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Considering multi-sourcing? Ask the right questions.

by: Ronald Escanlar

Monday, August 1, 2011 |

Multi-sourcing Due Dilligence

A company may rely on an outsourcing strategy that combines the infrastructure and talents of multiple service providers across different countries. This strategy helps them avoid the disadvantages of relying on one outsourcing service provider.

However, a multi-provider sourcing strategy needs efficient coordination among business units, such as the finance, legal, and operations departments. According to outsourcing consultancy firm TPI, the success of such a strategy relies on an apt structure, best practices on multiple-provider service delivery, flawless invoicing and allocation systems, and high levels of service.

TPI advises companies to consider the following questions:

How is a suitable commercial structure created? Among the key factors in considering the right commercial structure are cross-border taxes and cross-subsidization. Either a central agreement covering all countries or a Master Services Agreement (MSA) with country-specific agreements may be used in service deals, but keep in mind that any deal must include clauses covering service delivery, legal and financial that favor your company.

Can the service provider deliver across multiple countries? Choose service providers that can deliver services in flexible agreements, with billing in local currencies. Ensure, too, that providers have the managerial and legal skills to craft agreements in multiple countries.

How best do we manage multi-providers? The best managerial approach in handling multi-providers is based on your company’s organizational culture, its internal capabilities, and the skill of its staff. There is no one “formula” that serves all. Even if providers are to be managed either through an outsourced service integrator (SI) or through a third party Governance-as-a-Service, ensure that your company strategy is included.

What is the best way to invoice across multiple countries? Issuing invoices across borders depends on your company structure. Several ways to issue invoices include a centralized system; by country to a single legal entity; by country to multiple legal entities; or a combination. Compare the cost of local invoicing and allocations against the impact of cross-border taxes and cross subsidization. It may be more advantageous to centrally issue invoices depending on the amount to be invoiced and the services delivered in-country.

How do we keep high levels of service? The best way to ensure high levels of service across multiple providers is to define service levels end-to-end across multiple providers. Domestic service levels is best managed locally, while service levels across borders can be globally managed, taking into account in-country service defaults and service credits. This combination may be the most flexible strategy in ensuring high levels of service across multiple service providers.

Managing multiple service providers does not need magic, but rather a disciplined approach in coordinating multiple providers across multiple countries and varying contexts. The key lies in having an efficient interaction among business units to ensure a smooth operation.

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