What is a VMS?

What is a vendor management system (VMS)?

A vendor management system (VMS) is a web-based solution designed to facilitate the procurement, management, and administration of temporary and contract labor. It is a centralized platform that automates and streamlines the entire lifecycle of contingent workforce management, from sourcing and onboarding to performance tracking and offboarding.

Why the world’s leading businesses use VMS

In today's dynamic business environment, companies increasingly rely on contingent workers — temporary staff, independent contractors (ICs), consultants, and outsourced service providers — to increase flexibility, reduce costs, and tap into specialized skills. Managing this external, non-permanent workforce poses unique challenges, which is why so many companies depend on a vendor management system (VMS).

While the first VMS platforms were designed to serve only the largest enterprises, VMS solutions are now available that can meet the needs of virtually any business. VMS platforms now range from enterprise solutions to smaller, simpler VMS solutions that organizations can deploy quickly to control and automate their contingent workforce programs.

What are five significant challenges only a VMS can solve?

1. Visibility of contingent workers
   Without a VMS, companies don’t know who these workers are, where they are, what they are doing, or what access they have to facilities, networks, or data. A VMS tracks all contingent workers and their assignments, increasing security and enabling better-informed staffing decisions.
2. Cost savings
   Without centralized control, businesses may experience unbudgeted spending and inefficient vendor engagements. A VMS can standardize labor engagement processes, compare bill rates to market standards, negotiate vendor rates, analyze overtime usage, and more, improving cost control and reducing contingent workforce spending.
3. Regulatory and policy compliance
   Misclassifying contingent workers can lead to severe legal and financial repercussions. A VMS helps to facilitate compliance by automating and documenting adherence to laws, regulations, and company policies, reducing the risk of litigation and financial penalties.
4. Performance measurement and optimization
   It is crucial to measure and analyze the performance of staffing suppliers and the talent they deliver. A VMS can track performance metrics, such as time to fill positions, bill rates, contract extensions, and project completion rates. This data-driven approach helps to optimize workforce spend and ensure the timely delivery of high-quality talent.
5. Streamlined business processes
   Managing a complex non-employee workforce using spreadsheets and other manual methods is error-prone and inefficient. A VMS automates critical processes, such as creating and distributing job requisitions, candidate evaluation, rate negotiations, onboarding, timekeeping, expense reporting, billing, and offboarding. It also integrates seamlessly with enterprise systems, ensuring accurate data exchange and providing a robust, auditable system of record.

Find out why 80% of large businesses use a VMS

What are six essential functions of a VMS?

Implementing a VMS offers several significant benefits to organizations:

1. Sourcing and procurement
   A primary function of a VMS is to streamline the process of finding and hiring contingent workers. It connects companies with staffing agencies, freelance marketplaces, and other talent sources, making it easier to post job requisitions, evaluate candidates, and make hiring decisions.
2. Onboarding and compliance
   Once candidates are selected, a VMS assists in the onboarding process, ensuring that all necessary documentation, training, and compliance requirements are met. This includes verifying certifications, conducting background checks, and ensuring contingent workers comply with company policies and procedures. Automating these processes reduces the risk of non-compliance and legal issues.
3. Time and expense tracking
   A VMS typically includes tools for tracking contingent workers' time and expenses. This ensures accurate billing and payment, reduces administrative overhead, and provides transparency into labor costs. Workers can log their hours and expenses directly into the system, which managers can review and approve.
4. Milestones and deliverables
   For outsourced service contracts, a VMS tracks project milestones and deliverables. It ensures payments are made only after deliverables are accepted and milestones are met.
5. Performance management
   Managing contingent workers' performance is crucial for ensuring productivity and achieving business objectives. A VMS enables performance tracking through regular evaluations, feedback mechanisms, and key performance indicators (KPIs). This helps companies identify high-performing individuals, address issues proactively, and make informed decisions about contract renewals or terminations.
6. Reporting and analytics
   Data-driven decision-making is a cornerstone of modern business strategy. A VMS offers robust reporting and analytics capabilities, providing insights into workforce utilization, supplier performance, cost management, etc. These insights help organizations optimize their contingent workforce strategies, negotiate better rates with vendors, and improve overall efficiency.

See more information about how to achieve cost savings with a VMS

What are the benefits of using a VMS?

Implementing a VMS to source and manage the extended workforce offers several significant benefits for organizations:

1. Enhanced visibility and control
   A VMS provides a centralized platform for managing all aspects of the contingent workforce, offering unparalleled visibility and control. This centralized approach ensures managers have real-time access to critical information, facilitating better decision-making and resource allocation.
2. Cost savings
   A VMS helps reduce the costs associated with managing contingent workers by automating administrative tasks and improving process efficiency. Additionally, the system's reporting capabilities allow companies to identify cost-saving opportunities and optimize their spending on temporary labor.
3. Improved compliance and risk management 
   Ensuring compliance with labor laws and regulations is complex, especially when dealing with a diverse contingent workforce. A VMS automates compliance checks and maintains detailed records, reducing the risk of legal issues and fines. This is particularly important for companies operating in multiple jurisdictions with varying regulatory requirements.
4. Better talent quality 
   By providing access to a broader talent pool and enabling efficient candidate evaluation, a VMS helps organizations find the best talent for their needs. Performance management tools help track and measure the quality of talent suppliers and workers. The VMS can advise hiring managers on which contractors to rehire and which staffing agencies consistently deliver the best talent at the best prices.
5. Scalability and flexibility
   As business needs change, quickly scaling the workforce up or down becomes crucial. A VMS offers the flexibility to adapt to these changes seamlessly, ensuring that organizations can quickly respond to market challenges and opportunities.

