Multiple Sourcing Definition: Everything You Need to Know
A multiple sourcing definition is outsourcing several of your company's most important operations to several different vendors instead of using a single source.3 min read
What Is Multiple Sourcing?
Multiple sourcing, which is more commonly referred to as multi-sourcing, is a type of outsourcing used by many companies. Unlike traditional outsourcing, where a single vendor handles IT responsibilities and other company operations, multi-sourcing makes use of several different vendors. Usually, the company will handle some IT tasks in-house and then outsource the rest.
Multi-sourcing is significantly different from handling IT operations completely within the company or outsourcing these duties to a single vendor. Making IT operations more effective is the idea behind multi-sourcing. With multi-sourcing, a company can choose the best vendor for a given IT task. By outsourcing certain IT operations, the company can handle the most important responsibilities internally.
Multi-sourcing can provide several other benefits to companies that choose this strategy:
- Sparking competition between vendors.
- Lowering the costs and improving the quality of service contracts.
- Allowing IT providers to innovate and collaborate.
When choosing the multi-sourcing strategy, you should make sure that someone in your IT office is monitoring arrangements with vendors. Commonly, there will be an entire office dedicated to this task. When dealing with vendors, input from your company's IT professionals, as well as your legal team, can be helpful. One of the best ways to choose IT vendors is to look for companies with a corporate culture similar to your own.
Before developing arrangements with IT vendors, you need to develop a strong internal strategy for monitoring and maintaining relationships with vendors. You should share details of this strategy with all of your service providers to make sure that everyone is on the same page.
Strengths and Weaknesses of Multiple Sourcing
There are several factors that can determine the benefits and drawbacks a company can experience from multiple sourcing:
- The complexity of the arrangement.
- The availability of unique materials.
- The Bill of Materials of a product.
As you might expect, the biggest drawback of multi-sourcing is that your supply chain can be easily disrupted because you'll be working with multiple vendors.
Because every supplier that you use will have a much lower volume of business transactions than with single-source outsourcing, they will not be as motivated to maintain efficiency and to make sure there are no bottlenecks in the supply chain. Obviously, this increases the risk for the company that purchases the supplier's services.
With multi-sourcing, your company will need to be much more proactive about managing your relationships with vendors so that you can avoid frequent disruptions of your supply chain.
The biggest strength of multiple sourcing is that you will not be overly reliant on a single supplier. If one of your vendors is frequently experiencing supply chain disruptions that are affecting your business, you can shift that vendor's responsibilities to another supplier. Choosing a multi-sourcing strategy means you'll be able to lower the risks of supply disruption and will make sure that you're not dependent on one vendor.
Multi-sourcing can also help to protect your company from the risk of demand variability. When you have relationships with multiple vendors and demand sharply increases, you can spread this demand among all of your vendors, ensuring you can meet customer demand without overwhelming your suppliers. Many companies use multi-sourcing to help lower their prices. By using multiple vendors, you may be able to spark a bidding war for your contract, which can result in you paying a much lower price than you would when working with a single vendor.
In most cases, a company can replace a supplier without affecting any of its other contracts. Depending on the service provided by the supplier, however, a company may need to change their arrangements with the remaining suppliers when ending a supplier relationship. When you need to end a supplier relationship and update your relationship with your other suppliers, you should alert your customers so that they can prepare for any changes in their IT support.
If you want to keep your costs as low as possible, you should make sure that you aren't duplicating tasks across your vendors and within your company. Task duplication is a common way to lose money.
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