Vendor Management System

A Vendor Management System (VMS) is an Internet-enabled, often Web-based application that acts as a mechanism for business to manage and procure staffing services – temporary, and, in some cases, permanent placement services – as well as outside contract or contingent labor. Typical features of a VMS application include order distribution, consolidated billing and significant enhancements in reporting capability that outperforms manual systems and processes. [Staffing Industry Analysts, Inc: "VMS Marketplace Profile", page 1. Staffing Industry Analysts Insight, 2007]

Alphabet Soup

The contingent workforce is a provisional group of workers who work for an organization on a non-permanent basis, also known as freelancers, independent professionals, temporary contract workers, independent contractors or consultants. VMS is a type of contingent workforce management. There are several other terms associated with VMS which are all relevant to the contingent workforce, or staffing industry.
A vendor is literally a person or organization that vends or sells contingent labor. Specifically a vendor can be an independent consultant, a consulting company, or staffing company (who can also be called a supplier – because they supply the labor or expertise rather than selling it directly) [Staffing Industry Analysts, Inc: "VMS Marketplace Profile", page 1. Staffing Industry Analysts Insight, 2007] .
A VOP, or Vendor On Premise, is a vendor that sets up shop on the client's premises. They are concerned with filling the labor needs and requirements of the client. [Staffing Industry Analysts, Inc: "VMS Marketplace Profile", page 1. Staffing Industry Analysts Insight, 2007] The VOP does this either by sourcing labor directly from themselves, or from other suppliers, whom may be their competitors. Also, the VOP manages and coordinates this labor for the client.
A MSP, or Managed Service Provider, manages vendors and measure their effectiveness in recruiting according to the client's standards and requirements. MSPs generally do not recruit directly, but try to find the best suppliers of vendors according to the client's requirements. This, in essence, makes the MSP more neutral than a VOP in finding talent because they themselves do not provide the labor. [Staffing Industry Analysts, Inc: "VMS Marketplace Profile", page 1. Staffing Industry Analysts Insight, 2007]
VMS is a tool, specifically a software program, that distributes job requirements to staffing companies, recruiters, consulting companies, and other vendors (i.e. Independent consultants). [Staffing Industry Analysts, Inc: "VMS Marketplace Profile", page 1. Staffing Industry Analysts Insight, 2007] It facilitates the interview and hire process, as well as labor time collection approval and payment.

History and Evolution of VMS

VMS (Vendor Management Services) is a fairly recent advancement in managing contingent labor spend. VMS is an evolution of the Master Service Provider (MSP) / Vendor-On-Premise (VOP) concept, which became more prevalent in the late-1980’s to the mid-1990’s when larger enterprises began looking for ways to reduce outsourcing costs. An MSP or VOP was essentially a master vendor who is responsible for on-site management of their customer’s temporary help / contract worker needs. In keeping with the BPO (Business Process Outsourcing) concept, the master vendor enters into subcontractor agreements with approved staffing agencies.

It is noteworthy to mention that VMS really started to evolve around the time Michael Hammer and James Champy's Reengineering the Corporation became a bestseller. Large enterprises were looking for ways to compete in the global economy. The main advantage for U.S. businesses during this time period was that their purchasing departments were able to channel new contract personnel requisitions to one source – the VOP – and, in turn, reduce procurement costs by simplifying their payment process. In effect, they only had to write a check to one vendor vis-à-vis hundreds of suppliers.

With the Internet came new ways of doing business, which included electronic payment. According to [http://www.staffingindustry.com/ Staffing Industry Analysts, Inc.] – the premier research and analysis firm covering the contingent workforce – the emergence of eBusiness, B2B, E-Procurement et al was the catalyst that began the VMS industry.

As businesses began to integrate this e-business concept, online auctions such as Covisint began to appear. The value proposition was, they claimed, was they could reduce spend for purchasing office suppliers, industrial suppliers and other commodities by putting these purchase requests out for bid via an online auction.

However, the staffing industry in and of itself is an amorphous thing. Often called the shadow industry, even in the mid-1990’s because many large corporations were still not able to accurately report how many temporary or contract workers they had nor how much they cost. In fact, a study by a VMS provider, Taleo, contends that even today 21 percent of US companies cannot estimate their current annual spending for contingent labor. When you consider that, according to [http://www.taleo.com/news/contingent-workforce-management-a-clear-and-present-opportunity.php Taleo Research] estimates, Global 1000 companies are spending an average about seven percent of overall company revenue on contingent labor… this could translate to hundreds of millions of dollars that are not being optimally managed.

The Pioneers

In 1993, one such company recognized the contingent labor spend management niche as an immense opportunity – Geometric Results Inc. (GRI). At its origin, GRI was a wholly owned Ford Motor Company subsidiary and it was GRI who developed one of the first significant VMS applications in the industry, PeopleNet. Originally starting out as a manual process, some system automation was introduced in 1995. A year later, PeopleNet became an automated VMS system. Overall, GRI managed nearly $200 million in spend at Ford. In 1997, MSX International purchased GRI and continued its growth in the marketplace offering a vendor neutral solution to its clients within the automotive industry.

