Single-Vendor vs. Multi-Vendor Outsourcing: Pros and Cons of Each Approach

If your company transfers software development or several other IT tasks to outsourcing, you will most likely face the problem of choosing a method of cooperation with outsourced developers.

For businesses that need to outsource technical tasks, there are typically two choices:

1. Find one vendor and transfer project implementation tasks to that company, from start to finish.
2. Find several vendors with niche expertise in one or more project areas (design, development, etc.), and work with each vendor separately.

You should think through this decision carefully; it will affect workflow management and can have far-reaching consequences. There is no single answer that works best in all situations. Your particular business and project factors will inevitably influence your decision.

This article will cover the pros and cons of single-vendor vs. multi-vendor outsourcing to help you better understand the features of these models, think through the ramifications of different decisions, and avoid costly mistakes.

Advantages and disadvantages of cooperating with one vendor

A single-vendor outsourcing strategy may seem like the simplest way to reach your goals. After all, it is convenient to simply delegate all of the processes to a single third party. This approach has several obvious advantages:

• Difficulty reduction. Working with just one vendor ensures a higher level of compatibility between project components. With a multi-vendor approach, there is always a risk that separate components or solutions may prove to be incompatible with each other.
• Workflow optimization. You can build communication processes with the vendor just once and expect everything to flow more smoothly after that is established. You do not have to hire a specialist to manage the project. And it will take less time and effort to coordinate, obtain task approvals, and communicate about  issues as they arise, than it would with multiple vendors.
• Faster entry into the market. One team can be faster than several teams for a variety of reasons. Many teams means more time needed for communication and coordination. Often one team is on hold while waiting for another team to complete the tasks necessary for them to start. Such factors can affect the speed of the release.
• Cost reduction. Taking all of the points listed above into account, it is obvious that single-vendor outsourcing is often a more cost-effective solution. Furthermore, it is easier to negotiate with just one vendor, and agree on terms, including possible discount schemes.

However, things are rarely simple, even with the most straightforward approach. Working with one vendor has some potential disadvantages:

• Difficulties in finding just the right contractor. It can be quite a challenge to find an agency with just the right expertise in your niche, and at the same time, able to satisfy all your needs. The more complex the project is, the higher the probability that you will need multiple vendors in order to execute all of the project goals.
• Dependence risk. If the company ties itself to one vendor, any problems on the contractor side can easily turn into problems for you, the customer. The vendor’s lack of human resources or expertise can become a more serious obstacle than if you were working with several contractors. In that case, one vendor might be able to take over some additional project components if another vendor is unexpectedly unable to fulfill their obligations.

However, the aforementioned risks can be mitigated if you find a reliable partner. You can read more tips on this topic in our article “9 Tips for Choosing the Right Software Development Company”.

Multi-vendor outsourcing: pros and cons

In some cases, outsourcing different types of tasks to various vendors will be a more reasonable solution. In this case, the customer will get the following advantages:

• Dependence risk reduction. You do not need to depend on one team for everything, and if something goes wrong, it is easier to replace a single contractor in one functional area than to do so when a single company carries out all development.
• Higher level of expertise. Some companies specialize in design, development, or marketing. Such companies can provide higher levels of expertise in these niches.
• Multithreaded work on the project. If your budget allows, you can organize work on the project in several areas at the same time. Doing so may allow you to accelerate the product creation processes.

Multi-vendor outsourcing has the following potential disadvantages:

• Administration resources. Coordinating with several contractors simultaneously may require a considerable amount of extra time and a resources, in order to guide and oversee the communication processes. You may experience issues with task approval and process control.
• Higher cost. You will have to negotiate the prices of services with each contractor separately. Their rates can vary greatly and it will be difficult to agree on potential discounts.
• Integration difficulties. When multiple teams develop different components of a product, it is more likely that there will be issues integrating them together.  Such issues can result in additional time and money.

Besides the points listed above, you should also bear in mind the fact that coordination with several vendors sometimes implies difficulties with quality control.

Let us summarize

You should choose between multi-vendor or single-vendor cooperation strategies based on the particular project at hand, its peculiarities, and your capabilities as a customer. To make the right decision, you should weigh the listed pros and cons. Each factor will sway your decision in one direction or the other.

For low or medium complexity projects, it would be more reasonable to work with one company, but for complex projects or projects requiring a high level of expertise in different areas, it is worth considering cooperation with several service providers.

We hope this article is helpful to you. If you are looking for a reliable technology partner to help you implement your project, contact us.  We look forward to developing a high-quality product for you.