The choice between single, multi-sourcing and managed service partners
Business process outsourcing (BPO) often provides companies with the opportunity to drive cost savings and enable their in-house team to focus on core business processes. This involves outsourcing non-core or non-strategic functions, including accounting, customer service and human resources.
However, where do companies start with finding the right solution? How do companies choose between engaging a single supplier, multiple or working with a managed service provider? In this article, we’ll explore these different models and how they work.
Single supplier
Engaging a single supplier involves outsourcing a specific business process or function to a single service provider. This can provide the company with a series of benefits, including:
Simplified management: Dealing with only one supplier makes it easier to manage the outsourcing relationship and maintain consistent communication.
Streamlined processes: A single supplier may have a better understanding of the company’s needs and requirements, leading to more efficient processes.
Specialisation: The chosen supplier can focus on becoming an expert in the specific processes, leading to potentially higher quality and performance.
Quality control: Working closely with one supplier allows for better control over service quality and consistency.
Faster decision-making: With only one supplier to consider, decision-making processes can be quicker and more efficient.
However, there could be some challenges associated with this model, including:
Dependency risks: Relying solely on one supplier can create a single point of failure. If the supplier faces issues or goes out of business, the company could face significant disruptions.
Limited competition: Without competition among multiple suppliers, there may be less incentive for the supplier to continuously improve and innovate.
Limited scalability: A single supplier may not be able to be flexible if the company requires additional support or they may not have necessary specialist expertise. By engaging multiple suppliers, this often gives a company the opportunity to have a variety of skills and services available.
Solutions always fit the supplier’s capability: It is often the case with a sole supplier that the proposed ‘market leading solution’ is often the best answer for the supplier instead of the client. This can be a limiting factor for companies when attempting to differentiate their service offering to customers.
Multiple suppliers
Engaging in multi-sourcing involves dividing the outsourcing of various business processes among multiple service providers. Instead of relying on a single supplier, the company may contract with different suppliers for different tasks or even different geographic regions. The benefits of doing so, include:
Risk mitigation: Diversifying suppliers reduces the risk of major disruptions, as issues with one supplier are less likely to impact the entire operation.
Competitive advantage: By having multiple suppliers compete for the same services, the company can obtain better pricing and service levels.
Flexibility and innovation: Different suppliers may bring unique perspectives, approaches and capabilities, leading to increased innovation and adaptability.
However, it can pose certain challenges for the organisation looking to outsource, including:
Complexity and coordination: Managing relationships with multiple suppliers can be more complex and require strong coordination efforts. This will often require a team of people to manage the delivery and quality of each supplier.
Integration challenges: Integrating the operations of multiple suppliers may require additional resources and technology investments.
Potential inconsistency: Different suppliers may have varying levels of quality and performance, leading to potential inconsistencies in service delivery.
The potential solution: a managed services partnership
A growing trend in the sector has been an increasing reliance on managed services partners (MSP). This refers to strategic collaborations between the company and an external service provider to deliver specific outsourced business processes. The MSP, also known as a prime contractor, would build an eco-system of suppliers on the company’s behalf and potentially even have oversight of these suppliers in a managed services model, while the company retains oversight and maintains control over the overall business direction and outcomes. Managed services partnerships are becoming a more common arrangement in the BPO industry and offer several benefits, including the ability to scale quickly and meet surges in demand. In a report released recently by PwC, managed services partnerships are no longer solely being viewed as a means to lower costs, but as a means to drive innovation, speed and competitive agility. They note that the highest performing companies are those who use MSPs strategically, rather than focusing on cost alone.
Here’s an overview of how managed service partnerships work and their advantages:
Scope definition: The company and the managed service partner work together to clearly define the scope of the outsourced services. This includes specifying the tasks, responsibilities, performance metrics, and service level agreements (SLAs).
Service delivery: The managed service partner assumes responsibility for executing the outsourced processes according to the agreed-upon scope and SLAs. They may leverage their expertise, resources, and technology to efficiently deliver the services.
Performance monitoring: The company closely monitors the performance of the managed service partner, ensuring that the agreed-upon SLAs are met. Regular reporting and communication are established to track progress and address any issues that may arise.
Quality assurance: The managed service partner is accountable for maintaining the quality and consistency of service delivery. The company may conduct periodic quality reviews and audits to ensure compliance.
Flexibility and scalability: Managed service partnerships often offer flexibility, allowing the company to adjust the scope or scale of services based on changing business needs.
The advantages of managed service partnerships for the buying organisation include:
Access to specialised expertise: The managed service partner brings expertise and domain knowledge in the outsourced processes, leading to improved efficiency and quality.
Cost savings: By outsourcing to a specialised partner, the company can potentially achieve cost savings due to economies of scale and reduced overhead expenses.
Focus on core business: Outsourcing non-core processes allows the company to concentrate on their core competencies and strategic initiatives.
Scalability: Managed service partnerships can easily adapt to changing business demands, allowing the company to scale up or down as needed.
Improved performance: With a focus on process optimisation, the managed service partner aims to enhance performance and efficiency, leading to better outcomes.
The advantages for suppliers when entering into a managed service partnership:
Access to opportunities: Suppliers may ordinarily be excluded from certain opportunities due to their size or capabilities. By forming part of an eco-system, this collaborative approach can help to mitigate that.
Shared expertise and knowledge: Suppliers are able to learn from others within the eco-system and gain valuable experience, meaning they are able to refine and evolve their own service offerings and proposition, making them more attractive for future opportunities. Smaller suppliers may have a certain area of specialist knowledge or technology that larger organisations may not have. This is likely to make them stand out to the buying organisation.
How to choose the best outsourcing solution
When starting the journey with outsourcing, the chosen model will very much depend on the individual company and their requirements. Some companies may decide to adopt a hybrid approach between single and multi-sourcing, whereby they may single-source certain critical or highly specialised functions, while multi-sourcing less critical or more standardised tasks to gain the advantages of competition and risk diversification. Alternatively, managed service partnerships can provide companies with the ability to leverage the expertise and resources of an external partner while retaining control and oversight over critical business processes. As noted by PwC, the use of MSPs and outsourcing solutions are shifting to be about more than just cost. By collaborating in this way, companies can achieve strategic advantage, operational excellence, and better business outcomes.
At tkg, we’re experts in connecting buyers with suppliers – whether that is supporting an organisation to source a single supplier or build out and manage an eco-system of suppliers on an organisation’s behalf. Get in touch with us today if you’re interested in finding out more.
