Multisourcing – Future Supply Chain
August 20, 2009
Imagine a $1 billion international jewellery retailer, who cuts and polishes his diamonds in China, gets them designed in Italy and hawks them on the high streets of US, while he overseas this whole operation from his Prasad Chambers Opera House office in Mumbai, India!
Mehul Choksi, the CMD of Gitanjali Gems Ltd., a third generation entrepreneur, recently confessed to a gathering of journalists that he is very impressed with the workmanship of the Chinese polishers. He plans to expand his manufacturing base in mainland China (The company has already acquired two diamond-cutting factories in Qingdao and Panyu, last year) while continuing to build on his retail infrastructure in the US.
What are we witnessing here?
The rise of true-blue multinational, for whom every factor of production, including labour is infinitely flexible and scalable. An utopian idea? Nah. Take the example of Naren Shah for instance, whose Bangalore-based outfit Molex India supplies charger cable assemblies to Nokia Finland. Contrary to the popular myth that China is the cheapest destination for this kind of a resource, his rates are far more competitive, which is why Nokia, Finland outsources its mobile components to his outfit in India!
Sunil B. Mittal, chief executive officer of Bharti Tele-Ventures Ltd., India’s leading telecom service provider, is another worthy example. During a search for the most innovative company organized by Business Week this year, he described his radical business model in the following words, “We outsource everything but marketing and customer management, charge 2 cents a minute for calls, and continue to add a million customers a month.”
This kind of a multi-sourcing arrangement is a common phenomenon in the apparel sector, where many well-established brands, source not just the components but the finished products from lesser-known designers and sell them with a mark-up, under their own brand!
In IT industry’s context, according to Gartner, “multi sourcing is a new way of making sourcing decisions through the disciplined provisioning and blending of business and IT services from the optimal set of internal and external providers in the pursuit of business goals.”
Industry watchers contend that multisourcing is an idea whose time has come. The continuing pressure on margin is compelling companies to look beyond single sourcing, to more complex business models in order to cut corners. One outcome of this search could be nearshore or sameshore, predicts the Black Book of Outsourcing, while another could be multi-sourcing.
In their book Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility, Linda Cohen and Allie Young explain that a good chunk of single-sourced contracts fail to deliver on expectations, propelling clients to look at alternative models. Although this statistic may have vastly improved in recent years, fact remains, that multi-sourcing is infinite times less risky than putting all your eggs in one basket.
A recent PA Consulting survey for instance predicts that multi-sourcing will open a new route to cost-efficiency and diversified risk. The only problem, that a member of their own team points out is, “If organisations fail to manage single sourcing efficiently, would they be able effectively manage a more complex model?”
That indeed remains doubtful.
One thing however is certain. “Contract terms and processes for outsourcing are evolving rapidly, with many leading companies now combining multi-sourcing, global sourcing and innovative service structures to create flexible supplier portfolios,” observes Mayer Brown on Linux Legal.