By multi-sourcing, an enterprise customer selects multiple providers of services and integrates their outputs.
Best of Breed for a Class of Services
As opposed to single-source procurement, in multi-sourcing the enterprise retains the flexibility to hire “best of breed” providers to perform a given function. As suggested by the name, “best of breed” providers do not necessarily offer the breadth of service, but claim to have deep knowledge of the particular function. Indeed, they claim to be specialists in these areas.
Multi-Sourcing for the Same Class of Services
As a variation, the enterprise might identify a set of several qualified service providers and split the work between them to diversify risk, create competition and internal competitive pricing, and prepare for possible transfer to all functions in the class of service to a “winner.”
Common Problems with Multi-Sourcing
Multi-sourcing promotes competition and may improve both quality and price for the enterprise customer. But it also creates additional problems that sophisticated enterprise customers gear up to overcome.
The number of interactions between the enterprise customer and its external service providers, as well as the necessary internal interactions between contract administrators and line-of-business managers, increases exponentially with multi-sourcing. The costs of adding complexity should be considered in the financial assessment of the project structure. For smaller projects, the size might not justify distribution of part of the work to different service providers, unless there are other purposes such as risk diversification, avoiding the expiration of all relevant contracts on the same date, studying the methodologies and operational structures of the service providers and the ability to achieve rapid growth of demand in order to meet rapid growth in customer demand.
Delays and transactions costs.
Implicit in any complex matrix of service providers is structure to manage the process efficiently, dealing with delays and syncopation (leads and lags, in project management parlance) of the different suppliers.
Compared to single-sourcing, multi-sourcing requires additional expenditures on retained resources necessary to manage the external service providers. In large multinational organizations, such resources may already be available at the level of transactional accounting using ERP systems such as SAP and Oracle. At the human resources level, the organization must consciously adopt universal procedures (subject to local adaptations), training of human capital and development of sophisticated knowledge bases and process analytical tools. Marginal financial investments need to be made and maintained for such operations.
Supply Chain Integration.
Legally, the enterprise that hires multiple service providers generally accepts responsibility for integrating the outputs of all the service providers. An exception to this rule appeared in the 1990′s, when automobile manufacturers selected multiple service providers to assemble vehicles under one roof, with no duty to pay any of them unless all of them had performed their duties to advance to the finish line — a finished vehicle. Such exceptions are rare, so the enterprise remains engaged to integrate the work of its suppliers. Service providers and enterprises need to address allocation of responsibilities, supervision, acceptance and non-performance across multiple suppliers, if the enterprise wants any contact between multiple providers.