The more I have the opportunity to see how companies are (or aren't) strategically sourcing indirect goods and services, the more I recognize that there are still huge benefits to be captured even in those categories of spend where companies have traditionally developed expert capabilities, whether they be internal or external.

Take energy, for example. Most companies have a dedicated expert who works to ensure that the appropriate hedging strategy is in place. Most of those folks were in for a rough ride the past few years and I know of a few casualties and early retirements that resulted.

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Back in October 2009, I wrote a Spend Matters post about bringing off-shored call center and transactional jobs back to the U.S. ("OURSHORE"). Having held various supply chain management roles for over 30 years, I understand the importance and competitive value of the global supply chain, but I strongly disagree that this type of global strategy should include call-center and transactional jobs, which can be executed as efficiently here as anywhere else. Research shows that up to 1 million such jobs have been off-shored to countries with low-cost labor pools, with the majority relocated to India. If the average annual wage for these jobs is $20,000, the cumulative loss to the American economy is now approximately $20 billion per year! If the average effective federal tax rate for these salaries is 15 percent, then $3 billion was lost from federal taxes, and another $1.5 billion from state and local taxes.

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I had an experience last week that has caused me to believe that National Healthcare has definitely begun even before any final legislation has been passed. To be clear, my information is anecdotal and based upon my own personal experience in the City of Philadelphia PA where like most folks -- especially those who have children or who travel extensively -- I've been preoccupied about getting the H1N1 vaccine as soon as it was available. I typically get the seasonal flu vaccine in mid to late September and this year was no exception. I found it very easy to go to my local CVS Pharmacy, present my insurance card, roll up my sleeve; "in and out" in 15 minutes.

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Having led a successful offshore project of GlaxoSmithKline's transactional procurement activity a few years back, I know a fair bit about what's involved from a technology, process/knowledge transfer, employee training and necessary new management structure needed to ensure a smooth transition. This offshore project was of course to an India-based BPO as was the fad at the time. I've been out of this space for a while but my eruditions were:

1. It takes a huge amount of detailed tactical planning to be successful. I was fortunate to a have Denise Bamford as part of my Global Systems and Operations organization leading the project. She was not only an expert in the transactional procurement space but a really strong project leader as well.

2. It's more costly than one might think. Straight one-to-one labor arbitrage looks attractive. But it doesn't work that way. The BPO's add layers of management to ensure their service offering works and this creates additional cost. There are savings, at least initially, but how long that remains the case is debatable.

3.You have to deal with very high employee turnover rates and accelerated salary inflation. Employee turnover rates of 30-40% were the expectation a couple of years back and this of course helped to accelerate salary inflation as BPO's attempted to stabilize their workforces. These high turnover rates drove higher costs and lower quality of services provided. Think of the upheaval caused in your own businesses if you were dealing with annual employee turnover of 40%.

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In May of 2007 I purchased a commercial building in the Midwest in a metropolitan area located on the Illinois/Iowa border where the Mississippi river runs east to west. This was the beginning of my plan to establish a "cost neutral" retirement headquarters where I could pursue life without all the stresses associated with the big city and the big corporation.

After a couple of false starts, I became very active in moving this project forward after my "retirement" this year. The City whose downtown property I planned to rehabilitate was very active in letting me know the various financial incentives they would provide. This of course, was very attractive, especially for a former "Procurement guy" and the incentives offered were about 20% of the total project cost ... who wouldn't get excited about that! The incentives included monies for energy efficient windows and HVAC, no sales tax for all goods purchased, façade improvement credits and up to $20,000 for newly created residential units.

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Having spent over 15 years in the Pharmaceutical industry I thought I'd weigh in on some thoughts about why we need to keep a "free market" approach in the Pharmaceutical sector.

A few quick facts about the industry (some of these points may be a bit dated i.e. costs may now be understated).

I would hope that most people would recognize that pharmaceutical organizations are "research based discovery organizations" that can only grow and thrive based upon their ability to develop new drugs. Developing new drugs is an extremely costly, high risk endeavor. The average cost of developing a new drug (approved and to market) is estimated to be $1.3 billion. When you add in the cost of failures -- and the majority of new chemical entities fail -- the cost is even higher. So a pharmaceutical company must generate a lot of cash to fund the discovery engine.

