The concept of teaming or building multi-vendor relationships is gaining strength in the outsourcing industry. The underlying reason for this move is evident. Some suppliers are expert in specific areas. It makes sense to utilize those suppliers that have strong expertise, discipline and customer relationships as part of a company’s outsourcing strategy. Buying the ‘best from the best’ is very appealing. When that can be accomplished at a fair price, a customer can achieve a ‘best in class’ world, gaining technology and service advantages that drive the company toward its business objectives.
As a customer, you can follow one of two paths into a multi-vendor relationship. You can deliberately design an alliance structure, where you take the best of class vendors from different disciplines and fold them together into one team to handle multiple business functions. The J.P. Morgan Pinnacle Alliance and the Ryder Truck alliance are examples of two such deliberately planned relationships. Many companies, however, ease into the teaming approach by simply contracting with different vendors to move one commodity at a time into outsourcing. There are advantages to each approach.
An alliance offers the opportunity to build cross-supplier incentives and penalties, a situation that’s more difficult to achieve when you take the piecemeal approach. On the other hand, by evolving into a multi-vendor relationship, you have more leisure to pull the team together. You also take less risk because you don’t have many elements moving into outsourcing at the same time. By outsourcing one piece at a time, you can see which suppliers work well for you. If you have problems with one supplier, you can bring in another.
The key to making the piecemeal approach work well is having a plan. If you know that your ultimate goal is to outsource multiple elements, you can build into the individual vendors’ master contracts the same management vehicles that are available in an alliance. If you move forward without a plan, however, you run the risk of creating a situation in which the vendors fight constantly.
That in-fighting is one of the downsides of a multi-vendor relationship. The tendency to blame one another for problems can exist whether you start with an alliance or put the team together piecemeal. You can minimize those problems by having in place a strategy to deal with disputes. Essentially, that strategy comes down to this: Have clear boundaries of responsibilities. Have a precise matrix of measurements, so you know whether or not each vendor is doing their piece. Have a management team capable of keeping the different parties in line — and keep in mind that the management team for a multi-vendor relationship may need to be larger than that required for a single vendor relationship.
One of the subtle differences that exist between the two approaches affects pricing. In an alliance, there may be a tendency for new services to be overstated in price, because each company needs to achieve a certain profit margin. A single vendor can take some of that profit in one place and less from another. In an alliance, there’s no ability to share the pain evenly, so conflicts may occur over which vendor’s cost structure will be affected.
Historically, most problems in alliances have been in the additional services component, and such mixed motivations have been at the root of those problems. That situation occurs less frequently in plain multi-vendor relationships because the customer has more control and can negotiate directly with each vendor.
The key to multi-vendor relationships, as with any business relationship, is management. At Everest, we have a management framework that helps customers deal with the complexities of achieving the most from relationships, whether they are multi-vendor or single vendor. The underlying message is this: multiple suppliers are manageable. Focus your attention on achieving business goals. Create a matrix of clearly defined services and responsibilities, so that as the supply chain passes from one supplier to another, their accountability is clear and the consequences are clear. With those basics in place, everyone can focus on generating the business objectives, rather than just maximizing their position in the supply chain.