Find out more information about the benefits of a VMS

How to choose the best VMS

Selecting the best VMS platform is crucial for effective contingent workforce management. The decision often involves choosing between an integrated suite from a large software vendor or a best-of-breed solution tailored to specific organizational needs. While consolidating suppliers might seem convenient, this approach can lead to suboptimal outcomes if the chosen system doesn’t fully meet the organization’s requirements.

Critical considerations for selecting a VMS:

1. Functionality and flexibility
   A robust VMS should handle traditional contingent staffing, complex services procurement, and emerging talent sources within a single platform. The system must also provide sophisticated analytics for total talent management and workforce optimization.

2. Total cost of ownership
   Evaluate beyond the initial acquisition cost. Consider program office staffing needs, MSP service requirements, and hidden implementation, integration, and customization costs. A thorough analysis ensures a comprehensive understanding of long-term expenses.

3. Service and support
   Superior VMS providers offer extensive support beyond the basic help desk or “break-fix” services. Look for providers that offer strategic counsel, operational management, and 24/7 support to ensure smooth transitions and ongoing system optimization.

4. Integration capabilities
   The best VMS solutions can integrate seamlessly with leading ERP and HRIS systems. The decision should focus on which VMS offers the best functionality, flexibility, configurability, and support services rather than solely on integration claims by ERP or HRIS vendors.

5. Innovation and future-proofing
   Choose a provider committed to continuous innovation and capable of adapting to future needs. A forward-looking VMS will help capitalize on opportunities and protect against emerging threats in the workforce management landscape.

Discover how to buy the best VMS

What to look for in a VMS provider

When you select a VMS, you are not simply choosing a software solution. You are choosing a technology partner for your extended workforce management journey. Seven important qualities will determine the success of your partnership. Here is a summary:

1. Analytics
   Effective workforce management is data driven. A VMS should include analytic tools that empower you with insight to inform strategic decisions. Ask VMS providers to show you how their workforce analytics help organizations extract actionable insights from their data to achieve efficient program management.

2. Data security and privacy
   Ensuring data security and privacy is paramount. A VMS provider should adhere to rigorous international standards and invest heavily in systems and processes that protect client data. Their commitment should include compliance with global data privacy regulations and robust internal security practices.

3. Talent focus
   The focus should be on engaging and managing talent rather than merely controlling costs. The best approach to VMS technology is the one that delivers qualified external talent across all labor categories while ensuring compliance with various legal and regulatory requirements worldwide.

4. Global expertise
   Combining global solutions with local expertise is essential for successful program expansion. An efficient VMS should offer a single platform for managing non-employees globally, with features that accommodate local requirements and regulations. A VMS provider with an extensive global footprint and a deep understanding of regional differences can ensure smooth program implementation across multiple countries.

5. Quality of service
   Exceptional service is crucial for sustained success. Look for a VMS provider whose high-touch, consultative approach includes comprehensive support services, from implementation to ongoing program optimization. Your provider should facilitate peer-to-peer collaboration and continuous improvement through various client engagement channels.

6. Scalability
   A scalable solution is vital to accommodate changing workforce needs. A truly scalable extended workforce platform is designed to manage all non-employee requirements globally, with continuous investment in product development to stay ahead of market trends and client needs.

7. Innovation
   Embracing innovation is vital for future success. A VMS provider should collaborate with clients to drive product development, incorporating cutting-edge technologies like artificial intelligence to enhance efficiency and outcomes. Only a provider that is committed to innovation can ensure that clients benefit from the latest advancements in workforce management technology.

You need to evaluate all these qualities to select the right technology partner. Only then can you ensure that your VMS solution will align with your organization's current and future needs. 

What else to look out for when selecting a VMS provider

Get expert advice

Industry experts recommend a detailed evaluation of VMS providers, considering their track record, contingent workforce expertise, and commitment to innovation. This involves probing beyond standard product capabilities to ensure the provider can deliver on their promises and support your long-term strategic goals. 

Several reputable analyst organizations regularly compare VMS solutions and providers. One of the most respected is Everest Group, which annually publishes its Vendor Management System PEAK Matrix® Assessment.

Read Everest Group’s 114-page Vendor Management System PEAK Matrix® Assessment 2024

What industries use VMS?

Businesses in virtually every industry use vendor management systems to manage their contingent workforce. According to Staffing Industry Analysts (SIA), approximately 80% of companies with 1,000 or more employees use a VMS. Leading companies in all the following industries depend on VMS solutions to source and manage external talent:

• Banking and financial services
• Energy and utilities
• High technology and communications
• Pharmaceuticals and life sciences
• Government and public sector
• Manufacturing
• Retail
• Healthcare

One organization that uses a Beeline VMS for healthcare staffing cites the system for benefits, including a 97.5% reduction in manual errors, an 80-85% reduction in onboarding time, and reduced licensing fees.

Read the healthcare VMS success story

Is it time to replace your existing VMS?

As businesses compete to find and engage external talent, some organizations that installed a VMS years ago may wonder whether their older system can meet today’s demands. They know that if they are not moving forward technologically, they are falling behind.

We have a checklist of questions to evaluate your VMS provider to ensure that your contingent workforce program can compete successfully in a changing environment.

The indispensable tool for contingent workforce management

Over the last twenty years, a VMS has become indispensable for organizations that rely on contingent workers. A VMS enhances visibility, control, and efficiency by automating and streamlining the procurement, management, and administration of external talent. It helps companies achieve cost savings, improve compliance, and ensure the quality of hires, ultimately enabling them to build a more agile and responsive workforce. As the nature of work continues to evolve, robust VMS solutions will become ever more essential components of modern workforce management strategies.

To schedule a VMS demonstration, contact Beeline today.