Management consultancy special: multisourcing

Outsourcing is continuously evolving, with more choice than ever before – in
geographies, providers, skills and processes. In turn, there is growing pressure
for organisations to optimise their use of providers and geographies to spread
risk and secure a competitive rate.

But gone are the days when outsourcing essentially meant global monoliths
winning all-encompassing contracts that ran for a decade or more. Multisourcing
– the use of several providers by one buyer – is a tactic increasingly adopted
by purchasers in all sectors.

In 2000, 81% of outsourcing buyers were using only one or two providers. But,
so far, in 2007 the number of buyers using three or more providers has almost
doubled to 36%. The trend is partly attributable to buyers’ wanting to utilise
the large number of niche providers now available. Many are also realising that
dependence on one large provider is not necessarily secure or desirable.

Multisourcing has a range of benefits. It introduces competition between
suppliers, increasing the buyer’s bargaining power throughout the contract term.
And it encourages a strategic, company-wide sourcing approach, meaning that
buyers can benefit from economies of scale and better co-ordinated management.

Yet even seasoned buyers find that procuring and managing a multisourced deal
is a complex business. Getting it right requires careful planning.

Dividing sourcing requirements into meaningful, marketable chunks for a
multisourced tender requires much consideration. Suppliers will have differing
ideas of what represents an appealing deal, but all assess potential contracts
along similar criteria. These include: the length of the deal (the security of a
longer deal is always attractive); risk versus profit (expected revenue will be
assessed against potential risk); business development (deals in a strategically
desirable area will be favoured – this could be in terms of technology;
geography, service type or market sector); and technology platforms required
(providers will consider their familiarity with required platforms before
pitching for a deal).

Stay on message

It is, therefore, important to build up market knowledge and talk to a range
of potential providers. In doing so, it is critically important for buyers to
see beyond suppliers’ marketing messages and recognise the danger of being drawn
in directions that may stray from their fundamental needs.

There is an equal danger that the needs of an individual department could
eclipse wider business objectives unless there is a fully integrated procurement
approach. A tension always exists between getting the best price for each
individual contract and sourcing deals that will fit together into a whole. The
most successful organisations use a clearly defined process across all
procurement teams, with each potential contract assessed for overall fit.

Once signed, contracts need careful ongoing management. They can be handled
internally, or via a prime contractor, or the management can be outsourced, but
a direct relationship retained with the service providers. While the first
option is often the cheapest, it also requires the most in-house expertise, as
the task of joining several contracts and eliminating gaps in provision is not
easy.

Whichever route you choose, the resources involved will be much greater than
in a single-sourcing arrangement and one result of the multisourcing trend is
that the requisite skills are in much higher demand. They can be hard to secure
from outside, so many firms prefer to redeploy existing staff.

However, top performers often prefer to become involved at the procurement
stage, rather than in contract management, as procurement is seen as an
opportunity to chalk up high-profile wins, while ongoing management is
considered career-limiting.

Paradoxically, good management is crucial to the success of a deal,
particularly in a multisourcing context. Without it, many deals go wrong within
a few months of signing.

Retraining staff

Redeployed staff must be fully trained before they can effectively manage a
multisourcing arrangement. A good procurement-to-management’ model should also
be implemented, stipulating that a percentage of the procurement team is
maintained into the management phase.

These governance tactics should be underpinned by excellent communications
across all channels. Internal management teams will benefit from regular
meetings at which experiences can be discussed and advice shared. This will
increase the bargaining power of your company – if one supplier has conceded on
a particular point, every management team will be able to cite it to encourage
other suppliers to do the same.

It is also a good idea to hold regular meetings with suppliers. Meeting all
the suppliers at the same time will mean that issues affecting the overall
service provision can be discussed and any gaps in provision ironed out.
However, is worth bearing in mind that suppliers will wish to discuss any market

sensitive data on an individual basis, when their fellow suppliers are not
present.

Multisourcing can provide unrivalled service and expertise and should not be
avoided just because of the potential pitfalls. But those seeking to adopt this
approach must bear in mind the comprehensive nature of the resources and skills
required to fully realise the benefits. Thorough planning, consistent
procurement and careful ongoing management are the keys to success.

EFFECTIVE MULTISOURCING

Look before you leap
Think carefully about whether multisourcing is right for your company.
Crucially, remember that procurement and negotiation costs alone can be as high
as 8% of the first year’s overall costs, compared with just 5% when dealing with
a single supplier.

Learn the lingo
Communicate your requirements to potential suppliers in the standard market
terms. If you don’t, benchmarking between providers will be impossible.

Healthy competition
Implement contractual clauses which foster ongoing supplier competition.
Stipulate that you will transfer a supplier’s work to another of your providers
if they fail to deliver.

Put in the training
Even personnel with past experience of managing outsourcing deals will find the
step-up to multisourcing a challenge. Make sure staff are properly prepared, and
help them to stay motivated throughout the contract term.

It’s good to talk
Never underestimate the value of good communications. Regular meetings ensure
that best practice is shared and problems are identified before they become
endemic.

Glenn Warren is project director of global outsourcing
consultancy TPI