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I had a major realization today. All the services we've taken for granted are changing faster than you might think. This is what happened ... I was in desperate need of a phone number and a couple of issues were working against me. First problem was that I have recently changed from a Blackberry to the iPhone (those little keys were just too difficult to deal with) and I couldn't easily transfer my stored phoned numbers and had not re-entered them in the iPhone. The second problem was I didn't have internet access. So I tried "411". This used to be a low cost service that usually provided the desired result. Not anymore, at least based upon my recent experiences ... and I did some checking that depending on your state and service provider you can be charged anywhere from $1.00 - $1.75 per call. This one went like this once the phonetic operator transferred me to a live operator (names protected, of course):

Operator: "411, how can I help you?"
GB: "For Bala Cynwyd, Pennsylvania, I'm looking for James Nova at Financial Services, Inc."
Operator: "Is that a business or a person?"
GB: "It's a person and a business"
Operator: "I have no listing for either"
GB: That's unusual ... every time I've looked on Google, it has come right up"
Operator: "Sir, this is not Google"
GB: "I know it's not Google, but since you are in the business of finding phone numbers, I’d think you'd have better information than Google"
Operator: "Sir, this is not Google"
GB: "I know you're not Google and I'll expect that you won't charge me for the call since you couldn't find the number"
Operator: "Thank you and have a good day"

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I've had the great privilege the past few years to work closely with small disadvantaged and minority suppliers. These business owners are all highly entrepreneurial individuals willing to take extraordinary "risks" to develop, launch and grow their businesses and to do this against "obstacles" that majority companies do not face.

They are high energy, always exciting and real experts at networking. They're non-bureaucratic and can get things done at amazing speed. Every meeting is important to them and they surround themselves with other like-minded people. As business men and women, they are extremely focused. Every person who works for them knows the company objectives and knows the contribution they are expected to make. I'm proud to say that not only have I developed many close business associations, but also a number of meaningful personal relationships including a few who act as coach and mentor.

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In my last post I said I'd be writing about "Collaborative Optimization", but something else is bothering me and I would like to get some feedback from readers before I discuss the more important topic. Portfolio analysis suggests that most spend falls in the "leverage quadrant". And quite frankly, I was always most comfortable when applying leverage in supply negotiations, especially since I worked for a company whose annual spend was larger than some countries GDP.

Regardless of what was purchased I always thought about how we could get the lowest price... and of course I still think this is very important. But what I see happening with a lot of Procurement folks (and I've been guilty of this too) is that they buy everything "like a pencil". What do I mean by this? I believe many in Procurement buy technology or enabling services the same way they buy office supplies -- beating down so hard that the supplier can barely see their margin, leaving the relationship ambiguous and awkward at best.

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Well, it's my first days following retirement from GlaxoSmithKline and I've travelled to Europe to meet with a new client. What a time to be travelling with constant Swine Flu reporting (I mean H1N1) on every major news channel... CNN, Bloomberg, Sky and on and on. Now, one of the good things about being a former employee of GlaxoSmithKline is that I still have my company issued 5 dose pack of the flu anti-viral Relenza (made by GSK).

The bad news is I've just discovered that it "expired" in November of 2007. I wonder how accurate these expiration dates are? I've eaten bread and drank milk long after their "sell date" before with no issues. I wish I knew what Glaxo's policy was on updating Relenza for retiree's!

But seriously, I'm very proud to have been associated with a research based discovery organization that devoted significant research dollars in both anti-virals and vaccines that can be highly effective against this potential pandemic outbreak. I also hope everyone who is still travelling, travels safe.

While this is a major time of uncertainty, one thing that we know for sure is that there is still a lot of savings to be extracted from buying 3rd party goods and services. And this is true even for those organizations that have good procurement practice in place. I've recently witnessed a methodology called "Collaborative Optimization" which leverages technology, supplier innovation and "what if" modeling that drives new savings opportunities even in categories that have been "worked" over and over again with traditional best practice procurement methods.

We'll talk more about this soon in another Spend Matters entry. But it suffices to say, even after decades in the business, that there are new ideas around every corner -- despite both the physical and metaphorical viruses and bacteria that we sometimes need to circumnavigate in our journey along the way.

- Gregg Brandyberry