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Multisourcing In Practice - Does It Cost More?

As with most business-related questions that seeks a black and white answer, the correct answer is "it depends". This question depends primarily on how you measure cost, and how you quantify all of the potential beneficial aspects of multisourcing. However, in the simplest of comparisons - where we only look at the actual sourcing management overhead of a multisourced environment - a company should expect a corresponding, albeit diminishing, increase in cost as they broaden their supply base. Indeed - most sourcing organisations periodically run a "supplier consolidation" exercise to aggregate spend and to save on management overhead.

Interestingly enough, we're starting to see cases where companies are trying to offload some of the management cost of multisourcing onto select suppliers - which by some is considered the next step in multisourcing. This model generally consists of a primary supplier taking on the management of several suppliers working on similar or related technologies or processes. The initial result can be very positive - you have the benefits of a multisourced environment without the cost. The problem is that there isn't much difference between this and single-sourcing a process or function to a supplier that subcontracts certain areas of work... and I believe that in the longer term - that's exactly how those arrangements will pan out. Eventually, you will lose two of the primary benefits of multisourcing - that suppliers are in competition with each other to provide a service, and that you are empowered to choose the best supplier for each bucket of work.

Quite simply, the decision to multisource is no different from any other business decision - if sufficient value can be returned in a short enough time span, its worth while. More importantly, the decision to multisource doesn't need to be organisation or function wide. It can be implemented in one "bucket" of one function to reduce cost or improve the level of talent. Additionally, if you work with versatile suppliers that provides several process or technology services - you can actually implement a very dynamic multisourced environment without increasing your overall number of suppliers. In both cases, you can take a pragmatic approach towards developing your target environment, and the governance and management processes necessary to make it successful. You are in total control of how much multisourcing costs (and saves) your business.  

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