decades that I’ve been trying to move and mature towards a centralized process, particularly with large procurement processes. So if you’re going down the path and, you need to ultimately get to that. You want to use procurement people to do purchasing causes that will save money and even your service industries and things like that. They procure a lot. And you’re constantly getting sas sprawl and technology issues, it is always the case, even in your service businesses. So it’s kind of like you must have the procedures that you’re doing. POs, that you’re doing matching. It simplifies it on the back end. So that’s part of why, the business I’m currently in. We’re going. We’re moving more central. We were kind of scattered before, but our departments ended up very siloed, too, and you had disparate systems throughout the entire organization. So that’s why we’re moving towards that centralized process.

Sherry: That makes sense. Thank you for sharing that. And in your experience, what are the key benefits you’ve observed from centralizing vendor approval and sourcing?

John Silverstein: Yeah, when you centralize that vendor approval and sourcing, it gives the ability to combine purchases or pick the right vendors, or have contracts that are more standard and things like that with the vendors. So it speeds up the process. So a lot of people talk about it. Oh, we need to be decentralized so everyone can purchase and do those things. But you lose control pretty quickly and it slows down the process because you don’t have already approved vendors that know how to operate with you and know how to know your procedures and your legal contracts and things like that. So you often get stuck with that decentralized process of having to go through there.

Sherry: Right and, on the contrary, how does decentralizing PR and PO approvals impact your organization’s procurement, efficiency, and flexibility?

John Silverstein: Yeah, If you decentralize it, it creates a lot of challenges. Particularly if you don’t have a way to capture and understand the spending within the organization, and the proper processes to get it. Cause. Ultimately, if you’re someone who’s able to even sign a contract approve something, or create a PO. If you don’t have a centralized, then you have so many sources going through it can get backlogged if things come through at the same time, and the prioritization gets harder. It generally doesn’t do what it’s expected. This decentralization is where you think you’re more agile and things, and everyone’s allowed to do things. But then it goes back to what I was stating before. Like, you want those standards, procurement people are professional people. There’s a reason why they exist and why organizations hire them. And if everyone’s going outside of the system basically it’s a decentralized process, it creates a number of challenges.

Sherry: And what challenges have you encountered with your current procurement structure? And how have you addressed them?

John Silverstein: Yeah. So the challenges are, of course, like making sure that you’re going, that everyone’s going through the centralized process, particularly when you’re making those movements that change from a decentralized where people can purchase and do things and make decisions in silos? But that ultimately gets them to follow the process. But if you can control that through the systems, then you make sure that you continue to capture. And then when people start to see that it actually improves the process, and you end up with a better deal, and you end up with better products or you might even say no to certain suppliers or things like that with the centralized it’s gotten much better. It’s removed a lot of the challenges we previously had that we said wouldn’t necessarily go away. But they are because we’re using that professional procurement person to go in, and we have a real vendor list. We have real approvals. We have real contracts with everyone. Now we have a PO process that makes sense. So those things critical that you put those in place, and then it gets easier. But it’s a challenge to get everyone to make that change and shift it. But as they see the success of it. And you start simplifying. Even the number of vendors you’re managing and things like that. It gets faster and easier.

Sherry: It’s great how you handle that. So since AI is taking the finance industry by storm, I have to ask in what ways can AI enhance centralized vendor approval and sourcing processes.

John Silverstein: Yeah, there’s several ways from just going through and doing checks on vendors. And to make sure that you’re following a vendor approval process. You could do that through AI potentially versus having to go through the next. Necessarily a procurement person. There are some initial checks you could do. Also, It depends on your process. You could go through and almost provide that end of the day. It’s kind of we’re saying, decentralized and centralized, but at the end of the day, the request for procurement and things, it’s decentralized. Everyone’s making their own decisions or needs to purchase something. That’s what creates this process. It’s whether they have to go to a person or go through a technology or how they do it. So AI, I think gives that ability, actually gives more flexibility, and kind of can centralize a decentralized process and things and pull it all together. So I think that the key is that you’ll be able to get the data. You may even have AI as you go submit for purchase or PO. It could check and do some checks upfront to see. Yeah, does this make sense? Is there a product or service that we already have? Have we gone through it, or is it there? Or is there outside data that we should even use and check the vendors or the products that we’re purchasing, that it makes sense?

Sherry: AI seems promising in this area. How can AI be utilized to improve the efficiency of decentralized PR and PO approvals?

John Silverstein: Yeah. So AI can go through the logic. Making sure that POs are getting automatically approved, going through meeting certain criteria, and things of doing that it can also check. If your PO process can get stricter. Actually, with AI, you’re able to capture even more information. Upfront potentially to build out often POs are too generic and then it gets harder to do the 3-way matches and things down the line which we’ve had previous discussions on this CFO insight. So it’s critical that AI can improve that, increase the quality, increase the data, and then do more and more checks on how you go through your procurement process.

Sherry: And what are some examples of AI applications that have been effective in procurement? And how have they impacted your organization’s processes?

John Silverstein: Yeah, so I would say, it’s a little too early for us. From an AI perspective on how it helps. But it’s going through and getting actual POs for the smaller organizations, It gives the ability. I’ve been in a number as a consultant going into organizations that are under your like 100 million dollars in revenue to go through. And a lot of those organizations don’t have POs. They don’t have these processes. I think AI is allowing them to do the processes without a huge heavy lift to put those standards and controls in place. So AI is allowing everyone to have what the big companies have and to also then do where it would be. A heavier lift is to make suggestions on negotiations right? Checks on. And you’re seeing this in some of the other expense tools and in your other purchasing products and things you’re starting to see. AI actually goes out and suggests hey, you can get a better deal. This is the average deal size. This is typical. This is the contract. They’ll check the legal things, and they’ll give suggestions and things like that. So that whole process is getting better and easier. Smaller companies, typically just take the standard contract and sign. You may not do that anymore. You may redline a contract because of AI that you would have typically just signed in the past, and might have been hurt down the road.

Sherry: Looking ahead, how do you see the role of AI evolving in procurement? And what future developments are you most excited about?

John Silverstein: I’m most excited that this is giving me the opportunity for everyone to have real procurement processes versus just going and buying things on a P. Card or things like that. Instead, they can go through, and you can purchase with terms. You can understand the terms you can go in, and you can get the appropriate discounts. What’s the right deal size? What’s the right number of licenses? What’s the application if it’s software, should it be used,  are there other areas and other departments that should come together? AI can help with all this. Bringing it and having an understanding that some people may not think about as they’re going through an actual purchase.

Sherry: It looks like there are exciting times ahead for AI and procurement.Thank you for your time, John, and your valuable insights, your perspectives on centralizing versus decentralizing procurement, and the role of AI in these processes will be greatly beneficial for organizations looking to optimize their procurement strategy.

John Silverstein: Alright. Thank you, Sherry.