Strategic Sourcing: How to manage multiple Service Providers?

multi sourcing Outsourced IT service supply chains nowadays often involve multiple providers. This strategy is called multi-sourcing and gets increasingly adopted due to a greater market fragmentation in the IT outsourcing industry, offering a growing number of different services, solutions and platforms. Buyer companies often strategically divide their IT solutions into different assignments that are operated by different providers. Multi-sourcing is an emerging trend that sounds promising, but is it always recommendable to manage multiple providers simultaneously? This article provides the advantages and pitfalls of multi-sourcing and highlights how buyers can gain the best ROI from multiple outsourcing partnerships.

Relying on a multi-provider network has significant advantages over trusting just a single provider. The buyer company gains access to resources, technologies and the infrastructure of various companies from various regions all over the globe. Outsourcing particular assignments to a service provider might guarantee deeper specialization and expertise on side of the vendor in the exact development segment that is needed. Furthermore, outsourcing buyer companies do not need to rely on just one provider for their entire range of IT solutions; the general danger of overdependence can thus be overcome. On a macro level, choosing multiple providers enhances market competition and guarantees pressure on pricing. Conclusively, transparent costs and improved quality might be the major advantages of multi-sourcing.

Turning to the drawbacks, multi-sourcing can turn into a highly complex set of business relations that might be difficult to overlook and manage. Companies either need to invest time, effort and sometimes even money into the management of a multiple supplier engagement or they lose the overview of the different services and their components. In the latter case, hidden costs or service migration flaws are the most feared consequences. Moreover, IT outsourcing companies often provide a great range of services in order to entirely cover their client’s IT solutions and attract long-term, large-scope contracts. From a service provider point of view, the assignment to develop only pieces of a whole IT system might be difficult to coordinate and not feasible.

In case, IT outsourcing projects are given to different offshore providers one by one, the buyer company might face the challenge of adjusting already existing operations and services. It might for instance be the case that a new contract makes an old service agreement outdated. The necessity of engaging in a multi-provider environment must therefore be carefully scrutinized before the start and rethought over time.

In order to avoid such major flaws in multi-sourcing buyers should assign clear responsibility on who is to decide on what services are outsourced to which provider. In line with this, buyer companies need to establish a sophisticated, almost fussy planning and documentation strategy. Such a strategy needs to be developed according to issues of alignment and integration, flawless operation, clear contract components and responsibility allocation in-house and offshore. Despite the fact that multi-sourcing requires cutting edge and precise management decisions, it might be a highly efficient, cost and time-saving business endeavor.

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