Procurement Strategy: Multiple Sources. The classic model of outsourcing can be implemented under various procurement strategies. These strategies are intended to increase the efficiency of the procurement or otherwise shift the risk or costs of managing to the service provider.
Ongoing Competitive Framework. In the “multi-sourcing” model, the enterprise customer (or its shared-services captive acting as a procurement department) pre-qualifies multiple service providers in the same field of service. Each receives a suite of projects under an ongoing contract for multiple years. But the pricing and scope of work are based on competitive bidding for individual projects. The scope of work and the method of performance need to be comparable, if not identical, to ensure that competing bids will result in comparable service delivery. By avoiding sole sourcing, the “multi-sourcing” strategy provides an immediately available backup supplier in case the primary supplier of an in-scope service should fail to meet quality standards. Further, the enterprise customer retains the freedom to allocate projects or services between the two service providers. By avoiding the big-bang of a monolithic scope, the enterprise customer can increase or decrease scope on a periodic basis and thereby use ongoing competition to inspire cost reductions, improved quality and attentiveness, and even some innovation in the design of the services, all for the customer’s benefit.
Pre-Conditions: Continuous Procurement. The multi-sourcing model succeeds only if the enterprise customer has an active procurement department that conducts frequent analysis of possible projects available for outsourcing and continuously seeks ways to sustain the competition between the pre-qualified service providers.
Integration of Competing Suppliers. To some extent, multi-sourcing risks inefficiency, since certain services by one provider might not be tightly integrated with those of another provider. Integration of service providers becomes a mandate with consequences if the multiple suppliers fail to cooperate. Such integration can be enforced on a manufacturing assembly line for complex products, such as automobiles or aircraft, but only with effective management by the customer to identify any gaps and to mediate nascent disputes between service providers. In short, the cost-saving advantages of multi-sourcing might be reduced by the costs of active procurement management and the challenge of harnessing multiple competing suppliers where their roles overlap.
From Contract Management to Supply Chain Management. In practice, as an enterprise customer develops such expertise in managing its multiple service providers, it achieves an efficient solution. It moves from managing one supplier in a scope of service, or “service silo,” to managing a competitive supply chain. Such management requires talent, investment and insight, as well as planning for demand for services.
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