MSXI later launched a new proprietary Internet software - b2bBuyer, and the program continued to grow with the expansion of MSXI's European operations. Their success is achieved through best in class processes and technology supported by a vendor neutral model. [http://www.msxi.com] . MSXI also created a 51/49 minority-owned subsidiary and repackaged its web-based application as “TechCentral” to service former GM parts supplier, Delphi Corporation. Today, The Bartech Group -- a minority-owned staffing supplier and new MSP -- assumed the Delphi VMS in 2006 and currently runs the program using the Fieldglass, Inc. VMS software InSite.

During the same time ProcureStaff also launched a vendor neutral VMS solution for human capital management in 1996. [http://www.procurestaff.com/ ProcureStaff] , Ltd., spun off as a subsidiary of its parent company, Volt Information Sciences to address the glaring need for vendor neutrality in the procurement of this commodity. ProcureStaff implemented a vendor-neutral model for its first client, a global telecommunications company, because it promoted competition by opening requisitions up to a larger number of pre-qualified staffing suppliers without bias or favoritism. The benefits realized to the customer included reduced cycle times and lower overall contingent labor spend.

It was not long after this time that other companies, eager to capitalize on the expanding marketplace, entered the fray, such as – [http://www.chimesnet.com/ Chimes, Inc] . Although Chimes was a wholly owned subsidiary of Computer Horizons Corp., the key differentiator between it and other VMS providers that were emerging was that it positioned itself as a “vendor-neutral” provider of Business Process Outsourcing (BPO) services instead of just a technology company that licensed its VMS software. Chimes value proposition was it would create and staff a Program Office (PO) that integrated with the customer’s business Purchasing, HR, and Accounting processes. That is, Chimes realized that simply licensing its software to its customers was a strategy that could not guarantee a successful implementation and realization of the benefits of the VMS concept. Fiscal improprieties led to the unexpected implosion of Chimes (ECG) and its parent company Axium in early 2008.

The Aberdeen Group, an independent research organization that has established the market leading position as the “voice that matters” when it comes to measuring results delivered by technology, found that less than 17% of companies who have implemented a program to manage their contingent labor workforce have seen an improvement in spend and source-to-cycle performance metrics. This supports Chimes contention that the best implementations are those that include an emphasis on improving business processes versus just selling a tool to a customer. Therefore, Chimes competitive advantage is that it provides an implementation team to set up a program office staffed by a Chimes service team where customers leverage its best practices as well as lessons learned. For more information, read about Chimes award from the Aberdeen Group: [http://www.mirror99.com/20060304/chimes_inc_announces_customer_washington_mutual_named_best_practice_winner_by_chab.jspx Best Practices in Category Spend Management: Contract Labor]

In February 2007, Axium International purchased Chimes, Inc. from its parent company (CHC) and merged it with Ensemble Workforce Solutions. The companies together form [http://www.teamECG.com/ ECG (Ensemble Chimes Global)] , the largest VMS provider in the world. However, in January 2008, Axium International Inc., the parent of the Ensemble Chimes Global, filed for Chapter 7 bankruptcy in Los Angeles and both Axium International and Ensemble Chimes Global ceased operations.

Benefits to U.S. Businesses

By 2002, there were over 50 VMS solution providers. The software was now web-based, so stakeholders – customer hiring managers, VMS program office staff, and suppliers – could access the system from the internet. Typical benefits included:

* Streamlined requisition approval workflow
* Reduced time-to-fill cycle times
* Bill rate standardization / management
* Optimization of supplier base
* Consolidated invoicing
* Improved security and asset management
* Availability of vendor performance metrics
* Visibility and cost control over maverick spend
* 10-20% reduction in contingent labor spend

VMS Trends

Aberdeen research reveals that 72% of US companies indicate they have a singular program for the management of contract labor and professional services sourcing and procurement. This is amazing proliferation since VMS software has only been around for about ten years. This proves, like everything else in a broadband world, the Industry (Maturity) Life Cycle for the VMS market is on an accelerated curve.

Although the industry is still in the latter phase of the Growth stage, vendors should be aware of the symptoms that indicate the arrival of the Industry Decline, such as when: A) competitive pressures force MSP/VMS margins to weaken, B) there is a rash of competitor consolidation via merger, acquisition or abandonment, C) sales expansion within the existing customer base is dramatically reduced, and D) sales volume to new customers in the US decline.

Once customers have realized the initial benefits of gaining control and managing their contingent labor workforce, there will be efforts at continuous improvement, to include cost reductions as well as analysis of what other indirect spend categories can be expanded.ref Opportunities for VMS providers include project-based spend, independent contractors, professional services among others.

See also

* Contingent Workforce
* PEO
* Human Resources
* Human Resource Management
* Contingent labor

References